Introduction:
The Insolvency and Bankruptcy Code, 2016 (IBC), mandates a comprehensive resolution process addressing the financial distress of the corporate debtor as a whole, rather than isolating individual projects. Confining insolvency proceedings to a single project would undermine the rights of creditors from other projects and contradict the IBC’s inclusive framework, which ensures fairness and equitable treatment for all stakeholders. The judgment reaffirmed that CIRP must consider the interdependence of a debtor’s projects, supporting a unified resolution approach.
The issue was discussed in the recent case of Harpal Singh Chawla v. Vivek Khanna & Ors., Supreme Court of India.
Facts of the Case:
The present case revolves around the initiation of a CIRP through a Section 7 application filed by 26 real-estate allottees from the Spaze Arrow project. The NCLT, New Delhi Bench, admitted the application in October 2024, and the NCLAT allowed the CIRP to proceed later that month, with the Committee of Creditors (CoC) to be formed. The suspended director appealed, seeking to limit the CIRP to the Spaze Arrow project, arguing that the application related only to that project. The appeal emphasized that including completed projects would harm the interests of allottees and affect the Spaze Arrow project’s completion, citing disputes with the landowner and an interim status quo order. In response, it was contended that restricting the CIRP would undermine the rights of creditors from other projects, as claims from multiple projects had already been admitted, and the CoC included creditors from various projects. The matter was subsequently challenged before the Supreme Court, seeking to overturn the NCLAT’s order.
Views of the Tribunal and the Supreme Court:
NCLAT, in its judgment, provided that the CIRP should not be limited to one project but should include claims from multiple projects developed by the corporate debtor. The tribunal emphasized that restricting the process would violate the rights of creditors from other projects and undermine the principles of fairness under the Insolvency and Bankruptcy Code, 2016 (IBC). It also acknowledged the multi-project nature of the debtor’s operations, stressing that the CIRP should address the overall financial situation rather than isolating individual projects.
The NCLAT further highlighted the role of the Interim Resolution Professional (IRP) in admitting claims, with any disputes regarding admissibility to be addressed under Section 60(5) of the IBC, ensuring a fair and transparent process. The decision aligned with the IBC’s broader objective of maximizing asset value and promoting a fair resolution by considering claims from all creditors.
The NCLAT upheld the integrity of the insolvency process, ensuring that all creditor claims were treated fairly and equitably, supporting a comprehensive resolution of the debtor’s financial issues. The Supreme Court, upon review, upheld the NCLAT’s order, reinforcing the decision to allow the CIRP to proceed without limiting it to a single project.
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Author: Hiteashi Rajan Desai, Associate at R&D Law Chambers LLP
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