Consumer Interest Protected by National Company Law Appellate Tribunal

Gone are those days when builders held all the power, and the buyer were supposed to beg for his or her own property’s possession. India is changing now and the attitude of the National Tribunals is also changing in favor of the buyers. This scenario was highlighted recently by the National Company Law Appellate Tribunal, New Delhi when it ruled that the money owed to a buyer was a debt that needed to be paid by a builder.

The Beginning

The entire ordeal began for the buyer, Nikhil Mehta & Sons when it bought some property from AMR Infrastructure Ltd. and made a hefty down payment. The builder agreed to pay money to the buyer as per a committed “Return plan” and a MoU and an agreement were signed by both the parties with all the vital terms and conditions.

Agreement Violated (Return on Investment Stopped)

As you may have guessed, the builder neither gave possession to the buyer but also stopped making the agreed-upon payments to the buyer. The buyer, Nikhil Mehta, and Sons filed insolvency petition at the NCLT against the builder, AMR Infrastructure Limited for failing to comply with the terms of payment.

When the matter moved to the tribunal, the builder claimed that the money was taken as a loan from the buyer, which was another tactic to ensure that further payments should not be made to the buyer. Builders wanted to deprive Nikhil Mehta & Sons of special status by getting them listed with the case by other flat buyers in the High Court. This was admitted by the NCLT and decision given in favor of the builder. Aggrieved an appeal was filed in the NCLAT drawing the attention how Nikhil Mehta &Sons were different from other buyers.

The Decision

The Appellate Tribunal was convinced that the amount invested by the Appellants was not just a sale transaction but it would come under the meaning of Financial Debts under S-5(8) of IBC. A key reason for this decision was that the buyer had signed an MOU and an agreement in which the buyers were named as the investor.

This decision is iconic because it allows a person or buyer to take help of Insolvency and Bankruptcy Code (IBC) in case the builder/seller fails to honor the agreement and fails to provide assured returns within a stated time frame.

Warning for Consumers

This case also comes with a warning to consumers. When you are investing in a property that comes with assured returns, you should not just trust the word of the builder. Instead, you should sign an agreement and a MoU as they would act as evidence and your shield in case you need to file an insolvency petition in the future.

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