Insolvency Law: Supreme Court Rejects Distinction Among Sub-Classes Of Homebuyers

Under the Insolvency and Bankruptcy Code, homebuyers who have a refund decree in their favour cannot be treated differently from their counterparts who do not have a decree, the Supreme Court has said.

It said so in an appeal filed by homebuyers against an order of the National Company Law Appellate Tribunal.

The case pertained to the allotment of homes in a real estate project.

There was a delay in the completion of the project, which led certain homebuyers to approach the Uttar Pradesh Real Estate Regulatory Authority for relief.

The UPRERA ruled in their favour and entitled them to a refund of their deposited amounts along with interest.

Subsequently, insolvency proceedings were initiated against the real estate company.

In the resolution plan submitted before the adjudicating authority, a distinction was drawn between homebuyers who had opted or elected for other remedies, such as applying before the RERA and having secured orders in their favour, and those who did not do so.

Homebuyers who did not contact the authorities under the RERA Act got 50% better terms than those who did contact RERA or were decree holders.

This was approved by the appellate tribunal, which prompted the homebuyers to approach the apex court.

The court held that the provisions of IBC do not make any distinction between different classes of financial creditors for the purposes of drawing up a resolution plan.

Only homebuyers can approach and seek remedies under RERA, and to treat a particular segment of that class differently on the ground that some of them had elected to exercise their rights based on the decree of refund would be highly inequitable, the court observed.

The distinction made in the resolution plan is artificial and amounts to ‘hyper-classification’, which falls afoul of Article 14 of the Constitution, the apex court said.