New Delhi: The Supreme Court last week allowed a “project-wise resolution” process for real estate giant Supertech, which is undergoing insolvency proceedings, and continued construction of all other projects by the developer under the supervision of an interim resolution professional (IRP). allowed to keep
In an interim order passed on May 11, an SC bench of Justices Dinesh Maheshwari and Sanjay Kumar permitted this action, noting that bringing every project of Supertech under insolvency proceedings would leave homebuyers in a state of uncertainty and ” will cause great hardship” to them.
Union Bank of India had initiated insolvency proceedings against Supertech in March 2021, claiming a total amount of Rs 431 crore till January 2021 including interest.
The Supreme Court order came on an appeal filed by the bank as well as Indiabulls Asset Reconstruction Company – both financial creditors to Supertech – challenging an interim order passed by the National Company Law Appellate Tribunal (NCLAT) in June last year.
In its order, the NCLAT gave several directions which had the effect of converting the corporate insolvency resolution process for Supertech into a “project-wise insolvency resolution process”.
Among other things, the order states that the constitution of a Committee of Creditors (CoC) for the process will be limited to only one supertech project – ‘Eco Village-II’ in Greater Noida West.
The NCLAT had directed that the CoC for Eco Village-2 be constituted and IRP proceed to complete the project with the assistance of the erstwhile management, employees and workmen of Supertech.
In contrast, all other Supertech projects will continue as “ongoing projects” without going through the bidding process under the Insolvency and Bankruptcy Code (IBC), and with the overall supervision of the IRP with the assistance of the former management. , ordered the NCLAT.
Commenting on the SC order, senior advocate Vibha Datta Makhija told ThePrint that the court “has adopted a balanced approach to ensure that the debt owed to a minority financial creditor does not jeopardize the assets of the financial debtor, which are eventually to be delivered to the homebuyers”.
“From a homeowner’s point of view, this order is writing on the wall. The government is already considering appropriate clarification of the law (IBC) to allow project-wise insolvency,” she said.
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‘Low risk of injustice’
In its order, the Supreme Court said that it should “take the path which carries the least risk of injustice”. It was then pointed out that the NCLAT adopted this course, noting that a project-wise resolution could be initiated as a test to ascertain the success of such resolution.
The court said that if, at this stage, it directs that a CoC be constituted for Supertech, “it is likely to affect those ongoing projects and thus throw homebuyers into a state of uncertainty” has great difficulty”.
On the other hand, it was noted that other Supertech projects were being continued to be run by the IRP and efforts were being made to infuse funds with active assistance from the former management of Supertech.
“In our view, passing of any interim order for constitution of CoC in respect of the corporate debtor as a whole is likely to cause more inconvenience; and may cause irreparable loss to the homebuyers,” observed the top court.
NCLAT order and challenge to it
During the bankruptcy proceedings against Supertech, the NCLAT had passed an interim order directing that a CoC should be constituted only for Eco Gram-II, and all other Supertech projects to continue as ongoing projects. was to be kept
After the formation of the CoC, the IRP was asked to proceed with the completion of the construction of the Eco Village-II project with the assistance of the erstwhile management, employees and workmen of Supertech.
The NCLAT also allowed the promoters of the group to invest the funds arranged by them in various projects. The IRP should treat these funds as interim finance and maintain detailed accounts thereon.
The creditors had approached the Supreme Court challenging the NCLAT order limiting the formation of the CoC to only one project. He had argued that the NCLAT does not have the power to allow project-wise corporate insolvency resolution process under the IBC.
Indiabulls Asset Reconstruction Company had also demanded that a CoC be constituted for the entire company, and that the promoters or erstwhile management of Supertech should have no involvement in the insolvency process.
Before the apex court, the home buyers of Eco Village-II had submitted that a direction be issued to complete the construction of the project in the same manner as envisaged for other home buyers for whom no CoC has been constituted. had not been.
In fact, he had submitted that the construction should be completed under the supervision of the IRP with assistance from the ex-management of the real estate group. Other home buyers argued in favor of the NCLAT order.
The Supreme Court has now directed that the NCLAT order shall continue to operate, subject to the final orders passed by the court, and also stated that in respect of the Eco Gram-II project, any process beyond voting on the resolution plan shall be carried out only with Only specific orders should be made.
The appeals are listed for final hearing in the second week of July.
(Editing by Nida Fatima Siddiqui)
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