Supreme Court Rejects Builder's Plea to Limit Insolvency Process to One Real Estate Project
The Supreme Court has dismissed a plea by a builder to limit the Corporate Insolvency Resolution Process (CIRP) of Spaze Towers Pvt. Ltd. to a single real estate project in Gurugram. The Court upheld the decision of the National Company Law Appellate Trib
InsolvencyReal EstateCorporate DebtorSupreme CourtCirpReal Estate NewsJan 07, 2025
Ltd.
(Corporate Debtor), seeking to confine the Corporate Insolvency Resolution Process (CIRP) to a single real estate project in Gurugram.
The Court, comprising Justice Abhay Oka and Justice Augustine George Masih, agreed with the National Company Law Appellate Tribunal (NCLAT) that the order under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016, cannot be limited to only one project of the Corporate Debtor (CD).
As such, the appeal was dismissed.
The case originated when a Section 7 application was filed by financial creditors, including 26 real-estate allottees of the Spaze Arrow project.
The National Company Law Tribunal (NCLT), New Delhi Bench, admitted the application on October 21, 2024.
Subsequently, the suspended director appealed the decision before the NCLAT.
On October 28, 2024, the NCLAT issued an interim order allowing the CIRP to proceed and the formation of the Committee of Creditors (CoC).
The appellant then filed an application on November 8, 2024, seeking to modify the NCLAT's interim order to limit the CIRP to the Spaze Arrow project alone.
Senior Advocate Mukul Rohatgi, representing the appellant, argued that the CIRP should be confined to the Spaze Arrow project as the Section 7 application pertained solely to that project.
He highlighted that Spaze Towers Pvt.
Ltd.
had successfully completed 12 projects over a decade, with occupancy and completion certificates for most.
Approximately 6,700 units have been sold, and possession has been granted in the majority of cases.
The appellant emphasized that including completed projects in the CIRP would jeopardize the interests of allottees and hinder the ongoing efforts to complete the Spaze Arrow project.
He also noted that the delay in Spaze Arrow's completion was due to disputes with the landowner, Ishan Singh, and an interim status quo order issued on December 2, 2019, which halted construction.
On the other side, Senior Advocate Abhijeet Sinha, representing the financial creditors in a class, contended that confining the CIRP to a single project would undermine the rights of creditors from other projects.
He pointed out that claims worth Rs.
72 crores had already been admitted by the Interim Resolution Professional (IRP) from allottees across multiple projects, with claims for another Rs.
87 crores under verification.
The IRP had also constituted the Committee of Creditors (CoC), consisting of 228 financial creditors from various projects.
The NCLAT noted that the claims filed during the CIRP extended beyond the Spaze Arrow project and encompassed several other projects developed by the corporate debtor.
The tribunal observed that financial creditors, including real estate allottees, are entitled to file claims under the IBC upon the initiation of CIRP.
The bench found no merit in the appellant's plea to restrict the CIRP to Spaze Arrow, as it would exclude the claims of creditors from other projects, potentially violating their rights.
The tribunal also stated that the admissibility of claims lies within the purview of the IRP and can be challenged under Section 60(5) of the IBC if necessary.
As a result, the NCLAT rejected the application, refusing to confine the CIRP to a single project given the multi-project nature of the corporate debtor's operations and the broad scope of claims filed by financial creditors.
The Supreme Court's decision reinforces the principle that the insolvency process under the IBC must consider the interests of all creditors across all projects of the corporate debtor, ensuring a fair and comprehensive resolution.
Frequently Asked Questions
What is the Corporate Insolvency Resolution Process (CIRP)?
The Corporate Insolvency Resolution Process (CIRP) is a provision under the Insolvency and Bankruptcy Code (IBC) that aims to resolve the insolvency of a corporate debtor. It involves a time-bound process to either restructure the company or liquidate its assets to pay off creditors.
Why was the appeal filed by Harpal Singh Chawla dismissed?
The appeal was dismissed because the Supreme Court agreed with the National Company Law Appellate Tribunal (NCLAT) that the Corporate Insolvency Resolution Process (CIRP) cannot be confined to just one project of the corporate debtor. This would violate the rights of creditors from other projects.
What are the key arguments presented by the appellant?
The appellant argued that the CIRP should be confined to the Spaze Arrow project as the Section 7 application pertained solely to that project. He also highlighted the successful completion of 12 other projects and the potential negative impact on completed projects if included in the CIRP.
What is the role of the Interim Resolution Professional (IRP) in the CIRP?
The Interim Resolution Professional (IRP) is appointed to manage the affairs of the corporate debtor during the insolvency process. The IRP is responsible for filing and verifying claims, constituting the Committee of Creditors (CoC), and ensuring the CIRP proceeds in a fair and transparent manner.
How does the decision impact financial creditors and real estate allottees?
The decision ensures that all financial creditors and real estate allottees have the right to file claims against the corporate debtor, regardless of the project. This prevents the exclusion of any creditor's claims and ensures a comprehensive and fair resolution process.
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