NCLAT Upholds Maintainability Of Section 7 Application Against Multiple Corporate Debtors In Real Estate Project

NCLAT Upholds Maintainability Of Section 7 Application Against Multiple Corporate Debtors In Real Estate Project

Introduction

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench, comprising Justice Rakesh Kumar Jain (Judicial Member), Justice Mohammad Faiz Alam Khan (Judicial Member), and Mr. Naresh Salecha (Technical Member), have held that an application under Section 7 of the Insolvency and Bankruptcy Code (IBC) can be filed against multiple corporate debtors that are part of the same project.

Factual Background

The Appellants, homebuyers, filed an appeal under Section 61 of the IBC against an order passed by the National Company Law Tribunal (NCLT) New Delhi. The Appellants claimed that the Adjudicating Authority wrongly applied the threshold based on the entire project's units, ignoring the distinct share and sales of ETIPL.

Procedural Background

The NCLT had dismissed the Section 7 application filed by the Appellants, holding that the threshold requirement of 100 allottees or 10% of the total number of allottees was not met. The Appellants appealed to the NCLAT, arguing that the Adjudicating Authority should have considered the application against multiple corporate debtors that are part of the same project.

Issues

The main issue before the NCLAT was whether an application under Section 7 of the IBC can be filed against multiple corporate debtors that are part of the same project.

Contentions of the Parties

Appellants: The Appellants argued that the Adjudicating Authority wrongly applied the threshold requirement and that the application should be considered against multiple corporate debtors that are part of the same project.

Respondents: The Respondents argued that the threshold requirement was not met and that the application should be dismissed.

Reasoning and Analysis

The NCLAT held that:

• Threshold Requirement: The threshold requirement of 100 allottees or 10% of the total number of allottees was met, as the Appellants exceeded the required number of allottees.
• Multiple Corporate Debtors: The NCLAT relied on its earlier decision in Mist Avenue Pvt. Ltd. vs. Nitin Batra, holding that filing of applications against two or more Corporate Debtors who were part of the same project are maintainable.
• Joint Builder Buyer Agreement: The NCLAT observed that there was a joint Builder Buyer Agreement between the Appellants with the Corporate Debtor as well as under EIL, and therefore, the Appellants have independent remedies against both Corporate Debtor and EIL.

Implications

The NCLAT's decision has significant implications for homebuyers and corporate debtors involved in real estate projects. It allows homebuyers to file Section 7 applications against multiple corporate debtors that are part of the same project, providing them with greater flexibility and remedies.

Relief Sought

The Appellants sought to set aside the impugned order passed by the NCLT and to allow their Section 7 application against the Corporate Debtor.

In this case the appellants were represented by Ms. Vatsala Kak and Mr. Shaurya Shyam, Advocates.