Joint Insolvency under Section 7 IBC Maintainable for Integrated Real Estate Projects; Threshold Tested on Date of Filing
- REEDLAW
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REEDLAW Legal News Network reports: In a pivotal ruling, the Supreme Court affirmed that a joint application under Section 7 of the Insolvency and Bankruptcy Code, 2016 filed by real estate allottees is maintainable where the statutory threshold prescribed under the second proviso to Section 7(1) stood satisfied on the date of valid filing and default was established due to failure to deliver completed units with lawful possession. The Court clarified that subsequent withdrawals or settlements do not dilute maintainability once the threshold is met, and that insolvency proceedings may be initiated jointly against intrinsically linked corporate entities involved in an integrated real estate project.
A Bench comprising Justice Sanjay Kumar and Justice K. Vinod Chandran upheld the concurrent findings of the NCLT and NCLAT admitting the insolvency proceedings against the corporate entities involved in the integrated project. The Court held that amendments made prior to registration of the petition to cure procedural defects under Rules 28 and 29 of the NCLT Rules were legally permissible. It further ruled that where multiple corporate debtors operate under common control and joint development arrangements, a single Section 7 application by allottees is maintainable to ensure effective resolution and value maximisation. The Court concluded that lawful possession could not be deemed delivered in the absence of completion and occupancy certificates, and accordingly dismissed the appeals.
The Supreme Court examined the challenge to the initiation of the corporate insolvency resolution process against two Corporate Debtors arising out of a single integrated real estate project. The proceedings had been initiated on an application filed by real estate allottees claiming the status of Financial Creditors under Section 7 of the Insolvency and Bankruptcy Code, 2016. The Appellants, being erstwhile Directors, contended that the statutory threshold of one hundred allottees was not satisfied, that the petition suffered from procedural irregularities due to changes made upon refiling, and that insolvency proceedings could not be jointly maintained against two separate corporate entities.
The Court reaffirmed that the threshold requirement under the second proviso to Section 7(1) of the Code must be examined as on the date of valid presentation of the application and not with reference to subsequent settlements or withdrawals. Relying upon Manish Kumar v. Union of India and Another, REEDLAW 2021 SC 01515, it was held that once the numerical threshold stood satisfied at the time of filing, later developments were irrelevant. The Court further relied upon Surendra Trading Company v. Juggilal Kamlapat Jute Mills Company Limited and others, REEDLAW 2017 SC 09644 to hold that amendments made prior to registration of the petition, while curing defects under Rule 28 of the NCLT Rules, were legally permissible and did not vitiate maintainability.
On the issue of joint insolvency, the Court upheld the concurrent findings of the NCLT and NCLAT that the Corporate Debtors were intrinsically connected through common control, joint development arrangements, and integrated project execution. Placing reliance on Edelweiss Asset Reconstruction Company Limited v. Sachet Infrastructure Private Limited, REEDLAW 2019 NCLAT Del 09505, Mist Avenue Private Limited v. Nitin Batra and Others, REEDLAW 2023 NCLAT Del 11520, and Mamatha v. AMB Infrabuild Pvt. Ltd., the Court held that where multiple corporate entities jointly undertake a real estate project and are collectively responsible to allottees, a single Section 7 application is maintainable to ensure value maximisation and effective resolution.
The Court further held that the existence of financial debt and default stood clearly established, as lawful possession could not be delivered in the absence of a completion certificate, occupancy certificate, and execution of mandatory tripartite sub-lease deeds. The part-completion certificates, notional possession letters, and alleged delivery of possession were held to have no legal efficacy. The reports of the Interim Resolution Professional and the NCLAT-appointed Observer conclusively demonstrated that construction was incomplete and units were unfit for occupation. The Supreme Court therefore dismissed all appeals and affirmed the admission of the insolvency proceedings.
Mr. Shyam Divan, Sr. Advocate, Ms. Neeha Nagpal, Adv., Mr. Malak Manish Bhatt, AOR, Mr. Vishal Gosain, Adv., Mr. Nikunj Mahajan, Adv., Mr. Praney Sharma, Adv., Mr. Adith Deshmukh, Adv., Mr. Arpith Jacob, Adv. and Mr. Gurdeep Singh, Advocate, represented the Appellant.
Mr. Atmaram N.S. Nadkarni, Sr. Advocate, Ms. Ruchira Gupta, Adv., Mr. Salvador Santosh Rebello, AOR etc., Ms. Pooja Tripathi, Adv., Mr. Mohit Sham Ali, Adv., Ms. Manisha Gupta, Adv., Ms. Moulishree Pathak, Adv., Ms. Arzu Paul, Adv., Ms. Himanshi Nagpal, Adv., Mr. Ujjawal Agrawal, Adv. and Mr. Utsav Tarsolia, Advocate, appeared for the Respondents.
Mr. Gopal Sankaranarayanan, Sr. Advocate, Mr. Saket Sikri, Adv., Mr. Nikhil Kohli, Adv., Mr. Nalin Talwar, Adv., Ms. Ritika Gambhir Kohli, AOR, Mr. Ishan Gaur, Adv., Mr. Mani Mehta, Adv., Mr. Manish Singhal, Adv., Mr. Kushank Garg, Adv., Ms. Akshaya Ganpath, Adv., Mr. Ajay Pal Singh Kuller, Adv. and Ms. Saumya Tiwari, Advocate, appeared for the Respondents.
Mr. Dhruv Mehta, Sr. Advocate, Ms. Meenakshi Arora, Sr. Advocate, Ms. Payal Chawla, Adv., Mr. Tishampati Sen, Adv., Mr. Shubhanshu Gupta, AOR, Mr. Kartik Pant, Adv., Mr. Chaitanya, Adv., Mr. Raunak Satpathy, Adv., Mr. Keith Varghese, Adv. and Mr. Srijan Sonkar, Advocate, appeared for the Respondents.
Mr. Vipin Sanghi, Sr. Advocate, Mr. Abhishek Anand, Adv., Mr. Mandeep Kalra, AOR, Mr. Karan Kohli, Adv., Ms. Palak Kalra, Adv., Ms. Ridhima Mehrotra, Adv., Ms. Radhika Narula, Adv., Ms. Anushna Satapathy, Adv., Ms. Chitrangada Singh, Adv., Ms. Radhika Jalan, Adv., Ms. Widaphi Lyngdoh, Adv., Mr. Yashas J., Adv., Ms. Gauri Rajput, Adv., Ms. Maira Sharma, Adv., Mr. Vaibhav Yadav, Adv., Mr. Paras Mohan Sharma, Adv. and Ms. Shefali Tripathi, Advocate, appeared for the Respondents.
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