NCLT Ruling: Industrial Unit Purchasers Not Financial Creditors Under IBC

Tribunal clarifies distinction between homebuyers and commercial investors in insolvency proceedings.

In a significant ruling, the National Company Law Tribunal (NCLT), Mumbai Bench, has dismissed the application of M/s. Harisharan Hi-Tech Industries, seeking recognition as a "Financial Creditor" under the Insolvency and Bankruptcy Code (IBC) for their investment in an industrial unit. The tribunal upheld the decision of the Interim Resolution Professional (IRP) to classify the applicant as an "Other Creditor," emphasizing that the purchase of industrial units does not equate to financial debt under Section 5(8)(f) of the IBC.

The case involved M/s. Harisharan Hi-Tech Industries, which had invested in the Renaissance Industrial Smart City Project through a registered Agreement for Sale and a Memorandum of Understanding. The investment included an assured monthly return from the developer, Renaissance Infrastructure Pvt. Ltd., until the initiation of the Corporate Insolvency Resolution Process (CIRP) in March 2023. The applicant sought to be recognized as a "Financial Creditor" to be included in the Committee of Creditors (CoC) but was classified as an "Other Creditor" by the IRP.

The tribunal, comprising Sh. Mohan Prasad Tiwari, Member (J) and Sh. Charanjeet Singh Gulati, Member (T), held that the deeming fiction under Section 5(8)(f) of the IBC applies only to allottees of a "real estate project" as defined under the Real Estate (Regulation and Development) Act, 2016 (RERA), which concerns residential or commercial apartments for habitation. The tribunal clarified that this classification is intended to protect genuine homebuyers seeking residential shelter, not investors in industrial or commercial units.

The judgment outlined that the applicant's transaction was commercial in nature, intended for profit generation through assured returns, and did not meet the essential criteria for being classified as financial debt under the IBC. The tribunal further elaborated on the distinction between homebuyers and commercial investors, emphasizing that the protections under the IBC are designed for individuals investing in residential properties, not for those seeking to capitalize on commercial ventures.

Citing precedents from cases like Pioneer Urban Land and Infrastructure Ltd. v. Union of India and Mansi Brar, the tribunal reiterated that speculative investors or those engaging in commercial transactions cannot misuse the IBC as a debt recovery mechanism. The tribunal dismissed the application, affirming the IRP's classification and reiterating the legislative intent to safeguard homebuyers' interests within the insolvency framework.

This decision underscores the importance of understanding the legislative distinctions between residential and commercial investments in insolvency proceedings and reinforces the protections available to genuine homebuyers under the IBC.

Bottom Line:

Insolvency and Bankruptcy Code, 2016 - Purchasers of industrial units with assured returns cannot be classified as "Financial Creditors" under Section 5(8)(f) of the IBC, as they do not fall within the protective class of homebuyers seeking residential shelter.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 - Sections 5(8)(f), 60(5); Real Estate (Regulation and Development) Act, 2016 - Sections 2(d), 2(zn)

M/s. Harisharan Hi-Tech Industries v. Mr. Birendra Kumar Agrawal, (NCLT)(Mumbai Bench) : Law Finder Doc Id # 2814801