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        <h1>Judgment allows project-specific approach for real estate insolvency, promoting completion within timeline</h1> <h3>Rajesh Goyal Versus Babita Gupta & Others</h3> The court upheld the initiation of the corporate insolvency resolution process (CIRP) against the Corporate Debtor under Section 7 of the Insolvency and ... Maintainability of application - initiation of CIRP process - allegation that the Respondents (Allottees) are themselves being defaulter - no ‘default’ by the ‘Corporate Debtor’ - HELD THAT:- In view of the fact that part of the infrastructure (Apartments/Flats) has already been completed, the allottees (Financial Creditors) were the main beneficiaries of the infrastructure have already reached settlement with the ‘Promoter’ and the fact that the ‘Promoter’ as an ‘outsider financial creditor’ has agreed to invest the amount, not from the account of the ‘Corporate Debtor’ but from other sources to keep the infrastructure as a going concern. In exercise of inherent powers conferred under Rule 11 of the NCLAT Rules, 2016, following order is passed: i. ‘Rajesh Goyal’ (Promoter) is directed to cooperate with the Interim Resolution Professional and disburse amount (apart from the amount already disbursed) from outside as Lender (financial creditor) not as Promoter to ensure that the project is completed within the time frame as given by him. The disbursement of amount which has been made by ‘Rajesh Goyal.’ and the amount as will be generated from dues of the Allottees (Financial Creditors) during the Corporate Insolvency Resolution should be deposited in the account of the Company (Corporate Debtor) to keep the Company a going concern. The amount can be utilized only by issuance of cheque signed by the authorised person of the Company (Corporate Debtor) with counter signature by the Interim Resolution Professional. The Bank in which the Corporate Debtor (Company) has account the amount should be deposited only for the purpose of completion of the Project. Banks will allow the cheques for encashment only with the counter signature of the Interim Resolution Professional. ii. The flats/apartments should be completed in all aspect by 30th June, 2020. All internal fit outs for electricity, water connection should be completed by 30th July, 2020. The allottees are directed to deposit their balance amount and pay 90% without penal interest, if not deposited, by 15th March, 2020. The Allottees in whose favour possession has been offered and clearance has been given by the competent authority are bound to pay the cost for registration and directed to deposit registration cost to get the flats/apartments registered after paying all the balance amount in terms of the agreement. iii. Common area such as Swimming Pool, Club House etc. as per the agreement, be also completed by 30th August, 2020. The allottees are allowed to form ‘Residents Welfare Association’ and get it registered to empower them to claim the common areas. iv. ‘Rajesh Goyal’ will return the amount to the allottees, who already sought for, within the time frame i.e. 30% of the principal amount within 90 days and rest 70% of the principal amount within 180 days. The interest be paid to them in the manner as detailed above by 30th August, 2020. The ‘Financial Institutions/’Banks’ and ‘Operational Creditors’, if any should be paid simultaneously within the period of 180 days. v. All these processes should be completed by 30th August, 2020. If it completed, the Corporate Insolvency Resolution Process be closed after intimating it to the Adjudicating Authority (National Company Law Tribunal). The resolution cost including fee of the Interim Resolution Professional will be borne by the Promoter. Only after getting the certificate of completion from the Interim Resolution Professional/ Resolution Professional and approval of the Adjudicating Authority (National Company Law Tribunal) unsold flats/ apartments etc. be handed over to the Promoter. vi. It is made clear that even during the Corporate Insolvency Resolution Process, the Interim Resolution Professional can also sell the unsold flats/apartments, by way of a Tripartite Agreement between the Purchaser, Interim Resolution Professional/Resolution Professional and Promoter (Rajesh Goyal). The proceeds as may be generated from such sale should be utilized for completion of the project, payment to Financial Institutions/Banks, Operational Creditors and interest as is payable to the allottees whose principal amount is to be refunded. Once the project is completed, the ‘Interim Resolution Professional’ will move application before the Adjudicating Authority (National Company Law Tribunal) with the report of completion and ask for disposal of application under Section 7 of the ‘I&B Code’ filed by Ms. Babita Gupta, Mr. Manoj Kumar Gupta and Ms. Sweta Gupta (Allottees – Financial Creditors). vii. However, if the ‘Promoter’ fails to comply with the undertaking and fails to invest as financial creditor or do not cooperate with the Interim Resolution Professional/Resolution Professional, the Adjudicating Authority (National Company Law Tribunal) will complete the Insolvency Resolution Process. Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether an application under Section 7 of the I&B Code by allottees (homebuyers) is maintainable where the allottees themselves have allegedly defaulted under their agreements. 2. Whether allottees of an infrastructure/real estate project qualify as 'financial creditors' under the I&B Code and the implications of that classification for insolvency resolution. 