2025 (10) TMI 115 - AT - IBC

IRP's request to monetize units refused due to unvalidated building plan; I.A.4215/2025 denied; I.A.7682/2024 disposed with IRP statement no cancellations

Anoop Kumar Srivastava Versus Neerav Bhatnagar & Ors.

NCLAT refused the IRP's request to monetize unsold units in the sole project because the building plan has not been revalidated, creating no visibility ... Permission to proceed with sale/ monetization of current assets (unsold inventory like units/flats) in the sole real estate project of the Corporate Debtor namely “The Belvedere” - it is submitted that the amount which is to be received from sale of unsold units shall be utilised only for construction, 70% of the construction and 30% for meeting dues of NOIDA and Aditya Birla and other expenses - HELD THAT:- The fact of the matter is that as on date, the building plan of the project has not been revalidated, when the plan has not yet been revalidated, we fail to see any reason for permitting monetisation by sale of units. The purpose of sale of unsold units as pleaded by the IRP is completion of the project. It is further noticed that NOIDA in its reply to the I.A.4215/2025 has only stated that it has no objection in sale of the unsold units provided its dues are paid. NOIDA has not said anything about revalidation of the map. It is obvious that revalidation of the map was made subject matter of the Writ Petition by appellant by filing of Writ Petition 21238/2024 in the High Court of Allahabad, which were subsequent to the orders passed by this Tribunal in this appeal, where Tribunal had permitted the IRP to obtain the necessary permission and approval from the Competent Authority. It is thus clear that there is no visibility regarding revalidation of the map of the project in question. When there is no visibility of the revalidation of the map permitting the IRP to sale the unsold units and utilized the amount for construction of the project is an exercise which may not even commence due to absence of revalidation of the map - thus as on date the prayers made in I.A. 4215/2025 cannot be granted. Coming to the prayers made in I.A.7682/2024, the counsel for the IRP having already made a statement that IRP is not proceeding to cancel any units, the said application need to be disposed of recording the said statement. Application disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether the Interim Resolution Professional (IRP) may be permitted to proceed with sale/monetization of current assets (unsold inventory/units/flats) of the real estate project during the reverse Corporate Insolvency Resolution Process (reverse CIRP) to generate funds for keeping the corporate debtor as a going concern and completing construction, notwithstanding pending non-revalidation of building plans/maps and other regulatory approvals. 2. Whether sale/monetization of unsold inventory can be permitted subject to claims of statutory/local authority dues and charges of secured financiers who assert first/second charges and exclusive hypothecation/escrow over receivables. 3. Whether the IRP may cancel/allot units or act on promoter communications effecting cancellation of allotments to homebuyers where homebuyers have lodged criminal/other complaints (EoW) and where IRP has given assurances about non-cancellation. 4. Whether, in light of factual developments (including non-revalidation of maps by statutory authority and pending proceedings before higher fora), the Tribunal should consider reverting the reverse CIRP and direct initiation/resumption of CIRP under the Insolvency and Bankruptcy Code (IBC). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Permissibility of sale/monetization of unsold inventory during reverse CIRP absent revalidation of building plans/maps Legal framework: The IBC mandates that the IRP/Resolution Professional preserve the corporate debtor as a going concern and may take steps for revival, consistent with directions issued by the Tribunal in the course of reverse CIRP orders. Regulatory permissions (e.g., map/building plan revalidation, RERA/NOIDA approvals, environmental clearance) are preconditions to lawful commencement/continuation of construction and thereby materially relevant to realization of sale proceeds and use of funds for completion. Precedent Treatment: The Tribunal relied on its prior directions (orders permitting construction subject to MoU and regulatory steps) and on general practice in insolvency matters (citing prior Tribunal order in another CIRP matter as persuasive practice for monitoring and permitting construction/monetisation under supervision). No precedent was overruled; existing directions were treated as operative but subject to compliance with statutory/regulatory conditions. Interpretation and reasoning: The Court examined whether monetisation would achieve the stated purpose (completion of project). It found absence of revalidation of building plans/maps, lack of visibility on regulatory approvals and an ongoing judicial process (challenged High Court order pending before Supreme Court) rendered the objective of monetisation - i.e., utilization of receipts for construction - speculative and potentially futile. The Tribunal reasoned that monetisation