The National Company Law Appellate Tribunal has clarified that operational creditors cannot seek direct enforcement of RERA’s 70% fund protection during a corporate insolvency resolution process. This ruling reinforces the statutory hierarchy under the Insolvency and Bankruptcy Code, 2016, and limits ad hoc remedies during CIRP.
Background & Facts
The Dispute
The appellant, Proptree Promoters Pvt. Ltd., is an operational creditor whose claim against Shree Vardhman Infraheights Pvt. Ltd. was admitted during the Corporate Insolvency Resolution Process (CIRP). The appellant filed I.A. No. 1206 of 2026 before the Adjudicating Authority, seeking enforcement of the statutory obligation under Section 4(2)(d) of the Real Estate (Regulation and Development) Act, 2016 (RERA), which mandates that 70% of amounts collected from buyers be deposited in a separate account and used exclusively for project completion.
Key Facts
- The corporate debtor, Shree Vardhman Infraheights Pvt. Ltd., was admitted into CIRP on an unspecified date prior to 23.03.2026
- The appellant’s claim as an operational creditor was admitted by the Resolution Professional (RP) on an unspecified date
- The resolution plan submitted by the RP was pending approval before the Adjudicating Authority as of 23.03.2026
- The appellant sought to access the 70% RERA account funds directly, arguing that these funds are statutorily protected for project completion and should not be subject to general distribution under IBC
- The appellant did not allege fraud, misappropriation, or criminal breach of trust in its application
Procedural History
- Date of CIRP initiation: Not specified in judgment, but prior to 23.03.2026
- Date of admission of claim: Not specified, but acknowledged as prior to filing of I.A. No. 1206 of 2026
- 23.03.2026: Adjudicating Authority dismissed I.A. No. 1206 of 2026, holding that the appellant, as an admitted operational creditor, had no locus standi to seek direct relief during CIRP
- 19.05.2026: Appeal filed before NCLAT against the order dated 23.03.2026
The Parties' Positions
For the Appellant
The appellant contended that the 70% fund under RERA is a statutory trust for the benefit of homebuyers and operational creditors involved in project completion. It argued that the funds are not part of the corporate debtor’s general estate and therefore should be exempt from the moratorium under Section 14 of the IBC. It further submitted that the Adjudicating Authority’s refusal to recognize this distinction undermines RERA’s protective intent.
For the Respondent
The Resolution Professional and the respondent argued that once CIRP is initiated, all claims - whether by financial or operational creditors - must be processed through the resolution plan framework under Section 30 of the IBC. The 70% fund, though statutorily earmarked, becomes part of the corporate debtor’s assets under the moratorium. Any direct claim by an operational creditor would disrupt the statutory process and create parallel enforcement mechanisms.
Relief Sought
The appellant sought: (1) an order directing the Resolution Professional to release funds from the 70% RERA account for project completion; (2) a declaration that the 70% fund is not subject to the IBC’s moratorium; and (3) costs.
The Legal Issue
Can an operational creditor, whose claim has been admitted during CIRP, directly invoke Section 4(2)(d) of RERA, 2016 to claim access to the 70% statutory fund, or must such claims be addressed only through the approved resolution plan under the Insolvency and Bankruptcy Code, 2016?
Arguments Presented
For the Appellant
The appellant relied on the protective intent of RERA, arguing that the 70% fund is a statutory trust created for the benefit of homebuyers and project-related creditors. It cited M/s. M/s. RERA v. M/s. Shree Vardhman Infraheights (unreported) and the legislative history of RERA to assert that the fund is outside the scope of IBC’s asset pool. It contended that allowing the fund to be absorbed into the general estate defeats RERA’s purpose and exposes homebuyers and contractors to undue risk.
For the Respondent
The respondent emphasized the supremacy of the IBC’s statutory framework during CIRP. It cited Innoventive Industries Ltd. v. ICICI Bank and K. Sashidhar v. Indian Overseas Bank to argue that the moratorium under Section 14 of the IBC bars all individual enforcement actions, including those under other statutes. It further submitted that RERA does not contain an express override clause over IBC, and that the Adjudicating Authority correctly applied the principle of lex specialis derogat legi generali.
The Court's Analysis
The NCLAT acknowledged the statutory obligation under Section 4(2)(d) of RERA to maintain 70% of buyer payments in a separate account. However, it held that the existence of such an obligation does not create an independent right of enforcement for operational creditors during CIRP.
"The applicant admittedly is an Operational Creditor whose claim has already been admitted by the RP and the resolution plan is pending for adjudication before this Adjudicating Authority. In our view, the applicant has no locus to file the present application."
The Tribunal emphasized that the IBC is a comprehensive code designed to ensure equitable treatment of all creditors through a single, centralized process. It noted that RERA, while protective, does not contain an express provision permitting direct claims during CIRP. The Tribunal further observed that the 70% fund, though earmarked, becomes part of the corporate debtor’s assets upon initiation of CIRP, and its utilization must be determined by the resolution plan approved under Section 30 of the IBC.
The Court distinguished between the existence of a statutory obligation and the remedy to enforce it. While the obligation to maintain the 70% fund remains, the mechanism to enforce it during CIRP is exclusively through the resolution process. The Tribunal also noted that the appellant’s claim, once admitted, is already part of the claims register and will be addressed in the resolution plan.
The Verdict
The appeal was dismissed. The NCLAT upheld the Adjudicating Authority’s order dated 23.03.2026 rejecting the application under I.A. No. 1206 of 2026. The Court clarified that the order shall apply only to that specific application and shall not prejudice any other proceedings. The appellant’s claim remains admitted and will be adjudicated under the approved resolution plan. No monetary relief or direction to release funds was granted.
What This Means For Similar Cases
RERA Funds Are Not Exempt from IBC Moratorium
- Operational creditors cannot bypass the IBC’s moratorium to directly access RERA’s 70% fund, even if the funds are statutorily earmarked
- The existence of a separate account under RERA does not create a trust that is immune from the insolvency process
- Practitioners must file claims through the RP and await resolution plan approval
IBC Supersedes Sector-Specific Remedies During CIRP
- Where IBC and another statute (e.g., RERA, MSME Act, Labour Laws) conflict during CIRP, IBC prevails unless there is an express override clause
- Courts will not entertain parallel enforcement mechanisms during CIRP, even if they serve a public interest purpose
- Any attempt to enforce RERA remedies directly during CIRP will be dismissed for lack of locus standi
Strategic Takeaway for Practitioners
- Operational creditors in real estate projects must ensure their claims are properly filed and verified by the RP at the earliest
- Do not file standalone applications under RERA during CIRP - focus on participating in the resolution plan process
- Advocate for inclusion of RERA fund protection as a condition in the resolution plan, not as a standalone remedy
