Grandstar Reality held liable as financial creditor under Section 5(7) for inherited homebuyer debts from acquired project

The NCLAT upheld the admission of a Section 7 application filed by homebuyers against Grandstar Reality Pvt. Ltd., which acquired a real estate project under SARFAESI Act from Akme Projects Ltd. The tribunal held that Grandstar, as the project's successor, qualified as a financial creditor under Section 5(7) of the Insolvency and Bankruptcy Code, inheriting the financial debt owed to allottees. The court rejected arguments that no default occurred due to SC interim orders, finding that Grandstar failed to demonstrate project completion efforts since taking over in 2016. The appeal was dismissed, confirming the lower authority's decision to admit the insolvency application.

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Issues Involved:
1. Whether Grandstar Reality Pvt. Ltd., as an auction purchaser under SARFAESI Act, 2002, can be held to be a Financial Creditor of the Respondent allottees.
2. Whether no default was committed by the Corporate Debtor due to interim orders passed by various courts and tribunals.

Summary:

Issue 1: Financial Creditor Status

The Builder Buyers Agreement was entered between Akme Projects Ltd. and the allottees between 2012 to 2015. The SARFAESI proceedings initiated by YES Bank led to the auction purchase by Grandstar Reality Pvt. Ltd. The Sale Confirmation Advice and Sale Certificate issued by YES Bank explicitly stated that the rights of lawful allottees on respective units were not undergoing any change in the auction process and that the successful bidder would be required to honor and acknowledge all lawful allotments. The Flat Buyer's Agreement included successors, executors, administrators, and assigns within its definition of the "Company," thereby encompassing Grandstar Reality Pvt. Ltd. The Appellant's obligations included all obligations under the Flat Buyer's Agreement, making Grandstar Reality Pvt. Ltd. a Financial Creditor under Section 5(7) of the Code.

Issue 2: Default Due to Judicial Orders

The Appellant argued that no default was committed due to various judicial orders. However, the judgment of the Hon'ble Supreme Court in Rameshwar and Ors. vs. State of Haryana and Ors. (2018) clarified that the land in question was not covered by the judgment. Despite this, no steps were taken by Grandstar Reality Pvt. Ltd. to carry out the construction or seek necessary clarifications. The orders of the Delhi High Court and DRT did not preclude the Appellant from taking steps towards the completion of the Project. The Appellant's inaction indicated a clear default, and the Adjudicating Authority's finding of default was upheld.

Conclusion:

The National Company Law Appellate Tribunal upheld the Adjudicating Authority's order admitting the Section 7 Application, concluding that Grandstar Reality Pvt. Ltd. owed a financial debt to the allottees and had committed default. The Appeal was dismissed.

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