the National Company Law CourtChennai bench made up of Judge S. Ramathilagam and Mr. Anil Kumar B (Technical member) in the case of N Kumar v Tata Capital Housing Finance Ltd. estimated that the corporate insolvency resolution process by project (CIRP) of a property company does not fall under the Insolvency and Bankruptcy Code 2016 (IBC/Code).
CIRP of Sheltrex Developers Pvt. Ltd (Sheltrex) was initiated by NCLT Chennai under its order dated 10.12.2019 and Mr. N Kumar was appointed as Interim Resolution Professional and later confirmed as Resolution Professional.
Sheltrex had launched two real estate projects namely Appur Village, Oragadam, Chennai consisting of 296 houses and Nammavedu in Coimbatore consisting of 110 houses. Sheltrex’s resolution professional has filed an application under Section 60(5) of the IBC seeking authority to establish a project-based creditors’ committee and to carry out Sheltrex’s CIRP project.
Professional Resolution Litigation
It was argued by Resolution Professional that Sheltrex’s sole business is the promotion of real estate projects and in particular affordable housing. Each Sheltrex project has different types of creditors that are not related to each other.
The resolution professional further relied on the judgment of the NCLAT in the matter Apartment Buyers Association v Umang Realtech Pvt. ltd. which allowed the insolvency by project of a real estate company.
Financial creditor litigation
Tata Capital Housing Finance Ltd objected to the relief sought by the resolution professional and Tata Capital argued that it holds 17% of the voting rights in COC and that the claim filed by the RP is not maintainable because neither the IBC, 2016 nor any regulations stipulate the CIRP wise project.
Tata Capital further argued that the CIRP regulations mandate a resolution plan for the debtor company as a whole and not per project and therefore the application of the resolution professional is contrary to the provisions of the IBC.
Decision/Analysis by NCLT
NCLT observed that there is no concept of limited CIRP or CIRP for specific projects anywhere in the IBC, 2016 or the regulations made thereunder. NCLT further noted that the Supreme Court, in the case of Pioneer Urban Land and Infrastructure Ltd. against Union of India argued that the IBC is beneficial legislation that can be triggered to get the entire debtor society back on its feet.
NCLT found that Umang Realtech’s judgment is not applicable to the present case because the mechanism adopted by NCLAT was too specific to the facts and circumstances of this case and cannot be used as a precedent in the current scenario.
NCLT rejected the claim filed by Resolution Professional and argued that the remedies sought by Resolution Professional do not fall within the scope of the IBC, 2016 and therefore cannot stand.
Case title: N Kumar v Tata Capital Housing Finance Ltd
Counsel for the Applicant: Avinash Krishnan Ravi, Jerin Asher Sojan, Vikram Veerasamy
Counsel for the Respondent: Abitha Banu
Click here to read/download the order