The Chennai NCLT has held that advances given by Property buyers to real estate developer will be considered as ‘borrowing’.

The Appellant/Suspended Director of the Corporate Debtor Company that the Company is engaged in the business of developing and promoting real estate layouts. It is stated that the Corporate Debtor Company had entered into three Agreement of Sale with the Respondents for purchase and development of 10 plots numbering Plot and an advance of Rs. 1,36,00,000/- was paid by the Respondent over a

period of time from 26/08/2016 to 09/03/2017. The Learned Counsel submitted that HMDA Approval was procured on 27/03/2017 but unfortunately HMDA mortgaged Plot Nos. 24 to 29 in the lay out, which included the plots of the 1st Respondent. This mortgage is only as per the general guidelines of HMDA to mortgage 15.54 % of the plotted area to ensure smooth development of the layout. It is submitted that the 1st Respondent neither purchased the Plot nor sought for repayment and is hence, entitled only to a sum of Rs. 35,97,500/-.

The Financial Creditor is not a genuine homebuyer but is a speculative investor as he has sought to sell five plots out of the 10 plots to third parties for higher consideration and then has filed this Section 7 Petition, falsely claiming Rs. 2,27,28,360/- which computes a sum of Rs. 69,25,000/- towards principal and a sum of Rs. 1,58,03,360/- towards interest, while he is entitled to only a sum of Rs. 35,97,500/- which is the admitted amount in CMA No. 296/2021 filed before the High Court, Telangana against the Order in IA 61/2020 in O.S. No. 113/2020 and therefore, now cannot Claim a sum of Rs. 2,27,28,360/- in contradiction to the statement.

It is the main case of the Appellant that the interest calculation made by the 1st Respondent for arriving at a Claim of Rs. 2,27,28,360/- is arbitrary and against the terms mentioned in the Sale Agreement.

It is contended that the Sale Agreements do not provide for any interest paid to the 1st Respondent and that it was mutually agreed by the Parties to register the Sale Deed for the Mortgaged Plots once the Mortgage is lifted and hence, the Respondent cannot arbitrarily apply interest for the delay in registering the Sale Deed for the Mortgaged Plots. A Suit for specific performance in O.S. No. 113/2020 was also preferred by the 1st Respondent IA 61/2020 was filed to restrain the Corporate Debtor Company from alienating the unmortgaged plots.

The same was dismissed and the CMA 296/2021 was filed admitting that only Rs. 35,97,500/- was due and payable and therefore, in the absence of any interest agreed to be paid and this admission in CMA 296/2021 the amount claimed is erroneous and the actual amount due does not meet the threshold amount as contemplated under the Code.

The tribunal held that the advances given by Property buyers to real estate developer will be considered as ‘borrowing’, and such amounts raised from allottees falls within the scope of Section 5(8)(f) of the Code.

Case Title: Venkat Rao Marpina V/s Vemuri Ravi Kumar