NCLAT: Is following the Corporate Insolvency Resolution Process under Insolvency and Bankruptcy Code a viable option when the defaulter is an Infrastructure and Real Estate development Company?

Must Read

Bombay High Court Allows Petition Seeking Lawyers and Legal Clerks To Travel in Local Trains

The present hearing arose out of a batch of Public Interest Litigations that was filed in the Bombay High...

Provisions for Retirement of Teachers Must Be Read With the Larger Interest of Students in Mind: Supreme Court

Supreme Court in Navin Chandra Dhoundiyal v State of Uttarakhand reinstated the appellants to their position as Professor on...

Parties Cannot Deny Specific Performance Merely Due To Delay: Supreme Court

The Supreme Court, in Ferrodous Estate v P Gopirathnam, revisited the law on the specific performance of a contract....

Chandigarh Housing Board Is Bound To Implement the Chandigarh Administration’s Policy Decision: Punjab & Haryana High Court

On 15th October 2020, Justices Jaswant Singh and Sant Parkash heard the case of Bhartendu Sood vs Chandigarh Housing Board...

Bombay High Court Refuses Interim Relief to Doctors Alleging Arbitrary Placement at Government Hospitals for One-Year Mandatory Public Service

The Bombay High Court was hearing a plea against the arbitrary placement of doctors for a mandatory period of...

Uttarakhand High Court Dismisses Writ Petition Seeking Relief for the Cancellation of Selection Process

On 13th October 2020, a Single Judge Bench of Hon'ble Justice Lok Pal Singh, heard the case of Ashish...

Follow us

This question was addressed by the National Company Law Appellate Tribunal (NCLAT) in the case of in Flat Buyers Association v. Umang Realtech Pvt. Ltd. The case was concerned between the Flat Buyers Association of the Umang Realtech Pvt. Ltd.’s Winter Hill – 77 Gurgaon Project and the Umang Realtech Pvt. Ltd.

Facts leading to the application before the NCLT

An application under Section 7 of the Insolvency and Bankruptcy Code (IBC) was filed by two allottees (Mrs. Rachna Singh and Mr. Ajay Singh), to initiate Corporate Insolvency Resolution Process (CIRP) against M/s Umang Realtech Pvt. Ltd. (Corporate Debtor). The National Company Law Tribunal (NCLT), Delhi accepted the application by the Financial creditors (FC) and passed an order to initiate the CIRP against the corporate debtor (CD). It subsequently passed an order directing the Financial Creditors (Homebuyers) to deposit a sum of Rs 2 lakhs with the Interim resolution professional to meet the daily expenses of the CD, and to keep it a going concern.

Facts following the initiation of CIRP

After the initiation of the CIRP, and the appointment of an Interim Resolution Professional (IRP), the CD already offered possession of flats to all 624 (Out of 702 flats in total) allottees (including the two applicants of the case), while asking them to pay their outstanding dues to the CD, towards purchasing those flats. Subsequently, the outside financial creditor (Uppal Housing Pvt. Ltd), who had invested a certain amount for the completion of the project in the CD during the CIRP, was promised by the CD to be paid from the remaining amount received from the home buyers.

Issues raised before the Appellate tribunal

In appeal before the NCLAT, the flat buyer’s association claimed that since the CD, had already promised to deliver the possession of flats to all allottees (which include the two applicants), instead of going through the CIRP under the IBC, the CD should be given a chance to finish the project.

In the course of another argument, the IRP claimed before the appellate body that the sum of Rs 2 lakh, declared by the NCLT is negligible to meet expenses of the CD, and it would not help him maintaining the adequate supply of ‘critical goods and services’, and keep the CD a going concern under Section 14(2) of the IBC.

In a subsequent claim the appellants argued that any resolution pertaining to the CD by the NCLAT must be confirmed to the particular project, it should not affect any other project(s) of the same CD in other places where the separate plan(s) are approved by different authorities, where land and its allottees (financial creditors) may be different, and it may have different financial institutions funding them. Thus, all the asset of the CD is not to be maximised by one resolution plan.

NCLAT’s Judgement

Reverse CIRP

The court held that in cases where the CD is a real estate company, in the interest of the allottees, the survival of the real estate companies and to ensure completion of projects which provides employment to a large number of unorganised workmen, a ‘Reverse CIRP’ process, must be applied. According to the court, since the is on the verge of completion of the project, and has already applied for the water connection and are in process of applying for electric connection, any act of pulling out the existing management of controlling the CD would not be in any way beneficial to either of the financial creditors.

