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Authored by Aanchal M. Nichani

The National Company Law Appellate Tribunal (‘NCLAT’) recently in the matter of Flat Buyers Association Winter Hills – 77, Gurgaon v. Umang Realtech Pvt. Ltd. (through IRP & Ors.) took a practical approach bordered on survival of the business and satisfying the interests of the stakeholders involved and introduced the concept of reverse corporate insolvency resolution process (‘CIRP’).

Background of the case:

Mrs. Rachna Singh and Mr. Ajay Singh (Allottees) had moved an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) for initiation of CIRP of M/s. Umang Realtech Pvt. Ltd., a real estate company involved in constructing flats/ apartments and the said application was admitted by National Company Law Tribunal (‘NCLT’), Principal Bench, New Delhi.

Once an application for CIRP of the Corporate Debtor is admitted and an IRP is appointed, it is the duty of the IRP/RP to keep the Corporate Debtor as a going concern. However, in case of a real estate infrastructure company, the only business is to build and complete flats/projects and thus, maintaining the Corporate Debtor as a going concern is a hurdle that is almost impossible to cross. Given the grave situation, most real estate companies are pushed into liquidation and the same does not serve any benefit to the company or its creditors.

Difficulties faced in following the regular process of CIRP in real estate infrastructure companies:

1. The allottees (homebuyers) come within the meaning of ‘financial creditors’ and possess voting rights for approval of any resolution plan. However, the issue with respect to the same is the lack of commercial knowledge or expertise to assess the ‘viability’ or ‘feasibility’ of the Corporate Debtor, unlike that of the financial institutions/ banks/ NBFCs.

2. Another difficulty faced is that of distribution of assets of a real estate infrastructure company. The assets of such company are none other than the apartments/flats that are being constructed by them for the allottees. Normally the banks/financial institutions/NBFCs also would not prefer to take the flats in lieu of the money lent by them and on the other hand, the unsecured creditors (homebuyers) have a right over the flats being constructed by the company.

3. As a normal practice, while approving a resolution plan, the Committee of Creditors tend to take a ‘haircut’, but the same is not possible in case of flats/ apartments.

Concept of Reverse Corporate Insolvency Process:

In the instant case, one of the promoters – ‘Uppal Housing Pvt. Ltd.’ agreed to remain outside the CIRP but agreed to act as a lender to maintain the Corporate Debtor as a going concern and complete the ongoing project in order to ensure that the CIRP process reaches success and the allottees take possession of the flats/apartments without any third party intervention.

As part of its order, the Hon’ble NCLAT directed and set out a time bound schedule, mode and manner in which the infusion of funds will be made by Uppal Housing Pvt. Ltd. and the balance payments by the allottees and also a schedule within which the project shall be completed and possession be handed over to the allottees.

The Hon’ble NCLAT had referred to the judgement passed by the Apex Court in the landmark Swiss Ribbons case, wherein it held that the IBC is an economic legislation which deals with economic matters and in the larger sense deals with the economy of the country as a whole and that any denial of the right to experiment is fraught with serious consequences to the nation. In light of the aforesaid observation of the Hon’ble Supreme Court, the NCLAT has experimented as to whether during CIRP the resolution can reach finality without approval of any third-party resolution plan.

The Hon’ble NCLAT has approached the matter differently and has experimented and worked in the reverse and allowed the promoter to stay out of CIRP and infuse funds for completion of the project and issued directions, a time bound schedule, mode and manner of the same to ensure that there is a win-win for both the corporate debtor and the allottees, by reaching a resolution without approval of any third-party resolution plan.

Observations of the Hon’ble NCLAT:

1. Corporate Insolvency Resolution Process if initiated against a real estate infrastructure company by the allottees or financial institutions/banks/NBFCs or operational creditors of one project, the said CIRP shall be restricted to that particular project and cannot affect any other project(s) of the same real estate infrastructure company in other places where separate plan(s) have been approved by different authorities. The assets of that particular project only can be maximised for balancing the interest of the creditors of that project and any other allottees or other financial creditors or operational creditors of other projects cannot file any claim before the IRP/RP.

2. A secured creditor such as ‘financial institutions/banks’ cannot be provided with flats/apartments being the assets of the Corporate Debtor by preference over the allottees (unsecured financial creditors) for whom the project has been approved. However, while satisfying the allottees, they may agree to opt for another flat/apartment, or another tower and their agreements can be modified to this extent by the IRP/RP with the counter signature of the promoter and allottee.

3. The prayer of allottees asking for refund cannot be allowed by the NCLT or NCLAT. However, after offering allotment, it is open to the allottee to request the IRP/RP/Promoter, whoever is in-charge to find a third party to purchase the allotted flat/apartment and thus, receive back the money invested by the said allottee. It is also possible for the allottee to arrive at an agreement with the promoter (not corporate debtor) for refund of the amount upon completion of the flat/project or during completion of the project.


The order passed by the Hon’ble NCLAT introducing the concept of reverse CIRP in case of real estate infrastructure companies has provided much needed respite to such real estate companies and also simultaneously provides for a time bound plan that works towards completion of the project and provides possession to the allottees.

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