Flat buyers can avail remedies simuntaneously under RERA, Consumer Protection Act and Insolvency Code, 2016 against the builder; SC.

Supreme Court of India

Justice R F Nariman, Justice Sanjiv Khanna and Justice Surya Kant

The SC {Pioneer Urban Land and Infrastructure Limited & Anr. v. Union of India & Ors.} holds that the RERA is to be read harmoniously with the Code, as amended by the Amendment Act and it is only in the event of conflict that the Code will prevail over the RERA. It holds that remedies that are given to allottees of flats/ apartments are therefore concurrent remedies, such allottees of flats/ apartments being in a position to avail of remedies under the Consumer Protection Act, 1986, RERA as well as the triggering of the Code. Repelling, the challenge to the amendment of the code, it was held that the Amendment Act to the Code does not infringe Articles 14, 19(1)(g) read with Article 19(6), or 300-A of the Constitution of India. It was further held that Section 5(8)(f) as it originally appeared in the Code being a residuary provision, always subsumed within it allottees of flats/apartments. The explanation together with the deeming fiction added by the Amendment Act is only clarificatory of this position in law.

By way of amendment it was clarified by the legislature that allottees of real estate projects would be deemed to be "Financial Creditors" for the purpose of Code, and which amendment constitutional validity was challenged by the Builders Lobby before the SC, the challenge met waterloo. The petitions stand dismissed on 09/08/2019 by the SC.

The SC further holds that the very objects of the Code are sub-served by treating allottees as financial creditors. The Code is thus a beneficial legislation which can be triggered to put the corporate debtor back on its feet in the interest of unsecured creditors like allottees, who are vitally interested in the financial health of the corporate debtor, so that a replaced management may then carry out the real estate project as originally envisaged and deliver the flat/apartment as soon as possible and/or pay compensation in the event of late delivery, or non-delivery, or refund amounts advanced together with interest. The SC further held that given the fact that home buyers/allottees give advances to the real estate developer and thereby finance the real estate project at hand, even otherwise, are really financial creditors. 

The real estate allottees argued before the SC, in answer to the argument that the admission of a Section 7 application under the Code would be fatal to the management of the corporate debtor, and that one single allottee could destabilise the management of the corporate debtor and not just the project undertaken by the corporate debtor, they pointed out that there were 5 stages at which it would be open for the real estate developer to compromise with the allottee in question, before the sledgehammer under the Code comes down on the erstwhile management. They pointed out that settlements have taken place at: (i) the stage of the Section 7 notice itself before replies were filed by the real estate developer; (ii) after the NCLT issues notice on a Section 7 application and before admission; (iii) after the hearing and before the order admitting the matter; (iv) post-admission, and before appointment of the Committee of Creditors where both the NCLT and NCLAT use their inherent power to permit settlements; and (v) even post setting-up of the Committee of Creditors, whereby settlements can be arrived at under Section 12A of the Code with the concurrence of 90% of the creditors. On this basis, they pointed out that long before the chopper comes down on the management of the corporate debtor, all these opportunities are given to the management of the 38 corporate debtor to settle with the individual allottee, showing thereby that there is no real infraction of Article 14, 19(1)(g) or 300- A of the Constitution.

In view of the above, now any single real estate buyer can trigger the Code against the builder and approach NCLT in case of delay and non-refund of money by the builder.