NCLT ND-VI (2024.03.11) in Rudra Buildwell Projects Pvt. Ltd Vs. Neeraj Kumar Dubey & Ors. [IA– 5045 /2023, IN CP(IB)- 888/(PB)/2022] held that;
Hon’ble Supreme Court in the matter of Pioneer Urban land and Infrastructure Limited and Anr. Vs. Union of India and Ors, (2019) 8 SCC 416 wherein it was held that remedies under IBC, Consumer Protection Act and RERA are concurrent remedies, and can be availed simultaneously.
As a matter of fact, the Code and RERA operate in completely different spheres. The Code deals with a proceeding in rem in which the focus is the rehabilitation of the Corporate Debtor. On the other hand, RERA protects the interests of the individual investor in real estate projects by requiring the promoter to strictly adhere to its provisions.
Hon’ble Supreme Court while adjudicating the distinction between class of financial creditor in real estate project for the purpose of drawing up a resolution plan has held that an allottee who has approached RERA and obtained a court order or decree by RERA would be considered as a homebuyer within a class.
Hon’ble NCLAT in the matter of Sushil Ansal v Ashok Tripathi & Ors., 2020 SCC OnLine NCLAT 680. The judgment categorically held that after the issuance of a Recovery Certificate by UP RERA, an application under Section 7 of the ‘I&B Code’ by the Decree holder is not maintainable as allottees.
Excerpts of the order;
# 1. This application has been filed under Section 60(5) read with section 65(1) of the Insolvency and Bankruptcy Code, 2016 read with Rule 11 of the National Company Law Tribunal Rules, 2016 seeking dismissal of the captioned Petition CP (IB) 888/PB/2022.
# 6. The key issues in the present matter which are to be adjudicated are as under: -
I. Whether the allottees are barred to file application under section 7 of IBC, if they have already approached the concerned authority to avail alternate remedies under Real Estate (Regulation & Development) Act, 2016 (RERA), Consumer Protection Act, 2019?
II. Whether this petition should be dismissed on account of failure of the Financial Creditor to disclose that 4 out of the 100 allottees who had filed this petition had withdrawn from the project and that RCs had already been issued by UP Real Estate Regulatory Authority (UPRERA) in respect of them.
III. Whether the Allottees in respect of whom Recovery Certificates (RC) have been issued by RERA have already withdrawn from the project and whether they shall be treated differently from other allottees for whom no RC has been issued by RERA at the pre admission of section 7 petition when no moratorium was in force?
ISSUE NO 1 & 2
# 7. In respect of the first and second issues, the Corporate Debtor has alleged that some homebuyers have concealed from this Adjudicating Authority that they have approached the UPRERA or National Consumer Dispute Redressal Commission (NCDRC) for a refund of the entire principal amount. It is observed that in a section 7 petition it is not required to disclose whether the party has approached some other forum for alternative remedy because the proceedings under the IB Code are independent in nature. Further the parties have liberty to approach any forum and relief(s) before different forums can be availed simultaneously. Reliance can be placed upon the judgement of Hon’ble Supreme Court in the matter of Pioneer Urban land and Infrastructure Limited and Anr. Vs. Union of India and Ors, (2019) 8 SCC 416 wherein it was held that remedies under IBC, Consumer Protection Act and RERA are concurrent remedies, and can be availed simultaneously.
# 8. The CD has relied on the doctrine of election. The doctrine of election was discussed in the judgement of Hon’ble Supreme Court in the matter of A.P. State Financial Corporation v. M/s GAR Re-rolling Corporation, in the following words: -
15 The Doctrine of Election clearly suggests that when two remedies are available for the same relief, the party to whom the said remedies are available has the option to elect either of them but that doctrine would not apply to cases where the ambit and scope of the two remedies is essentially different. To hold otherwise may lead to injustice and inconsistent results.”
