In a significant legal development, the hon’ble Supreme Court of India (Supreme Court) has delivered a verdict that strengthens the position of home buyers in insolvency cases. The court’s decision in Vishal Chelani & Ors v. Debashis Nanda supports the rights of home buyers who had previously secured a decree from the Uttar Pradesh Real Estate Regulatory Authority (UPRERA). This judgment counters the National Company Law Appellate Tribunal’s (NCLAT) previous stance, which did not object to the Resolution Professional’s differential treatment of certain home buyers.
The case involved homebuyers in a project by Bulland Buildtech Private Limited who faced delays in their project’s completion. After approaching UPRERA, they were granted a refund with interest. However, during subsequent insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC), the Resolution Professional suggested treating these home buyers differently from others who had not sought redress through UPRERA. The appellants challenged this, citing the IBC’s amendment to the definition of “financial debt” which recognizes all home buyers and allottees as financial creditors.
The Supreme Court agreed with the appellants, referencing a similar ruling by the National Company Law Tribunal, Mumbai Bench-IV in Mr. Natwar Agrawal (HUF) through Karta Mr. Natwar Agrawal. v. Ms. Ssakash Developers & Builders Pvt. Ltd., and highlighted that the IBC does not inherently differentiate between various financial creditors. The court also rejected the notion that by seeking remedies under UPRERA, the appellants had forfeited their rights as financial creditors.
The ruling clarifies that home buyers retain their status as financial creditors regardless of pursuing remedies under RERA. It affirms the supremacy of IBC provisions over RERA and deems any distinctions made by the Resolution Professional as unconstitutional “hyper classification” under Article 14 of the Constitution of India.
As a result, the Supreme Court overturned the contested order, recognizing the appellants as financial creditors entitled to equal treatment in the resolution plan. This judgment is expected to significantly influence the handling of home buyers in insolvency proceedings, ensuring their recognition as financial creditors within the framework of the IBC.