Financial debt in real estate project takeover extends to auction purchaser who assumes allotments and project obligations.

An auction purchaser under the SARFAESI framework that takes over a real estate project and acknowledges existing allotments may be treated as owing financial debt to homebuyers for a Section 7 insolvency claim, because the debt attaches to the project and the purchaser assumes the related obligations. The absence of direct disbursal to the purchaser does not defeat financial creditor status where the sale documents require recognition of the allotments and receipt of only the unpaid balance. Interim restraint orders in related proceedings do not excuse default where they were temporary, later ceased to operate, and no bona fide steps were taken to complete construction or obtain approvals. The Section 7 admission was therefore upheld.

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Issues: (i) whether an auction purchaser under the SARFAESI framework, who took over the project land and acknowledged the existing allotments, could be treated as a financial creditor of the homebuyers for purposes of Section 7 of the Insolvency and Bankruptcy Code, 2016; (ii) whether the corporate debtor could avoid a finding of default on the ground of interim restraint orders passed in related proceedings.

Issue (i): Whether an auction purchaser under the SARFAESI framework, who took over the project land and acknowledged the existing allotments, could be treated as a financial creditor of the homebuyers for purposes of Section 7 of the Insolvency and Bankruptcy Code, 2016.

Analysis: The allotment arrangements and builder-buyer agreements created obligations to complete the project and honour the lawful allotments. The sale notice, sale confirmation advice, and sale certificate showed that the successful bidder was required to recognise the existing allotments and receive only the unpaid balance from allottees. The corporate debtor, having taken over the project with the attendant rights and liabilities, could not contend that the debt was not owed to it merely because the original disbursal was made to the predecessor developer. The definition of financial creditor covers a person to whom a financial debt is owed, including a person to whom such debt is assigned or transferred. The homebuyers' financial debt therefore stood attached to the project and to the auction purchaser.

Conclusion: The corporate debtor was held to be within the ambit of a financial creditor relationship for the purpose of the homebuyers' Section 7 application, and the objection based on absence of direct disbursal failed.

Issue (ii): Whether the corporate debtor could avoid a finding of default on the ground of interim restraint orders passed in related proceedings.

Analysis: The land subject matter was not shown to have remained under a continuing restraint that prevented all steps towards project completion. The final directions in the land-acquisition litigation applied only to transfers made during the specified suspect period, and the later clarification excluded the relevant lands from the deemed award. The High Court and DRT orders relied upon were temporary and did not bar the corporate debtor from seeking permissions, taking steps for construction, or progressing the project after the stated periods ended. No material showed any bona fide effort by the corporate debtor to commence construction or obtain the necessary approvals even after the restraints ceased. The inaction therefore amounted to default in performing the undertaking attached to the project takeover.

Conclusion: The plea of absence of default due to judicial restraints was rejected, and default was held to be established.

Final Conclusion: The order admitting the Section 7 application was upheld, and the appeal failed.

Ratio Decidendi: Where an auction purchaser takes over a real estate project with acknowledged allotments and assumes the obligation to honour those allotments, the homebuyers' claim may constitute financial debt owed by the purchaser, and prolonged inaction in completing the project can amount to default despite temporary interim restraints in connected proceedings.

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