NCLT Reaffirms SWAMIH Fund's Power To Shield Real Estate Projects; Dismisses Insolvency Plea Against Developer

Beyond ruling that a short-term business investment with a guaranteed profit does not constitute a "financial debt," the judgment sets a major legal precedent. It establishes that the proactive intervention of the government-backed SWAMIH Investment Fund serves as a valid institutional shield to protect ongoing construction projects from being stalled by individual recovery-driven litigants. SWAMIH had filed an Intervention Petition (IVN.P. No. 4 of 2026) before the NCLT.

On January 11, 2021, the Financial Creditor sought to initiate the Corporate Insolvency Resolution Process (CIRP) against the developer over an alleged default arising from a transaction dated June 30, 2018. The creditor claimed a total default of Rs. 16,82,13,713/- consisting of a principal amount of Rs. 1 Crore, monthly interest at 3%, and an extraordinary late fee penalty of Rs. 15,16,85,237/-.

To substantiate its loan claim, the creditor attached a contradictory bouquet of five documents signed on the same day: a Hypothecation/Loan Agreement, a Deed of Mortgage by Conditional Sale, a Memorandum of Understanding (MOU), a Memorandum of Deposit of Title Deeds, and an undated Possession Letter for 10 apartments in the developer's "Shivalik Homes" project.

The Corporate Debtor argued that it originally entered talks strictly for a short-term business investment governed by the MOU. It explicitly alleged that the creditor obtained signatures on blank papers under the guise of printing the final MOU, but instead used those blank sheets to fraudulently construct a separate, parallel loan agreement.

Crucially, the NCLT highlighted that the Financial Creditor chose not to file any rejoinder to controvert, deny, or explain these specific allegations of fraud. In the absence of an explanation, the Tribunal held that the loan agreement lacked structural credibility.

The NCLT scrutinized the explicit terms of the accompanying MOU, which explicitly classified the Rs. 1 Crore disbursement as a "Short Term Business Investment" carrying an annual "add-on profit" of 36%.

Citing the Hon'ble NCLAT precedent in M/s Jagbasera Infratech Private Ltd. v. Rawal Variety Construction Ltd., the Tribunal reaffirmed that funds deployed as an investor on a guaranteed-profit basis fall completely outside Section 5(8) of the IBC. The Bench held that an "add-on profit" cannot be legally equated to "interest," meaning the transaction lacked the key ingredient of being disbursed against the consideration for the time value of money. The definitive legal evolution brought forward by this judgment lies in the NCLT's treatment of an intervention application (IVN.P. NO. 04/2026) brought by M/s IDBI Trusteeship Services Limited, acting as the debenture trustee for the central government-sponsored SWAMIH Investment Fund - I.

The Tribunal incorporated three profound structural factors stemming from the SWAMIH Fund's position: The Tribunal noted that the developer's ongoing secondary project, Shivalik Homes - 2, is being actively fueled by a Rs. 210 Crore financial infusion via a Debenture Trust Deed executed by the SWAMIH Fund. The Bench explicitly observed that initiating the CIRP against the developer would inherently absorb the second project, severely and adversely disrupting a government-funded mechanism and directly harming public money and wider stakeholder interests. The NCLT heavily relied on the fact that SWAMIH's presence and validation "militates against CIRP initiation, particularly where the corporate debtor is demonstrably operational." One of the largest financial institutional creditors backed by the state intervened to place on record that the construction project was progressing smoothly and satisfactorily. This information provided the Bench with objective proof that the developer was solvent and operationally active, rather than an entity facing systemic management or financial collapse.

It was further noted that developer had proved via compliance affidavits and photographic evidence that Shivalik Homes - 1 was structurally completed back in May 2017. The absence of a formal Completion Certificate was due strictly to the "lackadaisical approach" and administrative delays of the state authority (UPSIDC), carrying no fault of the developer. The Bench observed that not a single homebuyer from either project appeared before the court as an aggrieved creditor. It was observed by the Bench that debtor had established that the creditor had previously launched four parallel criminal cases under Section 138 of the Negotiable Instruments Act regarding bounced security cheques. Out of these, three had already been successfully resolved via mediation and the full amounts were paid out to the creditor. This reinforced the view that the Section 7 petition was merely an aggressive, alternative recovery tactic.

Invoking the landmark supreme court declarations in Swiss Ribbons Pvt. Ltd. v. Union of India and GLAS Trust Co. LLC v. BYJU Raveendran, the NCLT reiterated that the primary, non-adversarial objective of the IBC is to protect a viable company from liquidation and protect its operational existence. It cannot be reduced to a tool for individual coercion or debt recovery.

Finding that the transaction was a business investment rather than a financial debt, and that the developer was a solvent, operational entity backed by massive public funding, the NCLT dismissed the company petition. Concurrently, the intervention application was formally disposed of.

[Case title: M/s Nivedan Fin Invest Lease Limited vs. M/s Cosmos Infraestate Private Limited, CP (IB) NO.21/ALD/2021 with IVN.P.NO.4/2026, decided on 13.05.2026]

[IDBI Trusteeship Services Limited (Debenture Trustee of SWAMIH Investment Fund - I) was represented by Dua Associates through its Partner Prashant Kumar and Principal Associate, Nikita Menon.]