Since, IBC proceedings are independent proceedings and in Pioneer Urban land and Infrastructure Limited and Anr. Vs. Union of India and Ors, (2019) 8 SCC 416 it was clearly held that the Code and RERA operate in completely different spheres. The Code deals with a proceeding in rem in which the focus is the rehabilitation of the Corporate Debtor. On the other hand, RERA protects the interests of the individual investor in real estate projects by requiring the promoter to strictly adhere to its provisions. Relevant paras are reproduced below: -
29. “As a matter of fact, the Code and RERA operate in completely different spheres. The Code deals with a proceeding in rem in which the focus is the rehabilitation of the Corporate Debtor. On the other hand, RERA protects the interests of the individual investor in real estate projects by requiring the promoter to strictly adhere to its provisions. The object of RERA is to see that real estate projects come to fruition within the stated period and to see that allottees of such projects are not left in the lurch and are finally able to realise their dream of a home, or be paid compensation if such dream is shattered, or at least get back monies that they had advanced towards the project with interest. If, however, the allottee wants that the Corporate Debtor’s management itself be removed and replaced, so that the Corporate Debtor can be rehabilitated, he may prefer a Section 7 application under the Code. That another parallel remedy is available is recognized by RERA itself in the proviso to Section 71(1), by which an allottee may continue with an application already filed before the Consumer Protection fora, he being given the choice to withdraw such complaint and file an application before the Adjudicating Officer under RERA read with Section 88.”
It is therefore clear that the petitioner could have approached this Adjudicating Authority for seeking a different remedy even after approaching RERA provided, he was not otherwise ineligible to do so.
# 9. So far as the issue regarding non-disclosure by the petitioners in their section 7 petition that RCs had been issued in respect of 4 out of 100 allottees by UPRERA before filing of Section 7 petition is concerned, we are of the view that the FC should have disclosed this fact in their petition, however, now that the CD has brought out the fact that RCs have been issued by UPRERA in respect of the 4 allottees and the petitioners have admitted to the same, the fact of nondisclosure need not be dwelt upon and we may procced to adjudicate the main issue involved.
ISSUE NO 3
# 10. Coming to the third issue, the Corporate Debtor (CD) has alleged that out of the 100 allottees, four of them have withdrawn from the project and Recovery Certificate (RC) have been issued by UPRERA, hence these allottees can no longer claim to be eligible to file section 7 petition along with other allottees in respect of whom no RCs have been issued by UPRERA. The CD had relied upon a judgment of the Hon’ble NCLAT in the matter of Sushil Ansal v Ashok Tripathi & Ors., 2020 SCC OnLine NCLAT 680. The judgment categorically held that after the issuance of a Recovery Certificate by UP RERA, an application under Section 7 of the ‘I&B Code’ by the Decree holder is not maintainable as allottees. The relevant extract of the aforementioned judgment is reproduced below: -
23. We accordingly summarise our finding as under: (i) Respondent Nos. 1 and 2 can no more claim to be allottees of a Real Estate Project after issuance of Recovery Certificate dated 10th August, 2019 by ‘UP RERA’ directing recovery of Rs. 73,35,686.43/- due thereunder as arrears of land revenue by the Competent Authority. On their own showing they are the decree-holders seeking execution of money due under the Recovery Certificate which is impermissible within the ambit of Section 7 of the ‘I&B Code’. Clearly their application for triggering of Corporate Insolvency Resolution Process is not maintainable as allottees.
# 11. The Hon’ble NCLAT in the above referred judgement has further gone on to remark as under: -
20. …. As already stated elsewhere in this Judgment, Respondent Nos. 1 & 2 instead of pursuing the matter before the Competent Authority sought triggering of Corporate Insolvency Resolution Process against the Corporate Debtor resulting in passing of the impugned order of admission which has been assailed in the instant appeal. The answer to the question whether a decree-holder would fall within the definition of ‘Financial Creditor’ has to be an emphatic ‘No’ as the amount claimed under the decree is an adjudicated amount and not a debt disbursed against the consideration for the time value of money and does not fall within the ambit of any of the clauses enumerated under Section 5(8) of the ‘I&B Code’.
24. In view of the conclusion reached and findings on the issues recorded hereinabove, we are of the considered view that the impugned order dated 17th March, 2020 initiating Corporate Insolvency Resolution Process against Corporate Debtor cannot be sustained. The Adjudicating Authority has landed in grave error in admitting the application of Respondent Nos. 1 and 2 under Section 7 who claimed to be the ‘Financial Creditors’ in their capacity as ‘decree-holders’ against the Corporate Debtor on account of non-payment of the amount due under the Recovery Certificate dated 10th August, 2019 issued by the ‘UP RERA’ while execution of decree/recovery of amount due under Recovery Certificate would not justify triggering of Corporate Insolvency Resolution Process.
