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TMI Blog2025 (5) TMI 800X X X X Extracts X X X X X X X X Extracts X X X X ..... t, seeking appropriation directions against the Respondent to admit the claim of the Appellant has been dismissed. 2. Sh. Vivek Kumar Resolution Professional of M/s AVJ Developers (India) Private Limited is the Respondent. 3. The Appellant stated that he submitted claims on 25.02.2021 under Form- C as a Financial Creditor to Resolution Professional. This claim pertains to 59 individual accounts of borrowers who obtained housing loans for purchasing residential units within the Corporate Debtor's project. The total amount claimed by the Appellant, as of 21.10.2019, is Rs. 17.46 Crores. 4. The Appellant brought out that he received a communication on 01.09.2022 from the Resolution Professional, who stated that the Appellant's claim had been rejected. The primary reason for this rejection was that only individual homebuyers are entitled to file claims directly with the Resolution Professional. The Appellant's was also deemed to lack locus standi, as it was made on behalf of the homebuyers without any formal authorization. The Appellant contends that this decision is unjust, as it undermines the collective interests of the homebuyers represented. The Appellant asserts th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that it is the intent of the Agreement which is vital to determine whether it is Financial Debt in terms of Section 5 (8) of the Code or not as well as who is the Financial Creditor. The Appellant submitted that in present case clearly he is the Financial Creditor as he directly lent money to the Corporate Debtor, albeit on behalf of the Homebuyer/borrower, with clear and specific clause that in case of any default by the Homebuyer/borrower or Builders/Corporate Debtor not delivering flat to the Borrower etc. the Builders/Corporate Debtor will refund money to the Appellant Bank. 9. The Appellant submitted that he has approached the Debt Recovery Tribunal ('DRT') by filing Original Applications ('OAs') against the individual homebuyers (borrowers) concerning the outstanding dues. In its rulings on these OAs, the DRT, Delhi, has directed that the primary liability to refund the outstanding dues owed to the Applicant Bank lies with the Corporate Debtor. Specifically, one such OA filed by the Appellant, bearing number 356/2019, was disposed of in accordance with this directive. 10. The Appellant submitted that in a separate instance concerning one of the accounts, where the borrow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able under the law as the Adjudicating Authority failed to recognize that the Appellant cannot be left without a remedy concerning the admitted and adjudicated debt and default. Furthermore, the reliance placed by the Adjudicating Authority on the judgment in Value Infracon India Limited (Supra) is not applicable to the present case, given the specific orders issued by the DRT, Delhi, which allow the bank to pursue its claim before the Liquidator or the National Company Law Tribunal, as appropriate. The Adjudicating Authority has also overlooked that under the framework of the Code, particularly as per Section 5(8), the Appellant has the right to maintain its claim as a Financial Creditor against the Corporate Debtor in this case. 16. The Appellant submitted that the contractual arrangement established between the parties explicitly required the Corporate Debtor to indemnify the Bank in the event of a default. The Appellate submitted that the Allottees or borrowers, who received the loan, have not submitted any claims to the Respondent/ Resolution Professional. Consequently, in the absence of such claims being listed among the creditors in the information memorandum, there exists ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 5(8)(f) the Allottees are identified as Financial Creditors. The Appellant elaborated that when any claim falls under the definition of the financial debt then such liability in the case of presence of guarantee or indemnity by any Person will also fall under the category of financial debt and in terms of Section 5(8)(i) such claimant is to be treated as Financial Creditors. The Appellant emphasised that the analogy is that when in case of contract of guarantee if a claim of the principal borrower falls under the head of financial debt then upon invocation of guarantee the claim against the guarantor by the creditor will also fall under the head of financial debt and such creditor will be treated as Financial Creditors. The Appellant elaborated that in the present case, the Corporate Debtor has already undertaken to secure the amount in Tripartite Agreement then the Appellant is also to be treated as financial creditor because the claim of the Allottee falls under the head of financial debt in view of Section 5(8)(i) of the Code. 21. The Appellant submitted that consequence of event of default is also clearly provided in the tripartite agreement which the Resolution Profe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Value Infracon India Private Limited (Supra), wherein it was held that Bank can't be treated as Financial Creditor in real estate project and it is only Homebuyers who are to be considered as the Financial Creditor as a class. 