By Anuj Jhawar and Devika Mehra
The National Company Law Tribunal, Chennai Bench vide its order dated April 25, 2022 in Mr. N. Kumar v. Tata Capital Housing Finance Ltd.1 held that the project-wise Corporate Insolvency Resolution Process of a real estate company is outside the purview of the Insolvency and Bankruptcy Code, 2016 (IBC).
Brief facts of the case
Sheltrex Developers Pvt. Ltd. had launched two real estate projects namely Appur Village, Oragadam, Chennai and Nammavedu at Coimbatore. However, Corporate Insolvency Resolution Process of Sheltrex Developers Pvt. Ltd had been initiated by the National Company Law Tribunal, Chennai vide its order dated December 10, 2019. The National Company Law Tribunal, Chennai had appointed Mr. N Kumar as the Interim Resolution Professional and later he had been confirmed as the Resolution Professional. Mr. N Kumar had filed an application under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 seeking permission to constitute a project-based Committee of Creditors and conduct a project wise Corporate Insolvency Resolution Process of Sheltrex Developers Pvt. Ltd.
Judgement by the National Company Law Tribunal
The National Company Law Tribunal, Chennai observed that there is no concept of limited Corporate Insolvency Resolution Process or Corporate Insolvency Resolution Process for specific projects anywhere in the IBC or regulations made thereunder. The National Company Law Tribunal, Chennai further noted that the Hon’ble Supreme Court in the case of Pioneer Urban Land and Infrastructure Ltd. v. Union of India2 had held that the Insolvency and Bankruptcy Code, 2016 is a beneficial legislation which may be utilized to help the Corporate Debtor back to its feet. The National Company Law Tribunal, Chennai held that the National Company Law Appellate Tribunal (NCLAT) precedent set in Flat Buyers Association v. Umang Realtech Pvt.3 is not applicable to the present case as the mechanism adopted by the NCLAT had been too peculiar to the facts and circumstances of that case and cannot be used as a precedent in the present scenario. The National Company Law Tribunal, Chennai dismissed the application filed by Resolution Professional and held that the reliefs sought are outside the purview of the IBC and thus not maintainable.
Over the past few years, the real estate sector has witnessed more insolvencies than any other sector, and the beleaguered homebuyers are paying the price for the same. The IBC had even been amended in 2018, with this in mind, to state that a minimum of 100 homebuyers or 10% of the total purchasers, whichever is less, will be needed for initiating the insolvency process. Now, the Hon’ble Tribunal has held that the project wise Corporate Insolvency Resolution Process of a real estate company is outside the purview of IBC, thereby likely leaving the affected homebuyers in the instant case with no recourse.
1IA(I.B.C)/1245(CHE)/2020 In CP(IB)/889(CHE)/2019
2WP(Civil) No. 43 of 2019