Company-Wide CIRP in Real Estate Insolvency Is Legally Unsustainable for Project-Specific Debt: NCLAT Enforces Project-Wise Resolution Norm
- REEDLAW
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REEDLAW Legal News Network reports: In a significant reaffirmation of settled insolvency jurisprudence governing real estate companies, the National Company Law Appellate Tribunal held that initiation of a company-wide corporate insolvency resolution process is legally impermissible where the financial debt and default are confined to a single real estate project. The Tribunal emphasised that insolvency proceedings in the real estate sector must ordinarily proceed on a project-specific basis, consistent with the resolution-centric objectives of the Insolvency and Bankruptcy Code and binding Supreme Court precedents.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating a batch of connected company appeals and interlocutory applications, examined the legality of admitting a Section 7 application against an entire real estate company despite the underlying debenture-based financial debt and security being contractually confined to a single identified project. The Tribunal found that the commencement of a company-wide CIRP in such circumstances carried disproportionate and far-reaching consequences for solvent and unrelated projects, independent lenders, and homebuyers, thereby warranting strict judicial scrutiny.
The Appellate Tribunal considered a batch of appeals arising from the admission of a Section 7 application against the Corporate Debtor, a real estate company engaged in multiple residential and commercial projects across the NCR. The insolvency proceedings had been initiated on the basis of a default in redemption of non-convertible debentures, which were contractually linked to and secured against a single residential project. The admission order was challenged by the suspended management, homebuyers’ associations, and another secured Financial Creditor on the grounds of denial of adequate opportunity of hearing, improper rejection of intervention applications, and the adverse impact of a company-wide CIRP on solvent and unrelated projects.
The Tribunal noted that although notice had been issued and a limited time had been granted to file a reply, the Adjudicating Authority had proceeded to reserve orders without affording a meaningful opportunity to the Corporate Debtor to place a detailed defence on record, despite the complexity of the matter and the far-reaching consequences of initiating CIRP against a multi-project real estate entity. It was observed that written submissions and a subsequent application seeking deferment of judgment, highlighting ongoing settlement negotiations and the existence of several performing projects with independent lenders and thousands of homebuyers, had not been considered prior to admission.
On merits, the Tribunal examined the nature of the financial transaction and found that the debenture financing and security were expressly confined to a single identified project, while other projects of the Corporate Debtor were financed by different lenders and were not in default. The Tribunal placed significant reliance on binding pronouncements of the Supreme Court like Indiabulls Asset Reconstruction Company Limited v. Ram Kishore Arora and Others, REEDLAW 2023 SC 05533 and Mansi Brar Fernandes v. Shubha Sharma and Another, REEDLAW 2025 SC 09550, which had reiterated that insolvency of real estate companies should, as a general rule, proceed on a project-specific basis to protect solvent projects and the interests of genuine homebuyers, unless exceptional circumstances justified a company-wide process. The Tribunal emphasised that the Insolvency and Bankruptcy Code was a remedial framework aimed at resolution and revival, and not a coercive recovery mechanism that could be used to imperil unrelated projects and stakeholders.
The Tribunal also took note of the subsequent settlement arrived at between the Financial Creditor and the suspended management after admission of the Section 7 application, and the joint application filed seeking to keep the admission order in abeyance to enable withdrawal under Section 12A of the Code. It was observed that a large number of homebuyers across different projects had approached the Tribunal with divergent concerns, underscoring the need for a calibrated approach that balanced creditor rights with the protection of homebuyers and the continuation of viable projects.
In this backdrop, the Tribunal held that initiation of CIRP against the entire Corporate Debtor, despite the debt and default being confined to a single project, raised serious concerns of proportionality, fairness, and compliance with settled law on real estate insolvency. The matter warranted reconsideration in light of the project-specific nature of the debt, the subsequent settlement, and the principles laid down by the Supreme Court mandating project-wise resolution as the norm in real estate insolvency.
Mr. Abhijeet Sinha Sr. Advocate, with Mr. Gaurav Mitra, Mr. Gaurav H. Sethi, Mr. Anmol Joshi, Mr. Rahul Kapoor and Mr. Rahul Panwar, Advocates, represented the Appellant.
Mr. Gopal Jain Sr. Advocate, with Mr. Sanjeev Singh, Mr. Anish Gupta and Ms. Sandipa Bhattacharjee, Advocates, represented the Appellant in Company Appeal (AT) (Insolvency) No. 1314 of 2025.
Mr. Ashim Sood, Mr. Varun Kalra and Mr. Ekansh Gupta, Advocates, represented the ABCL in Company Appeal (AT) (Insolvency) No. 1254 of 2025.
Mr. Krishnendu Dutta, Sr. Advocate with Mr. Somdutta Bhattacharya, Ms. Kiran Sharma and Ms. Niharika Sharma, Advocates, appeared for the Respondent No.1.
Mr. Malak Bhatt, Ms. Neeha Nagpal, Mr. Saahil Bahety and Ms. Somya Saxena, Advocates, appeared for the RP.
Mr. Sumesh Dhawan, Mr. Aman Sharma and Mr. Shaurya, Advocates, appeared for Homebuyers.
Mr. Gaurav Rana, Mr. Ajitesh Kumar and Mr. Shivanshu Srivastava, Advocates, appeared in Applicant in IA- 4981 of 2025.
Mr. Adhish Srivastava, Advocate, appeared for the Respondent in I.A. 5283/2025.
Mr. Sujoy Datta, and Mr. Jasjeet Singh and Mr. Shubham Raghuwanshi, Advocates, appeared for the Applicant in IA- 6031 of 2025.
Mr. Harsha Gollamudi, Mr. Varad Dwevedi, amd Mrs. Pratima Singh, Advocates, appeared for the Intervener in I.A. No. 6304 & 6305 of 2025.
Mr. Gopal Jain Sr. Advocate, with Mr. Sanjeev Singh, Mr. Anish Gupta and Ms. Sandipa Bhattacharjee, Advocates, appeared for interveners in IA5133 of 2025.
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