Buyback arrangement in real estate was treated as speculative investment, defeating financial creditor status under insolvency law.

A Section 7 insolvency application by a single real estate allottee was treated as maintainable on the facts, because the 2019 Ordinance and 2020 Amendment did not defeat a petition already pending when the amendment came into force. The memorandum of understanding was construed as a buyback arrangement, not a conventional agreement for sale, since it provided for compulsory repurchase, post-dated cheques, and transfer or resale rights. On the evidence, the claimant was found to be a speculative investor rather than a genuine allottee, so the insolvency claim could not proceed as that of a financial creditor and the admission order was set aside.

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Issues: (i) Whether, in view of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 and the Insolvency and Bankruptcy Code (Amendment) Act, 2020, an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 by a single allottee was maintainable; (ii) Whether the memorandum of understanding dated 06.04.2016 was an agreement for sale of apartments or an agreement for buyback of apartments; (iii) Whether the respondent was a genuine allottee or a speculative investor.

Issue (i): Whether, in view of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 and the Insolvency and Bankruptcy Code (Amendment) Act, 2020, an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 by a single allottee was maintainable.

Analysis: The amendment introduced a threshold for real estate allottees, including a requirement of joint filing by the prescribed minimum number of allottees. The application in question had already been filed and was pending when the Ordinance came into force, and the tribunal held that the prior unamended position governed the matter. The amendment was therefore treated as not affecting the maintainability of the pending application in these facts.

Conclusion: The application was not rejected on this ground, and the amendment did not defeat maintainability in the present case.

Issue (ii): Whether the memorandum of understanding dated 06.04.2016 was an agreement for sale of apartments or an agreement for buyback of apartments.

Analysis: The document did not contain the usual incidents of a sale agreement, such as a payment schedule for the balance consideration or a conventional possession framework. Instead, it provided for compulsory buyback, issuance of post-dated cheques by the corporate debtor, consequences on dishonour, and transfer or resale rights in favour of the other side. On the terms of the document, its dominant character was that of a buyback arrangement rather than a sale agreement.

Conclusion: The memorandum of understanding was held to be an agreement for buyback of apartments.

Issue (iii): Whether the respondent was a genuine allottee or a speculative investor.

Analysis: The tribunal examined the structure of the arrangement, the limited payment made, the assured return through post-dated cheques, the repeated dishonour of cheques, and the subsequent resort to coercive recovery proceedings. These features indicated that the transaction was designed to secure a return on investment rather than to obtain an apartment for genuine residential allotment.

Conclusion: The respondent was held to be a speculative investor and not a genuine allottee.

Final Conclusion: The admitted insolvency application could not stand because the claimant was not treated as a financial creditor on the facts found, and the admission order was set aside with consequential release of the corporate debtor from the insolvency process.

Ratio Decidendi: A real estate claimant under a buyback-centric arrangement, who is found on the facts to be a speculative investor rather than a genuine allottee, cannot invoke Section 7 of the Insolvency and Bankruptcy Code, 2016 as a financial creditor on the basis of the amount paid under such an arrangement.

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