2026 (1) TMI 1357 - AT - IBC

Maintainability of Section 7 claims by real estate allottees where consent terms classify them as financial creditors, remand ordered to determine threshold fulfilment.

Maintainability of insolvency initiation by allottees was addressed focusing on whether allottee-claimants are speculative investors and whether ... Maintainability of Section 7 application by allottees under the real estate project - Speculative investor doctrine in real estate allotment - Effect of breach of settlement / consent terms on right to initiate CIRP - Burden of proof on corporate debtor for allotments - Statutory compliance with amendment - HELD THAT:- When we look into the facts of the present case, present is a case where allottees i.e. Respondent Nos.1 to 6 have paid the entire consideration, leave and license for offering license fee to the Respondents was entered at the instance of the Corporate Debtor since Corporate Debtor was unable to deliver the possession of the flats. Corporate Debtor also defaulted in making the payment of license fee due to which first Section 7 application was filed by the Respondent Nos.1 to 6 which was decided in view of the Consent Terms. In the Consent Terms which was entered between the parties where the Corporate Debtor agreed that the Financial Creditor shall be paid the amount of Rs.1,96,92,000/-. In the Consent Terms, the Respondent Nos.1 to 6 have been referred to as Financial Creditors, thus, it is not now open for the Corporate Debtor/ Appellant to contend that Respondent Nos. 1 to 6 are speculative investors. We, thus, do not find any substance in the submission of the Appellant that application under Section 7 was not maintainable by Respondent Nos.1 to 6 as they being speculative investors. It is a nature of transaction which determines the maintainability of the application. When Respondent Nos.1 to 6 have filed Section 7 application claiming to be an allottee of the Corporate Debtor, the mere fact that in earlier Company Petition, a settlement was entered by Corporate Debtor which settlement has been breached by the Corporate Debtor. Corporate Debtor cannot contend that application under Section 7 is not maintainable. We, thus, do not find any substance in the submission of the Appellant that the Company Petition which was filed subsequent to the breach of Settlement Terms by the Corporate Debtor was not maintainable. It appears that that record was not before Adjudicating Authority. Counsel for the Respondent submitted that even as per the record, which was brought by the Appellant, of Maharashtra RERA, in the information pertaining to number of allotment, the number of booked allotment figure has been mentioned as zero. The submission of the Respondent that information as available in Maharashtra RERA, the booked allotment is mentioned as zero is not even as per the case of the Appellant who claims 6 allottees of the project. Respondent further submits that at best there are 54 units only. In the facts of the present case especially the fact that certain materials which have been brought by both the parties in the record of this Appeal which were not available before the Adjudicating Authority, ends of justice be served in remanding the matter to the Adjudicating Authority for fresh consideration of the question as to whether application filed by Respondent Nos.1 to 6 meet the threshold as required by Section 7(1) 2nd proviso. We grant liberty to the Corporate Debtor to file an additional affidavit bringing on record all relevant materials which it relies with respect to number of units allotted in the project within three weeks from today. Respondent Nos. 1 to 6 are also allowed three weeks’ time to file reply to the additional affidavit. Adjudicating Authority after considering the materials brought on record and after hearing the parties may determine the issue “as to whether the application filed by Respondent Nos. 1 to 6 being CP (IB) No.88 of 2021 fulfils the threshold as provided under Section 7(1) 2nd proviso. No other issue need to be decided by the Adjudicating Authority consequent to this remand order. Other issues have already been decided in favour of the Respondent Nos.1 to 6/ applicants of Section 7 application. In event the Adjudicating Authority finds the threshold to be fulfilled consequential orders be passed. We request the Adjudicating Authority to expeditiously dispose of the matter. In result, the Appeal is allowed. The order impugned is set aside. Issues: (i) Whether Respondent Nos.1 to 6 are speculative investors and therefore not financial creditors entitled to file a Section 7 application; (ii) Whether a Section 7 application can be filed on breach of earlier Consent Terms/settlement; (iii) Whether the Section 7(1) 2nd proviso threshold (100 allottees or 10% of allottees) is fulfilled by the applicants.Issue (i): Whether Respondent Nos.1 to 6 are speculative investors and thus not financial creditors for the purpose of Section 7.Analysis: The applicants pleaded registered sale agreements and full payment of consideration; the Corporate Debtor did not dispute applicant status in its reply; entries of leave and license were at instance of Corporate Debtor and arose from inability to deliver possession; the Tribunal relied on factual material showing registered agreements and payments and the earlier Consent Terms referring to the applicants as Financial Creditors.Conclusion: The Court held that Respondent Nos.1 to 6 are not speculative investors and are Financial Creditors; this submission of the Appellant is rejected (decision in favour of Respondent Nos.1 to 6).Issue (ii): Whether a Section 7 application can be instituted on account of breach of earlier Consent Terms/settlement.Analysis: The admitted nature of the underlying debt, the entry into Consent Terms in earlier proceedings, and subsequent breach leading to non-payment were examined; precedents and Tribunal decisions were applied to distinguish cases where a settlement cannot be used to defeat a true debt/default; it was observed that where debt and default were original and settlement was later breached, a fresh Section 7 petition may be maintainable.Conclusion: The Court held that breach of the Consent Terms does not bar filing a Section 7 application and that the Appellants contention to that effect is without merit (decision in favour of Respondent Nos.1 to 6).Issue (iii): Whether the applicants satisfy the threshold under Section 7(1) 2nd proviso (jointly not less than 100 allottees or not less than 10% of total allottees) such that the Section 7 petition was maintainable.Analysis: The statutory threshold is mandatory and requires a positive finding; the Adjudicating Authority concluded threshold met on basis that Corporate Debtor failed to produce proof of other allotments, but both parties produced additional materials on appeal (including RERA information and competing lists of allotments) which were not before the Adjudicating Authority; in view of conflicting and additional material, the Tribunal found that the Adjudicating Authority should determine the threshold afresh after considering all relevant evidence and hearing the parties.Conclusion: The Court remanded the matter to the Adjudicating Authority to decide, after permitting additional evidence and hearing, whether the Section 7(1) 2nd proviso threshold is fulfilled by the applicants; no other issue was to be remitted (decision: remand for fresh consideration).Final Conclusion: The appeal is allowed, the impugned admission order is set aside and the matter is remitted to the Adjudicating Authority for expeditious fresh determination solely on whether the applicants meet the statutory threshold under Section 7(1) 2nd proviso; other issues already decided in favour of the applicants need not be reconsidered.Ratio Decidendi: A Section 7 petition by allottees under the 2nd proviso to Section 7(1) requires a positive finding that the applicants meet the statutory numerical threshold (100 allottees or 10% of total allottees); where material relevant to that determination was not before the Adjudicating Authority or conflicting evidence exists, the proper course is to remit for fresh consideration after permitting parties to place relevant evidence and be heard.