NCLT rules on project-wise CIRP of a real estate company

NCLT rules on project-wise CIRP of a real estate company

It cited the judgment of the Supreme Court in a previous case

The Chennai branch of the National Company Law Tribunal (NCLT), has held that the project-wise Corporate and Insolvency Resolution Process (CIRP) of a real estate company is outside the purview of the Insolvency and Bankruptcy Code, 2016.

The bench comprising Justice S. Ramathilagam and Technical Member Anil Kumar B was ruling on the case of N Kumar versus Tata Capital Housing Finance Limited.

The CIRP of Sheltrex Developers Private Limited was initiated by NCLT Chennai vide its December 2019 order. at that time, N Kumar was appointed as the Interim Resolution Professional and later confirmed as Resolution Professional (RP).

Sheltrex had launched two real estate projects - Appur Village, Oragadam, Chennai consisting of 296 homes, and Nammavedu at Coimbatore consisting of 110 homes.

The RP of Sheltrex filed an application under IBC seeking permission to constitute a project-based Committee of Creditors and conduct project-wise CIRP.

But the RP contended that the only business of Sheltrex was to promote the real estate project, particularly the affordable housing. Each project of Sheltrex had different types of creditors, not related to each other.

The RP cited an earlier judgment of NCLAT wherein the tribunal had allowed the project-based insolvency of a real estate company.

Meanwhile, the financial creditor, Tata Finance opposed the relief prayed by the RP. it contended that it holds 17 percent of voting rights in COC. Also, the application filed by the RP was not maintainable as neither IBC nor any regulations stipulated the project-wise CIRP.

It further said that the CIRP regulations mandate a resolution plan for not project-wise, but the entire business of the Corporate Debtor. Thus, as per the IBC, RP's application was against the provisions.

NCLT observed that there was no concept of limited CIRP or for specific projects anywhere in the IBC, or regulations made thereunder.

It cited the judgment NCLT of the Supreme Court in another case wherein it was held that IBC was beneficial legislation that could trigger and put the Corporate Debtor back on its feet. The tribunal held that in the present scenario, the circumstances of that case could not be used as a precedent.

NCLT, thus, dismissed the application filed by the RP holding that the relief sought by him was outside the purview of IBC.