NCLAT (20.12.2021) in Axis Bank Limited Vs. Value Infracon India Private Limited [I.A. No. 1502 of 2020 & I.A. No. 1503 of 2020 in Company Appeal (AT) (Insolvency No. 582 of 2020] held that;
The Hon’ble Supreme Court in ‘Pioneer Urban Land & Infrastructure Ltd. & Anr.’ has observed as follows:-
" . . .This being the case, it was important, therefore, to clarify that home buyers are treated as financial creditors so that they can trigger the Code under Section 7 and have their rightful place on the Committee of Creditors when it comes to making important decisions as to the future of the building construction company, which is the execution of the real estate Project in which such home buyers are ultimately to be housed. . . .
. . .If such banks ought to be on the Committee of Creditors as representatives of the home buyers, and they are to vote only in accordance with the home buyer’s instructions, why should the home buyer himself then not be on the Committee of Creditors, and why should it make any difference as to whether he has borrowed money from banks in order to pay instalments under the agreement for sale or whether he does it from his own finances ?"
It is clear from the principle laid down by the Hon’ble Supreme Court in ‘Pioneer Urban Land & Infrastructure Ltd. & Anr.’ (Supra) that it is the Home Buyer who should be considered as ‘Financial Creditors’ of the ‘Corporate Debtor’ whether he has self financed his flat or has exercised his choice of taking a loan from the Bank.
Excerpts of the Order;
# 7. The central point in this Appeal is whether the Appellant/M/s. Axis Bank can be considered as a ‘Financial Creditor’ on account of its having sanctioned and released housing loans to some of the allottees who have purchased Flats/units in the Project floated by the ‘Corporate Debtor’.
# 8. It is not disputed that M/s. Axis Bank has sanctioned loans to 44 Home Buyers/Allottees who have purchased units/Flats, in the Project floated by the ‘Corporate Debtor’. Home Buyers were included as ‘Financial Creditors’ vide Amendment dated 06.06.2018.
# 9. The Hon’ble Supreme Court in paras 18 and 19 in ‘Pioneer Urban Land & Infrastructure Ltd. & Anr.’ (Supra) has observed as follows:-
“18. It can be seen that the Insolvency Law Committee found, as a matter of fact, that delay in completion of flats/apartments has become a common phenomenon, and that amounts raised from home buyers contributes significantly to the financing of the construction of such flats/apartments. This being the case, it was important, therefore, to clarify that home buyers are treated as financial creditors so that they can trigger the Code under Section 7 and have their rightful place on the Committee of Creditors when it comes to making important decisions as to the future of the building construction company, which is the execution of the real estate Project in which such home buyers are ultimately to be housed.
19. Shri Shardul Shroff, whose dissent was provided to us in the form of an e-mail, after finding that self financed home buyers may be financial creditors, but a home buyer who is a borrower is not, then went on to state:
- “8. If the home buyers have taken loans from banks, then it is such lenders who should be on the table on the CoC as special status creditors.
- 9. Our report ought to be altered to the extent that home buyers financiers should be treated as unsecured financial creditors and they should be representatives of the home buyers. There should be no direct right given to home buyers to be on the CoC.”
Even the dissent of Shri Shroff recognises that in the case of home buyers, who have taken loans from banks, such banks ought to be on the Committee of Creditors. If such banks ought to be on the Committee of Creditors as representatives of the home buyers, and they are to vote only in accordance with the home buyer’s instructions, why should the home buyer himself then not be on the Committee of Creditors, and why should it make any difference as to whether he has borrowed money from banks in order to pay instalments under the agreement for sale or whether he does it from his own finances? These matters have not been addressed by the dissenting view which in principle, as we have seen, supports home buyers who have taken loans as against home buyers who have used their own finances. Perhaps the real reason for Shri Shroff’s dissent is the fact that unsecured, as opposed to secured, financial creditors are being put on the Committee of Creditors. If there is otherwise good reason as to why this particular group of unsecured creditors, like deposit holders, should be part of the Committee of Creditors, it is difficult to appreciate how such a group can be excluded.” (Emphasis Supplied)
# 10. It is clear from the principle laid down by the Hon’ble Supreme Court in ‘Pioneer Urban Land & Infrastructure Ltd. & Anr.’ (Supra) that it is the Home Buyer who should be considered as ‘Financial Creditors’ of the ‘Corporate Debtor’ whether he has self financed his flat or has exercised his choice of taking a loan from the Bank.
