An allottee pursuing refund cannot simultaneously claim continuing financial-creditor status under the IBC.

The appellants claimed to be purchasers/allottees of flats in a real-estate project developed by RG Residency Pvt. Ltd.

They asserted that they had paid the entire sale consideration of approximately ₹1.35 crore for the flats and had executed agreements for sale dated 24.11.2015 with the Corporate Debtor.

The agreements contained clauses recording payment of consideration, symbolic possession, an assurance of delivery of completed flats by 30.09.2018, appreciation cheques, and an arbitration clause.

The Corporate Debtor allegedly failed to complete the project and deliver possession.

The appreciation cheques issued by it were dishonoured, following which the appellants initiated proceedings under Section 138 of the Negotiable Instruments Act.

They also invoked the arbitration clause and sought refund of the amounts paid, together with interest.

During the insolvency proceedings, the appellants filed applications under Section 60(5) of the Insolvency and Bankruptcy Code, 2016, seeking admission of their claims and recognition as “financial creditors” in the class of allottees under Section 5(8)(f) of the Code.

The Adjudicating Authority rejected their prayer for recognition as financial creditors, although it upheld the agreement for sale and directed remittance of ₹1.35 crore.

Whether the appellants, having invoked arbitration and sought refund of the sale consideration, continued to qualify as “allottees” and “financial creditors” under Sections 5(7) and 5(8)(f) of the IBC?

Whether the appellants’ agreements for sale and payment of consideration created a continuing financial debt owed by the Corporate Debtor, notwithstanding their claim for refund and the dishonour of the refund/appreciation cheques?

Whether the principle in Vishal Chelani v. Debashis Nanda required the appellants to be treated as financial creditors in the class of homebuyers?

The Court applied Section 5(7) of the IBC, under which a “financial creditor” is a person to whom a financial debt is owed, and Section 5(8), which defines “financial debt” as a debt disbursed against the consideration for the time value of money.

Section 5(8)(f), including its Explanation, deems amounts raised from an allottee in a real-estate project to have the commercial effect of borrowing, subject to the meanings of “allottee” and “real-estate project” under the RERA Act.

The Court also relied on Section 3(11), which defines “debt” as a liability or obligation in respect of a claim due from a person.

The applicable principle was that recognition as a financial creditor requires a subsisting financial debt owed by the Corporate Debtor; a claimant who has treated the transaction as terminated and pursued refund cannot simultaneously assert an ongoing allottee-based financial-creditor status.

The Court distinguished Vishal Chelani v. Debashis Nanda, Civil Appeal No. 3806 of 2023, where the Supreme Court held that an allottee does not lose homebuyer status merely because the allottee obtained a decree or pursued remedies under RERA.

The NCLAT held that the appellants’ own conduct demonstrated that they had elected to pursue refund rather than enforce their rights as continuing allottees.

They had invoked the arbitration clause seeking repayment of the sale consideration with interest and had pursued proceedings under Section 138 of the Negotiable Instruments Act after the Corporate Debtor’s cheques were dishonoured.

According to the Court, acceptance and presentation of the refund cheques indicated that the original allotment-based obligation had been treated as discharged or terminated.

Consequently, there was no continuing liability or financial debt owed in the form necessary to satisfy Sections 3(11), 5(7) and 5(8)(f) of the IBC.

The Court further observed that the appellants’ pleadings before the arbitral tribunal described the possession as merely symbolic and acknowledged that the Corporate Debtor was still required to complete construction and deliver actual possession.

Thus, the appellants could not rely on the agreement for sale to claim continuing allottee status while simultaneously seeking termination of the transaction and refund.

Vishal Chelani was held inapplicable because it concerned the impermissible differential treatment of RERA decree-holders within the class of existing homebuyers; it did not permit a claimant who had abandoned the allotment and pursued refund to retain financial-creditor status.

It held that, in view of their pursuit of refund through arbitration and Section 138 proceedings, and the absence of a continuing financial debt owed by the Corporate Debtor, the appellants could not be recognised as allottees or financial creditors under Sections 5(7) and 5(8)(f) of the IBC.

The five appeals were dismissed, the reasoning of the Adjudicating Authority was affirmed, and all pending interlocutory applications were closed.