The judgment delivered by the Hon’ble Supreme Court of India in the Pioneer case, (popularly known as the flat buyers case) under the Insolvency & Bankruptcy Code (IBC) has settled a huge challenge mounted by the developers against the amendments brought about to the IBC by virtue of which allottees of real estate projects were deemed to be ‘Financial Creditors under’ the IBC.
The Court while dismissing a large number writ petitions filed by the developers upheld the constitutional validity of the August 17, 2018 amendment by virtue of which ‘Allottees’ were brought within the ambit of Financial Creditors and further held as under :
The Court further went on to direct :
Looking at the aforesaid it appears like a clear knock out punch for the Real Estate developers and a massive victory for the consumers at large. Having said that, according to the author, though all the legal and constitutional contentions of the Petitioners have been dismissed, in fact the Court has done a great balancing act which would go a long way to address some of the genuine grievances of the real estate developers and how they were being dealt with by the NCLT in such adjudications prior to this judgment. For instance, prior to this judgment the NCLTs invariably held that once it was shown by the allottee that there was a delay in the project, that was the end-all and be-all and they did not have the right to even determine whether there was a genuine default or breach by the allottee since disputes could not be looked into. Now, however, the developers would be entitled to raise certain defences and the NCLT would be required to address the same. For instance :
The aforesaid issue may seem innocuous at first, however, what would be very interesting to see is whether for a project which was earlier delayed and therefore presumably there was a default, would still fall within the same parameters once a new date for possession has been agreed to by the RERA authorities since all continuing projects were required to be registered with them.
Further, for the purpose of determining default, the NCLT would also need to determine (if the issues are raised appropriately by the developers) :
As can be seen above, a number of defenses now open up for the developers and in some ways indirectly brings the concept of dispute within the ambit of the proceedings, something that was not envisaged in the strict sense for financial creditors and was certainly not being looked into by the NCLTs at large. Clearly now it’s not going to be a straightforward cakewalk for all the allottees en masse and a filtration process to determine genuine cases has been read into the entire process. A number of developers would also heave a sigh of relief as at least now they have a fair chance of putting forth their defense.
Vaibhav Gaggar is a Partner at the law firm, Gaggar & Partners