28. The Respondent submitted that, based on the said judgment, the Appellant cannot be classified as a Financial Creditor with respect to the loans extended to homebuyers for the purpose of financing the allotment of flats in the AVJ Heights project of the Corporate Debtor. 29. The Respondent submitted that the Appellant has attempted to establish its status as a Financial Creditor by relying on the tripartite agreements entered into among the homebuyers, the Appellant, and the Corporate Debtor. The Respondent referred to the recitals in these tripartite agreements states: "WHEREAS the Borrower has approached the Bank to grant him a loan of Rs.11,00,000 (Rupees Eleven Lac Only) for the purchase of Schedule B property, and the Bank has, via its sanction letter dated ..., agreed to sanction the loan of Rs.11,00,000 (Rupees Eleven Lac Only) to the Borrower (hereinafter referred to as 'Loan')." The Respondent also gave reference to various clauses with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent stated that the existence of a tripartite agreement does not alter the nature of the amount borrowed by the homebuyer in relation to the Bank and the Corporate Debtor. 33. The Respondent submitted that many homebuyers have already filed their claims in accordance with the law and accepting the Appellant's claim would lead to duplicity of claims, which could adversely impact the value of the Corporate Debtor and potentially disrupt the ongoing CIRP. 34. The Respondent submitted that the Appellant has relied on the order dated 26.08.2022 issued by the Debt Recovery Tribunal in O.A. No. 356/2019 which was obtained by the Appellant through the concealment of material facts and in violation of Section 14(1)(a) of the Code, which imposes a moratorium on the institution of suits or continuation of pending suits or proceedings against the corporate debtor, including execution of any judgment, decree, or order in any court of law, tribunal, arbitration panel, or other authority. The Respondent stated that the Appellant filed its claim on 01.09.2021, while the order from the Debt Recovery Tribunal was pronounced on 26.08.2022. This timeline clearly indicates that the Appellant fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laims by the Appellant regarding a guarantee or indemnification by the Corporate Debtor lack legal merit and should be rejected. 37. The Respondent submits that the appellant claim regarding a prior charge or mortgage over the property, as stipulated in the Lease Deed dated 01.09.2010 between the Greater Noida Industrial Development Authority (GNIDA) and the Corporate Debtor, is without merit. The Respondent explained that Lease Deed explicitly states that the Corporate Debtor could only create a charge or mortgage on the property after obtaining prior permission from GNIDA. In this instance, the Respondent stated that no such permission was ever sought or obtained by the Corporate Debtor, thereby rendering any purported charge in favor of the Appellant invalid. The Respondent emphasized that Appellant was fully aware of the terms of the Lease Deed, as these terms were also referenced in the Builder Buyer Agreement executed between the allottee and the Corporate Debtor. This agreement was available to Appellant at the time of executing the Tripartite Agreement, further indicating that Appellant cannot claim ignorance of the restrictions imposed by GNIDA. The Respondent contended t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Plan need not to be return to CoC at any event. "1. In case any additional fund required for the completion of project or for the payment of any inability as per the resolution plan, the same shall be infused by the RA from his own source." 45. The Intervenor further argued that even if the claim of the Appellant/Canara Bank is admitted, its share in the Committee of Creditors (CoC) would remain negligible, amounting to less than 1%. Furthermore, if additional claims are admitted after CoC approval of the Resolution Plan and the plan is subsequently referred back to the CoC, it could create perpetual delays, hindering the approval of the Resolution Plan by the CoC and, consequently, by the Adjudicating Authority. 46. Concluding his arguments, the Intervenor requested this Appellate Tribunal to dismiss this appeal. Findings 47. We note that the Appellant/Canara Bank filed claims asserting that it advanced funds to Corporate Debtor on behalf of the individual homebuyers for dwelling units. We note that the Corporate Debtor defaulted on construction and in handing over flats and is currently under CIRP. The Respondent rejected Appellant's claim on 01.09.2022, stating th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by acceptance under any acceptance credit facility or its de materialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on non-recourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; [Explanation. -For the purposes of this sub-clause, - (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and (ii) the expressions, "allottee" and "real estate project" shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);] (g) any derivative transaction entered into in connection with protection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect shall be deemed to be an amount having commercial