2026 (2) TMI 240 - AT - IBC

Threshold for initiation by homebuyers in insolvency proceedings turns on developer's project share at filing, appeal allowed and matter remanded for fresh adjudication.

Homebuyers challenged threshold for initiating insolvency proceedings where developer and landowner shared project proceeds; the tribunal found the ... Threshold for initiation u/s 7(1) for allottees under a real estate project - application of admitted claims in a separate CIRP to the eligibility threshold - maintainability of Section 7 proceedings against landowner and developer forming part of same real estate project - exparte proceeding against nonappearing corporate debtor - Whether the Appellant as a class of creditors (Homebuyers) were eligible to initiate Section 7 application against the Corporate Debtor before the Adjudicating Authority based on the threshold. - HELD THAT:- From the development agreement dated 09.09.2010, it becomes very clear that there was a clear understanding between the Corporate Debtor and the EIL, who were declared as first party and second party, respectively. The first party was authorised to develop construct, market and sale/ sub-lease of project. We further note that second party i.e., EIL approached first party/ Corporate Debtor and signed MoU dated 22.07.2010. We also note that the rights and obligations including financial arrangements between the Corporate Debtor and EIL were elaborated in development agreement. There was a clear agreement for sharing consideration between both the parties i.e., Corporate Debtor getting 18% and EIL getting 82% of consideration based on developed super area of the said project. We find that taking into consideration the above development agreement, if total unit of project “Earth Towne” which is stated to be 3400 as per the Appellants, the 18% share of the Corporate Debtor works out to 612 units/ apartments. The Adjudicating Authority has recorded that number of allottees are 1800 and taking 18% share of Corporate Debtor, this work out 324 units/apartments. It has been brought out that the Corporate Debtor sold 220 units to the allotees including the Appellants herein and if 220 units are taken into consideration, the 10 % of the same shall be only 22 allotees in terms of Section 7(1) of the Code, as noted earlier. Even if the Corporate Debtor’s entitlement based on 18% shares of total 3400 units is considered, the threshold is 62 being wherein the present appeal has been filed by 115 Appellants, which is clearly above the required threshold in terms of Section 7 the Code. Thus, the threshold criteria is applicable at the time of filing Section 7 application and not subsequently. We find clear error in the Impugned Order on this ground. Exparte proceeding against nonappearing corporate debtor - The non-appearance of the Corporate Debtor before this Appellate Tribunal as well before the Tribunal (and at both courts the Corporate Debtor was proceeded ex-parte) would also indicate that the Corporate Debtor had scant respect for the judicial process. We also find that the Appellants have clear case in their favour to initiate Section 7 application before the Adjudicating Authority. At this stage, we will like to record that we are not expressing anything on the merit of the case and we have restricted only on issue of the threshold, based on which the Adjudicating Authority dismissed Section 7 petition filed by the Appellants. Thus, looking from any angle, the present appeal has been found meritorious and the decision of the Adjudicating Authority to be erroneous, hence the present appeal is hereby allowed and the Impugned order is set aside and remanded back to the Adjudicating Authority. Both the parties are directed to appear before the Adjudicating Authority on 26.09.2025. Issues: Whether the class of homebuyers (allottees) who filed CP (IB) No.196/2023 satisfied the threshold under Section 7 of the Insolvency and Bankruptcy Code, 2016 for initiating CIRP against Earth Towne Infrastructure Pvt. Ltd., and whether the Adjudicating Authority erred in rejecting the Section 7 petition by excluding claimants admitted in the CIRP of the related holding/developer company.Analysis: The threshold in Section 7 requires either one hundred allottees under the same real estate project or ten per cent. of such allottees, whichever is less, to file jointly. The threshold is to be assessed at the time of filing of the Section 7 application. The corporate structure and development agreement show that the Corporate Debtor was the landholding SPV with an 18% share of the project; calculating the Corporate Debtor's share yields a lower numerical threshold (including on the basis of units actually sold by the Corporate Debtor). Admission of claims in the CIRP of a related developer (holding) does not, by itself, negate the independent threshold or the right of the allottees to proceed against the Corporate Debtor where the Corporate Debtor has separate liability and the allottees have contractual recourse against it. The Adjudicating Authority's approach of subtracting claimants admitted in the developer's CIRP and then applying the 100-applicants benchmark was legally erroneous because it did not apply the threshold as at the time of filing against the Corporate Debtor's attributable allottees.Conclusion: The appeal is allowed. The Impugned Order dated 21.10.2024 is set aside and the matter is remanded to the Adjudicating Authority for fresh adjudication on maintainability and other issues, with parties directed to appear on the specified date. This conclusion is in favour of the Appellant.Ratio Decidendi: For Section 7 applications by allottees in a real estate project, the statutory threshold (one hundred allottees or ten per cent.) must be determined with reference to the corporate debtor's attributable allottees and as of the time of filing; claimants' admission in a separate CIRP of a related developer does not automatically defeat an independent Section 7 filing against the landowner/SPV.