Bank sanctioning home loans couldn’t be considered as financial creditor as liability to repay loan is on Home Buyers

Case Details: Axis Bank Ltd. v. Value Infracon India (P.) Ltd. - [2022] 135 taxmann.com 109 (NCL-AT)

Judiciary and Counsel Details

• • Anant Bijay Singh, Judicial Member and Ms. Shreesha Merla, Technical Member
  • Sharad Tyagi, Ms. Yukti Makan and Ms. Gayatri, Advs. for the Appellant.
  •  Sanjay Kumar Singh, RP and Neeraj Kumar Gupta, Adv. for the Respondent.

Facts of the Case

In the instant case, CIRP u/s 7 against the corporate debtor was admitted. The Appellant/bank submitted its claims as a ‘secured financial creditor’ on grounds that it had sanctioned loans to home buyers/allottees who had purchased units/flats, in a project floated by the corporate debtor but the same was rejected by IRP, and thereafter an application was filed before Adjudicating Authority. The Adjudicating Authority by impugned order rejected the application.

The Appellant stated that he had an advanced loan to 42 home buyers, out of which, the appellant had filed recovery applications against 41 allottees as well as the corporate debtor before the DRT for recovery of debts.

The appellant contended that the allottees are getting the refund of their money under the resolution plan in settlement of their claims, and there was the possibility that the home buyers would not deposit these amounts with the appellant banks in settlement of their dues, although the said flat had already been acknowledged by the corporate debtor in its separate permission to mortgage letter issued to the appellant at the time of disbursement of the loans.

NCLAT observed that it was not disputed that Axis Bank had sanctioned loans to 44 home buyers/allottees who have purchased units/flats, in the project floated by the ‘corporate debtor’.

NCLAT further observed that as per standing instructions, the money in the account of the home allottees was disbursed automatically to the ‘corporate debtor’. The tripartite agreement is only by way of security that the developer would withhold the allotment in the event of default by the allottee. The bank had sought security by creating mortgages of the residential units for the loans availed by the home buyers and the ‘corporate debtor’ had permitted for the same to enable the home buyer to procure financial assistance.

NCLAT Held

Dismissing the appeal, the NCLAT held that this subject matter cannot be viewed from such a narrow compass. It was not the scope and objective of the code to include banks/financial institutions which have advanced loans to home buyers to be considered as ‘financial creditors’ and included in the CoC, specifically in the light of the fact the liability to repay the home loan is on the individual home buyers. This would defeat the very spirit and objective of the code aiming at resolution and maximization of the assets of the ‘corporate debtor’.

The presence of a mere tripartite agreement does not change the character of the amount borrowed by the home buyer vis-a-vis the Bank and the ‘corporate debtor’. Viewed from any angle, the appellant cannot be included as a ‘Secured Financial Creditor’ in this case and hence no reasons to interfere with the well-reasoned order of the Adjudicating Authority.

Case Review

• • Pioneer Urban Land & Infrastructure Ltd. v. Union of India [2019] 108 taxmann.com 147/155 SCL 622 (SC) and
  • Indiabulls Housing Finance Ltd. v. Samir Kumar Bhattacharya, Resolution Professional of Network Industries Ltd. [Co. Appeal (AT) (Insolvency) No. 830 of 2019, dated 18-12-2019] (paras 10 and 11) followed.
  • Daimler Financial Services (P.) Ltd. v Value Infracon India (P.) Ltd. [2022] 135 taxmann.com 108 (NCLT – New Delhi) (para 17) affirmed [See Annex].

List of Cases Referred to

• • Pioneer Urban Land & Infrastructure Ltd. v. Union of India [2019] 108 taxmann.com 147/155 SCL 622 (SC)
  • Indiabulls Housing Finance Ltd. v. Samir Kumar Bhattacharya, Resolution Professional of Network Industries Ltd. [Co. Appeal (AT) (Insolvency) No. 830 of 2019, dated 18-12-2019] (paras 10 and 11)