On December 28, 2019, the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019, was promulgated which was replaced by the Insolvency and Bankruptcy Code (Amendment) Act, 2020 (“2020 Amendment Act”) inserting provisos to Section 7 of the IBC. The second proviso states that with Homebuyers, an application for initiating CIRP under Section 7 of the IBC is to be filed jointly by at least 100 allottees or 10% of the total allottees under the said project, whichever is lesser. The third proviso further stated that matters already filed by individual Homebuyers but not yet admitted by the adjudicating authority before the commencement of the 2020 Amendment Act shall be dismissed if they are not modified to fulfill the minimum threshold requirement as stated above within 30 days from the commencement of the 2020 Amendment Act. The Apex Court upheld the constitutional validity of the 2020 Amendment Act in the case of Manish Kumar v. Union of India.
Submission of claims by Homebuyers
The above clarifies that the courts, as well as the legislature, have taken an active approach in not only recognizing but also protecting the rights of homebuyers. There are a host of issues that periodically arise for consideration vis-à-vis their rights, and one such issue is regarding the submission of claims by homebuyers.
Once a Section 7 application is admitted, the adjudicating authority has to pass an order under Section 14 of the IBC, declaring a moratorium and appointing an interim resolution professional (“IRP”). The IRP is required to then make a public announcement which is required to mention the last date for submission of claims by creditors. In terms of Regulation 6 read with Regulation 12 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”), the creditors may submit their claims within 14 days from the appointment of the IRP, failing which the claim may be submitted within a period of 90 days from the insolvency commencement date. In many judgments, the National Company Law Tribunal (“NCLT”) has clarified that rejection of the claim on the grounds of delay beyond the 90-day period is not sustainable, as the aforesaid provision is merely directory and not mandatory.
While this appears to be settled law, on June 1, 2022, the Principal Bench of the National Company Law Appellate Tribunal (“NCLAT”), New Delhi, comprising Justice Ashok Bhushan, Ms. Shreesha Merla, Mr. Naresh Salencha granted further relief to Homebuyers in relation to the filing of their claims. In the said case titled Puneet Kaur v. K V Developers Private Limited,[8] the NCLAT held that even claims of those Homebuyers ought to be included in the information memorandum who did not file their claims if the same were reflected in the record of the corporate debtor. The NCLAT held that non-consideration of such claims would lead to inequitable and unfair resolution.
The Appellate Tribunal further noted the difficulty faced by homebuyers in filing their claims. It was observed that the public announcement inviting claims is normally done in the area where the corporate debtor has its registered office and corporate office, and there is every likelihood that all the Homebuyers who are usually hundreds in number neither come to know about the CIRP nor do they file their claims within the stipulated period. The NCLAT thus observed that non-submission of claims within the prescribed time is a common feature in the insolvency process of almost all real estate projects. The Appellate Tribunal went on to hold that once the allotment letters have been issued to the Homebuyers and payments have been received, there is an obligation on the part of the real estate company to provide possession of the houses along with other attached liabilities. Therefore, the Homebuyers have every right to agitate their claim.
The NCLAT has recognized the difficulties faced by Homebuyers, who, as the NCLAT recorded in its judgment dated June 1, 2022, usually belong to the “middle class of society”, most of whom have taken loans from banks and other financial institutions, saddling them with liability. In doing so, the NCLAT furthered the trend of the courts, viewing homebuyers with a fair mindset and reiterating the need to protect homebuyers from the technical rigors and procedures contemplated in the IBC.