3. Whether the corporate insolvency resolution process (CIRP) against a real estate company should be confined to the particular project (project-specific CIRP) or extend to all projects of the corporate debtor. 4. Whether a 'reverse CIRP' (i.e., completion of the project by the promoter acting as an outsider financial creditor during CIRP, without a conventional third-party resolution plan) is permissible under the Code and when it may be applied. 5. Whether a promoter may participate as an outsider investor/financial creditor and, if so, the permissible manner and safeguards for such investment and cooperation with the interim resolution professional (IRP)/resolution professional (RP). 6. What remedial directions and timelines are appropriate where completion of a partially built real estate project during CIRP is proposed through promoter funding and allottee consent. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Maintainability of Section 7 petition by allottees despite alleged default by allottees Legal framework: Section 7 of the I&B Code permits a financial creditor to initiate CIRP on occurrence of a default. The Code and subordinate rules prescribe proof of claim formats and claims admissibility procedures. Precedent treatment: The decision recognizes the Supreme Court's pronouncement in Pioneer (homebuyers are financial creditors) and Innoventive/Swiss Ribbons (deference to legislative commercial choices and insolvency scheme). Earlier Appellate Tribunal observations (Winter Hills) addressing practical difficulties of allottees as financial creditors are followed. Interpretation and reasoning: The Court emphasizes substance over alleged reciprocal defaults by allottees. Classification as financial creditors entitles them to invoke Section 7. Practical difficulties where allottees lack commercial expertise do not nullify their statutory right to initiate CIRP. The Court also considers whether an alleged default by allottees should bar relief; absent clear demonstration that the corporate debtor is not in default, the Section 7 admission cannot be negated solely because some allottees may themselves be in breach. Ratio vs. Obiter: Ratio - Allottees who qualify as financial creditors may initiate CIRP under Section 7 notwithstanding asserted breaches by some allottees, subject to proof of default by the corporate debtor. Obiter - Practical implications of allottees' voting power and assessment capability. Conclusion: The petition by allottees under Section 7 was not to be dismissed on the ground that some allottees were defaulters; admissibility depends on existence of default by the corporate debtor. Issue 2 - Allottees as financial creditors and consequences Legal framework: The Explanation to Section 5(8)(f) and RERA provisions; Forms for proof of claim; Code's creditor classification and voting regime. Precedent treatment: Follows Pioneer for classification of allottees as financial creditors and acknowledges Essar and Swiss Ribbons for principles of commercial wisdom and creditor treatment under CIRP. Interpretation and reasoning: The Court reiterates that RERA remedies are additional and do not exclude Code remedies; hence allottees are financial creditors with voting rights. However, the Court notes practical inequities: allottees lack expertise to assess viability of resolution plans, may be sole financial creditors for a project, and face difficulties in exercising commercial wisdom akin to institutional creditors. The Court highlights form deficiencies addressed by notifications adding security columns for operational creditors. Ratio vs. Obiter: Ratio - Allottees are financial creditors for purposes of the Code; RERA is supplementary. Obiter - Concerns about ability of allottees to evaluate resolution plans and the normative effect on voting dynamics. Conclusion: Allottees are financial creditors entitled to rights under the Code, but their unique position justifies procedural accommodations in real estate CIRPs. Issue 3 - Project-specific limitation of CIRP for real estate companies Legal framework: The objective of the Code to maximise asset value and balance stakeholders of the distressed corporate debtor; project approval regimes under competent authority and separate project-specific assets/liabilities. Precedent treatment: The court follows its prior exposition (Winter Hills) that CIRP for real estate projects should be project-limited. Interpretation and reasoning: The Court reasons that real estate companies commonly operate multiple discrete projects with separate approvals, land, stakeholders and creditor constituencies; a CIRP confined to one project should not aggregate assets/liabilities of other unrelated projects. Maximisation must target the assets and creditors relevant to the project under insolvency; abstractly maximising company-wide assets could prejudice different project stakeholders and be impractical. Ratio vs. Obiter: Ratio - CIRP against a real estate company is confined to the particular project (as per approved plan) and does not automatically extend to other separate projects of the corporate debtor. Obiter - Practical mechanisms for segregating claims and assets among projects. Conclusion: The CIRP in a real estate context should be project-specific; claims/asset maximisation must focus on the project in question and not be extended to distinct projects of the corporate debtor. Issue 4 - Permissibility and rationale for a 'reverse CIRP' (promoter as outsider investor during CIRP) Legal framework: The Code's emphasis on resolution over liquidation; judicial deference to legislative economic experimentation (Swiss Ribbons/Essar); IRP/RP powers and