Can homebuyers and a Successful Resolution Applicant be made to bear penalty charges for the developer's delay?

No. It is neither the default of the homebuyers nor the default of the Successful Resolution Applicant that led to the delay, and they are sought to be penalised for the past sins of the Corporate Debtor, which cannot be allowed — especially in the context of the authority imposing the penalty being a local authority concerned essentially with the development of the area under its control. The homebuyers had themselves pooled their resources and carried out construction as a going concern under the Committee of Creditors' approved ‘Pool and Build’ mechanism.

Corporate insolvency resolution process — CIRP costs — Perpetual lease granted by a development authority — Time extension charges — Penalty — Homebuyers as financial creditors — Successful Resolution Applicant — CIRP costs — Time extension charges are penal in nature — Not includible — Held: Time extension charges imposed as a percentage of the lease premium to penalise a defaulting developer are penal in nature, and the directions to treat them as CIRP costs cannot be sustained. (¶14, 16) Penalty — Default of the Corporate Debtor — Homebuyers and the Successful Resolution Applicant — Held further: The homebuyers and the Successful Resolution Applicant cannot be penalised for the past sins of the Corporate Debtor, neither of them having caused the delay; the authority imposing it is concerned essentially with development of the area under its control. (¶15) Development authority — Commercial venture — Welfare purpose — Held further: A development authority is involved in a commercial venture, but that cannot be divorced from the essential purpose every local authority pursues — welfare measures without a mere profit motive. The essential purpose of development would fail if default charges are insisted upon. (¶12, 13) Time extension charges — Beyond the three years stipulated — Disposal — On facts, held: The penalty now mulcted on the SRA and the homebuyers cannot validly be imposed. Directions to treat the time extension charges as CIRP costs set aside; the authority’s claim for charges beyond three years rejected. (¶16, 17)

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