NCLT Bengaluru Rules: IRP Not Obligated to Rely on Entity-Level Loan Documents in Project-Specific Insolvency

The National Company Law Tribunal (NCLT) in Bengaluru has delivered a significant ruling in the context of project-specific insolvency cases. The bench, comprising Judicial Member Sunil Kumar Aggarwal and Technical Member Radhakrishna Sreepada, has clarified that an Interim Resolution Professional (IRP) is not obligated to rely solely on entity-level loan documents. This decision provides clarity on the approach IRPs should take when dealing with claims in insolvency proceedings confined to a single real estate project.

The case in question revolved around the insolvency of a real estate project known as 'United Towers.' The IRP had issued a public announcement inviting claims from creditors. However, the financial creditors submitted claims based on entity-level loan documents, which the IRP partially admitted. This partial admission was challenged, leading to the NCLT's intervention.

In its order, the NCLT emphasized that the IRP has the discretion to evaluate claims based on the specific circumstances of the project. The tribunal noted that the insolvency proceedings were limited to the 'United Towers' project and not the entire entity. Therefore, the IRP was not bound to mechanically accept entity-level loan claims without considering the project's specific financial situation.

This ruling is particularly significant for the real estate sector, where projects often face financial distress independently of the broader entity's health. The NCLT's decision provides a clear guideline for IRPs to focus on the financial health and documentation of the specific project in question, rather than the broader entity's financial status.

The judgment also underscores the importance of transparency and accurate documentation in project-specific insolvency cases. Financial creditors are advised to submit claims that are directly related to the project in question, supported by relevant and project-specific documentation. This ensures a fair and efficient resolution process, protecting the interests of all stakeholders involved.

The NCLT's ruling is expected to set a precedent for similar cases and bring clarity to the role of IRPs in project-specific insolvency proceedings. This decision is likely to influence how IRPs handle claims in the future, ensuring that the focus remains on the specific project's financial health and documentation.

In conclusion, the NCLT Bengaluru's decision highlights the need for a nuanced and project-specific approach in insolvency proceedings. It provides a clear directive to IRPs and financial creditors, ensuring a more transparent and fair resolution process in the real estate sector.