committee of creditors' commercial discretion; inherent powers of appellate forum to fashion remedies (Rule 11 NCLAT Rules invoked). Precedent treatment: Relies on prior Appellate Tribunal judgment (Winter Hills) and Supreme Court guidance that legislative policy should be given leeway; no overruling of settled law but an adaptive exercise within Code's objectives. Interpretation and reasoning: The Court acknowledges that conventional CIRP processes (soliciting third-party resolution plans) may not yield practical results in partially completed real estate projects where allottees will not finance continuation. Where the promoter, acting as an outsider financial creditor, undertakes to infuse funds solely from outside sources to complete the project and allottees consent, the appellate forum may permit a 'reverse CIRP' aimed at completion rather than third-party takeover. The approach is justified to protect allottees' interests, preserve employment, and maximise value of project assets for stakeholder benefit. Safeguards are specified: funds to be routed through company accounts; IRP counter-signature for disbursements; timelines; and consequences for promoter default (resumption of normal CIRP by tribunal). Ratio vs. Obiter: Ratio - A promoter may, with the consent of a sufficient proportion of financial creditors (allottees) and subject to safeguards, participate as an outsider financial creditor to fund completion during CIRP without a traditional third-party resolution plan; appellate authority may exercise inherent powers to permit such course to advance Code objectives in real estate cases. Obiter - The broader policy discussion on reverse CIRP as an acceptable experiment in economic legislation. Conclusion: Reverse CIRP is permissible in appropriate real estate CIRPs where the promoter funds completion from outside sources with allottee consent and IRP/RP oversight; procedural safeguards and timelines must be imposed and failure triggers continuation of ordinary CIRP. Issue 5 - Permissible role, safeguards and obligations when promoter acts as outsider financial creditor Legal framework: Code provisions concerning financial creditors, IRP/RP duties, and statutory objectives; banking/payment controls; RERA compliance obligations. Precedent treatment: Builds on Winter Hills directions and on the need to harmonise Code aims with practical project completion requirements. Interpretation and reasoning: The Court prescribes that promoter funds be deposited into the corporate debtor's bank account and used only for project completion, disbursed by company cheques countersigned by the IRP; banks to require IRP counter-signature. The promoter's investment is to be treated as that of a financial creditor (outsider), not as promoter remuneration or diversion, and the promoter must commit to timelines, refund schedules and payment to financial institutions/operational creditors. The IRP will collate claims, conduct voting of allottees, and monitor compliance. Failure by promoter to perform permits tribunal to resume standard CIRP steps. Ratio vs. Obiter: Ratio - Specific safeguards and modalities for promoter-as-financial-creditor funding during CIRP are appropriate and necessary to prevent diversion and to protect stakeholders; IRP supervision and bank counter-signatures are mandatory. Obiter - The court's practical list of documentation and timelines provides a template rather than an exhaustive statutory regime. Conclusion: Promoter participation as an outsider financial creditor is permissible but must be strictly regulated: funds to be external, routed through company account, expended only with IRP countersignature, subject to timelines, and with express consequences for non-performance. Issue 6 - Appropriate directions and timelines where completion during CIRP is ordered Legal framework: IRP/RP powers to manage assets/operations during CIRP; Code objective of preserving value and completing resolution; contractual rights of allottees and statutory remedies under RERA remain available. Precedent treatment: The Court applies its Winter Hills framework and adapts relief to facts: partial completion, promoter funding sources, allottee voting results and proposed repayment/interest schedules. Interpretation and reasoning: Given majority allottee assent, partial project completion, and promoter commitments, the Court imposes concrete timelines for completion of towers, internal fit-outs, common areas, registration obligations, and refund schedules (30% within 90 days; 70% within 180 days) with interest mechanics tied to bank certificates; IRP to monitor and report to adjudicating authority and, upon satisfaction, to seek closure of CIRP. Provisions for sale of unsold flats by IRP via tripartite agreements and for payment priorities (allottees, financial institutions, operational creditors) are stipulated. The scheme conditions reinstatement of conventional CIRP if promoter defaults. Ratio vs. Obiter: Ratio - Where reverse CIRP is permitted, the appellate body may direct specific completion schedules, payment/refund timelines, interest rates and monitoring mechanisms; compliance leads to closure of CIRP for the project, non-compliance restores ordinary CIRP processes. Obiter - Specific monetary figures and schedule are fact-specific and illustrative. Conclusion: Detailed supervisory directions, strict timelines and payment/refund schedules are appropriate to implement a promoter-funded completion during CIRP; successful compliance enables closure of CIRP for the project, whereas failure activates normal insolvency resolution steps.

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