# 11. Additionally, we are of the considered view that as per Section 77 of the Companies Act, 2013 every security interest has to be registered with the Registrar within 30 days of its creation and admittedly no ‘charge’ has been created against any of the property of the ‘Corporate Debtor’ in favour of the Appellant. It is not denied that there is no registered ‘charge’ created on the asset or property as contemplated under Section 77 of the Companies Act, 2013. Further, there is no submission made on behalf of the Bank as to whether any steps were taken under Section 78 of the Companies Act, 2013. The ratio of ‘Indiabulls Housing Finance Ltd.’ Vs. ‘Mr. Samir Kumar Bhattacharya and Anr.’ passed by this Tribunal in Company Appeal (AT) (Insolvency) No. 830 of 2019 regarding “Registration of charge” is squarely applicable to the facts of this case.
# 14. The relevant clause of the tri-partite Agreement entered into between the Home Buyers, the developer and the Appellant/M/s. Axis Bank is reproduced as hereunder:-
“It is agreed by and between the parties to this Agreement that in case if the BORROWER fails to honour the commitment, the developer/BUILDER shall inform the BANK and the BANK shall have the right to pay the Sale consideration and get it registered either in BANK's name or its nominee. Likewise in the event the Borrower defaults in payment of instalments then, in such an event also, the Bank shall have the right to inform about such default on the part of the Borrower to the Builder and shall accordingly have the right to write to the Builder cancellation of Agreement executed between the Builder and the Borrower, where after the Bank shall have the right to pay the Sale consideration and get the subject property registered either in the Bank's name or in the name of the Bank's nominee.”
# 15. It can be seen from the material on record that Axis Bank had rendered financial assistance for the purpose of booking units in the Project floated by the ‘Corporate Debtor’ and had a tie-up with the ‘Corporate Debtor’ for procuring business from the Home Allottees. The Home Loan Agreements in these cases were made individually by the Borrowers. As per standing instructions, the money in the account of the Home Allottees was disbursed automatically to the ‘Corporate Debtor’. Tri-partite Agreement is only by way of security that the developer would withhold the allotment in the event of default by the allottee. The Bank had sought security by creating mortgage of the residential units for the loans availed by the Home Buyers and the ‘Corporate Debtor’ had given permission for the same to enable the Home Buyer to procure financial assistance.
# 16. From the aforenoted clause in the tri-partite Agreement entered into between the Home Buyer, the Axis Bank and the ‘Corporate Debtor’, it is evident that in case of any default by the Borrower, the Bank would have the right to write to the builder for cancellation of Agreement executed between the developer and the Borrower, whereafter the Bank shall have the right to pay the sale consideration and get the subject property registered. There is no material on record to evidence that any such cancellation has taken place. The Home Loan Agreement read with the Demand Letters and the Allotment Letter clearly specify that when there is a ‘default’ on behalf of the Home Allottee a penalty interest would have to be paid by the allottee to the Bank. Therefore, the ‘default’ aspect is to be seen vis-a-vis the Home Allottee and the Appellant Bank only. It is contended by the Respondent that though the Allotment Letter shows that the payments were construction linked, the Bank released the entire amount prior to completion of construction.
# 17. Be that as it may, we are of the considered view that this subject matter cannot be viewed from such a narrow compass. It is definitely not the scope and objective of the Code to include Banks/Financial Institutions which have advanced loans to Home Buyers to be considered as ‘Financial Creditors’ and included in the CoC, specifically in the light of the fact the liability to repay the Home Loan is on the individual Home Buyers. This would defeat the very spirit and objective of the Code aiming at Resolution and maximisation of the assets of the ‘Corporate Debtor’. Presence of a mere tri-partite Agreement does not change the character of the amount borrowed by the Home Buyer vis-a-vis the Bank and vis-a-vis the ‘Corporate Debtor’. Viewed from any angle, the Appellant cannot be included as a ‘Secured Financial Creditor’ in this case and hence we find no reasons to interfere with the well-reasoned Order of the Adjudicating Authority.
# 18. From all the aforenoted reasons, this Appeal fails and is accordingly dismissed. No Order as to costs. The corresponding I.A No. 1502 of 2020 & I.A. No. 1503 of 2020 are also disposed of.
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