Homebuyer Who Subrogated All Rights In Favour Of Lender Cannot Be Treated As Financial Creditor Under IBC

While by an ordinance in June, the Government has brought in the home buyers into the fold of the Insolvency Code by giving them the status of a financial creditor, a very interesting observation has beeb made by the NCLT Allahabad Bench which may lead to arguments to and fro in future.

In Ajay Walia vs M/s. Sunworld Residency Private Limited (Corporate Debtor), the Petitioner/Financial Creditor booked an Apartment from the Corporate Debtor and also entered into a supplementary agreement with the Corporate Debtor to invest in the Apartment under the housing loan scheme with an option to cancel the purchase of the Apartment on completion of 24 months from the date of disbursement of the bank loan amount to Corporate Debtor. Also as per the agreement, financial creditor was not liable to pay pre-EMI interest on the bank loan amount to the concerned bank, for a period of 24 months, from the date of disbursement of the bank loan amount, and the corporate debtor had given an undertaking to pay the entire pre-EMI interest on the bank loan amount directly to the concerned bank on behalf of financial creditor for a period of 24 months from the date of disbursement of bank loan amount.That, thereafter the allottee / applicant executed a Tripartite Agreement between the applicant, the Corporate Debtor and HDFC Bank Limited. Sub-para of Clause-3 provides that the Corporate Debtor assumed the liability of payment of EMI under the loan agreement as payable by the borrower to HDFC for 23 months from the date of first disbursement plus fractional period of month of first disbursement. As per  Clause 7 of the supplementary agreement, the 24-month period from the date of disbursement of the bank loan amount was to be a lock-in period and Petitioner had an option, exercisable at his sole discretion, to cancel his booking of the Apartment after completion of the Lock-in Period by sending a written notice to corporate debtor and Corporate Debtor was to refund the entire booking amount with some additional assured return to the financial creditor within a period of 30 days after completion of the Lock-in Period. Further clause 9 of supplementary agreement stipulates that upon receipt of the Cancellation Notice, the corporate debtor shall settle all outstanding dues of the loan account of the concerned bank (including any service tax) by making a payment directly to the bank concerned of the entire outstanding loan amount.

Now the Financial Creditor send the said notice under Clause 9 well within the stipulated time and the Corporate Debtor assured the Financial Creditor that Corporate Debtor would settle the entire loan amount payable to HDFC and the amount due to financial creditor plus interest @ 18% per annum within a few months and requested cooperation.

Subsequently the Corporate Debtor defaulting on payment to the bank, the Petitioner approached the Tribunal,

The Corporate Debtor raised the objection that the petitioner was not a financial creditor and the Tribunal has no jurisdiction as the agreement between parties have arbitration clause.

The Tribunal held that as per the Insolvency Code, the definition of a financial creditor includes a person to whom such debt has been legally assigned or transferred to. Further as per the Tripartite Agreement among other things the following conditions exist :-

1) in the event of cancellation of residential apartment for any reason whatsoever the entire amount advanced by HDFC will be refunded by the builder to HDFC forthwith;

2) That in the event of occurrence of default and/or for any reason whatsoever if the allotment is cancelled , any amount is payable to the Borrower by the Builder in the event of cancellation should be paid to HDFC;

3)  It unconditionally and irrevocable subrogates its right to receive any amount payable by the Builder to the Borrower in the event of cancellation in favour of HDFC and that the act of payment by the Builder to HDFC under this clause shall amount to a valid discharge of the Builder of its obligation to pay the Borrower such cancellation amount.

The Tribunal decided that as the applicant has subrogated all its rights alleged to have been created in its favour by the Supplementary Agreement in favour of the HDFC Bank, there is no liability for the Corporate Debtor to pay the cancellation amount to the applicant. In the circumstances the applicant cannot be treated as financial Creditor.