NCLT admits CIRP application against Umang Realtech Pvt. Ltd.

The National Company Law Tribunal (NCLT) admitted the application for the initiation of Corporate Insolvency Resolution Process (CIRP) by Financial Creditors against 'M/s Umang Realtech Pvt. Ltd.' under Section 7 of the Insolvency and Bankruptcy Code, 2016. The Supreme Court emphasized differential treatment of different classes of creditors, upheld allottees as Financial Creditors, and introduced a Reverse Corporate Insolvency Resolution Process for project completion. Specific directions were given for the completion of the project, with a focus on balancing the interests of all stakeholders and prioritizing project completion for allottees.

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Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) by Financial Creditors.
2. Problems in following certain processes for infrastructure companies.
3. Differentiation between Secured and Unsecured Creditors.
4. Role and rights of allottees (homebuyers) as Financial Creditors.
5. Implementation of Reverse Corporate Insolvency Resolution Process.
6. Specific directions for the completion of the project and resolution process.

Issue-wise Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP) by Financial Creditors:
Mrs. Rachna Singh and Mr. Ajay Singh, as Financial Creditors, initiated CIRP against ‘M/s Umang Realtech Pvt. Ltd.’ under Section 7 of the Insolvency and Bankruptcy Code, 2016. The National Company Law Tribunal (NCLT) admitted the application and directed the deposit of Rs. 2 Lakhs with the Interim Resolution Professional (IRP) to meet expenses.

2. Problems in following certain processes for infrastructure companies:
The Parliament amended Section 30(2) & (4) of the I&B Code to give weightage to Secured Creditors. The Supreme Court in "Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors." highlighted the need for differential treatment of different classes of creditors. The inclusion of a column for security in Form B for Operational Creditors acknowledges their secured status, which was previously omitted.

3. Differentiation between Secured and Unsecured Creditors:
The Supreme Court in "Pioneer Urban Land and Infrastructure Limited & Anr. v. Union of India & Ors." upheld that allottees are Financial Creditors. The assets of the Corporate Debtor, particularly in real estate, should be transferred to allottees (Unsecured Creditors) rather than Secured Creditors like banks and financial institutions.

4. Role and rights of allottees (homebuyers) as Financial Creditors:
Allottees, despite lacking expertise in assessing the viability of a Corporate Debtor, have been provided voting rights for the approval of the plan. The judgment noted the difficulty for allottees to assess the commercial aspects of the Corporate Debtor, as highlighted in "Innoventive Industries Limited v. ICICI Bank and Anr." and "Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors."

5. Implementation of Reverse Corporate Insolvency Resolution Process:
The judgment introduced the concept of a Reverse Corporate Insolvency Resolution Process to ensure project completion without third-party resolution plans. Uppal Housing Pvt. Ltd., as a promoter, agreed to act as a Financial Creditor to ensure the project’s success. The Flat Buyers Association and allottees accepted this proposal, leading to the completion of several flats and registration of sale deeds.

6. Specific directions for the completion of the project and resolution process:
Uppal Housing Pvt. Ltd. was directed to cooperate with the IRP and disburse additional funds as a lender. The project, Winter Hill – 77 Gurgaon, should be completed by 30th June 2020, with internal fit-outs by 30th July 2020. Financial Institutions should be paid simultaneously. Allottees were directed to deposit their balance amounts without penal interest by 15th March 2020. Common areas should be completed by 30th August 2020, and a Residents Welfare Association should be formed. The CIRP should be closed upon completion and approval by the NCLT, with any unsold flats handed over to the promoter. If the promoter fails to comply, the NCLT will complete the Insolvency Resolution Process.

Observations and Findings:
The CIRP against a real estate company is limited to the specific project and does not affect other projects. Secured creditors cannot be given preference over allottees. The judgment emphasized that the CIRP should be project-based, and claims from other projects cannot be entertained. The process ensures that the interests of all stakeholders, including Financial Institutions and Operational Creditors, are balanced while prioritizing the completion of the project for the allottees.

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