Conflicted claims of unsecured financial creditors (home buyer) and secured creditors

The court held that ‘allottees’ (Homebuyers) come within the meaning of ‘Financial Creditors’. Though they do not have any expertise to assess ‘viability’ or ‘feasibility’ of the CD like other financial creditors (banks, financial institutions), they do have been provided with voting rights for approval of the plan. Though the assets of the CD which are secured by the ‘Secured creditors’ cannot be distributed to others, in cases where the CD is an Infrastructure and Real estate developer, the allottees (its unsecured financial creditors) have the primary right over the infrastructure of the CD.

Applicability of a resolution plan to other projects

The court affirmed that the CIRP in cases where the CD is an Infrastructure and Real estate company, should be limited to a project as per approved plan by the competent authority, and not other projects which are separate at other places for which separate plans are approved.

The NCLAT’s move of balancing the interests of all the stakeholders by suggesting a win-win situation between the home buyers and the project developers is a practical step towards resolving such disputes.  However, since there is no law backing up such actions, it does raises certain concerns pertaining to the tribunals surpassing the boundary of powers granted to it under the IBC.

Flat Buyers Association v. Umang Realtech Pvt. Ltd. NCLT NCLAT


Libertatem.in is now on Telegram. Follow us for regular legal updates and judgements from the court. Follow us on Google News, InstagramLinkedInFacebook & Twitter. You can also subscribe for our Weekly Email Updates. You can also contribute stories like this and help us spread awareness for a better society. Submit Your Post Now.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Latest News

Bombay High Court Allows Petition Seeking Lawyers and Legal Clerks To Travel in Local Trains

The present hearing arose out of a batch of Public Interest Litigations that was filed in the Bombay High Court to permit the members...

Provisions for Retirement of Teachers Must Be Read With the Larger Interest of Students in Mind: Supreme Court

Supreme Court in Navin Chandra Dhoundiyal v State of Uttarakhand reinstated the appellants to their position as Professor on basis of re-employment till the...

Parties Cannot Deny Specific Performance Merely Due To Delay: Supreme Court

The Supreme Court, in Ferrodous Estate v P Gopirathnam, revisited the law on the specific performance of a contract. It reiterated that mere delay...

Chandigarh Housing Board Is Bound To Implement the Chandigarh Administration’s Policy Decision: Punjab & Haryana High Court

On 15th October 2020, Justices Jaswant Singh and Sant Parkash heard the case of Bhartendu Sood vs Chandigarh Housing Board & Anr., via video-conferencing. Deeming the...

Bombay High Court Refuses Interim Relief to Doctors Alleging Arbitrary Placement at Government Hospitals for One-Year Mandatory Public Service

The Bombay High Court was hearing a plea against the arbitrary placement of doctors for a mandatory period of one year. The petitioners prayed...

Uttarakhand High Court Dismisses Writ Petition Seeking Relief for the Cancellation of Selection Process

On 13th October 2020, a Single Judge Bench of Hon'ble Justice Lok Pal Singh, heard the case of Ashish Bisht & Anr. v. State...

Madras High Court Dismisses Writ Petition Against National Stock Exchange For Lack Of Merit

In the case of A. Kumar v. Financial Intelligence Unit & Ors., A. Kumar filed a writ petition under Article 226 of the Constitution...

The Federal Appeals Court Holds Trump’s Diversion of Military Funds To Build the Wall To Be Unlawful

The Federal Appeals Court held that US President Donald Trump’s diversion of military funds to build the wall is unlawful. A grey area in the...

Supreme Court Dismisses Appeal Filed Challenging the Judgment of Madras High Court in Ganesan v. State Represented by Its Inspector of Police

An appeal was filed before the Supreme court, challenging the judgment & order of Madras High Court. The Supreme Court upheld the HC judgment...

Bombay High Court Refuses Interim Relief to Doctors Alleging Arbitrary Placement at Government Hospitals for One-Year Mandatory Public Service

The Bombay High Court was hearing a plea against the arbitrary placement of doctors for a mandatory period of one year. The petitioners prayed...

More Articles Like This

- Advertisement -