NCLAT: Homebuyers Retain Financial Creditor Status Under IBC Even After Obtaining RERA Recovery Certificates
Pranav B Prem
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has reaffirmed the legal position that allottees of real estate projects remain "financial creditors" under Section 5(8)(f) of the Insolvency and Bankruptcy Code, 2016 (IBC), irrespective of whether they have obtained Recovery Certificates (RCs) or decrees under the Real Estate (Regulation and Development) Act, 2016 (RERA). The Tribunal dismissed an appeal filed by a suspended director of M/s NHA Infrabuild Pvt. Ltd., challenging the admission of a Section 7 application filed by homebuyers.
Background
The appeal under Section 61 of the IBC was filed by Shailendra Agarwal, suspended director of M/s NHA Infrabuild Pvt. Ltd., against the order dated 31.01.2025 passed by the NCLT, Allahabad Bench, which had admitted the application filed under Section 7 by 22 allottees and initiated the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor. The application was filed in connection with the housing project "Nikhil Park Royale" in Agra, developed by Nikhil Home Associates (later converted into M/s NHA Infrabuild Pvt. Ltd.).
The dispute arose from the developer’s failure to deliver possession of flats to allottees who had entered into agreements as early as 2012. The date of default was recorded as 10.12.2015, following which several homebuyers approached UP RERA starting in 2018 and obtained refund orders. Some recovery amounts were disbursed via District Magistrate proceedings, but significant dues remained.
Appellant’s Objections
The Appellant raised several objections, most notably:
Limitation: The Section 7 petition was allegedly time-barred as it was filed on 12.01.2024, more than eight years after the date of default (10.12.2015). It was contended that neither Section 18 nor Section 22 of the Limitation Act, 1963, applied in the present case. The appellant argued that mere filing of financial statements with RERA does not amount to a valid acknowledgment of debt.
Fraud and Malicious Intent: The Appellant claimed that several allottees were speculative investors, some had already been refunded, and certain documents submitted were forged. Allegations under Section 65 of IBC were also made, suggesting the petition was an exercise in forum shopping.
Threshold Not Met: It was contended that many Respondents held multiple units or had exited the project and that the petitioners did not satisfy the minimum requirement of 100 allottees or 10% of total allottees as required under the second proviso to Section 7(1) of the IBC.
Decree Holders Not Financial Creditors: The Appellant argued that once recovery certificates were obtained under RERA, the beneficiaries ceased to be “allottees” and could no longer be treated as financial creditors.
Respondents’ Defence
The homebuyers, through their counsel, opposed the appeal on various grounds:
The default was a continuing breach as possession had never been handed over. Under Section 22 of the Limitation Act, a fresh cause of action arises with each successive failure to deliver.
The Corporate Debtor’s balance sheet dated 30.06.2022 showed acknowledgment of liability without any caveats, which extended the limitation period under Section 18 of the Limitation Act.
The total project comprised 247 units, and the petitioners collectively held 34 allotted units, clearly satisfying the statutory threshold under Section 7(1).
They relied on the Supreme Court’s decision in Vishal Chelani v. Debashis Nanda [(2023) 10 SCC 395], to argue that decree-holders under RERA continue to retain the status of financial creditors and are governed by the same threshold norms.
NCLAT’s Findings
The NCLAT bench meticulously analyzed the submissions and dismissed the appeal with a detailed judgment. Key observations included:
Limitation Not Barred:
The Tribunal held that the default constituted a continuing cause of action as possession was never delivered and refunds were not made in full.
Acknowledgment in the balance sheet dated 30.06.2022 was deemed valid under Section 18 of the Limitation Act, relying on the Supreme Court’s judgment in Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal [ Civil Appeal No. 323 OF 2021].
It further invoked the Supreme Court’s suo motu extension of limitation during the COVID-19 pandemic (15.03.2020 to 31.05.2022), making the petition filed on 09.01.2024 well within limitation.
Threshold Requirement Met:
The Respondents met the statutory minimum as they collectively held 34 units, well above the 10% threshold (25 units out of 247).
The Tribunal rejected the allegations of ineligibility based on refunds or forgery, noting lack of cogent evidence.
Decree Holders Still Financial Creditors:
The Appellate Tribunal firmly relied on Vishal Chelani [(2023) 10 SCC 395] and Rahul Gyanchandani [2024 SCC OnLine NCLAT 469] decisions to hold that even after obtaining RCs under RERA, homebuyers retain their status as financial creditors under Section 5(8)(f).
It clarified that issuance of a recovery certificate only confirms the existence of debt and default and does not extinguish the rights under IBC.
No Malicious or Fraudulent Intent:
Section 65 of IBC was held inapplicable as the allegations of fraud lacked substantive proof.
The Appellate Tribunal emphasized that speculative motive or multiple ownership does not negate the genuine nature of the homebuyers' claims.
The Tribunal underscored that unless fraud or malice is proved with documentary evidence, penal action under Section 65 cannot be invoked.
Continuity of Liability Despite Conversion:
M/s Nikhil Associates was converted into M/s NHA Infrabuild Pvt. Ltd. under Section 366 of the Companies Act, 2013, but the Tribunal held that this did not absolve pre-existing obligations. Citing Sections 369 and 370 of the Companies Act, it was held that all liabilities continue post-conversion.
Verdict
The Tribunal upheld the NCLT's order admitting the CIRP against M/s NHA Infrabuild Pvt. Ltd., rejecting all objections regarding limitation, eligibility, and fraud. It concluded that the Section 7 petition was maintainable, and the homebuyers, including those holding RERA recovery certificates, rightfully qualified as financial creditors under the IBC.Accordingly, the appeal was dismissed and the CIRP ordered to continue.
Appearance
For Appellant : Mr. Abhijeet Sinha, Sr. Advocate with Mr. Anuj Tiwari, Mr. Bharat Bhusan Paul, Mr. Pawan Kumar Ray, Mr. Vaibhav Vats and Ms. Kaanchi Ahuja, Advocates.
For Respondent: Mr. Abhishek Anand, Ms. Babita Jain and Ms. Palak Kalra, Advocates. Mr. K. Kohli, Advocate for IRP.
Cause Title: Shailendra Agarwal V. Asit Upadhyaya and Ors.
Case No: Company Appeal (AT) (Insolvency) No. 327 of 2025
Coram: Justice Ashok Bhushan [Chairperson] , Mr. Arun Baroka [Member (Technical)], Mr. Barun Mitra [Member (Technical)]
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