Issues Raised – the problems or questions brought before the court.
The key problem was that the appellants (home buyers who invested in the real estate project of Bulland Buildtech Pvt. Ltd.) felt they were being treated unfairly during the company’s insolvency process. They had previously approached the Uttar Pradesh Real Estate Regulatory Authority (UPRERA) and secured orders that entitled them to a refund of their deposited money plus interest due to project delays.
However, the Resolution Plan created by the company’s administrator (Resolution Professional or R.P.) proposed two classes of home buyers:
- Those who did not approach RERA.
- Those who did approach RERA and received court orders (decree holders).
The plan offered the first group 50% better terms than the second group. The appellants challenged this difference, arguing that all home buyers should be treated the same during the insolvency process.
Issues Framed – the main questions the court decided to examine.
- Whether home buyers who obtained a refund order or decree from RERA cease to be considered part of the general class of “home buyers” (financial creditors) under the Insolvency and Bankruptcy Code (IBC).
- Whether the distinction made in the Resolution Plan between home buyers who approached RERA and those who did not is legally sound.
- Whether the provisions of the RERA Act relating to refunds (Section 18) take precedence over the classification rules under the IBC.
Observations on Issues Framed – what the court noticed or said on each issue.
- Status of Home Buyers: The Court noted that the 2018 amendment to the IBC clearly included all home buyers and project allottees as “financial creditors” because the money they raised is deemed to have the effect of a loan.
- Effect of RERA Decree: The Court explained that when a home buyer gets an order (or decree) from RERA, that order simply confirms or “crystallizes” the amount they are owed. Obtaining a RERA order does not change the fundamental status of the person from a home buyer/allottee to a different kind of creditor.
- Unfair Classification: The court found the R.P.’s view—that seeking a RERA remedy means an allottee should be treated differently—unconvincing. Since only home buyers can seek remedies under RERA, treating a segment of that group differently simply because they successfully used a legal option available to them would be highly unfair (“highly inequitable”).
- The distinction created in the resolution plan was “artificial” and amounted to “hyper-classification,” which is a violation of the principle of equality (Article 14).
- IBC Primacy: The Court clarified that the IBC has an overriding effect (“non obstante clause” in Section 238), meaning its rules take priority over the RERA Act in insolvency proceedings.
Sections Interpreted – the sections of law and Act names discussed by the court.
- Insolvency and Bankruptcy Code, 2016 (IBC):
- Section 5(7) & (8): Definitions of “financial creditors” and “financial debt”.
- Section 5(8)(f) and its Explanation: Defines amounts raised from an allottee under a real estate project as a type of financial debt.
- Section 238: The clause giving the IBC overriding power.
- Section 7(1) Proviso: Mentioned regarding the threshold limit for home buyers.
- Real Estate (Regulation and Development) Act, 2016 (RERA Act):
- Section 18: Deals with the right of allottees to get a return of money and compensation.
- Constitution of India:
- Article 14: Deals with the right to equality before the law.
Law Settled – the legal rule or principle made clear by the court.
The status of an allottee as a financial creditor remains unchanged even if they have obtained a decree (court order) from RERA for a refund. All home buyers/allottees are part of the same class of financial creditors under the IBC. A resolution plan cannot differentiate or classify home buyers into subgroups based on whether they pursued remedies under the RERA Act, as this amounts to an unfair and artificial classification. The IBC takes precedence over the RERA Act during insolvency proceedings.
Judgment / Directions (Conclusion) – the final order or directions of the court.
The Supreme Court cancelled the order that allowed the distinction between home buyers.
The Court declared the appellants (those with RERA decrees) as financial creditors.
The final direction is that the appellants must be treated equally with all other home buyers/financial creditors for the purpose of the resolution plan. The appeal was allowed.