The National Company Law Appellate Tribunal (NCLAT) in Chennai, comprising of Justice M. Venugopal and Shreesha Merla, has dismissed an application filed by Venkat Rao Marpina, the suspended director of Bhrighu Infra Private Limited, against Vemuri Ravi Kumar, a financial creditor.
The NCLAT made two key observations in its verdict. Firstly, it stated that the advances given by property buyers to real estate developers will be considered as ‘borrowing’, thereby falling within the scope of Section 5(8)(f) of the Insolvency and Bankruptcy Code. This means that homebuyers will be treated as financial creditors.
Additionally, the NCLAT determined that the claimed amount meets the threshold limit of Rs. 1 crore for a Section 7 application. It examined the sale agreement between the corporate debtor and the financial creditor, noting that the contract stipulated a 24% per annum interest rate if the vendor failed to obtain approval from the Hyderabad Metropolitan Development Authority (HMDA) within three months. Considering that the final HMDA approval was obtained in January 2019 and the plots were not registered or the amounts refunded until April 2019, the NCLAT concluded that interest should not be added.
The suspended director argued that the financial creditor was not a genuine homebuyer but a speculative investor looking to sell the plots for a higher price. However, the NCLAT found no merit in this claim, highlighting distinctions between the present case and previous cases involving assured rates of return for allottees.
In conclusion, the NCLAT stated that there is no point in challenging the admissibility of the Section 7 application, as liquidation proceedings have already been initiated against the corporate debtor.
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– National Company Law Appellate Tribunal (NCLAT): A quasi-judicial body in India that hears appeals against the orders of the National Company Law Tribunal (NCLT).
– Insolvency and Bankruptcy Code: A legislative act in India that consolidates and amends the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms, and individuals.
– Financial Creditor: A person to whom a financial debt is owed and includes a person to whom such a debt has been legally assigned or transferred.
– Homebuyer: An individual or entity that purchases a residential property with the intention of residing in it or renting it out.