KRERA orders developer undergoing insolvency resolution to handover possession

On January 29, 2024, the Supreme Court said that companies cannot be protected by a moratorium ordered by NCLT and proceedings can be initiated against the promoters, officers, and directors of the companies.

Despite an ongoing insolvency resolution process under the insolvency and bankruptcy code, Karnataka RERA has ordered a Bengaluru-based developer to hand over possession to the buyer at a commercial project in the city.

In this case, the developer Vikram Structures failed to hand over possession of 10,000 sq ft commercial space in North Bengaluru after the date of the agreement in 2015. After paying Rs 5 crore for the space and being unable to take possession of it, the buyer, Chandrakanth Yatnatti, filed a complaint with KRERA.

Promoter produces NCLT order to halt proceedings

The developer produced a copy of an NCLT order from February 2022 by the Bengaluru bench of the National Company Law Tribunal (NCLT) under section 14 of the Insolvency and Bankruptcy Code (IBC), ordering a moratorium on any legal proceedings against the developer.

A moratorium halts all proceedings for recovery, in all other legal platforms including the high court, against the company until the NCLT case is disposed of. In this case, the moratorium will also halt any RERA recovery proceedings against the company.

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Sub Editor|Moneycontrol

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KRERA noted while passing the order on February 14 that as per the NCLT order submitted by the developer, it has been made a party to the NCLT proceedings as a corporate debtor and in view of its inability to pay dues as a guarantor to the borrower, corporate insolvency resolution process has been initiated against the developer.

However, in its order, KRERA pointed out that as per section 12 of the IBC Act, the moratorium cannot be continued for an indefinite period. It added that two years have lapsed since the NCLT order and that the developer has not produced any statement or clarifications to indicate the continuation of the moratorium.

Hence, the authority noted that it is incumbent on the developer to hand over possession of the said property to the complainant.

Supreme Court says proceedings can be held against directors

On January 29, 2024, the Supreme Court said that companies cannot be protected by a moratorium ordered by NCLT and proceedings can be initiated against the promoters, officers, and directors of the companies.

"Only because there is a moratorium under Section 14 of the IBC against the company, it cannot be said that no proceedings can be initiated against the directors, officers and promoters of the company," the order added.

Advocates say the provision was being misused by the companies, where insolvency proceedings in NCLT would halt the parallel recovery proceedings in other legal forums.

Chandrachur Bhattacharyya, who argued in the case told Moneycontrol that several developers today have declared bankruptcy during ongoing proceedings for recovery of money or refund of the investments thus delaying the recoveries.

But now, he added, assets of the promoters and directors can be attached that the moratorium previously stopped them from doing so, thus increasing the chances of recovery by a multitude.