Mr. Dinesh Kumar Deora - We are, therefore, of the considered view that the re-settlers should be reclassified from ‘other creditors’ to ‘secured other creditors’ and the homebuyers from ‘unsecured financial creditors’ to ‘secured financial creditors’

 NCLT Mumbai-VI (2024.10.14) Mr. Dinesh Kumar Deora  [IA (I.B.C) No. 3383/MB/2024 and IA (I.B.C) No. 3384/MB/2024 in CP (IB) No. 1046/MB/2023] held that

• “security interest” to mean “right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person:...”

• We hold that the re-settlers are to be classified as ‘secured other creditors’ since they had given the CD redevelopment rights in lands and buildings in lieu of specific flats as they can neither be considered as financial creditors nor operational creditors under the IBC. 

• We are, therefore, of the considered view that the re-settlers should be reclassified from ‘other creditors’ to ‘secured other creditors’ and the homebuyers from ‘unsecured financial creditors’ to ‘secured financial creditors’

Excerpts of the Order;

# 1. BACKGROUND

1.1 The Original Financial Creditors (FCs) constituting 67 homebuyers, had filed the C.P. (IB) No. 1046/MB/2023 on 18.08.2023 against the Corporate Debtor (CD) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) for default of more than One Crore Rupees, and thus, this Bench admitted the CD into Corporate Insolvency Resolution Process (CIRP) vide order dated 07.03.2024 and Mr. Dinesh Kumar Deora was appointed as Resolution Professional (RP), the Applicant herein for conducting CIRP.

1.2 The above IAs have been filed under Section 60(5) of IBC read with Rule 11 of the National Company Law Tribunal Rules, 2016 (NCLT Rules) by the RP seeking our approval to classify the re-settlers, in the residential project CTS No. 475 (Part), (Project O2) at Kurla III, Chunabhatti Swadeshi Mills Compound, Chembur Road, Mumbai – 400022, as ‘Secured Other Creditors’ and the homebuyers as ‘Secured Financial Creditors’. No re-settler or homebuyer has received possession of flats despite multiple RERA deadlines, hence the CP.

1.3 The CD vide development agreements dated 25.10.2013 and15.02.2014, undertook to develop Project O2 by 30.06.2023, after multiple extensions, but failed to do so even on that date. The Applicant/RP submits that as per the books of the CD and the claims received by him, the number of re-settlers as on date is 280.

1.4 The re-settlers have filed claims to the Applicant/RP in Form F, as none of them received possession of their flats, the corpus amount is unpaid and the monthly rent is also due for over 12 months before initiation of CIRP. The Applicant/RP further states that the number of units sold to the home buyers/sale unit holders as per the books of the CD is 297 and a balance of 13 flats is available for sale/reserved against the claim of re-settlers. Currently, the Committee of Creditors (CoC) in the CIRP comprises only of homebuyers in Project O2 and no other creditors.

1.5 In the present Application, the Applicant/RP sought approval to reclassify the nature of debt of the re-settlers as ‘Secured’ from ‘Unsecured’ under the category of ‘Other Creditors’ and homebuyers as ‘Secured’ from ‘Unsecured’ under the category of ‘Financial Creditors’.

# 2. CONTENTIONS OF APPLICANT

2.1 The Applicant/RP states that it is a well-settled law that homebuyers are to be treated as financial creditors and are covered under the definition of ‘allottee’ within the meaning of Section 5(8)(f) of the IBC.

2.2 The Applicant/RP submits that he gave the undertaking to reconsider the classification of the homebuyers as ‘Secured Financial Creditors’ and the re-settlers as ‘Secured Other Creditors’ along with passing the appropriate resolution for recognizing and providing equal status to both by the Committee of Creditors (CoC) of the CD as per our order dated 04.07.2024.

2.3 In the 4th CoC meeting on 15.07.2024, the CoC voted with 100% votes to recognise the homebuyers as ‘Secured Financial Creditors’ and the re-settlers as ‘Secured Other Creditors’. The homebuyers were represented by the Authorised Representative (AR), Mr. Manish Dawda in the said meeting.