# 12. However, the Financial Creditor has relied upon the judgement of Hon’ble Supreme Court in the matter of Vishal Chelani v. Debashis Nanda, 2023 SCC OnLine SC 1324 wherein the Hon’ble Supreme Court while adjudicating the distinction between class of financial creditor in real estate project for the purpose of drawing up a resolution plan has held that an allottee who has approached RERA and obtained a court order or decree by RERA would be considered as a homebuyer within a class. Relevant paras of the judgement
are reproduced below: -
“…[7]. It is thus evident that with the introduction of the explanation home buyers and allottees of real estate projects were included in the class of “financial creditors” - because financial debt is owed to them. On a plain reading of Section 5 (8)(f) no distinction is per se made out between different classes of financial creditors for the purposes of drawing a resolution plan. Consequently, the reasoning of the Mumbai Bench of NCLT “Mr. Natwar Agrawal (HUF)” is correct in the opinion of this Court.
“…[9]. The Resolution Professional's view appears to be that once an allottee seeks remedies under RERA and opts for return of money in terms of the order made in her favour, it is not open for her to be treated in the class of home buyer. This Court is unpersuaded by the submission. It is only home buyers that can approach and seek remedies under RERA - no others. In such circumstances, to treat a particular segment of that class differently for the purposes of another enactment, on the ground that one or some of them had elected to take back the deposits together with such interest as ordered by the competent authority, would be highly inequitable. As held in Natwar Agarwal (HUF) (Supra) by the Mumbai Bench of National Company Law Tribunal the underlying claim of an aggrieved party is crystallized in the form of a Court order or decree. That does not alter or disturb the status of the concerned party - in the present case of allottees as financial creditors. Furthermore, Section 238 of the IBC contains a non obstante clause which gives overriding effect to its provisions. Consequently, its provisions acquire primacy, and cannot be read as subordinate to the RERA Act. In any case, the distinction made by the R.P. is artificial; it amounts to “hyper classification” and falls afoul of Article 14. Such an interpretation cannot therefore, be countenanced...” “…
[10] the appellants are declared as financial creditors within the meaning of Section 5(8)(f) (Explanation) and entitled to be treated as such along with other home buyers/financial creditors for the purposes of the resolution plan which is awaiting final decision before the adjudicating authority...”
# 13. It is pertinent to note that the aforementioned observations made by the Hon’ble Supreme Court were made while considering the Resolution Plan and it has categorically been stated that the observation is for the purpose of Resolution Plan. The stage differs significantly in both of the above judgments. In the moratorium in operation under section 14 of the Code, whereas in the Vishal Chelani judgment, the stage was postadmission of CIRP when the moratorium was in operation including that on the RCs. Furthermore, it is also important to point out that no judgment of the Hon’ble Supreme Court has been brought to our notice by which the judgement of Hon’ble NCLAT in Sushil Ansal has been expressly overruled.
# 14. In the present case, three out of four allottees namely (1) Rakesh Kumar Singh (2) Anuj Verma (3) Jai Ram Saran Singh approached UPRERA seeking refund of their principal amount along with interest. One of the four allottees namely Krishna Kumar had approached UPRERA seeking possession of the unit alongwith payment of penal interest and waiver of EMI. The relevant dates in are respect of these allottees mentioned in the table below: -
# 15. The Hon’ble UP RERA has passed orders under section 31 of RERA in respect of the above three allottees (Applicant Nos 5, 85, 100) and directed the promoters to refund the principal amount with interest. In respect of one allottee (Applicant No 90) the UPRERA had passed orders directing the promotors /developer to give possession of the unit till March, 2020 failing which to refund entire amount with interest. To seek a refund as in the case of three allottees (No 5, 85 &100) in the first instance itself from the promoter it is provided for in section 18(1) of RERA that the allottee would wish to withdraw from the project and only then will the allottee be able to secure an order for refund in his favor. Support can be taken from Section 18 of RERA, which is reproduced as below: -
18. (1) If the promoter fails to complete or is unable to give possession of an apartment, plot or building, —
a) in accordance with the terms of the agreement for sale or, as the case may be, duly completed by the date specified therein; or
(b) due to discontinuance of his business as a developer on account of suspension or revocation of the registration under this Act or for any other reason, he shall be liable on demand to the allottees, in case the allottee wishes to withdraw from the project, without prejudice to any other remedy available, to return the amount received by him in respect of that apartment, plot, building, as the case may be, with interest at such rate as may be prescribed in this behalf including compensation in the manner as provided under this Act:
Provided that where an allottee does not intend to withdraw from the project, he shall be paid, by the promoter, interest for every month of delay, till the handing over of the possession, at such rate as may be prescribed.
