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Kolkata Allows Homebuyer Alternative Flat or Full Refund After Invalid Cancellation
In a significant ruling that underscores the protections available to homebuyers under the , the ) has held that a developer’s purported cancellation of a flat allotment was invalid because it was conditional upon the payment of a refund that never occurred. The tribunal consequently granted the allottee the option of receiving an alternative flat with a covered car parking space or a full refund of the amount paid, along with interest at .
The decision, delivered by Judicial Member Bidisha Banerjee and Technical Member Rekha Kantilal Shah, arose from an application filed by Sujay Shankar Mukherjee, who had been allotted Flat No. 2A6 in Tower-17 of the Hiland Greens Phase-I project developed by . The case carries important implications for resolution professionals and creditors dealing with claims where cancellations are linked to unfulfilled conditions.
A That Never Materialized
Mukherjee had paid an aggregate sum of ₹20.07 lakh towards the flat and a separate covered car parking space allotted to him in . The developer purported to hand over physical possession of the flat in after payment of the final instalment. However, a joint inspection conducted on revealed multiple deficiencies—including a missing parking space, incomplete bathrooms, balconies and flooring, and no electricity or water connections.
Dissatisfied with the state of the flat, Mukherjee sought cancellation and a refund. The developer agreed to refund ₹18 lakh but never actually made the payment. Meanwhile, initiated against Riverbank Developers, and the admitted the petition on , commencing the . The resolution professional (RP) admitted ₹18 lakh of Mukherjee’s total ₹20.07 lakh claim, but Mukherjee later learned that his allotment had been cancelled based on his earlier email requesting cancellation.
The Core Legal Issue: When Is a Cancellation Effective?
The closely examined the developer’s email correspondence and concluded that the cancellation was never unconditional. The bench observed: “the cancellation of the allotment was conditional upon the actual payment of the refund of Rs. 18 Lakh to be made by the Corporate Debtor to the Applicant.” Since the developer never paid the promised refund, the for cancellation remained unfulfilled.
The tribunal further noted that no formal cancellation letter had ever been issued. The developer had merely recorded a cancellation in its internal records based on Mukherjee’s request, but the agreement clearly tied the cancellation to the refund. “Since no refund was made, the cancellation was never final,” the bench stated. Consequently, the held that there was “no cancellation left for the RP to reverse”—the purported cancellation was .
for a Homebuyer Who Paid in Full
The tribunal emphasised the inequity of allowing a developer to retain the entire amount paid by a homebuyer while treating the allotment as cancelled. Mukherjee had made full or substantial payment towards the flat and parking space. To cancel the allotment after receiving such a significant sum, without refunding the money, would be “inequitable and highly unfair,” the bench observed.
However, the original flat had already been allotted to a third party, who had been granted possession. The therefore crafted a two-pronged remedy tailored to the circumstances. First, Mukherjee can seek an alternative flat in the same Hiland Greens Phase-I project, along with a covered car parking space. This alternative allotment is subject to the payment of necessary charges and any escalation amount applicable to another similar allottee, and must be approved by the with 66% votes. Second, if Mukherjee prefers, he can opt for a full refund of the amount paid, with interest in accordance with . The refund amount must be provided for in the .
Implications for Insolvency Practice
This ruling clarifies a critical point for resolution professionals and stakeholders in real estate insolvency cases. When a developer and a homebuyer agree that cancellation will take effect only upon payment of a refund, the cancellation does not become final until the refund is actually made. Any internal recording of cancellation without compliance with the condition is legally ineffective.
The decision also reinforces the primacy of homebuyer rights under the IBC. Homebuyers are treated as , and their claims—including those for refund or alternative allotment—must be dealt with fairly during the resolution process. The ’s direction that the alternative allotment requires CoC approval with a ensures that the accounts for such obligations in a transparent manner.
From a practical standpoint, resolution professionals must scrutinise the terms of any cancellation agreement between the developer and the allottee. If the cancellation is conditional and the condition has not been fulfilled, the RP should treat the allotment as subsisting and the allottee’s claim as valid for the full amount paid, not merely the refund component.
Broader Impact on Homebuyers and Developers
For homebuyers, this judgment provides a strong precedent that a developer cannot unilaterally cancel an allotment without fulfilling its side of the bargain—especially when the developer has already received substantial payments. The ruling sends a clear message that equity and fairness will guide the ’s approach, even in the midst of .
Developers and their resolution professionals will need to revisit their treatment of conditional cancellations. Any attempt to cancel an allotment without completing the agreed refund may be challenged successfully. Moreover, the possibility of an alternative allotment—subject to CoC approval—offers a middle ground that preserves the value of the project while protecting the homebuyer’s interests.
The decision also highlights the importance of proper documentation. Had the developer issued a formal cancellation letter and actually paid the refund, the outcome might have been different. The absence of both formal cancellation and payment proved fatal to the developer’s position.
Conclusion
The Kolkata bench’s ruling in the case of Sujay Shankar Mukherjee is a well-reasoned application of the principle that conditions precedent must be satisfied before a cancellation can take effect. By allowing the homebuyer the choice of an alternative flat or a full refund with statutory interest, the tribunal has balanced the rights of the allottee against the practical realities of a project already partly transferred to a third party.
The judgment serves as a valuable reference for future insolvency cases involving real estate developers and homebuyers, reinforcing that the IBC is not merely a debt recovery mechanism but also a tool for . The application was allowed and disposed of accordingly.
