New Delhi: The Supreme Court last week allowed a “project-wise resolution” process for real estate giant Supertech, which is undergoing insolvency proceedings, and permitted continued construction of all other projects by the developer under the supervision of an interim resolution professional (IRP).
In an interim order passed on 11 May, an SC bench comprising Justices Dinesh Maheshwari and Sanjay Kumar allowed this course of action, observing that bringing every project of Supertech under insolvency proceedings would put homebuyers in a state of uncertainty and “cause immense hardship” to them.
Union Bank of India had initiated insolvency proceedings against Supertech in March 2021, claiming a total amount of Rs 431 crore as on January 2021, along with interest.
The SC order came on appeals filed by the bank as well as Indiabulls Asset Reconstruction Company — both financial creditors for Supertech — challenging an interim order issued by the National Company Law Appellate Tribunal (NCLAT) in June last year.
In its order, the NCLAT gave several directions that had the effect of converting the corporate insolvency resolution process for Supertech into a “project-wise insolvency resolution process”.
Among other things, the order said that the constitution of a committee of creditors (CoC) for the process would be restricted to only one Supertech project — ‘Eco Village-II’ — in Greater Noida West.
The NCLAT had directed that the CoC be constituted for Eco Village-II, and that the IRP shall proceed with the completion of the project with the assistance of the former management, employees and workmen of Supertech.
As against this, all other Supertech projects shall continue as “ongoing projects”, without going through the bidding process under the Insolvency and Bankruptcy Code (IBC), and shall continue with the overall supervision of the IRP with the assistance of the ex-management, the NCLAT ordered.
Commenting on the SC’s 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 jeopardise the assets of the financial debtor which are eventually to be the homes to be delivered to homebuyers”.
“From a homeowner’s perspective, this order is the writing on the wall. The government is already considering the appropriate clarification of law (IBC) to allow for project-wise insolvency,” she added.
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‘Lower risk of injustice’
In its order, the Supreme Court said that it “should adopt the course which appears to carry lower risk of injustice”. It then pointed out that the NCLAT adopted this course while observing that a project-wise resolution may be started as a test to find out the success of such resolution.
The court opined that if, at this stage, it directs that a CoC be constituted for Supertech as a whole, “it is likely to affect those ongoing projects and thereby cause immense hardship to the homebuyers while throwing every project into a state of uncertainty”.
On the other hand, it noted that other Supertech projects were being continued to be run by the IRP and efforts were being taken for infusion of funds with active assistance from the ex-management of Supertech.
“In our view, greater inconvenience is likely to be caused by passing any interim order for constitution of CoC in relation to the corporate debtor as a whole; and may cause irreparable injury to the homebuyers,” the top court observed.
NCLAT order & challenges to it
During the insolvency proceedings against Supertech, the NCLAT had passed an interim order directing that a CoC should be constituted for Eco Village-II only, and all the other Supertech projects were to be continued as ongoing projects.
The IRP was asked to proceed to complete the construction of Eco Village-II project, with the assistance of Supertech’s ex-management, employees and workmen, after the constitution of the CoC.
The NCLAT also allowed the promoter of the group to infuse the funds arranged by them in different projects. The IRP is supposed to treat these funds as interim finance and maintain detailed accounts on them.
The creditors had approached the Supreme Court challenging the NCLAT order limiting the constitution of the CoC to only one project. They had argued that the NCLAT did not have power under the IBC to allow a project-wise corporate insolvency resolution process.
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, homebuyers of Eco Village-II had submitted that a direction should be issued to complete the construction of the project in a similar manner as envisaged for other homebuyers for whom no CoC had been constituted.
They had, in fact, submitted that the construction deserves to be completed under the supervision of the IRP with assistance from the ex-management of the real estate group. Other homebuyers had argued in favour of the NCLAT order.
The SC has now directed that the NCLAT order would continue to operate, subject to final orders passed by the court, and also stated that with regard to Eco Village-II project, any process beyond voting on the resolution plan should only be undertaken with its specific orders.
The appeals have been listed for final hearing in the second week of July.
(Edited by Nida Fatima Siddiqui)
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