By Legal Cell
In a recent ruling on August 2, 2023, the Hon’ble NCLT in Mumbai (CP(IB) No. 21/MB-IV/2023) has provided a significant interpretation regarding the status of a Real Estate Project that becomes a Decree Holder under the RERA Act. The NCLT’s decision clarifies the position of the Decree Holder in relation to the Home Buyers category, underlining their role as a creditor and the applicability of threshold limits under the Insolvency and Bankruptcy Code.
The court’s verdict emphasizes that a Real Estate Project, which attains the position of a Decree Holder under the RERA Act, remains classified as a creditor within the Home Buyers class. Consequently, such a Decree Holder is governed by the threshold limit outlined under the second proviso to section 7(1) of the Insolvency and Bankruptcy Code.
The NCLT’s ruling is rooted in the interpretation of a ruling by the Hon’ble Madras High Court in the case of Cholamandalam Investment and Finance Company Ltd. v. Navrang Roadlines Private Limited. The court referred to the Supreme Court’s decision in Kotak Mahindra Bank v. A. Balakrishnan & Anr., where it was established that a recovery certificate issued by the DRT would be considered a “financial debt” under the Insolvency and Bankruptcy Code.
The NCLT further elucidated that the nature of the underlying claim determines the classification of the debt. In this case, the applicant secured a Decree from RERA as an allottee in a Real Estate Project. As an allottee, falling within the ambit of the Financial Debt definition under the Code’s Explanation to Section 5(8)(f), the applicant is recognized as a Financial Creditor.
Addressing the question of whether the Decree Holder, once a RERA allottee, retains the classification as a Home Buyer, the NCLT affirmed that the Decree Holder continues to be a creditor within the Home Buyers category. As such, they remain subject to the threshold limit specified under the second proviso to section 7(1) of the Code.
This judgment by the NCLT provides legal clarity on the status of Decree Holders who transition from RERA allottees. By affirming their position within the Home Buyers class, the ruling sets a precedent for the application of threshold limits and underscores the role of such Decree Holders as Financial Creditors in insolvency proceedings.
Curtsey : Saptakala Real Estate Law Journal