Homebuyer default and continuing breach sustained section 7 insolvency action against the corporate debtor.
Non-delivery of possession in a homebuyer real estate dispute was treated as a continuing default, so the section 7 application was within limitation. The homebuyer class filing requirement was satisfied because 26 allottees out of 69 met the statutory threshold for collective invocation by financial creditors. Internal marketing or agency arrangements could not defeat liability where the builder-buyer agreements named the corporate debtor as developer, payments were acknowledged, and the transaction showed default in respect of incomplete flats. The petitioners were recognised as genuine homebuyer financial creditors, and initiation of CIRP was justified, with admission of the insolvency application followed by moratorium.
Issues: (i) whether the application under section 7 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation; (ii) whether the petitioners satisfied the statutory threshold for homebuyer class filing under section 7 of the Insolvency and Bankruptcy Code, 2016; (iii) whether M/s. Cosmic Structures Limited acted for the corporate debtor and whether the corporate debtor was in default so as to justify initiation of CIRP.
Issue (i): whether the application under section 7 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation
Analysis: In a homebuyer dispute, the cause of action arises when the promised possession date expires and possession is not handed over. Where the project remains incomplete and possession is not delivered, the default is treated as continuing in nature, attracting the principle of continuing breach and continuing wrong. The acknowledgement of liability in the builder-buyer arrangements and the memorandum of settlement also supported the subsistence of the claim within limitation.
Conclusion: The application was not barred by limitation and was within time.
Issue (ii): whether the petitioners satisfied the statutory threshold for homebuyer class filing under section 7 of the Insolvency and Bankruptcy Code, 2016
Analysis: For homebuyers proceeding as financial creditors in a real estate project, the proviso to section 7(1) requires filing by not less than 100 allottees or not less than 10% of the total allottees, whichever is less. The petition was jointly filed by 26 allottees out of 69 allottees in the project, which met the applicable threshold.
Conclusion: The threshold requirement was satisfied.
Issue (iii): whether M/s. Cosmic Structures Limited acted for the corporate debtor and whether the corporate debtor was in default so as to justify initiation of CIRP
Analysis: The marketing arrangement was treated as an agency arrangement, and the corporate debtor could not avoid responsibility by relying on internal arrangements with its marketing agent. The doctrine of indoor management protected the homebuyers, who were outsiders to the internal affairs of the corporate debtor. The builder-buyer agreements stood in the name of the corporate debtor as developer, the payments were acknowledged in the settlement, and the same management link supported lifting of the corporate veil. The unpaid amount for incomplete flats was treated as financial debt in default, and the petitioners were accepted as genuine homebuyer financial creditors entitled to invoke section 7.
Conclusion: The corporate debtor was held liable for the transaction and in default, and initiation of CIRP was justified.
Final Conclusion: The insolvency application was admitted, CIRP was initiated against the corporate debtor, and the interim resolution process and moratorium followed as consequences of admission.
Ratio Decidendi: In a real estate homebuyer case, non-delivery of possession constitutes a continuing default, and a corporate debtor cannot defeat section 7 proceedings by relying on undisclosed internal agency arrangements where the transaction is acknowledged and the corporate debtor is the real beneficiary.
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AI Drafter ✕
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