NCLT Denies Request For Initiation Of CIRP Against A Real Estate Company In Light Of Financial Assistance And Revival By SWAMIH Fund

The Hon'ble Tribunal held that once SWAMIH Fund has undertaken to infuse the required funds to ensure the revival of the CD/real estate company, of course, without changing the management, in a way the object sought to be achieved by the Insolvency and Bankruptcy Code, 2016 (“the Code”) is achieved i.e. ensuring the CD is put back to its feet by infusion of external aid.

As a background, the CD is in process of developing a group housing project i.e., Sikka Kaamya Greens (“Project”) on land admeasuring 22,565.44 square meters, situated at Plot No. GH-02B, Sector-10, Greater Noida West, Gautam Buddha Nagar, Uttar Pradesh allotted and leased by Greater Noida Industrial Authority. A petition under Section 7 of the Code was filed by 189 applicants / financial creditors in a class (allottees of units in the Project) against the Corporate Debtor, for initiation of the CIRP.

Pursuant to the filing of the company petition, SBICAP, the fund manager of SWAMIH Investment Fund I, a private trust registered with SEBI, as category II, Alternative Investment Fund, filed an intervention petition, seeking rejection of the company petition.

It was the case of SBICAP that SWAMIH Investment Fund I is an alternate investment fund set up the Ministry of Finance, Government of India to provide priority debt financing for completion of stalled housing projects and SBICAP was assigned the role of an investment manager for the said fund. SBICAP further submitted that after a due evaluation of the Project, a financial assistance of up to Rs. 207,00,00,000/- (Rupees Two Hundred Seven Crores Only) was extended to the Corporate Debtor for meeting the funding requirements, by execution of debenture trust deeds and the subscription of debentures. It was further submitted that the financial assistance to the Project was provided after a detailed commercial, technical and legal due diligence of the viability of the Project and the credentials of the Corporate Debtor. It was also submitted by SBICAP that the Corporate Debtor was solvent, financially healthy and a beneficiary of fresh infusion of funds by it.

Additionally, it was submitted by SBICAP that the applicants / homebuyers had sought to initiate CIRP only with an intent to assert pressure, as it had requested SWAMIH Fund, to not grant funding to the Corporate Debtor. Therefore, it was contended by SBICAP that the applicants were not concerned with the resolution of the Corporate Debtor in any event.

Key Findings & Observations by NCLT:

1. Object of the Code:

Referring to the various provisions of the Code, the Hon'ble Tribunal acknowledged that CIRP is a time-consuming process and expressed concerns regarding the issue that even after the CIRP commences, there is always an element of uncertainty as to whether the corporate debtor would eventually be revived and put back on its feet. It observed that such uncertainties would extend to the likelihood of a corporate debtor being pushed into liquidation and the infusion of external aid to revive a company would ultimately achieve the underlying object of the Code. In this regard, the Hon'ble Tribunal relied upon Regulation 2B and Regulation 32A of the Insolvency and Bankruptcy Board of India (Liquidation Process), Regulations, 2016, to observe that a corporate debtor could be kept alive by compromise or arrangement or sale as a going concern, respectively along with submission of resolution plan.

2. Extending financial assistance to a corporate debtor is not a new concept:

The Hon'ble Tribunal observed that even as per the old regime under the Sick Industrial Companies (Special Provisions) Act, 1985 (repealed) financial assistance was extended to a corporate debtor by way of schemes and plans which was similar in the case of resolution plans under the Code. Therefore, it would not be advisable to commence the CIRP against a company, when the financial assistance had been extended to the Corporate Debtor. The Hon'ble Tribunal further observed that in the present case, as the financial assistance was a government backed scheme, the same would be more reliable as compared to a private resolution plan. In addition to the above, the Hon'ble Tribunal noted that the financial assistance in terms of SWAMIH scheme would not even change the management of the Corporate Debtor as it would have in the case of a resolution plan.

3. Not necessary to initiate insolvency proceedings against a corporate debtor at all times:

The Hon'ble Tribunal laid emphasis upon judgment passed by the Supreme Court in E.S. Krishnamurthy & Ors. vs. M/s. Bharath Hi Tech Builders Pvt. Ltd. [Civil Appeal No. 3325 of 2020] where the Supreme Court observed that it was necessary to encourage settlements as the same rehabilitates the corporate debtor therein rather than liquidating it. The Hon'ble Tribunal also referred to the case of State Bank of India v. M/s. Krishidhan Seeds Pvt. Ltd., CP(IB)-500 of 2018 where the Hon'ble NCLT after acknowledging the earnest effort of the corporate debtor management to extricate the company from its predicament, opted not to immediately admit the corporate debtor therein into CIRP.

In conclusion, the Hon'ble Tribunal disposed of the company petition, giving an opportunity to SBICAP to put the Corporate Debtor back on its feet and ensure that the applicants are given possession of their respective units within the agreed timelines. The Hon'ble Tribunal further observed that if the default continues after the said date, the applicants would be entitled to seek revival of the company petition under Section 7 of the Code.

Note: The Intervenor / SBICAP Ventures Limited, was represented by Dua Associates. The team comprised of Angad Varma, Partner, Prashant Kumar Principal Associate, Nikita Menon, Senior Associate, Kevin Chaddha Associate.

Case Title: Sh. Suresh Kumar Verma & Ors. vs. Eco Green Buildtech Private Limited

Case No.: Company Petition No. (IB)-129(ND)/2023