The Lending Institutions Providing Loans To Homebuyer Do Not Qualify As Financial Creditors Under IBC

Summary:

[1]In the recent development, a Bench of Hon’ble National Company Law Appellate Tribunal, Delhi comprising Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha, and Mr. Indevar Pandey (Technical Members) held that lending institutions providing loans to homebuyers do not qualify as ‘Financial Creditors’ under Insolvency and Bankruptcy, Code 2016. It held that Banks or Financial Institutions that loan money to home buyers cannot be considered ‘Financial Creditors’ included in the CoC, as the liability to repay is on the individual homebuyers.

Facts:

Two flat buyers availed a loan from India Infoline Housing Finance Limited for the purchase of flats in the Amadeus Residential Project developed by the Saha Infratech Pvt. Ltd.  in Sector 143, Noida.

NCLT Delhi admitted the Corporate Debtor into the Corporate Insolvency Resolution Process under Section 7 of the IBC and the Resolution Professional was appointed.  The Appellant filed a claim of INR 2.31 crores which was not admitted despite reminders. Consequently, the Appellant filed an Interlocutory Application with the Tribunal, seeking a directive for the RP to admit their claim. However, NCLT New Delhi via its Order dated 23.01.2024 dismissed the said application. The Appellant filed the appeal against NCLT New Delhi’s Order seeking acknowledgment and admission of its claim.

Issue:

Whether the Lending Institutions Providing Loans to Homebuyer Qualify as Financial Creditors Under IBC?

Judgement:

NCLAT New Delhi dismissed the appeal and held that lending institutions providing loans to homebuyers do not qualify as ‘Financial Creditors’ under IBC. NCLAT relied upon the reasoning of the Supreme Court that the default is relevant only between the Home Allottee and the Bank. It held that Banks or Financial Institutions that loan money to home buyers cannot be considered ‘Financial Creditors’ included in the CoC, as the liability to repay is on the individual homebuyers.  Additionally, The Appellate Tribunal placed reference on NCLT Delhi’s Order which further relied upon the Supreme Court’s decision in Pioneer Urban Land & Infrastructure Ltd. & Anr. vs. Union of India & Ors. observing that Home Buyers should be considered ‘Financial Creditors’ of the Corporate Debtor, regardless of whether they self-financed their flat or took a loan.

Analysis:

The court’s verdict clarified that lending institutions providing loans to homebuyers do not qualify as ‘Financial Creditors’ under Insolvency and Bankruptcy, Code 2016. It held that Banks or Financial Institutions that loan money to home buyers cannot be considered ‘Financial Creditors’ included in the CoC, as the liability to repay is on the individual homebuyers.

[1]  https://ksandk.com/wp-content/uploads/iifl-home-finance-ltd-nclat-order-548803.pdf

BEFORE THE HON’BLE NATIONAL COMPANY LAW APPELLATE TRIBUNAL

IIFL Home Finance Ltd. vs. Shiv Nandan Sharma, Resolution Professional Saha Infratech Pvt. Ltd.

Comp. App. (AT) (Ins) No. 856 of 2024 & I.A. No. 2958, 3089 of 2024

Order dated 20th May, 2024