Corporate Insolvency Resolution Process against a real estate company is limited to project concerned and will not affect other projects

The National Company Law Appellate Tribunal in the matter of Flat Buyers Association Winter Hills vs M/s Umang Realtech Pvt. Ltd. through IRP (CA AT (Insolvency) No. 926 of 2019) decided on 11.02.2020 has held that an insolvency process against a real estate company will impact only the project concerned and not the other projects of the builder-developer.

Facts
In the present case, Mrs. Rachna Singh and Mr. Ajay Singh (Allottees) – Financial Creditors moved application under Section 7 of the Insolvency and Bankruptcy Code, 2016 for initiation of Corporate Insolvency Resolution Process of ‘M/s Umang Realtech Pvt. Ltd.’ (Corporate Debtor), a real estate company constructing flats/ apartments for allottees. The Adjudicating Company Appeal (AT) (Insolvency) No. 926 of 2019 Authority (National Company Law Tribunal), Principal Bench, New Delhi by impugned order dated 20th August, 2019 admitted the application and directed the Financial Creditor(s) to deposit a sum of Rs.2 Lakhs with the Interim Resolution Professional to meet out the expenses for performing functions assigning to him.
However, a sum of Rs.2 Lakhs as ordered to be deposited by the Financial Creditor(s) with the Interim Resolution Professional could not meet the expenses for keeping the company a going concern for completion of the flats/apartments. Hence, the present appeal.
Issue
Whether in an insolvency process of a real estate company, the process is limited to that real estate project process or the whole company.
Ratio
NCLAT observed that in cases of CIRP against a real estate, if allottees or financial institutions, banks or operational creditors of one project have initiated CIRP against the corporate debtor, it would be confined to that particular project and it cannot affect any other projects of the same real estate company in other places where separate plans are approved by different authorities.
It was further observed that if the Corporate Debtor has any other project in another town such as Delhi or Kerala or Mumbai, they cannot be clubbed together nor the asset of the Corporate Debtor (Company) for such other projects can be maximized or utilized.
The Tribunal also held that a ‘Secured Creditor’ such as ‘financial institutions/ banks’, cannot be provided with the asset (flat/apartment) by preference over the allottees (Unsecured Financial Creditors) for whom the project has been approved.