Allottees of real estate project ‘financial creditors’ under amended Section 5(8)(f) of I&B Code; appeal against NCLT order allowed

National Company Law Appellate Tribunal (NCLAT): A two-member bench comprising of Justice S.J. Mukhopadhaya, Chairperson and Justice A.I.S. Cheema, Member (Judicial) allowed an appeal filed against the order of National Company Law Tribunal, New Delhi whereby appellant’s application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was dismissed.

The appellant was an allottee of a residential apartment in Earth Gracia developed by the respondent Credit Debtor  — Earth Gracia Buildcon (P) Ltd. The Adjudicating Authority (NCLT) dismissed the said application on the ground that disbursement made by the appellant did not come within the meaning of financial debt. Aggrieved thereby, the appellant filed the instant appeal.

The Appellate Tribunal noted that the allotment letter from the respondent showed that a residential apartment in the proposed group housing complex, Earth Gracia, had been allotted in favour of the appellant, wherein provision of assured return had also been shown. The Appellate Tribunal followed its earlier decision in Nikhil Mehta and Sons v. AMR Infrastructure Ltd., Company Appeal (AT) (Insolvency) No. 7 of 2017, dated 21-7-2017, wherein it was held that allottees of residential units are also financial creditors. Subsequently, by the Insolvency and Bankruptcy Code (Amendment) Act, 2018, an explanation was inserted in Section 5(8)(f) as per which, any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing. Therefore, after the amendment, the allottees of real estate project have been treated as financial creditors. In light of the above, the Appellate Tribunal allowed the appeal, set aside the order impugned and directed NCLT to admit appellant’s application and initiate the Corporate Insolvency Resolution Process. [Rajendra Kumar Saxena v. Earth Gracia Buildcon (P) Ltd., Company Appeal (AT) (Insolvency) No. 187 of 2018, dated 11-09-2018]

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