Supreme Court of India delivered a crucial order balancing corporate creditor rights with the welfare of thousands of flat purchasers. The ruling addresses the legality of reverse corporate insolvency resolution and project-specific insolvency under the Insolvency and Bankruptcy Code, 2016.
Background of the Dispute
The dispute originated when the National Company Law Tribunal admitted an application under Section 7 of the Insolvency and Bankruptcy Code filed by Union Bank of India against real estate developer Supertech Limited for loan defaults. An Interim Resolution Professional took control of the corporate debtor.
On appeal by the suspended promoter, the National Company Law Appellate Tribunal issued an interim direction on June 10, 2022. The Appellate Tribunal restricted the constitution of the Committee of Creditors exclusively to a single venture, the Eco Village-II project. It directed all other projects of Supertech to continue as ongoing developments supervised by the resolution professional with the assistance of the company’s ex-management.
Aggrieved by this experiment with project-wise corporate insolvency, institutional financial creditors, including Indiabulls Asset Reconstruction Company Limited and Union Bank of India, appealed before the apex judicial forum. They argued that the Insolvency and Bankruptcy Code treats the corporate entity as an indivisible whole and does not permit project-based segregation or the involvement of former promoters.
Outcome and Key Rulings of the Court
The Court declined to stay the project-wise resolution framework established by the appellate tribunal, permitting the ongoing construction across non-Eco Village-II projects to continue under the supervision of the resolution professional.
- Balance of Convenience and Protection of Homebuyers: The Court underscored that granting interim relief requires assessing the lower risk of injustice and preventing irreparable injury. Halting all ongoing projects to form a company-wide Committee of Creditors would jeopardize unfinished housing units, inflict immense hardship on thousands of homebuyers, and push operational assets into uncertainty.
- Continuance of Non-Eco Village-II Projects: Except for Eco Village-II, all other developments remain ongoing projects. Funds infused by promoters for these works are classified as interim finance, carefully accounted for by the resolution professional without creating fresh managerial rights for the suspended board.
- Restraint on Eco Village-II Resolution Plan: For Eco Village-II, where a project-specific Committee of Creditors was constituted, the Court directed that any step beyond voting on the resolution plan must await specific permission from the Court.
- Interim Funding and Third-Party Offers: The Appellate Tribunal was granted liberty to examine third-party investment offers received for completing the projects, with any subsequent implementation remaining subject to the outcome of these appeals.
Practical Implications
This judgment reinforces a pragmatic approach to real estate insolvency in India. By refusing to stall overall construction, the Court prioritized real estate delivery schedules and consumer equity while keeping broader statutory questions open for final determination.
Read the Judgment here.