The National Company Law Appellate Tribunal has held that an insolvency process against a real estate company will impact only the project concerned and not the other projects of the builder-developer.
"In CIRP against a real estate, if allottees or financial institutions, banks or operational creditors of one project initiated CIRP against the corporate debtor, it is confined to the particular project, it cannot affect any other projects of the same real estate company in other places where separate plans are approved by different authorities", said a bench headed by Chiarman Justice S J Mukhopadhyaya.
The bench observed that
"..we hold that Corporate Insolvency Resolution Process against a real estate company (Corporate Debtor) is 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.
If the same real estate company (Corporate Debtor herein) has any other project in another town such as Delhi or Kerala or Mumbai, they cannot be clubbed together nor the asset of the Corporate Debtor (Company) for such other projects can be maximised."
The NCLAT passed the order in what it termed a "peculiar case" in which the Flat Buyers Association, as well as the original Applicants, wanted the CIRP to continue for resolution but did not approve any plan by a third party i.e the Resolution Applicant.
In this regard, the NCLAT observed :
"They (the allottees) do not have any expertise to assess 'viability' or 'feasibility' of a 'Corporate Debtor'. They don't have commercial wisdom like Financial Institutions/ Banks/ NBFCs. However, these allottees have been provided with voting rights for approval of the plan. Many of such cases came to our notice where the allottees are the sole Financial Creditors. However, it is not made clear as to how they can assess the viability and feasibility of the 'Resolution Plan' or commercial aspect/ functioning of the 'Corporate Debtor'.."
The Tribunal also held that a 'Secured Creditor' such as 'financial institutions/ banks', cannot be provided with the asset (flat/apartment) by preference over the allottees (Unsecured Financial Creditors) for whom the project has been approved.
Also, the claim for refund by allottees cannot be allowed by the Adjudicating Authority, in view of the SC decision in "Pioneer Urban Land and Infrastructure Limited & Anr. v. Union of India & Or".
"after offering allotment it is open to an allottee to request the Interim Resolution Professional/Promoter, whoever is in-charge, to find out a third party to purchase said flat/apartment and get the money back. After completion of the flats/project or during the completion of the project. It is also open to an allottee to reach agreement with the Promoter (not Corporate Debtor) for refund of amount", the NCLAT said in this regard.
"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.", the Bench observed.