Homebuyers cannot intervene in Section 7 insolvency proceedings despite holding units in real estate project

NCLAT dismissed an appeal by homebuyers seeking intervention in CIRP proceedings for a real estate project. The appellants held 102 units in Festival City Project and sought to intervene in the company petition. NCLT had admitted a Section 7 application, which SC affirmed. NCLAT held that a pending Section 230 scheme petition by corporate debtor cannot halt Section 7 proceedings. The court noted RERA registration was cancelled and title disputes existed. NCLAT found no error in NCLT's rejection of the intervention petition, ruling that Section 7 applications must proceed as per law regardless of parallel proceedings.

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Issues Involved:
1. Maintainability of Section 7 Application.
2. Intervention Petition No. 12 of 2024.
3. Scheme under Section 230 of the Companies Act, 2013.
4. Allegations of delay tactics by Corporate Debtors.

Summary:

1. Maintainability of Section 7 Application:
The Section 7 application was filed by 215 homebuyers alleging default by the Corporate Debtors in completing the Festival City Project. The Adjudicating Authority, by order dated 21.10.2022, rejected objections regarding the maintainability of the Section 7 application. This decision was upheld by the National Company Law Appellate Tribunal (NCLAT) on 17.11.2023 and the Supreme Court on 11.12.2023, which directed the National Company Law Tribunal (NCLT) to expedite the disposal of the Section 7 application within two months.

2. Intervention Petition No. 12 of 2024:
The Appellant, holding 105 units in the project, filed Intervention Petition No. 12 of 2024, seeking intervention in the Company Petition. The Adjudicating Authority rejected this petition on 27.02.2024, noting that previous attempts by the Corporate Debtors and other applicants to dismiss the Section 7 application were dismissed by both the NCLAT and the Supreme Court. The Tribunal found no merit in the intervention petition, viewing it as another attempt to delay the proceedings.

3. Scheme under Section 230 of the Companies Act, 2013:
The Corporate Debtor filed a Scheme under Section 230, proposing to complete the project. The Appellant argued that the initiation of the Corporate Insolvency Resolution Process (CIRP) under Section 7 would prejudice this Scheme. However, the Tribunal noted that the Scheme was still pending and had various objections. The Tribunal held that the filing of the Scheme could not be a ground to halt the Section 7 proceedings, which had already been delayed significantly.

4. Allegations of Delay Tactics by Corporate Debtors:
The Tribunal observed that the Corporate Debtors had been filing multiple applications to delay the Section 7 proceedings. The Adjudicating Authority had previously dismissed applications alleging fraud and forgery by the Financial Creditors, noting that these were attempts to drag on the proceedings. The Tribunal affirmed that the intention behind these applications was malafide and aimed at delaying the adjudication of the Section 7 application.

Conclusion:
The NCLAT upheld the Adjudicating Authority's decision to reject Intervention Petition No. 12 of 2024, finding no error in the impugned order and dismissing the appeal. The Tribunal emphasized the need for an expeditious resolution of the Section 7 application, in line with the Supreme Court's directive.

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