# 16. On a perusal of the orders passed by UPRERA u/s 31 of RERA in respect of these allottees it is clear that three of the allottees (Nos. 5, 85, 100) have demanded for a refund of the principal amount along with interest and compensation. They are squarely covered under section 18(1) of RERA as has been indicated in the order u/s 31 of RERA and UPRERA has adjudicated after hearing the matter whether in accordance with their wish to withdraw from the project they are entitled to withdraw from the project and therefore claim the entire principal amount with interest. UPRERA only after having adjudicated that the allottees were entitled to withdraw from the project passed orders to the developer/promoter to refund the entire amount with interest to the allottees, resulting in the fructification of their wish to withdraw from the project. It is therefore, clear that in accordance with their wish and confirmation by UPRERA these 3 allottees have withdrawn from the project much before they have filed the Section 7 Petition. On a perusal of the orders of UPRERA in respect of the fourth allottee (Nos. 90) it is clear that he is covered under the proviso to section 18(1) of RERA. He has not sought withdrawal from the project, rather he has sought possession of the unit and penal interest and waiver of EMI. However, on non-compliance of the order of UPRERA u/s 31 of RERA in respect of this allottee, on the request of the allottee, the RC was also issued in his case.
# 17. The relevant portion of translated copy of orders u/s 31 passed by UPRERA in respect of one of the allottees i.e., Rakesh Kumar Singh is as below: -
The reply mentions the completion date of the project as June 2021. However, it is evident from the local inspection report that construction work in the said project cannot be completed soon. Therefore, the plaintiffs are not interested in continuing with the project.
….
If the project is delayed and there is no likelihood of its expeditious completion, then the allottee is entitled to receive the entire amount along with interest, after separating themselves from the project
….
Based on the principles of natural justice and a thorough examination and analysis of the evidence and arguments presented, the bench concludes that the plaintiffs are entitled to receive the deposited amount with interest.
# 18. After the orders referred to above had been passed by UPRERA the 4 allottees approached UPRERA for execution of these orders. UPRERA issued Recovery Certificates (RCs) under Section 40 of RERA in respect of the 4 allottees. The RCs were addressed to Collector, Gautam Budh Nagar District with the directions to recover the due amounts as arrears of land revenue.
# 19. It is understood that the process of recovery of such arrears is provided for under section 279(1) of the UPZamindari Abolition and Land Reforms Act (Section 170 of the U.P. Revenue Code, 2006). The process of recovery to be adopted is a coercive process. Section 279(1) of the UPZamindari Abolition and Land Reforms Act, 1950 is reproduced below:
279. Procedure for recovery of an arrear of land revenue.
(1) An arrear of land revenue may be recovered by anyone or more of the following processes:
(a) by serving a writ of demand or a citation to appear on any defaulter;
(b) by arrest and detention of his person;
(c) by attachment and sale of his movable property including produce;
(d) by attachment of the holding in respect of which the arrear is due;
(e) [by lease or sale] of the holding in respect of which the arrear is due;
(f) by attachment and sale of other immovable property of the defaulter, [and]
[(g) by appointing a receiver of any property, movable or immovable of the defaulter.]
From the bare reading of the above provision, it is clear that the recovery can be effected by the Collector through one or more of the above processes and not necessarily in the order given. The process is clearly a coercive one with recovery charges also being charged by the collector (as stated in para 9 of Recovery Certificate). Therefore, any amount recovered after issue of RC cannot in any way be treated as being voluntarily paid by the defaulter.
