Recovery Certificate Holders Remain 'Financial Creditors' for IBC Section 7: NCLT Allahabad - 2025-03-12

NCLT Allahabad Admits CIRP Against NHA Infrabuild , Affirms Homebuyers with Recovery Certificates as Financial Creditors

Allahabad, India – The National Company Law Tribunal (NCLT), Allahabad Bench, presided over by Judicial Member Mr. Praveen Gupta and Technical Member Mr. Ashish Verma , has admitted a petition under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016, initiating the Corporate Insolvency Resolution Process (CIRP) against M/S NHA Infrabuild Private Ltd. The application was filed by 22 homebuyers seeking to recover dues amounting to ₹14.57 Crore.

Case Overview: Homebuyers vs. NHA Infrabuild

The case arose from an application filed by 22 homebuyers, categorized as financial creditors, against NHA Infrabuild Private Ltd, a real estate developer. These homebuyers had invested in the ‘Nikhil Park Royal’ project in Agra, for which possession was significantly delayed beyond the agreed timelines. Despite payments made, the project remained incomplete, and possession was not handed over. Aggrieved, the homebuyers approached the Uttar Pradesh Real Estate Regulatory Authority (UPRERA) and other forums, some even obtaining Recovery Certificates (RCs) for refunds.

Arguments Presented

Financial Creditors (Homebuyers): The homebuyers argued that NHA Infrabuild defaulted on its financial debt by failing to deliver possession of the flats and refunding their investments. They contended that they qualify as financial creditors under Section 5(8)(f) of the IBC and meet the threshold criteria for initiating CIRP. They highlighted the continuing nature of the default and the project's non-completion, even leading to UPRERA cancelling the project registration. They cited precedents affirming that Recovery Certificate holders retain their status as financial creditors.

Corporate Debtor ( NHA Infrabuild ): NHA Infrabuild opposed the application, arguing that many homebuyers had already received full or partial refunds, thus not meeting the numerical threshold for Section 7 applications by homebuyers. They claimed that homebuyers with Recovery Certificates are no longer considered ‘allottees’ for IBC purposes and that the application was filed beyond the limitation period. Furthermore, allegations of forgery were raised against some homebuyers regarding their allotment letters, and forum shopping was cited, arguing that homebuyers were pursuing multiple remedies simultaneously.

Legal Principles and Precedents

The NCLT bench extensively discussed the legal position concerning homebuyers, particularly those possessing Recovery Certificates. The tribunal relied heavily on the Supreme Court’s judgment in Vishal Chelani v. Debashis Nanda and the NCLAT’s ruling in Rahul Gyanchandani and Ors. v. Parsvnath Landmark Developers Pvt. Ltd. These judgments established that homebuyers who obtain Recovery Certificates under RERA remain financial creditors under the IBC. The tribunal distinguished these precedents from judgments cited by the Corporate Debtor, such as Sushil Ansal v. Ashok Tripathi & Ors. and Neeraj Kumar Dubey & Ors. v. Rudra Buildwell Projects Pvt. Ltd. , clarifying that the legal landscape has evolved to recognize RC holders as financial creditors for IBC purposes.

The NCLT emphasized the continuing nature of default in real estate projects, particularly when possession is not delivered, referencing YADUBIR SINGH SAJWAN AND ORS versus SOM RESORTS PVT. LTD. on the point of limitation. The bench also affirmed that the doctrine of election and forum shopping are not applicable in IBC proceedings, as the Code and RERA operate in distinct spheres, as highlighted in Pioneer Urban land and Infrastructure Limited and Anr. Vs. Union of India and Ors .

Pivotal Excerpts from the Judgment

> "Thus, default by the Respondent Corporate Debtor is continuing in nature and it is accepted to have continued till 30.06.2022 in its balance sheet due to non- handing over of the flats as well as after having failed to deliver the possession of the flats, not refunding the amounts deposited against these flats by the Applicant Financial Creditor. Such default continued up to the date of filing of the present Application and is still continuing."

> "We have carefully considered the legal position as put up before us based on the above judicial pronouncements as regards to the home buyers who have secured recovery certificate/decree under RERA Act, and we are of considered opinion that this issue is no more res integra after the decision of the Hon’ble Supreme Court in case of Vishal Chellani (supra) and further interpreted by the Hon’ble NCLAT in case of Rahul Gyanchandani(supra)."

Court's Decision and Implications

The NCLT Allahabad Bench concluded that the homebuyers are indeed financial creditors and that the application was filed within the limitation period. The bench found that the Corporate Debtor had defaulted on its financial obligations, and the threshold for initiating CIRP was met. Consequently, the Section 7 application was admitted, initiating CIRP against NHA Infrabuild .

An Interim Resolution Professional (IRP), Mr. Pramod Kumar Sharma, was appointed to manage the CIRP. A moratorium was declared, prohibiting any actions against the Corporate Debtor, including institution of suits, asset transfers, or enforcement of security interests.

This judgment reaffirms the rights of homebuyers as financial creditors under the IBC, even when they have pursued remedies under RERA and obtained Recovery Certificates. It underscores the continuing nature of default in delayed real estate projects and provides a significant avenue for homebuyers to recover their investments through the IBC mechanism. The case is listed for further proceedings on 17.03.2025.