NCLT Delhi Rules Joint Insolvency Resolution Process Valid For Multiple Entities Involved In Construction Project

NCLT Delhi Rules Joint Insolvency Resolution Process Valid For Multiple Entities Involved In Construction Project

The National Company Law Tribunal (NCLT), New Delhi bench, comprising Shri Mahendra Khandelwal (Judicial Member) and Shri Rahul Bhatnagar (Technical Member), has ruled that a joint insolvency resolution process (CIRP) can be initiated against multiple entities involved in the development of the same construction project under the Insolvency and Bankruptcy Code, 2016 (IBC).

The financial creditors, who had allotted retail space in the Festival City real estate project, filed a petition against three corporate debtors—Anand Infoedge, Mist Avenue, and Mist Direct Sales. These entities were collectively responsible for the project's development.

Anand Infoedge received land in Noida on August 21, 2008, under the Industrial Land Service Investment Policy, 2004, with a lease for 90 years to set up an IT Park. A collaboration agreement dated October 26, 2002, was made with Mist Avenue for the development of the project land. Mist Avenue, responsible for obtaining licenses and permissions, was to receive 85% of the total Floor Space Index (FSI), with Anand Infoedge retaining termination rights in case of insolvency. On July 27, 2017, development rights were transferred to Mist Direct Sales, which handled marketing and sales decisions but required Anand Infoedge’s consent for sales.

Despite these agreements, significant construction did not progress, and the project was de-registered on the UP-RERA website. Mist Direct Sales, a subsidiary of Anand Infoedge holding 99.99% of its shares, faced allegations of default.

Aggrieved, the Allottees filed a petition under Section 7 of the IBC, claiming a financial debt of Rs. 51,64,74,251/- and arguing that the corporate debtors failed to deliver possession within the stipulated time.

Anand Infoedge argued it was merely a landowner with no contractual obligations towards the financial creditors, citing land disputes and encumbrances. Mist Avenue claimed the petition was barred by limitation and argued the collaboration had been terminated. Mist Direct Sales contended the petition was not maintainable, asserting there was no provision in the IBC for the joint insolvency of multiple entities, and questioned the petition’s timing and intentions.

The NCLT observed that previous rulings by the NCLAT and the Supreme Court support the initiation of a consolidated insolvency resolution process for entities jointly involved in a project. The NCLT noted that the financial creditors rejected settlement offers and that the project’s registration was revoked by UPRERA in 2019 due to non-compliance. The corporate debtors’ defenses, including arguments of maintainability, limitation, fraudulent initiation, readiness to settle, and feasibility issues, were dismissed.

The NCLT approved the petition, initiating the CIRP against the corporate debtors with immediate effect. Mr. Narendra Kumar Sharma was appointed as the interim resolution professional after consulting with the allottees.