The Supreme Court bench comprising Justices Dinesh Maheshwari and Sanjay Kumar was hearing an appeal filed by the Financial Creditors dissatisfied with the interim directions issued by the NCLAT. The Supreme Court upheld the interim order/arrangement of the NCLAT until the appeals are concluded, considering the tenability of "project-wise resolution".
These two appeals (Civil Appeal No. 5941 of 2022 and Civil Appeal No. 1925 of 2023) filed by the Union Bank of India and Indiabulls Asset Reconstruction Company Ltd. respectively, being the financial creditors of the corporate debtor–Supertech Ltd., are directed against the order dated 10.06.2022 passed by the National Company Law Appellate Tribunal, Principal Bench, New Delhi. By the order impugned, the Appellate Tribunal, while dealing with an appeal against the order dated 25.03.2022 passed by the National Company Law Tribunal, New Delhi, in admitting an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, has issued a slew of directions which practically have the effect of converting the CIRP in question into a “project-wise insolvency resolution process” inasmuch as the constitution of the committee of creditors has been restricted only to one project named “Eco Village-II” of the corporate debtor, who is dealing in real estate and has several ongoing projects.
Dissatisfied with the interim directions so issued by the Appellate Tribunal, the appellants, financial creditors of the corporate debtor, have filed appeals before the Supreme Court, essentially challenging the adoption of reverse CIRP by the Appellate Tribunal and limiting the CIRP and constitution of CoC to only one project of the corporate debtor, i.e., Eco Village-II.
The Supreme Court bench observed, the impugned interim order, prima facie, gives rise to several questions worth consideration, including the fundamental one as to the tenability of the proposition of “project-wise resolution” as adopted by the Appellate Tribunal. The question, at present, is what should be the interim relief/interim arrangement until the disposal of these appeals.
The SC Bench noted that on one hand is the position that the Appellate Tribunal has adopted a particular course (which it had adopted in another matter too) while observing that the project-wise resolution may be started as a test to find out the success of such resolution. The result of the directions of the impugned order dated 10.06.2022 is that except Eco Village-II project, all other projects of the corporate debtor are to be kept as ongoing projects and the construction of all other projects is to be continued under the supervision of the IRP with the ex-management, its employees, and workmen. Infusion of funds by the promoter in different projects is to be treated as interim finance, regarding which total account is to be maintained by IRP. If at the present stage, on the submissions of the appellants, CoC is ordered to be constituted for the corporate debtor in the displacement of the directions of the Appellate Tribunal, it is likely to affect those ongoing projects and thereby cause immense hardship to the home buyers while throwing every project into a state of uncertainty. On the other hand, as indicated before us, the other projects are being continued by the IRP and efforts are being made for infusion of funds with the active assistance of the ex-management but without creating any additional rights in the ex-management.
The Supreme Court observed that greater inconvenience is likely to be caused by passing any interim order of the constitution of the CoC in relation to the corporate debtor as a whole; and may cause irreparable injury to the home buyers. Thus, the SC bench did not alter the directions in the order impugned as regards the project other than Eco Village-II.
The Supreme Court noted, since CoC was ordered to be constituted by the Appellate Tribunal in the impugned order dated 10.06.2022, no need to interfere with those directions too but, any process beyond voting on the resolution plan should not be undertaken without specific orders of the Supreme Court.
The Supreme Court allowed the impugned order dated 10.06.2022 to operate subject to the final orders to be passed in these appeals and subject, of course, to the modification in respect of the Eco Village-II project that the process beyond voting on the resolution plan shall await further orders of the Supreme Court.
The interim direction dated 27.01.2023 by the Supreme Court in these matters is modified in the manner that the NCLAT may deal with the offers said to have been received and pass an appropriate order thereupon but, the entire process shall remain subject to the orders to be passed in these appeals.
The Supreme Court bench directed that these appeals may be listed for a final hearing at the admission stage in the second week of July 2023.