effect of borrowing and such debt to be further classified as a financial debt. In addition, the home buyers being financial creditors are entitled to be represented in the Committee of Creditors (COC) through their authorised representative and also possess voting rights pursuant to Regulation 16A & 25A of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate persons) Regulations, 2016. b. Secondly, the Hon'ble National Company Law Appellate Tribunal, New Delhi Bench at New Delhi, in the matter of Axis Bank Limited Vs. Value Infracon India Private Limited & Aur [Company Appeal (AT) (Insolvency) No. 582 of 20201 vide order dated 20.12.2021, stated "17. Be that as it may, we are of the considered view that this subject matter cannot be viewed from such a narrow compass. It is definitely not the scope and objective of the Code to incinde Banks/Financial Institutions which have advanced louns to Hame Buyers to be considered as 'Financial Creditors' and included in the CoC, specifically in the light of the fact the liability to repay the Home Loan it on the individual Home Buyers. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l or not to file claims but it is not for bank to file such claims but Appellant bank can take the legal recourse against homebuyers in accordance with the law. 53. Now it will be desirable to look into and examine the relevant clauses of the tripartite agreement entered into amongst the Appellant Bank, the Homebuyers and Borrower/ Corporate Debtor. The relevant portion of the tripartite agreement is reproduced as under :- "उत्तर प्रदेश UTTAR PRADESH CA 138831 Tripartite Agreement (To be executed by the Borrower, Canara Bank and Land owning Builder/PA holder of the land owner having rights to construct and sell Flats) WHEREAS under an Agreement for Sale dated entered into between the Builder and the Borrower, the Builder has agreed to sell Schedule B property to the Borrower and in furtherance thereof, the Borrower has already paid to the builder Rs.15,85,000/- (Rupees Fifteen Lac Eighty Five Thousand Only) by way of advance money and the receipt of which is acknowledged by the Builder. WHEREAS the Borrower has approached the Bank to grant him loan of Rs 11,00,000/- (Rupees Eleven lac Only) for purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrower. 13. The Borrower/s, hereby undertakes to create equitable mortgage in favour of Bank after obtaining the original sale deed of Schedule B Property as per guidelines of the Bank. 16. In the event of default of repayment of the loan and/or the Borrower(s) committing any other default which make the Borrower liable for the re payment of the entire amount outstanding in the said loan as per the terms of the loan agreement executed between the Borrower's and the Bank, or if the Borrower withdraws from his agreement or Builder cancels the booking of the Borrower, or in the event of failure of the Builder to complete the project, or in the event of death of the Borrower, or in any event where the title to the schedule flat/dwelling unit is not/not being passed on to the Borrower or in any other eventualities of the nature by which the loan advanced by the Bank is not utilised for the purpose for which it was so advanced or breach of any of the terms and conditions contained in this agreement, the entire amount advanced by the Bank on account of the Borrower shall be refunded by the Builder to the Bank. If the entire amount refunded by the Builder is insufficient to close t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be viewed from such a narrow compass. It is definitely not the scope and objective of the Code to include Banks/Financial Institutions which have advanced loans to Home Buyers to be considered as 'Financial Creditors' and included in the CoC, specifically in the light of the fact the liability to repay the Home Loan is on the individual Home Buyers. This would defeat the very spirit and objective of the Code aiming at Resolution and maximisation of the assets of the 'Corporate Debtor'. Presence of a mere tri-partite Agreement does not change the character of the amount borrowed by the Home Buyer vis-a-vis the Bank and vis-avis the 'Corporate Debtor'. Viewed from any angle, the Appellant cannot be included as a 'Secured Financial Creditor' in this case". 3. Although Counsel for the Appellant has vehemently argued that the impugned order is bad in law but he could not cite any judgment to the contrary to the decision rendered in the Case of Axis Bank (Supra), therefore, we do not find any merit in the present appeal and the same is hereby dismissed. No costs. (Emphasis Supplied) 55. It will be necessary for us to refer to order of the Hon'ble Supreme Court of India while r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts raised from home buyers contributes significantly to the financing of the construction of such flats/apartments. This being the case, it was important, therefore, to clarify that home buyers are treated as financial creditors so that they can trigger the Code under Section 7 and have their rightful place on the Committee of Creditors when it comes to making important decisions as to the future of the building construction company, which is the execution of the real estate project in which such home buyers are ultimately to be housed. 