NCLAT Restricts Vatika Insolvency To ‘Aspirations’ Project, Rules CIRP Cannot Extend Across All Real Estate Projects
NCLAT Restricts Vatika Insolvency To ‘Aspirations’ Project, Rules CIRP Cannot Extend Across All Real Estate Projects
Introduction
The National Company Law Appellate Tribunal has reiterated that in real estate insolvency matters, the Corporate Insolvency Resolution Process (CIRP) must remain confined to the specific project for which the financing was raised. Modifying the NCLT Chandigarh’s order against Vatika Limited, the Appellate Tribunal held that insolvency proceedings could continue only in relation to the “Aspirations” project in Sector 88B, Gurgaon, and could not be extended to the company’s other 58 projects.
Factual Background
Vatika Limited is engaged in the development of multiple residential and commercial projects across Haryana and the NCR region. On 30 June 2017, it entered into a Debenture Trust Deed with IDBI Trusteeship Limited and subsequently raised ₹146 crore through non-convertible debentures. The debentures were specifically secured against the land and receivables of the “Aspirations” project in Sector 88B, Gurgaon.
The redemption date was later extended to 30 June 2024. However, the company defaulted in payment of quarterly coupon interest. On 29 December 2023, the debenture trustee issued a demand notice for ₹29.72 crore towards unpaid interest. Upon failure to pay, a Section 7 application was filed before the NCLT Chandigarh claiming default of ₹274 crore, including the principal amount. The NCLT admitted the application and initiated CIRP against the corporate debtor as a whole.
Procedural Background
The suspended director, Surender Singh, challenged the admission order before the NCLAT. The grievance was that the insolvency process had been incorrectly extended to the entire corporate debtor instead of being limited to the specific real estate project for which the financing had been raised.
Issues
1. Whether the default under Section 7 validly included the principal debenture amount of ₹146 crore.
2. Whether CIRP in a real estate insolvency case can extend to the entire corporate debtor and all its projects.
3. Whether insolvency must be confined project-wise to the “Aspirations” project alone.
Contentions of the Parties
The appellant contended that the only subsisting default was ₹29.72 crore towards unpaid interest and that the principal of ₹146 crore had not yet fallen due because the redemption date stood extended till 30 June 2024. It was further argued that ₹37.2 crore had already been paid during the pendency of the Section 7 proceedings, substantially curing the alleged default.
It was emphasized that the debenture financing was exclusively tied to the “Aspirations” project and that extending CIRP to all 58 projects would unfairly prejudice thousands of unrelated homebuyers and stakeholders. Reliance was placed on Flat Buyers Association Winter Hills-77 v. Umang Realtech and Mansi Brar Fernandes v. Shubha Sharma to argue that project-wise insolvency is the settled rule in real estate matters.
The respondent-debenture trustee argued that the default had commenced in March 2022 with repeated non-payment of quarterly coupon interest. It was submitted that under Clause 19.2(b) of the Debenture Trust Deed, the entire debenture amount stood accelerated upon default. The respondent further argued that insolvency attaches to the corporate debtor as a legal entity and that any project-wise treatment could only be considered at the resolution stage by the Committee of Creditors.
Reasoning and Analysis
The Appellate Tribunal carefully examined the Debenture Trust Deed and the demand notices. It found that the principal redemption date had in fact been extended to 30 June 2024 and no valid notice had been issued accelerating immediate repayment of the principal. Consequently, inclusion of the ₹146 crore principal in the default amount was held to be incorrect.
The Tribunal accepted that the valid default consisted of ₹29.72 crore in unpaid interest, which was above the statutory threshold of ₹1 crore under Section 4 of the IBC. It also held that the payment of ₹37.2 crore during the Section 7 proceedings did not fully wipe out the arrears.
On the larger question, the Tribunal reaffirmed the project-wise insolvency principle laid down in Winter Hills and approved by the Supreme Court in Mansi Brar Fernandes. It held that in real estate insolvency, the process must be confined to the project in relation to which the debt was raised. The NCLT’s approach of dragging all projects of the corporate debtor into CIRP was contrary to binding precedent and would adversely impact unrelated stakeholders in other projects.
Decision
The NCLAT modified the NCLT Chandigarh’s admission order and directed that CIRP shall continue only with respect to the “Aspirations” project in Sector 88B, Gurgaon. The insolvency proceedings were expressly restricted from extending to the other projects of Vatika Limited.
In this case the appellant was represented by Senior Advocates Kapil Sibbal, Viremdra Ganda and Arun Kathpalia with Advocates Vishal Gands, Ayandeb Mitra, Manisha Singh, Diksha and Riya Palnitkar.
