NCLAT Initiates Reverse Insolvency In Real Estate Case

The National Company Law Appellate Tribunal (NCLAT) has passed an order to initiate a reverse insolvency process in a case related to a real estate company.

The NCLAT has also said that if insolvency is initiated against a project, it will not extend to the entire company or any of its other projects.

The NCLAT order has come in the matter of a real estate company — Flatbuyers’ Association of Winter Hills, Gurugram, a project of Umang Realtech, in order to discourage the use of insolvency and bankruptcy code (IBC) as a recovery tool.

“As we find it is very difficult to follow the process as in normal course is followed in a corporate insolvency resolution process (CIRP), we are of the view that a reverse CIRP can be followed in cases of real estate infrastructure companies in the interest of allottees and survival of real estate companies as well as to ensure completion of projects,” the NCLAT order stated.

The process will give a chance to the promoter to complete the project within a specified time frame. The resolution plan would then achieve the same objective of the insolvency process but not involve any third party approval or a resolution applicant to submit a bid.

Accordingly, the two-judge Bench of the NCLAT has directed the interim resolution professional to expend the amount received by one of the promoters to complete the project in a time-bound manner.

The NCLAT has directed the interim resolution professional to ensure the amount deposited by the allottees is utilized exclusively for the purpose of providing amenities, facilities, and completion of work in the respective projects.