Supreme Court Upheld NCLAT’s Interim Directions of Limiting CIRP to only One Project of Supertech and Rest to Continue under RP’s Supervision

Supreme Court Upheld NCLAT’s Interim Directions of Limiting CIRP to only One Project of Supertech and Rest to Continue under RP’s Supervision

The Supreme Court by its division judges bench comprising of Justices Dinesh Maheshwari and Sanjay Kumar has dismissed the appeals filed by the Union Bank of India and Indiabulls Asset Reconstruction Company against the order of the National Company Law Appellate Tribunal (NCLAT) whereby the Appellate Tribunal had ordered the commencement of Corporate Insolvency Resolution Process (CIRP) in relation to only one project of Supertech and directed that the construction of all other projects would be continued.

In the present case, the corporate debtor-Supertech Ltd, a real estate company engaged in construction of various projects, had received credit facilities from Union Bank of India for the development of the “Eco Village-II Project.” Subsequently, Union Bank of India and Bank of Baroda entered into an agreement, extending second credit facilities in the sum of Rs 200 crore.

As a result of the corporate debtor’s default on the loan repayment, the account was declared as a ‘Non-Performing Asset.’

Union Bank of India filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) and the same was admitted. The National Company Law Tribunal (NCLT) directed for initiation of CIRP for the Corporate Debtor.

The first respondent- promoter/suspended director of corporate debtor filed an appeal before NCLAT.

The NCLAT had issued batch of directions which practically had the effect of converting the corporate insolvency resolution process in question into a “project-wise insolvency resolution process” inasmuch as the constitution of committee of creditors had been restricted only to one project named “Eco Village-II” of the corporate debtor.

Thus, the financial creditors of corporate debtor- Union Bank of India and Indiabulls Asset Reconstruction Company Ltd. had filed appeals challenging the adoption of reverse CIRP by the Appellate Tribunal and limiting the CIRP and constitution of CoC to only one project of corporate debtor, i.e., Eco Village-II

The question before the bench was as to what should be the interim relief/interim arrangement until disposal of these appeals.

In order to address the issue regarding the tenability of the proposition of “project-wise resolution” as adopted by the Appellate Tribunal, the Apex Court referred to the its judgment in Union of India and Ors. vs. M/s Raj Grow Impex LLP and Ors which enumerated relevant principles in relation to the matter concerning grant of interim relief.

Adopting the course which appeared to carry lower risk of injustice, the Bench asserted that the element of balance of convenience shall have its own significance.

The bench noted that the result of the directions of the impugned order was that except Eco Village-II project, all other projects of the corporate debtor were to be kept as ongoing projects and the construction of all other projects was to be continued under the supervision of the IRP with the ex-management, its employees and workmen.

The Court observed, “Infusion of funds by the promoter in different projects is to be treated as interim finance, regarding which total account is to be maintained by IRP. If at the present stage, on the submissions of the appellants, CoC is ordered to be constituted for the corporate debtor as a whole in displacement of the directions of the Appellate Tribunal, it is likely to affect those ongoing projects and thereby cause immense hardship to the home buyers while throwing every project into a state of uncertainty.”

The Bench noted the fact that the other projects have been continued by the Insolvency Professional (IRP) and efforts were being made for infusion of funds with the active assistance of the ex-management but without creating any additional right in the ex-management.

The bench while considering that greater inconvenience would likely to be caused by passing any interim order of constitution of committee of creditors (CoC) in relation to the corporate debtor as a whole and may cause irreparable injury to the home buyers, therefore, the Court was not inclined to alter the directions in the order impugned as regards the projects other than Eco Village-II.

Apropos to Eco Village-II project, since CoC was ordered to be constituted by the Appellate Tribunal in the impugned order, the Bench opined that no interference was required with those directions, however, it did hold that any process beyond voting on the resolution plan should not be undertaken without specific orders of this Court.

Thus, the Bench held that the impugned order would operate subject to the final orders to be passed in these appeals and subject to the modification in respect of Eco Village-II project that the process beyond voting on resolution plan shall await further orders of this Court.

With respect to the other appeal preferred by Assets and Care Reconstruction Ltd., challenging the order whereby the NCLAT had directed the interim resolution professional to call a meeting of only those financial institutions who had lent money to the corporate debtor before finalisation of the term sheet, the Court held that no interim relief or interim arrangement was considered requisite.