Sale Agreements Do Not Mean Flats Are Held In Trust For Homebuyers During Builder Insolvency: NCLT Kochi

The National Company Law Tribunal (NCLT) at Kochi has ruled that apartments and project land covered only by sale or construction agreements cannot be treated as “assets held in trust” for homebuyers when a builder enters insolvency. The tribunal said such properties continue to belong to the builder during the Corporate Insolvency Resolution Process until sale deeds are executed and registered.

A coram of Judicial Member Vinay Goel said the Insolvency and Bankruptcy Code does not permit property to be taken out of the insolvency process merely because buyers have entered into agreements or paid money.

“The contention of the Applicant that the apartments allotted under Agreements for Sale constitute “assets held in trust” and are liable to be excluded from the estate of the Corporate Debtor is legally untenable. An Agreement for Sale, by itself, does not create any right, title, or interest in immovable property, nor does it divest ownership from the Corporate Debtor or create any trust or proprietary interest in favour of the allottee in the absence of execution and registration of a conveyance deed ” the tribunal observed.

The case was filed by the Sanctuary Apartment Owners' Association, which represents homebuyers in the 'Sanctuary' housing project in Thiruvananthapuram developed by Samson and Sons Builders and Developers Pvt. Ltd.. The buyers said they had entered into agreements for sale with the builder in 2012 and had paid substantial amounts towards their apartments and the undivided share of land.

When insolvency proceedings began against the builder, the association approached the NCLT seeking a declaration that the project land and partially constructed apartments were held in trust for the homebuyers and should be kept outside the insolvency estate.

The association also alleged that in 2014 the builder had mortgaged the project land to State Bank of India without the knowledge or consent of the buyers while availing a working capital loan. During the insolvency process, the Resolution Professional admitted SBI's secured claim of Rs.14.94 crore and attributed the entire liability to the Sanctuary project. The homebuyers asked the tribunal to declare the bank's claim invalid and the mortgage illegal.

Rejecting the plea, the tribunal said accepting the buyers' argument would mean that large portions of a real estate project would stop being assets of the company the moment insolvency begins, which would run contrary to the scheme of the Code.

It also noted that SBI's claim had been admitted as a secured claim from the inception of the insolvency process and was never challenged at the relevant stage. On that ground as well, the tribunal said the request to invalidate the claim could not be entertained.

The plea was dismissed, with the tribunal imposing a cost of Rs 3.3 thousand on the homebuyers' association.

Case Title: Sanctuary Apartment Owner's Association v. K. Parameswaran Nair and Ors

Citation: 2026 LLBiz NCLT (KOC) 35

Case Number: IA(IBC)/265/KOB/2024 in CP (IBC)/05/K0B/2021

For Applicants: Advocate Bijoy P Pulipra

For Respondents: Advocates Vinod P.V and Terry V James