SC bars RWAs from developer insolvency proceedings

The Supreme Court on Thursday ruled that homebuyers' societies or Resident Welfare Associations (RWAs) ordinarily constituted for maintenance and management of common facilities in a housing project cannot intervene in the insolvency proceedings of the developer company.

A bench of justices JB Pardiwala and R Mahdevan, which upheld the insolvency proceedings related to Takshashila Heights India Private Ltd under the Insolvency and Bankruptcy Code of 2016, said if creditors elect to invoke the provisions of the code, they must do so with a genuine willingness to pursue revival of the corporate debtor.

It said, "Should revival not be their objective, the Code cannot be converted into a tool for expedient recovery; alternative statutory remedies, including under SARFAESI or other applicable laws, remain available in accordance with law."

The bench upheld the rejection of intervention application by National Company Law Appellate Tribunal (NCLAT) of Elegna Co-operative Housing and Commercial Society Ltd (a society of home buyers) on the ground that it lacked locus standi to intervene in the company's appeal.

The bench said the IBC is a self-contained code which confers participatory rights only on persons falling within statutorily defined categories and a financial creditor under its Section 5(7) must be a person to whom a financial debt is owed.

"While the explanation to Section 5(8)(f) deems individual allottees to be financial creditors, it does not extend such status to societies or associations unless the entity is itself a creditor in its own right, or is statutorily recognised as an authorised representative under the Code," it said.