The NCLAT ruled that insolvency proceedings against Vatika Limited must be confined to a single real estate project, not the entire company. It emphasized a project-wise CIRP approach to protect homebuyers and unrelated stakeholders despite an established financial default.
The National Company Law Appellate Tribunal (NCLAT) has held that the Corporate Insolvency Resolution Process (CIRP) against Vatika Limited must be limited to a single project.
A Bench led by Chairperson Justice Ashok Bhushan and Member (Technical) Barun Mitra altered the National Company Law Tribunal’s (NCLT) order that had placed the entire real estate company into insolvency proceedings.
The NCLAT found that, although there was a financial default, insolvency remedies in the real estate sector should follow a “project-wise” approach to safeguard unrelated stakeholders such as homebuyers.
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The NCLAT said,
“The view of the adjudicating authority that insolvency cannot be project-wise in case of real estate company and only resolution can be done project-wise, is not in accordance with law laid down by this Tribunal and the Hon’ble Supreme Court,”
Factual Background
In 2017, Vatika Limited raised Rs 146 crore through secured non-convertible debentures secured by project-linked assets including land, receivables and escrow arrangements. Repayment extensions for principal were granted up to June 30, 2024, but the company defaulted on interest payments beginning in March 2022.
A demand notice dated December 29, 2023 sought Rs 29.72 crore in outstanding interest. Following this, IDBI Trusteeship Services Limited initiated insolvency proceedings claiming over Rs 274 crore in default. The NCLT admitted the Section 7 petition and commenced CIRP against the entire company. That decision was challenged before the NCLAT by Vatika’s suspended director, Surender Singh.
Key issue and findings
The key question before the NCLAT was whether CIRP could be confined to a particular real estate project where lending, security and cash flows were project-specific.
Vatika argued the debenture financing was tied to a single project and applying CIRP company-wide would unfairly harm stakeholders in other projects, notably homebuyers. The NCLAT accepted this contention and held that insolvency can proceed on a project-wise basis.
Noting the NCLT’s approach conflicted with binding precedents, the NCLAT held,
“The NCLT has not even adverted to the said judgements, law laid down by this Tribunal and the Hon’ble Supreme Court is fully binding on the adjudicating authority without adverting to the said judgements which had clearly held that project-wise insolvency process can begin and where the CIRP initiated by allottees or a financial institution, with respect to one project, it cannot take in its fold in other cities or other states,”
The NCLAT also identified a material inconsistency in the creditor’s claimed debt. While IDBI Trusteeship sought insolvency based on a default of Rs 274.13 crore, the Tribunal found this sum improperly included the principal, which had not fallen due and for which no demand notice had been issued. The verified default related only to Rs 29.72 crore of unpaid interest.
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Although Vatika paid Rs 37.2 crore during litigation, the NCLAT held that such payments did not negate the initiation of CIRP once the legal trigger had been activated.
Order and representation
To prevent collateral harm to homebuyers in Vatika’s solvent projects, the NCLAT directed that the insolvency proceedings be confined to the specific development financed by the debentures Project Aspirations in Sector 88B, Gurgaon.
Counsel: Surender Singh was represented by Senior Advocates Kapil Sibal, Virender Ganda and Arun Kathpalia with advocates Vishal Ganda, Ayandeb Mitra, Manisha Singh, Diksha and Riya Palnitkar. IDBI Trusteeship Services Ltd was represented by Senior Advocates Gopal Jain, Nalin Kohli and Abhijeet Sinha with advocates Meghna Mishra, Nikhil Ratti Kapoor, Yashodhara Gupta, Kevin Chadha and Saikat Sarkar. The Resolution Professional appeared through advocates Gaurav Mitra and Adhish Srivastava. Omkara Assets was represented by Senior Advocate Rudreshwar Singh and advocate Eklavya Dwivedi. Homebuyers were represented by Senior Advocate Sanjeev Sen. Interveners were represented by advocates Akshay Srivastava, Vivek Kumar, Raveena Paniker, Aditya Rathi, Sumesh Dhawan, Kartik Nayar and Divyansh Rai.
Case Title: Surender Singh vs. IDBI Trusteeship
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