The recent Insolvency proceedings of JIL under the new IBC, 2016 have raised lot of confusion and stress in the mind of the buyers in respect their booked flats. One of the nightmare confusion is whether buyers should participate in CIRP or Liquidation process for being operational or financial creditors? Before giving any answer one has also to find, whether the flats and other commercial properties already booked/sold by the Company can be treated as assets of the Company? Or concluding question, whether the flats already booked by the purchaser can be allowed to be treated as assets of Real Estate Company undergoing CIRP or during liquidation for the reason that the buyers are operational, financial or special creditors?
The answer to all above question depends upon the choice of purchaser who will never put himself in loss due to huge investment of life long saving. Unlike consumers of any other corporate sector the consumers and buyers of Real Estate Company are finding IBC, 2016 to be anti buyer/consumer legislation and there are now talks going on for amendment of the IBC, 2016 to make way for the buyers (consumers of Real Estate Sector) to become a stake holder during the CIRP or subsequent liquidation of a Real Estate Company. Enactments like RERA have also come up to the rescue of the buyers awaiting strong implementation to save buyers from rendering into various laws and enactments having different specific and limited purpose.
LawNat team has tried to trace out the reasons behind this confusion and found that it all started when certain buyers in order to get speedy refund of their money from Real Estate Companies approached NCLAT under IBC, 2016 claiming themselves as Financial and Operational Creditors. NCLAT by order dated 21.07.2017 in Company Appeal (AT) (Insolvency) No. 07 of 2017, remitted the matter back to the NCLT with a direction to admit the Application for Resolution Process preferred by the flat purchaser under Sec.7 of the Code treating them as ‘Financial Creditors’ on the basis of assured return clauses. Whereas, NCLAT in Company Appeal (AT) (Insolvency) No.8, 12 and 50 of 2017 titled Rubina Chadha & Anr etc Vs. AMR Infrastructure Ltd., refused to decide the question of law that whether a flat buyer who invested his hard earned money for purchasing flat with the Developer Company can be treated as an ‘Operational Creditor’ for the purpose of initiating Insolvency Resolution Process and directed the IRP and CoC to consider the claims of buyers upon initiation of CIRP as per provisions of IBC.
The buyers who have no assured return clause in their agreements could not be categorized as creditors therefore, an amendment to IBC, 2016 is under consideration to accommodate such buyers as a class of creditors and Insolvency and Bankruptcy Board of India issued form F for the flat buyers.
The position of a consumer of Real Estate Company is different to that of consumer of a Tea manufacturing Company because a Tea consumer will not be affected financially in case of Insolvency of the Tea Company. There is no provision for a purchaser to participate into CIRP or Liquidation of a company and thus, by becoming a financial, operational or a class of creditor as the case may be a consumer of Real Estate Company will be able to participate in CIRP or Liquidation process.
It is a general law that a property/right which is transferred/sold cannot be claimed by seller as its assets and the buyer/purchaser/consumer becomes the owner. Similarly all the flats whether constructed or being constructed and those which are about to be constructed, which are sold by the company to the buyers by way of agreement cannot be treated as assets of the Real Estate Company during the CIRP or Liquidation process by Official Liquidator. Hence, any amendment to include the buyers in CIRP is likely to change the objectives of the IBC, 2016 and also other Statutory Rights.
The claim for refund by few buyers under IBC, 2016 as operational or financial creditor may be beneficial to few buyers claiming refund when the company does not go under Liquidation after CIRP. Since the actual gain out of the assets of a company during auction depends upon various economic and business factors therefore, including the flats of consumer/purchasers as assets of company is likely to increase the volume of financial loss to an individual purchaser which will also give an easy exit for the Real Estate Defaulters thereby defeating the objectives of RERA.
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