Under the regime of Insolvency and Bankruptcy Code, 2016 (IBC, 2016) the process of Corporate Insolvency Resolution Process (CIRP) can be initiated by the Financial Creditor, Operational Creditor and Corporate Debtor itself. In 2019, Supreme Court of India upheld the homebuyer’s rights at par with the Financial Creditor under the IBC, 2016. Resultantly, since 2016-17 several cases have been filed by the Flat Buyers’ before the National Company Law Tribunal (NCLT) against varied projects of Real Estate Developers. But the confusion arises in a case as to whether CIRP proceedings initiated by a flat buyer against one project of a Real Estate Company will affect its other group projects?
The National Company Law Appellate Tribunal (NCLAT) answered this question in the matter titled as Flat Buyers Association Winter Hills vs Umang Realtech Pvt. Ltd through IRP & Ors. [CA No. 926 of 2019] vide Order dated 04.02.2020, holding that any insolvency process initiated by a flat buyer or financial institution would be limited to the project in dispute only and not impact the other projects of the developer.
Justice S J Mukhupadhaya, while dealing with the aforesaid issue observed that the entire insolvency process initiated over the plea of a flat buyer or any other financial institution would be restricted to the project only. The order came over a petition filed by group of allottees- Flat Buyers Association Winter Hills-77, Gurgaon against Umang Real Tech Pvt. Ltd, (Corporate Debtor). It was considered in this case that if the same Corporate Debtor has any other project(s) in another town such as Delhi or Kerala, it cannot be clubbed together with the disputed projects nor the assets of the Corporate Debtor for such other projects can be utilized to pay the debt pertaining to the disputed project.
It was further, suggested that there should also be a reverse corporate insolvency process in such cases. In this regard, the NCLAT observed as, “we are of the view, that a ‘Reverse Corporate Insolvency Resolution Process’ can be followed in the cases of real estate infrastructure companies in the interest of the allottees and survival of the real estate companies and to ensure completion of projects which provides employment to large number of unorganized workmen.”.
It is also relevant to mention that, the NCLAT held in case the flat owners of such projects wish to seek a refund for the particular project of the Corporate Debtor which is undergoing insolvency, they are open to enter into an agreement, either with the interim resolution professional, or the promoter to find a new buyer and get the money refunded if and when that flat is sold.
This Order has taken care of the interests of real estate companies as well as the buyer as it has protected the group projects of a real estate company from falling within the CIRP proceedings. At the same time it has served the purpose of upholding the faith of other prospective buyers who have made investments in other projects of a corporate debtor.
The Indian Lawyer