NCLAT Delhi Approves Joint CIRP for Separate Corporate Entities in Shared Real Estate Project
NCLAT Delhi Approves Joint CIRP for Separate Corporate Entities in Shared Real Estate Project
The National Company Law Appellate Tribunal (NCLAT) has upheld the maintainability of a Section 7 petition filed under the Insolvency and Bankruptcy Code (IBC) seeking joint Corporate Insolvency Resolution Process (CIRP) against separate corporate entities involved in a common real estate project. The Principal Bench, presided over by Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member), ruled that allottees have the standing to initiate joint CIRP proceedings against such entities.
Three separate companies were jointly developing a real estate project in Delhi’s satellite township Noida. When the construction of units was not completed within the stipulated timeframe, the allottees filed a Section 7 petition under the Insolvency and Bankruptcy Code (IBC), seeking the initiation of joint Corporate Insolvency Resolution Process (CIRP) against all three companies involved. The National Company Law Appellate Tribunal (NCLAT), upholding the maintainability of the Section 7 petition, observed that all three companies were intricately involved in the same project, and the resolution of the project was contingent on the participation of all three entities. The tribunal reasoned that the absence of any of the companies in the CIRP would hinder the project's resolution and the allottees' chances of receiving their allotted units.
“We are in agreement with the view expressed by the Adjudicating Authority that Section 7 Application filed against all the three appellants together is maintainable. The three appellants being part of one Common Real Estate Project and the Applicants of Section 7 Application being part of the said project they had every right to initiate Section 7 Application against all the three appellants together,” the NCLAT bench observed.
In August 2008, Anand Infoedge Pvt. Ltd. (AIPL) obtained a lease for a plot of land in Sector 143 Noida from the New Okhla Industrial Development Authority (NOIDA). AIPL then collaborated with Mist Avenue Pvt. Ltd. (MAPL) to develop a mixed-use project named Festival City on the leased land. The project envisioned residential, commercial, and retail spaces, but faced delays and ultimately stalled, leaving many allottees disappointed.
Despite the two collaborations, the Project failed to be completed within the specified timeframes. In 2021, Nitin Batra and numerous other allottees (Financial Creditors/Allottees) filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, requesting the 'joint' initiation of Corporate Insolvency Resolution Process against AIPL, MAPL, and MDSPL.
On October 21, 2022, the NCLT deemed the Section 7 petition maintainable and scheduled the hearing for November 10, 2022. In response, AIPL, MAPL, and MDSPL (Corporate Debtors/Appellants) filed an appeal against the October 21, 2022, order before the NCLAT.
They claimed that the NCLT lacked the authority to consolidate the CIRP of three distinct companies at the stage of admitting a Section 7 petition.
The NCLAT Bench observed that the three Appellants (Corporate Debtors) had collaborated to undertake the Project, each assuming specific responsibilities towards the Allottees. However, none of them could fulfil their obligations, resulting in the Project's unfulfilled state.
The Bench emphasised that the Project's completion would remain elusive without the initiation of joint insolvency proceedings against all three Corporate Debtors, leaving the Allottees at the mercy of insurmountable losses and hardships.
“CIRP in the Real Estate Project has different contours and ramifications. It is also on the record that at a time when 2nd Collaboration Agreement was entered between ‘Anand Infoedge Pvt. Ltd.’ and ‘Mist Direct’, ‘Anand Infoedge Pvt. Ltd.’ has 99.99 per cent shareholding in ‘Mist Direct’. All three companies who are impleaded as Respondents in Section 7 Application and Appellants before us are closely connected with the construction and implementation of the project. The developer who issued allotment letter and executed Builder Buyer Agreement was acting on behalf of ‘Anand Infoedge Pvt. Ltd.’ who has given authority to ‘Mist Direct’,” the Bench noted.
The NCLAT observed that the three Corporate Debtors are inextricably linked to the Festival City project. MAPL and MDSPL were tasked with developing and selling units, and MAPL received payments from the allottees for the allocation of units.
The Bench drew upon its earlier judgments in Mamatha v AMB Infrabuild Pvt. Ltd. & Ors., C.A.(AT) Ins. No. 155 of 2018 and Edelweiss Asset Reconstruction Company Ltd. v Sachet Infrastructure Pv.t Ltd., C.A.(AT) Ins. No. 377 of 2019, to conclude that consolidated CIRP can be initiated against one or more Corporate Debtors who have collaborated to develop a project.
Following the Adjudicating Authority's decision, the NCLAT ruled that the Section 7 Application filed against all three appellants collectively is maintainable. The three appellants, being part of a single real estate project, and the applicants of the Section 7 Application, being part of the same project, had the right to initiate joint proceedings against all three appellants. Hence, the NCLAT upheld the Adjudicating Authority's decision on the maintainability of the Section 7 Application and dismissed the appeal.
