Intervention Application By Homebuyers Prior To The Admission Of Petition Under Section 7 Of The Insolvency And Bankruptcy Code

The National Company Law Appellate Tribunal (“NCLAT”) recently pronounced an important judgment in the case of Vikash Kumar Mishra &Ors. v. Orbis Trusteeship Service Pvt. Ltd. &Anr. on the issue of whether homebuyers have the right to file an intervention application in support of their builder, the Corporate Debtor, on a petition under Section 7 Insolvency and Bankruptcy Code (“IBC”). The matter was an appeal against a judgment by the National Company Law Tribunal (“NLCT”) wherein it had rejected the intervention application filed by the homebuyers on the grounds that it would not be maintainable until the Section 7 application was admitted.

As per Section 7 of the IBC, when a corporate debtor fails to fulfil their obligations and a default occurs, a financial creditor(s) can file an application before the adjudicating authority requesting the initiation of the corporate insolvency resolution process. In the present case, M/s. Orbis Trusteeship Service Pvt. Ltd., the financial creditor, filed an application under Section 7 against  M/s. Kindle InfraheightsPvt. Ltd., the corporate debtor, for an alleged default of around Rs.268 Crores.

Four homebuyers, who had booked flats in one of the projects handled by the corporate debtor, filed an intervention application, asking that the petition under Section 7 of the IBC against their builder be dismissed. An intervention application is filed by persons who are not party to the suit but believe that they can assist the court and must be heard in the interest of justice. The creditor objected to such applications stating that they cannot be filed at this stage, and if it were to be allowed, all the homebuyers involved in such projects could file such applications and delay the proceedings, adversely impacting the rights of the creditor.

The tribunal referred to its own decision in Surinder Pal Singh &Ors. v. Spaze Towers Pvt. Ltd., as cited by the creditor, in which the facts were quite similar. In that case, an intervention application by homebuyers in a petition under Section 7 of the IBC was rejected on the grounds that such a petition could not be maintained before the petition itself was admitted, but the court kept open a window for the homebuyers, stating that they would be well within their rights to file a fresh application in case the Section 7 petition were to be accepted.

• The tribunal also noted that the judgments in cases such as Ashmeet Singh Bhatia v. SundrmCopnsultantsPvt. Ltd. &Anr. and CFM Asset Reconstruction Pvt. Ltd. v. Saudi Basic Industries Corporation Ltd. &Anr. cited by the homebuyers were issued under certain extreme circumstances, and the circumstances surrounding them were distinguishable from the present set of facts. Thus, the NCLAT dismissed the intervention application filed by the homebuyers, holding that such an application could not be maintained before the petition under Section 7 was admitted, and upheld the decision of the NCLT