Supreme Court Dismisses Builder's Plea To Confine Insolvency Process To Single Real Estate Project

A bench of Justice Abhay Oka and Justice Augustine George Masih dismissed an appeal against the decision of National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi rejecting an application to confine the CIRP of the corporate debtor to a single project.

“We agree with the view taken by the National Company Law Appellate Tribunal (NCLAT) that the order under Section 7 of the Insolvency and Bankruptcy Code, 2016 cannot be confined only to one project of the Corporate Debtor (CD). Accordingly, the appeal is dismissed”, the Court held.

The application was filed by Harpal Singh Chawla, the suspended director of Spaze Towers Pvt. Ltd. (Corporate Debtor) to confine the CIRP to a single project. NCLAT had found no merit in the plea to restrict the CIRP to Spaze Arrow, as it would exclude the claims of creditors from other projects, potentially violating their rights.

“When CIRP was commenced against the CD, all Financial Creditors are entitled to file claim as per the Insolvency and Bankruptcy Board of India (Insolvency Resolution for Corporate Persons) Regulations, 2016. The real-estate allottees are Financial Creditors as per provisions of the IBC and in event any real-estate allottee has a claim against the CD, he is fully entitled to file a claim on commencement of the CIRP against the CD”, the Tribunal had observed.

Background of the case before NCLAT

The CIRP against Spaze Towers Pvt. Ltd. was initiated based on a Section 7 application filed by financial creditors in a class, comprising 26 real-estate allottees of the Spaze Arrow project. The National Company Law Tribunal (NCLT), New Delhi Bench, admitted the application on October 21, 2024. The suspended director subsequently appealed the decision before the NCLAT.

On October 28, 2024, the NCLAT issued an interim order allowing the CIRP to proceed, with the CoC to be constituted. The appellant filed an application on November 8, 2024, seeking modification of the NCLAT's interim order to limit the CIRP to the Spaze Arrow project alone.

Senior Advocate Mukul Rohatgi, representing the appellant, argued that the CIRP should be confined to the Spaze Arrow project as the Section 7 application pertained solely to that project. The appellant highlighted that Spaze Towers Pvt. Ltd. had successfully completed 12 projects, with occupancy and completion certificates obtained for most. These projects were developed over a decade, and approximately 6,700 units had been sold, with possession granted in the majority of cases.

The appellant emphasized that including the completed projects in the CIRP would jeopardize the interests of allottees and hinder the ongoing efforts to complete the Spaze Arrow project. It was further argued that the project's viability was evident, with unsold inventory worth Rs. 250 crores and 325 units still available for sale.

The appellant attributed the delay in Spaze Arrow's completion to disputes with the landowner, Ishan Singh, and an interim status quo order issued on December 2, 2019, which halted construction.

Senior Advocate Abhijeet Sinha, representing the financial creditors in a class, contended that confining the CIRP to a single project would undermine the rights of creditors from other projects. He noted that claims worth Rs. 72 crores had already been admitted by the Interim Resolution Professional (IRP) from allottees across multiple projects, with claims for another Rs. 87 crores under verification. The IRP had also constituted the Committee of Creditors (CoC), consisting of 228 financial creditors from various projects.

NCLAT's Observations and Ruling

The NCLAT noted that the claims filed during the CIRP extended beyond the Spaze Arrow project and encompassed several other projects developed by the corporate debtor. The tribunal observed that financial creditors, including real estate allottees, are entitled to file claims under the Insolvency and Bankruptcy Code, 2016, upon the initiation of CIRP.

The bench found no merit in the appellant's plea to restrict the CIRP to Spaze Arrow, as it would exclude the claims of creditors from other projects, potentially violating their rights. The tribunal also observed that the question of the admissibility of claims lies within the purview of the IRP and can be challenged under Section 60(5) of the IBC if necessary.

Rejecting the application, the NCLAT refused to confine the CIRP to a single project, given the multi-project nature of the corporate debtor's operations and the broad scope of claims filed by financial creditors.

Case no. – Civil Appeal No. 14708/2024

Case Title – Harpal Singh Chawla v. Vivek Khanna & Ors.