Whether The Assured Returns Class Of Creditors Who Are Allotted Commercial Space/Unit Constitutes An ‘Allottee’ Under RERA, 2016 And IBC, 2016.

Summary:

[1]In the recent development, the National Company Law Appellate Tribunal, New Delhi Bench comprising Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra, and Mr. Arun Baroka (Technical Members) dismissed the appeal and held that the assured returns class of creditors who are allotted commercial space/unit constitutes an ‘allottee’ under the Real Estate (Regulation and Development) Act, and Insolvency and Bankruptcy Code, 2016. Also, it was observed by the Hon’ble Court that the Appellants cannot be said to go out of the definition of ‘allottees’ merely because they are part of Minimum Assured Returns (MAR) plan or that they should be treated in a different category wherein they are not required to comply with second proviso to Section 7(1). Additionally, The Appellate Tribunal concluded that the CIRP application is non-maintainable as the Appellants, being allottees, did not meet the prescribed criteria under Section 7 of Insolvency and Bankruptcy Code, 2016.

Facts:

The issue arose when the Respondent i.e., Orris Infrastructures Pvt Ltd. entered into a Memorandum of Understanding (“MoU”) with Rita Malhotra and Bina Chopra during the development of the commercial building. The MoU provided that Monthly Assured Return (“MAR”) payments shall be made to the Appellants which shall continue for 36 months after the building’s completion or until the office space was leased out, whichever was earlier. Consequently, the Respondent failed to make the MAR payments, leading to default notices being issued. Following continued non-payment, the Appellants filed a Corporate Insolvency Resolution Process (“CIRP”) petition under Section 7 of IBC before NCLT New Delhi which was later withdrawn on account of a Settlement Deed. However, when the post-dated cheques from the Settlement Deed were dishonoured, the Appellants filed a fresh Section 7 application. Later, another settlement was reached between the parties leading to the dismissal of the application, further Orris Infrastructures Pvt Ltd. provided two bank drafts to the appellant to settle the dues under the MoU but the appellant did not incash these drafts, as the amount was not sufficient to cover the total debt owner by the respondent.  Lastly, the Sec. 7 application was revived and NCLT, dismissed the CIRP application under Sec. 7 of IBC which appellant sought to revive. Later the appellant challenged the said order before NCLAT.

Issue:

Whether the assured returns class of creditors who are allotted commercial space/unit constitutes an ‘allottee’ under Real Estate (Regulation and Development) Act, 2016 and Insolvency and Bankruptcy Code, 2016?

Judgement:

The Hon’ble Court observed that the appellant Rita Malhotra and Bina Chopra cannot not be covered under the definition of ‘allottees’ merely because they are part of MAR plan or that they should be treated in a different category wherein they are not required to comply with second proviso to Section 7(1). However, the term ‘allottees’ is not defined under IBC. It noted that the definitions of ‘allottee’ and ‘real estate project’ have been provided under RERA and therefore, as per Explanation (ii) to Section 5(8)(f) of IBC, the same interpretation applies to ‘allottee’ under IBC as well.

The NCLAT observed that the NCLT was correct in holding that a commercial space/unit allotted to the Assured Returns Class of Creditors falls under the ambit of ‘allottee’ in RERA and IBC as well.  Additionally, since the application was filed before the amendment took effect, the Appellants, as financial creditors who are allottees under a real estate project, are required to meet the threshold criteria to qualify for filing a Section 7 application against the Corporate Debtor. The Appellate Tribunal concluded that the CIRP application is non-maintainable as the Appellants did not meet the prescribed criteria under Section 7 of IBC.

Analysis:

The recent judgement by the Hon’ble NCLAT held that assured returns class of creditors who are allotted commercial space/unit constitutes an ‘allottee’ under Real Estate (Regulation and Development) Act, 2016 and Insolvency and Bankruptcy Code, 2016. The Hon’ble Bench observed that the threshold criteria apply to all CIRP applications under Section 7 filed before the amendment with two months to modify the said petitions. The Appellants, being part of this class, shall comply with the threshold limit prescribed under the second proviso to Section 7(1) of IBC.

[1]  https://ksandk.com/wp-content/uploads/Rita-Malhotra-Anr.-vs.-Orris-Infrastructure-Pvt.-Ltd.pdf

BEFORE THE HON’BLE NATIONAL COMPANY LAW APPELATE TRIBUNAL

Rita Malhotra & Anr. vs. Orris Infrastructure Pvt. Ltd.pdf

Company Appeal (AT) (Insolvency) No. 484 of 2024

Judgement dated 2nd July, 2024