2023 (8) TMI 1362 - Tri - Insolvency and Bankruptcy

Application under Section 7 of Insolvency & Bankruptcy Code dismissed; applicant didn't meet threshold for Home Buyers.

The court dismissed the application filed under Section 7 of the Insolvency & Bankruptcy Code, 2016, by the Financial Creditor against the Corporate ... Decree-holder allottee as Financial Creditor - nature of decretal debt depends on underlying transaction - threshold limit for Home Buyers under second proviso to section 7(1) - application under section 7 initiated by RERA decree-holder - avoidance of circumvention of statutory thresholdDecree-holder allottee as Financial Creditor - nature of decretal debt depends on underlying transaction - An allottee holding a decree from RERA is a Financial Creditor and the nature of decretal debt is determined by the nature of the underlying transaction. - HELD THAT: - The Tribunal applied the principle that a decree crystallises the underlying claim and its character (financial or operational) is governed by the nature of the underlying transaction. Since the applicant obtained a decree from RERA in capacity of an allottee in a real estate project, and allottees fall within the Explanation to the definition of Financial Debt, the decree-holder continues to be a Financial Creditor. The Tribunal relied on prior judicial reasoning that liabilities crystallised by adjudication (decrees, awards) derive their character from the underlying obligation, and therefore the RERA decree in favour of the allottee renders the creditor a Financial Creditor. [Paras 3]The applicant, as RERA decree-holder in capacity of an allottee, is a Financial Creditor.Threshold limit for Home Buyers under second proviso to section 7(1) - application under section 7 initiated by RERA decree-holder - avoidance of circumvention of statutory threshold - A RERA decree-holder who is an allottee remains within the class of Home Buyers for the purpose of the second proviso to section 7(1), and therefore the proviso's threshold applies to such decree-holders. - HELD THAT: - The Tribunal examined whether obtaining a RERA decree removes an allottee from the Home Buyers class such that the threshold in the second proviso to section 7(1) would not apply. The bench held that the proviso is intended to curb multiplicity of insolvency petitions by home buyers and continues to govern an allottee who subsequently becomes a decree-holder. Permitting a decree-holder to bypass the threshold would amount to circumvention of the statutory requirement - what is forbidden directly cannot be permitted indirectly via a RERA decree. Consequently, eligibility to file under section 7 cannot be claimed merely by obtaining a RERA decree if the threshold for Home Buyers is not satisfied. [Paras 3]The second proviso to section 7(1) applies to RERA decree-holders who are allottees; the threshold requirement must be met.Threshold limit for Home Buyers under second proviso to section 7(1) - application under section 7 initiated by RERA decree-holder - The petition under section 7 is not maintainable and is dismissed because the statutory threshold for Home Buyers prescribed by the second proviso to section 7(1) is not met. - HELD THAT: - Applying the conclusions that a RERA decree-holder remains within the Home Buyers class and that the threshold cannot be circumvented, the Tribunal found that the present petition did not satisfy the numerical threshold prescribed by the second proviso to section 7(1). In view of this bar, the petition could not be entertained and dismissal under section 7 was warranted. The Tribunal clarified that this dismissal does not constitute an expression of opinion on the merits and that the petitioner's rights before other judicial fora remain unaffected. [Paras 3, 4, 5]CP(IB) No.21/MB-IV/2023 is dismissed for non compliance with the threshold under the second proviso to section 7(1).Final Conclusion: The Tribunal held that a RERA decree in favour of an allottee yields a Financial Creditor and that such decree-holders remain subject to the Home Buyers' numerical threshold in the second proviso to section 7(1); as the threshold was not met, the section 7 petition was dismissed without prejudice to the petitioner's rights before other fora. Issues involved:The issues involved in the judgment include the application filed under Section 7 of the Insolvency & Bankruptcy Code, 2016 for initiating Corporate Insolvency Resolution Process (CIRP) in the case of a Corporate Debtor, the nature of the debt, and the eligibility of the applicant to file the application under the specified provisions.Details of the Judgment:Issue 1: Application under Section 7 of the Insolvency & Bankruptcy Code, 2016The applicant, a Financial Creditor, filed an application under Section 7 of the I&B Code against the Corporate Debtor for non-compliance with an order related to the purchase of flats. The total outstanding amount due and payable to the Corporate Debtor was specified, along with the date of default as per the application. Despite several attempts to resolve the matter, the Corporate Debtor failed to execute the necessary agreement, leading to the application for initiating CIRP.Issue 2: Nature of the Debt and Eligibility of the ApplicantThe bench analyzed the nature of the debt and the applicant's eligibility to file the application. Referring to relevant legal precedents, the bench determined that the applicant, as a decree holder under RERA in a Real Estate Project, qualifies as a Financial Creditor. However, it was crucial to ascertain whether the applicant falls under the class of Home Buyers and if the threshold limit prescribed under the Code applies. The bench concluded that the second proviso to section 7(1) sets a specific threshold for Home Buyers, which the applicant did not meet without obtaining the RERA decree. Therefore, the bench held that the application was not maintainable under the specified provisions.Conclusion:Based on the analysis of the facts presented, the bench decided to dismiss the application under Section 7 of the Insolvency and Bankruptcy Code, 2016. The order specified the dismissal of the petition filed by the Financial Creditor for initiating the Corporate Insolvency Resolution Process against the Corporate Debtor. It was emphasized that the dismissal should not prejudice the petitioner's rights before any other judicial forum, and the observations made in the order should not be construed as an expression of opinion on the merits of the case.