Although it has been more than 5 years since inclusion of real estate project allottees as Financial Creditors under the Insolvency and Bankruptcy Code, several issues pertaining to their rights, status, treatment etc., still remain unresolved.
Supreme Court Upholds NCLAT Order on Counting of Votes by Real Estate Allottees.
Although it has been more than 5 years since inclusion of real estate project allottees as Financial Creditors under the Insolvency and Bankruptcy Code, several issues pertaining to their rights, status, treatment etc., still remain unresolved.
One such issue is regarding the manner of counting of votes by allottees of real estate companies under IBC.
This issue was dealt with in some manner by the Hon’ble Apex Court in Jaypee Kensington Boulevard Apartments Welfare Association & Ors. v. NBCC (India) Ltd. & Ors. However, this judgement was delivered in the context of approval of a resolution plan and held that votes of allottees, being creditors in a class would be counted in such a manner that in case of more than 50% of voters as class present and voting in favour of approval of a Resolution Plan, then the votes of the entire 100% of the class will be treated as having voted in favour of the Resolution Plan.
The Hon’ble NCLT in the recent case of Siddharth Buildhome Private Ltd, applied this principle and held that withdrawal of the CIRP has been approved.
However in Appeal, The Hon’ble National Company Law Tribunal, Principal Bench, New Delhi in Vijay Saini vs Devender Singh & Ors. [Company Appeal (AT) (Ins.) No. 1194, 791 & 982 of 2023] dated 16.02.2024, by a recent landmark Judgment, has distinguished and settled the contentious issue of how voting is to be counted by allottees in a class, as members of the Committee of Creditors, in a different way, in the scenario of proposal for withdrawal of CIRP under Section 12A of the Code.
The issue for consideration before the Hon’ble Appellate Authority was whether the counting of votes by allottees in a class, in respect of a resolution for approval of an application under Section 12A of the Code filed by the Promoter for withdrawal of CIRP, would be determined as per the provisions of Section 25A (3A) (as per Jaypee Kensington matter) where in case of voting in favour of the resolution by more than 50% of the voters of a class, the entire votes of the class will be counted as being in favour of the resolution; OR the more onerous method as per proviso to Section 25A(3A) read with Section 25A (3) of the Code, where vote by each individual member in the class will have to be counted in favour of the resolution for the purpose of determining whether more than 90% of the financial creditors have voted in favour of withdrawal of the CIRP.
On an Appeal filed by the Resolution Professional of Sidhartha Buildhome Private Limited, the Hon’ble NCLAT set-aside the decision of the Hon’ble NCLT, New Delhi, while finding force in the arguments of Advocate Alok Dhir assisted by Varsha Banerjee, Partner and Kanishk Khetan, Sr. Associate, Dhir & Dhir Associates, appearing for the Resolution Professional, the Hon’ble NCLAT held that in case of voting on a Proposal under Section 12A for withdrawal of a CIRP, the proviso as inserted in Section 25A(3A) read with sec 25A (3) shall apply, which provides that the vote of the allottees on the said proposal shall be taken individually as provided under Section 25A (3) and not as a class.
On being also posed with the question of the locus of the RP challenging an Order of the NCLT, the Hon’ble NCLAT, Principal Bench, comprising of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member), further held that the RP has every right being an “aggrieved party” to challenge the decision of the NCLT which has overturned his decision of calculation of voting.
“The challenges surrounding cases involving real estate projects continue where each case brings a unique set of facts to the forefront. The NCLT, NCLAT and Supreme Court have time and again come to the rescue of homebuyers and interpreted the provisions of the IBC in its true spirit and object.” said Alok Dhir, Founder & Managing Partner, Dhir & Dhir Associates.
Interestingly, the said Judgment of the NCLAT was carried in appeal by some parties before the Hon’ble Supreme Court of India, the Bench of Hon’ble Chief Justice of India, Mr. D.Y. Chandrachud, Hon'ble Mr. Justice J. B. Pardiwala and Hon'ble Mr. Justice Manoj Misra, upheld the said Judgment passed by the Hon’ble NCLAT thereby confirming the distinct voting mechanisms for class of creditors in case of approval of a resolution plan and a proposal withdrawal of CIRP u/s 12A of IBC thereby settling this contentious issue once for all.