The individual homebuyers cannot claim refund under Real Estate (Regulation and Development) Act (RERA) if it is in conflict with an insolvency resolution plan backed by the majority of homebuyers, the National Company Law Tribunal (NCLT) Mumbai bench has said in a recent order. The tribunal also held that a new developer taking over a project through insolvency cannot be bound by all contractual terms agreed between the original developer and buyers.The September 9 ruling is crucial because it establishes that buyers’ rights under Section 18 of RERA may change once a project enters insolvency and a resolution plan is approved. The tribunal also made clear that Section 238 of the Insolvency and Bankruptcy Code (IBC) gives the law overriding powers when its provisions conflict with another law. “By virtue of Section 238 of the Code, the provisions of the Code prevail in case of any inconsistency with other enactments,” the tribunal said.Homebuyers were given the status of financial creditors under the IBC in 2018, giving them a formal role in the insolvency process. They vote on resolution plans through an authorised representative, with the decision of the majority of the class binding individual buyers.
“Giving homebuyers financial creditor status under the IBC was an important step which provided them a foothold in the process. In practice, it has not ended their difficulties,” said Mukesh Chand, senior counsel at Economic Laws Practice. He said that individual homebuyers have to accept the majority’s decision even when their personal situation or contractual rights, such as the right to seek a refund, are different.
Majority Decision
The Mumbai bench was hearing a plea by four homebuyers of Spenta Enclave’s Altavista project. They had sought a refund after the developer failed to give them possession and argued that their rights under Section 18 of RERA should be protected in the resolution plan.
The homebuyers’ class held 22.66% voting share in the committee of creditors (CoC) and voted in favour of the plan. The four applicants together accounted for only 0.22% of the voting share, according to the order. The tribunal said individual members of the class are bound by the majority decision and that the NCLT cannot modify the commercial terms of a resolution plan or ask the creditors or resolution applicant to renegotiate it.
“It is also pertinent to note that the applicants’ claims as homebuyers stand admitted in the CIRP and their rights are governed by the treatment accorded under the resolution plan approved by the CoC. The applicants cannot insist upon a separate individualised remedy outside the framework of the insolvency process under the Code,” the order stated.
Protecting New Developers
The tribunal also held that the new developer cannot be strictly bound by all contractual terms agreed between buyers and the company undergoing insolvency. The tribunal also noted that the new developer was not a party to the case and therefore its interests could not be affected without hearing it.
Subodh Dandawate, associate director (regulatory advisory), Nexdigm said the order provides greater clarity to developers and investors on the liabilities they take on when acquiring a project through insolvency. “A resolution applicant taking over a project through insolvency cannot automatically be treated as having assumed every contractual obligation of the erstwhile developer. This strengthens predictability for investors and supports the objective of bringing credible capital into distressed assets,” he said.
