Insolvency Can Be Initiated Only For A Project, Not the Entire Realty Firm: NCLAT
New Delhi: In a major relief to builders, the National Company Law Appellate Tribunal (NCLAT) has held if insolvency process is started on a plea by a homebuyer or financial institution would only be for a specific project and not for the entire company entailing all projects of the builder.
The NCLAT has also put forth a suggestion that there should also be a reverse insolvency process for realty projects.
"In CIRP against a real estate, if allottees or financial institutions, banks or operational creditors of one project initiated CIRP against the corporate debtor, it is confined to the particular project, it cannot affect any other projects of the same real estate company in other places where separate plans are approved by different authorities," a NCLAT bench headed by Chairman Justice S J Mukhopadhaya said.
The NCLAT passed the order after hearing a plea filed by Flat Buyers Association Winter Hills-77, Gurgaon.
The court also ruled that in case the homebuyer of those projects that are undergoing insolvency want a refund, they can sign an agreement either with the interim resolution professional or the promoter of the realty project to find another buyer and get the refund if and when that flat is sold.
"As we find it is very difficult to follow the process as in normal course is followed in a Corporate Insolvency Resolution Process, we are of the view, that a 'Reverse Corporate Insolvency Resolution Process' can be followed in the cases of real estate infrastructure companies in the interest of the allottees and survival of the real estate companies and to ensure completion of projects which provides employment to large number of unorganized workmen," said the NCLAT.
This order of the NCLAT comes after an interesting turn of events. A Delhi bench of NCLT had ordered initiation of insolvency process of Umang Realtech, the company that was building ‘Winter Hills-77’ in August 2019.
However, the decision of the NCLT was challenged before NCLAT by Flat Buyers Association Winter Hills-77, Gurgaon, saying that ‘Winter Hills-77’ was to be completed by October 2019 and the entire company cannot be wound up just because of two buyers.