NCLAT Remands Case After NCLT Failed To Record Finding On Homebuyers' Threshold in Insolvency Plea

The National Company Law Appellate Tribunal (NCLAT) at New Delhi has set aside an order of the NCLT Mumbai Bench admitting insolvency proceedings against a real estate developer, holding that the NCLT failed to record a clear finding on the statutory threshold required for homebuyers under the Insolvency and Bankruptcy Code. The matter has been remanded for a fresh determination limited to this issue.

A bench comprising Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra held that when an application under Section 7 is filed by real estate allottees, the adjudicating authority must record a specific and positive finding on compliance with the second proviso to Section 7(1).

“The Adjudicating Authority had to record a positive finding that number of allottees who have filed the application does meet the threshold as required by 2nd proviso of Section 7(1).” the tribunal said.

Under the second proviso to Section 7(1) of the IBC, an insolvency application by homebuyers can be maintained only if it is filed jointly by at least 100 allottees or 10 per cent of the total allottees in the same real estate project, whichever is less.

The case concerned six allottees of the Sai Hermitage project developed by Harihar Infra Venture (India) Pvt. Ltd. The allottees had entered into registered agreements between 2016 and 2017 and paid the entire consideration. Possession was not handed over within the stipulated period.

At the developer's instance, the parties entered into leave and licence arrangements providing for payment of licence fees. When those payments stopped, the allottees first approached the NCLT in 2019.

That proceeding ended in consent terms, which were later breached. A fresh Section 7 application was filed in 2021, after the statutory threshold for homebuyers had come into force.

Before the Appellate Tribunal, the developer contended that the allottees were speculative investors and that the insolvency application did not meet the numerical threshold prescribed under the amended Section 7.

The allottees disputed this. They said they were genuine homebuyers who had paid the full consideration. They also said the leave and licence arrangement was entered into only because possession could not be delivered.

The tribunal rejected the plea that the allottees were speculative investors. It noted that the entire consideration had been paid and that the leave and licence arrangement was entered into due to the developer's inability to hand over possession. It also noted that the consent terms described the allottees as financial creditors.

On the effect of settlement, it held that a settlement does not efface the original financial debt and that breach of consent terms revives the right to initiate insolvency.

On the statutory threshold, however, the tribunal found merit in the developer's objection. It held that the NCLT had not recorded any clear finding on the total number of allottees in the project or on whether the requirement of 100 allottees or 10% of the allottees was met.

The tribunal noted that additional material, including regulatory data, had been placed before it for the first time. “Ends of justice be served in remanding the matter to the Adjudicating Authority for fresh consideration,” it said.

The impugned admission order was set aside. The matter was remanded to the NCLT Mumbai Bench solely to decide whether the Section 7 application meets the threshold under the second proviso to Section 7(1). No other issue is to be reopened.