Reverse CIRP can be followed to ensure completion of projects in the interest of allottees and survival of real estate companies: NCLAT

The National Company Law Appellate Tribunal (NCLAT) held that in the present case of real estate infrastructure companies, it was very difficult to follow the normal procedure usually followed in a Corporate Insolvency Resolution Process (CIRP). Hence the tribunal decided to follow a ‘Reverse Corporate Insolvency Resolution Process’ 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.

Justice S. J. Mukhopadhaya, Chairperson and Justice Bansi Lal Bhat, Member (Judicial) of the NCLAT held that in CIRP against a real estate, if the allottees (Financial Creditors) or Financial Institutions/Banks (Other Financial Creditors) or Operational Creditors of one project initiated CIRP against the Corporate Debtor (real estate company), it is confined to the particular project and cannot affect any other project(s) of the same real estate company (Corporate Debtor) in other places where separate plan(s) are approved by different authorities. The reason being land and its owner may be different; and mainly the allottees (financial creditors), financial institutions (financial creditors, operational creditors are different for such separate project.

Therefore, all the assets of the company (Corporate Debtor) are not to be maximized. The assets of the company (Corporate Debtor – real estate) of that particular project is to be maximized for balancing the creditors such as allottees, financial institutions and operational creditors of that particular project. CIRP should be project basis, as per approved plan by the Competent Authority. Any other allottees (financial creditors) or financial institutions/banks (other financial creditors) or operational creditors of other projects cannot file a claim before the Interim Resolution Professional of other project and such claims cannot be entertained.

Thus, the NCLAT held that that CIRP against a 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. In this case, the Winter Hill – 77 Gurgaon Project of the ‘Corporate Debtor’ is the matter of CIRP. 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 can the assets of the Corporate Debtor (Company) for such other projects be maximized.

The Tribunal went on to hold 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. The claims of the allottees are to be satisfied by providing the flat/apartment. While satisfying the allottees, one or other allottee may agree to opt for another flat/apartment or one tower or other tower if not allotted to any other. In such case their agreements can be modified by the Interim Resolution Professional/Resolution Professional with the counter signature of the Promoter and the allottees, so that the allottees (financial creditors), who are on rent or paying interest to banks may like to get earlier possession and are relieved from paying rent or interest to banks.

The tribunal further held that if any one of the allottees asks for refund, it cannot be allowed by the NCLT or NCLAT. Hence, after offering allotment of flat/apartment, it would be open to an allottee to request the Interim Resolution Professional/Promoter, to find out a third party to purchase the said flat/apartment and get the money back.

However, it would be open to an allottee to reach agreement with the Promoter (not Corporate Debtor) for refund of amount after completion of the flats/project or during the completion of the project.

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