2.4 The Applicant/RP also submits that the reclassification is supported by a conjoint reading of Section 3(30) and 3(31) of IBC, pertaining to ‘secured creditor’ and ‘security interest’ respectively, which has been created as there is a claim to a specific property. The performance of the obligation to deliver specific units to the re-settlers has been created upon execution of the development agreement, which is equivalent to the obligation to deliver possession for flats wherein the consideration in the form of development rights has been paid by them; and the possession of specific units to the homebuyers has been created upon payment of consideration value. Hence, he submits that it is lawful to consider the re-settlers as ‘Secured Other Creditors’.

# 3. ANALYSIS AND FINDINGS

3.1 We have perused all the documents and pleadings and heard the Ld. Counsel for the Applicant/RP.

3.2 The Applicant/RP filed IA 3383/MB/2024 praying for re-classification of the nature of debt of re-settlers from “Other Creditors” to “Secured Other Creditors” and IA 3384/MB/2024 for re-classifying the nature of homebuyers from “Unsecured Financial Creditors” to “Secured Financial Creditors”.

3.3 After this Tribunal’s order dated 04.07.2024, the Applicant/RP conducted the 4th CoC meeting on 15.07.2024 to reconsider the classification and pass appropriate resolution recognising, allowing, and providing equal rights and status to both sets of individuals viz., homebuyers and re-settlers, as regards their claims.

3.4 We have perused the registered development agreement between the developer and the society of re-settlers, wherein specific house units have been assigned to them in Project O2. Further, it has been recorded in the books of account of the CD as regards their specific allotments of housing units. Moreover, a Bank Guarantee for the area under development in the new building is also made available for re-settling. These are also reflected on the books of account of the CD. 

3.5 Further, some of the sale unit holders have also obtained loan facilities against their respective sale units and mortgaged to the lender, indicating creation of security interest.

3.6 As both homebuyers and re-settlers have specific units against their names, the Applicant/RP proposed that they be treated as 'secured' financial creditors and ‘secured’ other creditors respectively.

3.7 The CoC in its 4th meeting voted 100% in favour of the resolution over recognising the status of the homebuyers and the re-settlers as ‘Secured Financial Creditors’ and ‘Secured Other Creditors’ respectively. The Applicant/RP in the said meeting cited the case of State Tax Officer (1) Vs. Rainbow Papers Ltd., [2022 SCC Online SC 1162] wherein the Hon’ble Supreme Court allowed the Appellant-State Tax Officer to claim the status of a secured operational creditor, premised on Section 48 of the GVAT Act – allowing a security interest over the property towards unpaid dues.

3.8 From the development agreements, it is clear that the parties have entered into certain specific objective of redevelopment of the land and buildings and to secure housing units to the re-settlers, among others. Hence, there cannot be operational debt within the meaning of Section 5(21) of the IBC. The re-settlers can also not be considered as financial creditors, as the debt does not fall within the ambit of financial debt under Section 5(8) of the IBC since there is no financial debt against consideration for the time value of money. The Hon’ble NCLAT, Principal Bench, New Delhi in Ashoka Hi-Tech Builders Private Limited Vs. Sanjay Kundra & Anr., [Company Appeal (AT) (Ins) No. 46/2023] considered the issue relating to a similar matter.

3.9 However, Section 3(31) of the IBC defines “security interest” to mean “right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person:...” (Emphasis Supplied). The Maharashtra Housing and Area Development Authority (MHADA) has ensured that the rights of resettlers are preserved and also recognised their claim to the property in which redevelopment is under taken by the CD. The CD had obtained all permissions and no objection certificates from MHADA for redevelopment. The society for the re-settlers have entered into development agreement with the CD for development of the property in which the re-settlers have secured performance of certain obligations by the CD such as construction and handing over individual flats to the re-settlers. The objective of the re-settlers in entering into the redevelopment agreement was development of O2 Project and enjoying the benefits therefrom. All these measures are to prevent any suffering by the re-settlers during the redevelopment process.

3.10 In light of the above, we hold that the re-settlers are to be classified as ‘secured other creditors’ since they had given the CD redevelopment rights in lands and buildings in lieu of specific flats as they can neither be considered as financial creditors nor operational creditors under the IBC. We are, therefore, of the considered view that the re-settlers should be reclassified from ‘other creditors’ to ‘secured other creditors’ and the homebuyers from ‘unsecured financial creditors’ to ‘secured financial creditors’.

3.11 Accordingly, I.A.- 3383/2024 and I.A.- 3383/2024 are allowed and disposed of.

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