NCLAT Upholds M.D. Devcon CIRP, Says Refund-Seeking Former Homebuyers Need Not Meet 100-Homebuyer Threshold

The National Company Law Appellate Tribunal (NCLAT) has recently dismissed a challenge by a project homebuyer to the insolvency proceedings against M.D. Devcon Pvt Ltd.

It held that the two allottees who initiated the case had ceased to be homebuyers after cancelling their allotment and seeking a refund and were therefore not required to meet the threshold applicable to real estate allottees filing insolvency pleas.

A bench of Judicial Member Justice Yogesh Khanna and Technical Member Ajai Das Mehrotra observed: “We note that the Petitioners were no longer homebuyers, as they had invoked clause 9 of the allotment letter and exercised the option of cancellation of allotment and to seek refund along with interest and thus, they can no longer be treated as homebuyers. It was a debt of Rs. 19,00,000/- plus interest which was due from the Corporate Debtor. In the circumstances, there was no necessity to comply with the provisions of third proviso of Section 7 of the IBC, 2016.

The appeal was filed by Chandar Narayan Chavan against an NCLT Mumbai order rejecting his intervention petition in the corporate insolvency resolution process (CIRP) against M.D. Devcon.

The CIRP had been initiated on a Section 7 petition filed by Indranil Das and Nandita Das, who had been allotted a flat in the company's “Savannah” project. The company failed to start the project, following which the couple terminated their allotment in December 2016 under clause 9 of the allotment terms and sought a refund of ₹19 lakh along with 15% annual interest.

The NCLT admitted the insolvency plea on May 27, 2021, after finding default in repayment of financial debt, and appointed Kedar Parshuram Mulye as Interim Resolution Professional.

Chavan contended that there were 725 homebuyers in the project and challenged the admission of the insolvency petition. He argued that under the amended Section 7 of the Insolvency and Bankruptcy Code, insolvency proceedings by real estate allottees could only be initiated jointly by at least 100 allottees or 10% of the total allottees in the project, whichever is less.

Since only two allottees (homebuyers) had filed the petition, he contended that the admission order was without jurisdiction. He also alleged collusion between the petitioners and the corporate debtor.

The appellate tribunal noted that the intervention petition was filed in June 2023, more than two years after the admission order, and found the delay unexplained.

It reiterated that recall of tribunal orders is permitted only in limited situations such as lack of jurisdiction, fraud, collusion, fundamental procedural error involving necessary parties, or gross failure of justice. It found that none of these grounds had been established.

The tribunal also upheld the view that in a Section 7 insolvency petition, the financial creditor and the corporate debtor are the only necessary parties, and third-party intervention is not contemplated.

Rejecting Chavan's central argument, the NCLAT held that the Das couple had ceased to be homebuyers once they cancelled their allotment and sought a refund.

Their claim was therefore a financial debt of ₹19 lakh plus interest, exceeding the threshold under Section 4 of the IBC applicable at the time, making compliance with the requirement applicable to real estate allottees unnecessary.

Accordingly, the NCLAT dismissed the appeal and upheld the NCLT's rejection of the intervention petition.