Case Note & Summary
The Supreme Court of India heard a batch of four civil appeals arising from two orders of the National Company Law Appellate Tribunal (NCLAT) that set aside admissions of Section 7 applications under the Insolvency and Bankruptcy Code, 2016. The first three appeals concerned a homebuyer's claim against a corporate debtor, while the fourth concerned another homebuyer against a different corporate debtor. The appeals raised common questions regarding the status of allottees as financial creditors and the applicability of the threshold requirement introduced by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019. In the first matter, the appellant had entered into a Memorandum of Understanding dated 06.04.2016 with the corporate debtor for a buy-back agreement covering four flats. She paid Rs.35,00,000 as part consideration. The MoU included a buy-back clause exercisable solely at the discretion of the corporate debtor. If the buy-back option was not exercised, the appellant was entitled to possession without additional payment. The MoU was extended twice, but neither possession nor payment was delivered. Post-dated cheques worth Rs.1 crore were dishonoured. The appellant initiated Section 7 IBC proceedings as an allottee/financial creditor, and the National Company Law Tribunal admitted the application on 02.01.2020. The NCLAT reversed this admission on 17.11.2020, holding that the appellant was a speculative investor and not a genuine homebuyer/financial creditor. The former and present directors of the corporate debtor filed cross-appeals challenging the NCLAT order on the limited ground that the Amendment Ordinance applied to the pending Section 7 petition and the appellant had not satisfied the threshold of 10% allottees or 100 allottees, rendering the petition non-maintainable. They argued that the application, filed before the Ordinance but pending as on 28.12.2019, was deemed withdrawn and that compliance could not be cured subsequently. In the second matter, the appellant agreed to invest Rs.25,00,000 in a housing project named Antriksh Urban Greek under a buy-back plan. An agreement dated 28.07.2015 provided for a 25% per annum return at the end of 24 months or upon final LTC, whichever earlier. Construction never commenced and land was not acquired. The appellant filed a Section 7 petition, which the NCLT admitted on 17.09.2019. The NCLAT set aside this admission on 12.08.2021, holding that the appellant was a speculative buyer who sought to profit from a lucrative agreement, relying on its earlier decision in Subha Sharma v. Mansi Brar Fernandes and the ratio of Pioneer Urban Land and Infrastructure Ltd v. Union of India. The Supreme Court's prefatory discussion highlighted the IBC's objective of resolution over liquidation, the legislative recognition of homebuyers as financial creditors, and the safeguards introduced to prevent speculative misuse. The judgment excerpt provided does not include the final decision or operative directions of the Supreme Court, as it ends at the contentions stage.
Headnote
A) Insolvency and Bankruptcy - Homebuyers as Financial Creditors - Section 7, Insolvency and Bankruptcy Code, 2016 - The IBC amendment recognized allottees as financial creditors to protect genuine homebuyers and secure project completion, but speculative investors misused individual Section 7 petitions to force premature exits or enhanced returns; Parliament introduced a threshold of 10% allottees or 100 allottees to curb misuse - The NCLAT held that applicants under buy-back agreements with assured returns were speculative investors, not genuine homebuyers, and set aside admission orders; the Supreme Court examined the correctness of these orders (Paras 5.1-5.2, 6, 8.3). B) Insolvency and Bankruptcy - Applicability of Amendment Ordinance to Pending Proceedings - Third Proviso to Section 7, Insolvency and Bankruptcy Code, 2016 and Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 - Directors contended that a Section 7 petition filed before the Ordinance but pending as on 28.12.2019 was required to comply with the allottee threshold, failing which it was deemed withdrawn prior to admission; compliance could not be subsequently cured - The NCLAT had found the Ordinance inapplicable; cross-appeals challenged this finding as erroneous (Paras 7-7.2). C) Insolvency and Bankruptcy - Speculative Investor Classification - Buy-Back Agreements with Assured Returns - Section 7, Insolvency and Bankruptcy Code, 2016 - The NCLAT classified applicants as speculative investors based on clauses obliging the corporate debtor to buy back apartments and refund with premium, making the agreement lucrative - The appeals raised whether such classification was correct and whether applicants qualified as financial creditors (Paras 6, 8.3). D) Insolvency and Bankruptcy - Compliance with Threshold Cannot be Cured - Third Proviso to Section 7, Insolvency and Bankruptcy Code, 2016 - Directors argued that after the Ordinance, a Section 7 petition could not be admitted unless the statutory threshold was met and that subsequent compliance in appellate proceedings was impermissible; the admission order failed to give effect to the binding mandate - The matter was under consideration as to whether the admission order was valid in light of the threshold requirement (Paras 7.2).
Issue of Consideration
Whether homebuyers with buy-back agreements and assured returns qualify as financial creditors under Section 7 of the Insolvency and Bankruptcy Code, 2016; Whether the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 applies to Section 7 petitions pending as on 28.12.2019 and requires compliance with the allottee threshold; Whether non-compliance with threshold can be cured in appellate proceedings
Final Decision
Not mentioned in provided text.
Law Points
- Allottees recognized as financial creditors under IBC to protect genuine homebuyers
- threshold requirement of 10% allottees or 100 allottees introduced to curb speculative misuse
- liquidation is last resort
- IBC not a recovery mechanism for individual disputes
- buy-back agreements with assured returns may render allottee a speculative investor
- pending Section 7 petitions must comply with amendment ordinance threshold
- else deemed withdrawn
- compliance cannot be subsequently cured in appellate proceedings