# 20. It is noteworthy that the RCs which are addressed to the Collector are not even endorsed to the concerned allottee. It is therefore, clear that the allottee is not the ‘holder of the RC.’ The Financial Creditors in this petition have time and again referred to the said allottees as ‘RC holders’ giving the impression that it is on the will of the allottee to take steps to get the RC executed and money recovered. In other words, if such were the situation the allottees could hold on to RC till they had filed the petition under Section 7 as a Home Buyers. However, the fact of the matter is that once the RC is issued the coercive recovery process by the Collector/Tahsildar commences immediately and the allottees has no role to play. The action taken is only by Collector/ Tahsildar. A copy of the translated RC issued to Collector/District Magistrate, Gautam Budh Nagar in respect of one of the above 4 allottees. Mr. Jai Ram Saran Singh is reproduced hereunder: -
# 21. The recovery under the RC can be made for the allottee till any time before the Developer (Corporate Debtor) is admitted into CIRP and moratorium under Section 14 sets in. Therefore, as and when the Collector/Tehsildar recovers the amount due to the allottee from the Developer the allottee will no longer remain a creditor or for that matter a home buyer and therefore, not eligible to file a Section 7 petition along with other home buyers in respect of whom no RCs have been issued. It can be therefore safely be said that it is the promptness of action on that part of a third party i.e. the Collector/Tehsildar which will determine the status of the allottees as Creditors/Financial Creditors/Home Buyers and not by either of the two parties concerned i.e. the Allottees and the Developer. Therefore, if allottees in respect of whom RCs have been issued are accepted as Financial Creditors/Home Buyers at the pre admission stage (when no moratorium is in force) highly anomalous and unsustainable situations can arise. One such scenario could be that if all the homebuyers (Financial Creditors in a class) above the threshold level are those in respect of whom RCs have been issued and they file a Section 7 petition against the Developer (Corporate Debtor) and all their dues are recovered through coercive process by the Collector/Tehsildar before admission of the petition, for such allottees to pursue and sustain that petition would be an abuse of the process of law, since they would have become rank outsiders to the project with no stake at all in the project. It is important to note that this situation is quite distinct from the one in which after filing of section 7 Petition, the Developer voluntarily refunds the amount of some of the allottees in order to defeat their threshold requirement to file a section 7 petition, since the former is action by a third party (Collector/Tehsildar) and the latter by the party who would be prejudicially affected by the Section 7 Petition. It is perhaps for this reason that Hon’ble NCLAT in judgment is Sushil Ansal Vs. Ashok Tripathi has emphatically denied status of allottees in respect of whom RCs have been issued to be eligible for triggering CIRP against the Developer at the admission stage.
# 22. In the light of the above it is clear that in terms of adjudicated orders of UPRERA referred above and under Section 18 (1) of RERA that 4 of the allottees on their own volition and after confirmation by RERA have withdrawn from the project much before they filed the section 7 Petition and that RCs issued in favor of 4 allottees makes their status as Home Buyers indeterminate on their own action or the action of the Developer, rather determined by action of a third party i.e. the Collector/Tehsil. Therefore, their contention of being home buyers along with other home buyers in respect of whom RCs have not been issued at the pre admission stage is neither tenable nor sustainable. In the present case, the total number of allottees in the Project is 1002. Therefore, in order to fall within the mandate of the second Proviso of Section 7(1) of the Code, the captioned Application ought to have been filed by not less than 100 allottee. With the exclusion of these 4 allottees, the number of homebuyers in this petition falls below the threshold of 100, hence the main Petition is liable to fail at the threshold itself.
# 23. Based on the facts & circumstances of the present case we are of the considered view that the present application is not maintainable because the Financial Creditors failed to fulfill threshold requirement under second proviso of Section 7(1) of the Code. Accordingly, IA 5045/2023 stands allowed and the main CP (IB) 888/2022 stands dismissed and consequentially all other connected IA(s) & CA(s) stand dismissed as being infructuous. Let copy of the order be served to the parties concerned.
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