19. Shri Shardul Shroff, whose dissent was provided to us in the form of an e-mail, after finding that self-financed home buyers may be financial creditors, but a home buyer who is a borrower is not, then went on to state: "8. If the home buyers have taken loans from banks, then it is such lenders who should be on the table on the CoC as special status creditors. 9. Our report ought to be altered to the extent that home buyers financiers should be treated as unsecured financial creditors and they should be representatives of the home buyers. There should be no direct right given to home buyers to be on the CoC." Even the dissent of Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whom crores of money may be due. 69. That this amendment is in fact clarificatory is also made clear by the Insolvency Committee Report, which expressly uses the word "clarify", indicating that the Insolvency Law Committee also thought that since there were differing judgments and doubts raised on whether home buyers would or would not be included within Section 5(8)(f), it was best to set these doubts at rest by explicitly stating that they would be so covered by adding an explanation to Section 5(8)(f). Incidentally, the Insolvency Law Committee itself had no doubt that given the 'financing' of the project by the allottees, they would fall within Section 5(8)(f) of the Code as originally enacted." (Emphasis Supplied) 57. In Pioneer Urban Land (Supra) we note that several Writ Petitions were filed before the Hon'ble Supreme Court of India challenging the constitution validity of the amendment made to the Code subsequent to report of Insolvency Law Committee dated 26.03.2018. The amendment was made under Section 5(8)(f) of the Code which entitles the allottees of the real estate project to be financial creditor so that they could independently pursue Section 7 of the Code. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... email, but the Office of the IRP refused to accept the Hard Copy; the RP rejected the document of the Appellant for want of documents on 07.10.2018; the Appellant submitted the claims once again with the relevant documents, but the same was not accepted; and thereafter the Appellant choose to file this Application before the Adjudicating Authority. 4. Submissions of Learned Counsel appearing on behalf of the Appellant: Learned Counsel for the Appellant vehemently contended that the Adjudicating Authority directed the RP to consider the claim of the Appellants in the light of the decree/recovery certificate issued by the Debt Recovery Tribunal (DRT) as the recovery certificates have been issued jointly against the Home Buyers and the 'Corporate Debtor'. Therefore, the Appellant who is a certificate holder in the DRT proceedings, cannot be put outside the purview of the definition of Creditor as defined under Section 3(10) of the Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as the 'Code'). ... Learned Counsel argued that the allottees are getting the refund of their money under the Resolution Plan in settlement of their claims, there is a possibility that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allottees who have purchased Flats/units in the Project floated by the 'Corporate Debtor' 9. The Hon'ble Supreme Court in paras 18 and 19 in 'Pioneer Urban Land & Infrastructure Ltd. & Anr.' (Supra) has observed as follows: 19. Shri Shardul Shroff, whose dissent was provided to us in the form of an e-mail, after finding that selffinanced home buyers may be financial creditors, but a home buyer who is a borrower is not, then went on to state : "8. If the home buyers have taken loans from banks, then it is such lenders who should be on the table on the CoC as special status creditors. 10. It is clear from the principle laid down by the Hon'ble Supreme Court in 'Pioneer Urban Land & Infrastructure Ltd. & Anr.' (Supra) that it is the Home Buyer who should be considered as 'Financial Creditors' of the 'Corporate Debtor' whether he has self financed his flat or has exercised his choice of taking a loan from the Bank. 11. Additionally, we are of the considered view that as per Section 77 of the Companies Act, 2013 every security interest has to be registered with the Registrar within 30 days of its creation and admittedly no 'charge' has been created against any of the property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments were construction linked, the Bank released the entire amount prior to completion of construction. 17. Be that as it may, we are of the considered view that this subject matter cannot be viewed from such a narrow compass. It is definitely not the scope and objective of the Code to include Banks/Financial Institutions which have advanced loans to Home Buyers to be considered as 'Financial Creditors' and included in the CoC, specifically in the light of the fact the liability to repay the Home Loan is on the individual Home Buyers. This would defeat the very spirit and objective of the Code aiming at Resolution and maximisation of the assets of the 'Corporate Debtor'. Presence of a mere tri-partite Agreement does not change the character of the amount borrowed by the Home Buyer vis-a-vis the Bank and vis-a-vis the 'Corporate Debtor'. Viewed from any angle, the Appellant cannot be included as a 'Secured