NCLAT Upholds Joint CIRP Initiation for Interconnected Corporate Debtors in Real Estate Project
- REEDLAW
- Dec 26, 2024
- 3 min read
The NCLAT upheld the initiation of a joint CIRP for interconnected corporate debtors involved in a real estate project.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Member Mr. Arun Baroka, reviewed multiple appeals and held that the admission of a joint Section 7 application under the IBC is valid when corporate debtors are interconnected in a project, provided that debt and default are established, statutory thresholds are met, and objections aimed at delaying proceedings—such as allegations of forgery and claims of force majeure—lack substantive merit.
The National Company Law Appellate Tribunal (NCLAT) addressed appeals challenging the National Company Law Tribunal (NCLT), New Delhi's order dated 19.07.2024. This order admitted a Section 7 application under the Insolvency and Bankruptcy Code, 2016 (IBC), initiated by financial creditors in a class, comprising 115-unit holders, against three corporate debtors: Anand Infoedge Pvt. Ltd., Mist Avenue Pvt. Ltd., and Mist Direct Sales Pvt. Ltd. The appellants, suspended directors of the corporate debtors, raised objections regarding maintainability, alleging forgery, non-compliance with threshold requirements, and procedural improprieties.
The case stemmed from a real estate development project allotted to Anand Infoedge Pvt. Ltd. in 2008 by the New Okhla Industrial Development Authority (Noida). Delays in project execution led to a series of collaboration agreements, culminating in the involvement of Mist Direct Sales Pvt. Ltd. Despite extensions, the project remained incomplete, prompting complaints from homebuyers to the Uttar Pradesh Real Estate Regulatory Authority (UP RERA), which deregistered the project in 2019. Subsequent legal challenges ensued, culminating in a joint Section 7 application by financial creditors.
The appellants contended that the Section 7 application was flawed due to forged affidavits and non-fulfillment of the IBC’s statutory threshold of 100 creditors or 10% of allottees. They also disputed the joint resolution process against multiple entities and claimed force majeure delays stemming from defective land titles and deregistration by UP RERA. In response, financial creditors highlighted intentional delays, fund misappropriation, and non-compliance with regulatory obligations, citing a Comptroller and Auditor General (CAG) report supporting their allegations.
The NCLT dismissed the appellants’ objections, observing that allegations of forgery lacked substantiation and that the threshold requirements were satisfied. It emphasized the interconnectedness of the three entities in the project’s development, justifying a joint insolvency resolution process. The Tribunal rejected force majeure arguments, attributing delays to corporate mismanagement. Settlement proposals offered by Mist Direct Sales Pvt. Ltd., including a 70% refund of the principal amount, were deemed inadequate and rejected by financial creditors.
The NCLAT upheld the NCLT's order, affirming that the debt and default were established and that the proceedings complied with the IBC’s provisions. It dismissed the appellants’ reliance on precedents, such as Pravesh Magoo v. Ireo Grace Realtech Pvt. Ltd. and Anand Murthi v. Soni Infratech Pvt. Ltd., distinguishing the present case’s factual matrix. The Tribunal reiterated the importance of holistic insolvency resolution to protect creditors’ interests and ensure project completion.
This judgment underscores the IBC's objective of timely resolution and creditor protection, rejecting dilatory tactics by defaulting entities. By affirming the joint resolution process, the NCLAT reinforced the interconnected nature of real estate insolvency cases and emphasized the role of resolution professionals in project oversight. The dismissal of the appeals and related applications affirmed the validity of the insolvency proceedings, with the interim deposit refunded to the appellants and no costs imposed.
Dr. U.K. Chaudhary, Sr. Advocate with Mr. Mansymer and Mr. Praney, Advocates represented the Appellant.
Mr. Deep Bisht with Mr. N.K. Sharma, Advocates appeared for Respondent No. 1/IRP.
Mr. Raghavendram Bajaj, Mr. Kumar Karan and Mr. Zeeshan Ahmed, Advocates appeared for Intervenors in I.A. 7379 of 2024.
Mr. Arun Kathpalia, Sr. Advocate with Mr. Gaurav H. Sethi and Mr. Rahul Pawar, Advocates appeared for Intervenor in I.A.849 of 2024.
Ms. Prachi Johri and Ms. Abhipsa Sahu, Advocates appeared for Intervenor in I.A. 7547 of 2024.
Mr. Sahil Sethi, Mr. Samriddh Bindal and Mr. Vikash Kumar, Advocates represented Respondent No. 2 to 4.
Subscribers can access the Case, including Case Analysis, Ratio Decidendi, Headnotes, Briefs, Case Research, Cited Case Laws, Case Law Cross-references, and the latest updates on Statutes, Notifications, Circulars, Guidelines, Press Releases and more.
Click on the Citation/Link to access these resources
Comments