Court Upholds Cancellation of Homebuyer Units in Insolvency Case

Background

In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) addressed the appeal of six homebuyers against the rejection of their application by the National Company Law Tribunal (NCLT). The homebuyers, who had entered into agreements with a corporate debtor for the purchase of flats, sought equitable treatment alongside other creditors after their units were unilaterally cancelled by the debtor prior to the initiation of the Corporate Insolvency Resolution Process (CIRP).

Arguments

The appellants argued that they were entitled to the restoration of their cancelled units and equitable treatment with other creditors. They contended that the corporate debtor had failed to deliver possession of their flats and that the cancellation of their units was done without proper notification. The Resolution Professional (RP) and the Successful Resolution Applicant (SRA) countered that the cancellations were valid, having occurred before the CIRP, and that the appellants had accepted partial refunds, which indicated their acceptance of the cancellation.

Court's Analysis and Reasoning

The court analyzed the timeline of events, noting that the cancellations occurred prior to the CIRP initiation and that the appellants had participated in the process without raising objections until the resolution plan was proposed. The court emphasized that the RP acted within its jurisdiction and that the information memorandum accurately reflected the status of the appellants' claims. It was determined that the appellants had not challenged the cancellations at the appropriate time and had accepted partial payments, which implied acquiescence to the cancellation.

Decision

The NCLAT dismissed the appeal, affirming the NCLT's decision. The court ruled that the cancellation of the units was legally valid and that the appellants could not claim restoration of their units or equal treatment with other creditors. This decision underscores the importance of timely action by creditors in insolvency proceedings and clarifies the implications of accepting partial refunds in relation to claims of ownership.