IN TA NO. 79/2021 (COMP. APP. (AT) (INSOLVENCY) NO. 851 OF 2020)- NCLAT- Project Wise Insolvency could be granted to bring about better Resolution and prevent Liquidation and the same would give reasonable time to Adjudicating Authority to bring about a proper Resolution, reiterates NCLAT
Justice M.Venugopal (Judicial Member) and Ms. Shreesha Merla (Technical Member) [01-06-2023]

Read Order: Konduru Prasanth Raju v V.Suresh Kumar

Simran Singh

New Delhi, June 13, 2023: The National Company Law Appellate Tribunal while dismissing an appeal substantiated the advantages of ‘Project Wise Resolution’ and clarified that the CIRP was confined to ‘Dreamz Sumadhur Project’ only. As regarding the different Applications filed by the RP seeking relief, the Bench was of the considered view that the National Company Law Tribunal, Bengaluru Bench, Adjudicating Authority (AA) had rightly observed that most of the reliefs sought for were unrelated to ‘Dreamz Sumadhur Project’ and were Civil in nature requiring adjudication in other fora as AA did not have jurisdiction to foray into matters of title and possession of land which were broadly matters of Civil Litigation and could not be decided under the provisions of Insolvency and Bankruptcy Code, 2016 (Code).

In the matter at hand, the Resolution Professional (RP/ Appellant) questioned the common impugned order passed by AA, whereby all the 17 applications were dismissed stating that the RP without discharging his duties as per law, was repeatedly resorting to file several applications raising multiple issues, which were not tenable and in fact several of those issues fell in the jurisdiction of the civil courts thus, resulted in the RP exceeding his jurisdiction. He was further interpreting the Corporate Insolvency Resolution Process (CRIP) in question, so as to suit him rather than to achieve object of Code. Therefore, in the interest of justice and equity, the CIRP initiated by AA, vide its order dated 20.08.2019 was to be interpreted and read in relation to the project ‘Dreamz Sumadhur’ only and not in respect of all the projects of the Corporate Debtor, so that CIRP in question initiated by AA, would be concluded in terms of extant provisions of Code and the Rules thereunder.

It was averred that despite the fact that there was no application seeking Project Wise Insolvency filed by the RP, the AA had sou moto passed this Order. It was submitted that AA had passed the admission under Section 7 against the entire Corporate Debtor and not against the single Project and therefore the impugned order amounted to a retrospective view which was impermissible as the Court did not provide for any ‘Power of Review’ to AA. It wad stated that ‘Dreamz Sumadhur Project’ had approximately 300 Homebuyers, but the entire Corporate Debtor put together had 2,000 plus Homebuyers.

The AA had disposed of the Petition filed by the Homebuyers of ‘Dreamz Sumadhur Project’ of the Corporate Debtor, by stating that the Applicants could file their claims with the ERP who was handling the CIRP of Dreamz Infra India Ltd. as a whole.

It was the main case of the RP that AA had wrongly relied on the principle laid down by the NCLAT Principal Bench, New Delhi in the matter of Flat Buyers Association Winter Hills-77, Gurgaon v. Umang Realtech (P.) Ltd , and had confined the CIRP to one Project i.e., ‘Dreamz Sumadhur’, in the absence of any Project financing being brought in by the Promotor, and in the absence of any Project Wise Accounts.

The issue for consideration in the appeal was whether AA was justified in initially admitting Section 7 application against the 'Corporate Debtor’ and thereafter confining it to a single Project ‘Dreamz Sumadhur’ only.

The Bench stated that it was an admitted fact that 3 applicants/Homebuyers who had filed Section 7 application were related to ‘Dreamz Sumadhur’ and subsequent to the calling of the Claims from all Homebuyers, there was lot of confusion and the IRP had filed multiple Interlocutory Applications before AA, subsequent to which, the Common Impugned Order dated 04.09.2020 was passed clarifying that the CIRP was with respect to one Project, namely ‘Dreamz Sumadhur Project’ only.

The Appellate Tribunal stated that the scope and objective of the Code was to see that there was Resolution of the Corporate Debtor Company and sought maximisation of assets. The Bench referred to a three-Member Bench of the NCLAT, Principal Bench, New Delhi in the matter of `Majestic Towers Flat Owners Association & Anr.’ Vs. `Housing Development and Infrastructure Ltd. & Ors.’5, which had held that Project Wise Insolvency could be granted to bring about better Resolution and prevent Liquidation as the sufferers would be the Homebuyers who were thousands in numbers in different Projects and if there was a possibility of Project Wise Resolution, reasonable time could be allowed by AA to bring about a proper Resolution.

It was stated that the contention of the ERP that another Bench of NCLT Bengaluru had erroneously admitted a Section 7 application initiating CIRP against another Project namely `Dreamz Sneh’ and that it had to be set aside, was completely unsustainable as the Order was passed in a separate Company Petition dated 15.02.2023, and was based on a different cause of action.

The Appellate Tribunal was of the view that merely because AA had relied on Umang Realtech Pvt. Ltd. (Supra), wherein reverse Insolvency was a principle laid down by the NCLAT Principal Bench, New Delhi. This Project did not have a Promotor to infuse funds and the principle of `Project Wise Insolvency’ was also discussed in Umang Realtech Pvt. Ltd. (Supra), which could not be overlooked and required considerable attention as it applied to the facts of this case.

The Bench further referred to the case of Supreme Court which had upheld the Order of NCLAT in Ram Kishor Arora Suspended Director of Supertech Ltd. v. Union Bank of India and had observed that “if CoC would be constituted for Supertech Ltd., as a whole, it would cause hardship for the Homebuyers. If at the present stage, CoC was ordered to be constituted for the `Corporate Debtor’ in displacement of the directions of NCLAT, it would affect the ongoing Projects and cause immense hardship to the Homebuyers sending every Project into uncertainty.” The Supreme Court had refused to interfere with the directions given by the NCLAT, Principal Bench, New Delhi and had upheld the view that `Project Wise Resolution’ may be started under the supervision of the IRP for effective Resolution.

It was further stated that the CoC Meeting was only with the Homebuyers of ‘Dreamz Sumadhur Project’. As initially the Section 7 Application was admitted against the entire Project and thereafter the clarifications were given by AA that the CIRP was confined to ‘Dreamz Sumadhur Project’, in the interest of justice, the Tribunal was of the view that the adverse comments made against the RP may be expunged since no substantial grounds were found to interfere with the well-reasoned Order of AA and hence the appeal failed and was accordingly `dismissed’.