Financial Creditor' in this case and hence we find no reasons to interfere with the well-reasoned Order of the Adjudicating Authority." (Emphasis Supplied) 61. We have already noted that while remanding the present appeal back to us for fresh consideration, the Hon'ble Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d either in the Bank's name or in the name of the Bank's nominee." ( Emphasis Supplied ) 65. This clause of Value Infracon India Private Limited (Supra) clearly indicate that in case borrower/ homebuyers failed to honour its commitment, the bank had right to pay the balance sale consideration and get it registered either in bank's name or its nominee's name. 66. In contrast to this the cause 16 of tripartite agreement of the present case before us reads as under : "16. In the event of default of repayment of the loan and/or the Borrower(s) committing any other default which make the Borrower liable for the re payment of the entire amount outstanding in the said loan as per the terms of the loan agreement executed between the Borrower's and the Bank, or if the Borrower withdraws from his agreement or Builder cancels the booking of the Borrower, or in the event of failure of the Builder to complete the project, or in the event of death of the Borrower, or in any event where the title to the schedule flat/dwelling unit is not/not being passed on to the Borrower or in any other eventualities of the nature by which the loan advanced by the Bank is not utilised for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement falls on the builder/ Corporate Debtor. This indicate relationship of the Appellant Bank and the Corporate Debtor to meet the stipulation of Section 5(8) of the Code regarding the financial debt. This aspect was not available in the case of Value Infracon India Private Limited (Supra). 70. In Clause 16 of the tripartite agreement in the present appeal and it is only on the failure of the builder to repay to the Appellant/Bank, the borrower/ homebuyer is required to repay the entire outstanding balances to the Appellant/ Bank. We note that this is quite distinctive term which has been signed by the Appellant Bank as lender, the borrower (homebuyers) and the builder (Corporate Debtor) making direct relationship and set of obligations and rights between the Appellant/ Bank and the Corporate Debtor/ Builder. In fact, the primary responsibility in the present case is of the Corporate Debtor/ Builder and secondary responsibility is of borrower/ Homebuyers. 71. We have already taken into consideration the definition of financial debt in our earlier discussion. The main requirement is that there must be debt along with interest, if any, which is disbursed against time value and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r', can very well enforce the 'Security Interest', resting on Section 58(f) of the 'Transfer of Property Act', 1882 and `Rule 8 of the Security Interest (Enforcement) Rules, 2002', comes to a resultant conclusion that 'mortgage', is the result of the `Act of Parties', where the `Transfer of Ownership Interest', in a particular `Immoveable Asset' is created, and that the conclusion arrived at by the `Adjudicating Authority / Tribunal', in upholding the decision of the `Liquidator', in classifying the `Appellant / Petitioner / Bank', as an `Unsecured Financial Creditor', is an illegal and an invalid one, in the eye of `Law' and in the `Liquidation Proceedings', the Appellant /Bank, is to be treated as `Secured Creditor', as held by this `Tribunal'. 53. In addition, the `non-registration of the Mortgage', as per Section 77 of the Companies Act, 2013, is not a sufficient / enough ground, to come to an `opinion', that the `Appellant', is not a `Secured Creditor'. In reality, the 'rights' of a `Mortgagee', under the `Transfer of Property Act', 1882 and the 'SARFAESI Comp. App (AT) (CH) (Ins) No. 277/2023 Page 22 of 23 Act', are not to be diluted, in terms of Regulation 21 of IBBI (Liqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Resolution Plan. Thus, even the plan is approved by CoC, the home-buyers/ Financial Creditor are entitled to file their claims and there is no extinguishment of the claims during such protected period. 81. We note that Intervenor brought to our notice the clause in Resolution Plan :- "1. In case any additional fund required for the completion of project or for the payment of any inability as per the resolution plan, the same shall be infused by the RA from his own source." In fact the pleadings of the Intervenor and provision in the Resolution Plan support the cause of the Appellant and gives the Appellant due protection. 82. In view of above detailed discussion, the appeal succeeds. The Impugned Order is set aside and I.A No. 836 / 2023 in C.P. (IB) No. 654(PB)/2019 is restored to its original number and the matter is remanded back to the Tribunal for reassessment of the case, in accordance with law. The Adjudicating Authority may decide without being influenced by any of the observation made herein above. All contentions of the parties will also remain open. 83. Parties are directed to appear before the Adjudicating Authority on 27.01.2025. 84. No costs. I.A. if any, are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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