Corporate Insolvency Resolution Process of a Real Estate Company – Insolvency/Bankruptcy

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The National Company Law Tribunal, Chennai Bench, issues its order of April 25, 2022 in M N Kumar v. Tata Capital Housing Finance Ltd.1 held that the process of resolving the corporate insolvency by project of a property company falls outside 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 in Coimbatore. However, the process of resolving the corporate insolvency of Sheltrex Developers Pvt. Ltd had been initiated by the National Company Law Court, Chennai in its order dated December 10, 2019. The National Company Law Court, Chennai had appointed Mr. N Kumar as Interim Resolution Professional and later he had been confirmed as a resolution professional. Mr N Kumar had filed an application under Section 60(5) of the Insolvency and Bankruptcy Code, 2016, seeking permission to form a draft based creditors committee and conduct a process Corporate Insolvency Resolution Project by Sheltrex Developers Pvt. ltd.

Judgment of the National Court of Company Law

National Company Law Court of Chennai observed that there is no concept of limited corporate insolvency resolution process or corporate insolvency resolution process for specific projects n anywhere in the IBC or the regulations made thereunder. The National Company Law Tribunal, Chennai further noted that the Honorable Supreme Court in the case of Pioneer Urban Land and Infrastructure Ltd. vs. Indian Union2 had ruled that the Insolvency and Bankruptcy Code 2016 is beneficial legislation that can be used to help the debtor business get back on its feet. The National Company Law Tribunal in Chennai held that the National Company Law Appellate Tribunal (NCLAT) precedent established in Apartment Buyers Association v Umang Realtech Pvt.3 is not applicable to the present case because the mechanism adopted by the NCLAT was too specific to the facts and circumstances of this case and cannot be used as a precedent in the present case. The National Company Law Tribunal in Chennai dismissed the claim filed by Resolution Professional and held that the remedies sought fell outside the jurisdiction of the IBC and therefore could not stand.

Conclusion

In recent years, the real estate industry has seen more insolvencies than any other industry, and beleaguered homebuyers are paying the price. The IBC had even been amended in 2018, in this spirit, to stipulate that a minimum of 100 buyers or 10% of the total buyers, whichever is lower, will be required to initiate the insolvency process. Now, the Honorable Court has ruled that the process of resolving the insolvency of a real estate company by project is outside the purview of BAC, thus likely leaving the homebuyers affected in this case without recourse.

Footnotes

1. IA(IBC)/1245(CHE)/2020 In CP(IB)/889(CHE)/2019

2. WP(Civil) No. 43 of 2019

3. MANU/NL/0077/2020

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