NCLAT Restricts Ansal Properties’ Insolvency to Secured Projects, Spares Unrelated Developments

NCLAT Restricts Ansal Properties’ Insolvency to Secured Projects, Spares Unrelated Developments

Introduction

The National Company Law Appellate Tribunal (NCLAT), New Delhi, has upheld the initiation of insolvency proceedings against Ansal Properties and Infrastructure Limited but significantly curtailed their scope. The Appellate Tribunal ruled that the Corporate Insolvency Resolution Process (CIRP) must be confined only to projects that were directly linked to the loan securities, namely Sushant Golf City in Lucknow and three projects in Rajasthan. Extending insolvency to unrelated projects, the Tribunal held, would be unwarranted and disruptive.

Factual Background

Ansal Properties had availed two term loans aggregating ₹150 crore from IL&FS Financial Services Limited in 2016. The loans were intended primarily for the development of hi-tech township projects, with particular reference to the “Mother City” project at Lucknow. Following defaults, IL&FS claimed outstanding dues of over ₹257 crore and initiated insolvency proceedings.

On February 25, 2025, the National Company Law Tribunal (NCLT), Delhi admitted the insolvency petition and imposed a moratorium across the entire corporate debtor. This sweeping order caused concern among homebuyers and development authorities, as Ansal Properties had more than 90 projects across multiple States, many of which were financially independent and ongoing.

Procedural Background

Aggrieved by the NCLT’s order, appeals were filed before the NCLAT by a suspended director, Pranav Ansal, and a homebuyer, Gagan Tandon. They challenged the blanket application of CIRP across all projects of Ansal Properties, contending that the defaults were linked only to specific secured projects.

IL&FS opposed the appeals, asserting that the loans were granted for general corporate and infrastructure development purposes and that insolvency should therefore extend to the entire company.

Issues

1. Whether insolvency proceedings against a real estate company can extend to all its projects irrespective of whether they are linked to the loan securities; and

2. Whether the CIRP against Ansal Properties ought to be confined only to those projects forming part of the secured assets under the loan agreements.

Contentions of the Parties

Appellants’ Contentions: The appellants argued that Ansal Properties had numerous unrelated and financially viable projects across Lucknow, Agra, Ghaziabad, Mohali and other regions. Subjecting the entire company to insolvency for defaults tied to specific projects would freeze construction, prejudice innocent homebuyers, and derail developments that had no nexus with the loan securities.

Respondent’s Contentions: IL&FS contended that the loans were sanctioned for overall development of the Mother City and allied infrastructure. On this basis, it argued that insolvency could not be artificially segmented and must cover the entire corporate debtor.

Reasoning and Analysis

The coram of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra noted at the outset that the existence of debt and default was undisputed, and therefore, the insolvency proceedings could not be annulled altogether. However, the Tribunal emphasised that insolvency jurisprudence in real estate matters has evolved to adopt a project-wise or “reverse CIRP” approach where appropriate.

After examining the loan agreements, the Tribunal found that the securities and receivables were clearly identified and linked to specific projects. It held that extending the CIRP to projects that were neither contemplated nor referred to in the loan documentation was unjustified.

The Bench observed that, “When the securities and receivables are specified in the Loan Agreement, we are of the view that the CIRP has to be confined to only those projects, which form part of the securities/receivables, and extending the CIRP to projects, which are not contemplated or referred to in the Loan Agreements, is uncalled for.”

The Tribunal further reasoned that an indiscriminate moratorium across all projects would unfairly impact homebuyers and stakeholders of unrelated developments, contrary to the objectives of the Insolvency and Bankruptcy Code.

Decision

The NCLAT upheld the admission of insolvency proceedings against Ansal Properties but restricted the CIRP strictly to:

• Sushant Golf City, Lucknow, and
• Rajasthan projects: Ansal Royal Plaza, Orchid Plaza, and Tulip Plaza.

All other projects of Ansal Properties were excluded from the insolvency process, allowing construction activities and possession handovers in those developments to continue under the existing management. The Tribunal also directed that the Lucknow Development Authority be impleaded as a party to the insolvency proceedings and permitted it to file an affidavit placing its position on record.

In this case the appellant was represented by Mr. M.P. Sahay, Mr. Yaman Verma, Ms. Chitra Chanda, and Mr. Kartik Virmani, Advocates.