Application Under Section 7 Of The IBC Cannot Be Filed By 100 Or 1/10th Of Allottees Of Separately Registered RERA Projects Even If They Are Part Of A Common Township/layout

The National Company Law Appellate Tribunal ("NCLAT") issued a detailed judgment¹ addressing several critical issues related to the interpretation of the Insolvency and Bankruptcy Code, 2016 ("I&B Code") and the Real Estate (Regulation and Development) Act, 2016 ("RERA"). The case revolved around the question of whether a group of allottees from various sub-projects of a large township could jointly initiate a Corporate Insolvency Resolution Process ("CIRP") against the developer. This article examines the key issues raised, the contentions from both sides, the judgment delivered, and the conclusion reached by the NCLAT.

I. Background:

The appellants, along with others, had initially approached the NCLT as financial creditors under Section 7 of the I&B Code, 2016, seeking initiation of the CIRP against the corporate debtor, a real estate developer responsible for the "Sushant Megapolis" project. They argued that all allottees, despite being part of different phases or sub-projects, had entered into their respective buyer-builder agreements before the Real Estate (Regulation and Development) Act (RERA), 2016, came into force. These agreements described "Sushant Megapolis" as a single, comprehensive project.

II. Important Issues Raised:

1. Commonality of Interests Among Allottees: The primary issue was whether the allottees from different sub-projects within a larger township could be considered as having a commonality of interests, thus forming a single "real estate project" under the I&B Code.
2. Interpretation of Section 7 of the I&B Code: The tribunal had to decide if the allottees, by combining their claims across different sub-projects, met the threshold of 100 or 10% of allottees as required by the second proviso of Section 7.
3. Applicability of RERA and I&B Code: Another significant issue was the interplay between the provisions of RERA and the I&B Code, particularly how these laws define a "real estate project" and the rights of the allottees.

III. Contentions

1. Appellant's Arguments:
   • The appellants argued that allottees from various sub-projects of the larger township should be allowed to combine their claims. They emphasized the commonality of interests since the entire township project was incomplete, affecting all allottees uniformly.
   • They contended that the interpretation by the adjudicating authority, which required allottees to come from the same building, was incorrect and defeated the purpose of recognizing allottees as financial creditors under the I&B Code.
   • The appellants also argued that the developer's claim of delay due to resistance from farmers and landowners was baseless, as the developer had previously assured the allottees of no such disputes.
2. Respondent's Arguments:
   • The respondents maintained that each sub-project within the larger township should be treated separately under RERA and the I&B Code. They argued that the threshold for initiating CIRP should be applied to each sub-project individually.
   • They also highlighted the Supreme Court's stance in Manish Kumar v. Union of India & Ors.², which underscored the importance of treating allottees from the same real estate project collectively to meet the threshold requirements.

IV. Judgement:

The NCLAT, after considering the arguments and the relevant legal provisions, upheld the decision of the adjudicating authority. The tribunal found that the appellants failed to establish that they belonged to the same real estate project as required under the I&B Code. It emphasized that:

1. Single Project Requirement: For the purpose of initiating CIRP, the allottees must belong to the same real estate project. In the present case, the different developments being part of the same township, were of different character, had independent RERA registrations and were sanctioned under separate building plans and approval letters and were thus separate real estate projects. The appellants, coming from different projects, could not collectively meet the threshold under Section 7.
2. Legislative Intent and Interpretation: The tribunal noted that the legislative intent behind the second proviso to Section 7 was to ensure that the allottees' interests are aligned and manageable within the framework of a single project. Combining allottees from different projects would complicate the process and go against the legislative intent.

V. Conclusion

The NCLAT dismissed the appeal, reaffirming the need for clear commonality among allottees within the same real estate project to initiate CIRP under the I&B Code. The judgment underscores the importance of adhering to the legislative framework and the specific definitions provided under RERA and the I&B Code, ensuring that the process remains streamlined and effective.

This decision provides clarity on the threshold requirements for allottees in real estate projects and reinforces the necessity for a unified approach within the ambit of a single RERA registered project to initiate insolvency proceedings.

Footnotes

1. Pankaj Mehta v. Ansal Hi-tech Township Limited (Company Appeal (AT)(INS) No. 248 of 2023)

2. (2021) 5 SCC 1

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