leading to construction presupposes lawful ability to commence/continue construction; absent revalidation, construction may not legally proceed, making monetisation premature. Ratio vs. Obiter: Ratio - Sale/monetization of unsold inventory during reverse CIRP cannot be permitted where essential statutory/regulatory approvals (such as revalidation of maps/building plans) are not in place and there is no visibility of such approvals, because the purpose of monetisation (completion of the project/going concern) would be frustrated. Obiter - Observations on the IRP's proposed mechanism for allocation of proceeds among construction, statutory dues and secured financiers, and the IRP's representations about escrow arrangements, were noted but not accepted as sufficient in the absence of regulatory clearances. Conclusion: The application seeking permission for sale/monetization of unsold units is dismissed at this stage for want of revalidation/visibility of regulatory approvals; monetisation cannot be authorized while the foundational legal impediment remains. Issue 2 - Effect of statutory/local authority dues and secured financiers' charges on monetisation of receivables Legal framework: Sale/monetization of assets during insolvency are subject to claims of secured creditors and statutory dues; first charge holders and local authorities assert priority per governing documents and law. Regulatory/local authority dues may be required to be paid as condition precedent to transfer/monetisation. Precedent Treatment: Prior Tribunal directions contemplated mechanisms for utilization of funds (e.g., escrow, prescribed percentages for repayment) and allowed stakeholders to participate in monitoring; the present order treats such arrangements as conditional and subordinate to statutory/regulatory prerequisites. Interpretation and reasoning: The Tribunal observed that NOIDA expressed no objection to sale subject to payment of its dues at the time of sale. A second-charge financier asserted exclusive hypothecation/escrow of receivables and objection to monetisation without its consent. The Tribunal noted these competing claims but declined to permit monetisation because the primary impediment (non-revalidated maps and consequent inability to lawfully proceed with construction) made adjudication of allocation of proceeds academic at this stage. The Tribunal also noted prior statements given in other proceedings (e.g., assurances recorded before higher court) bearing on charge-holder conduct but held that such assurances did not suffice to override procedural/regulatory obstacles. Ratio vs. Obiter: Ratio - Monetisation cannot be authorized where statutory approvals are absent, even if local authority has conditionally no objection to sale subject to payment of dues, because payment and application of proceeds presuppose effective realization linked to lawful construction/transfer. Obiter - Directions about potential escrow mechanics and staged payments to secured financiers were discussed but not adopted as binding directions. Conclusion: The presence of statutory/local authority dues and claims of secured financiers reinforces the impermissibility of monetisation at this stage, and such competing claims must be addressed only after regulatory impediments are cleared or in a properly constituted CIRP process if reverse CIRP is discontinued. Issue 3 - Permissibility of unit cancellation/allotment changes by IRP/promoter where homebuyers have lodged complaints (EoW) and IRP's assurance Legal framework: During insolvency proceedings, the moratorium and supervisory role of the IRP limit unilateral acts affecting allotments; the IRP's conduct must align with directions of the Tribunal and protection of financial creditors (homebuyers) as a class. Precedent Treatment: The Tribunal referred to its earlier directions permitting construction under the MoU and preservation of moratorium; the IRP's engagements with homebuyers and statements were treated as significant procedural facts. Interpretation and reasoning: The Tribunal recorded the IRP's statement that it will not cancel any units during pendency of the proceedings. Given that assurance, the Tribunal disposed of the homebuyers' application by recording that stance, thereby preventing unilateral cancellation on the basis of promoter communications. The Tribunal thus relied on the IRP's undertaking as an operative restraint. Ratio vs. Obiter: Ratio - Where IRP gives a clear statement in Court not to cancel units during ongoing proceedings, the Tribunal will record such undertaking and dispose of related applications accordingly. Obiter - The email by the suspended promoter and its communication to the IRP were noted as background but did not alter the Tribunal's reliance on the IRP's undertaking. Conclusion: The Tribunal disposed of the homebuyers' application by recording the IRP's representation that no unit cancellations would be undertaken during pendency; that representation governs conduct until further order. Issue 4 - Whether reverse CIRP should be reversed and normal CIRP directed to proceed Legal framework: Reverse CIRP initiated by Tribunal orders may be terminated and the standard CIRP process resumed where conditions justifying reverse CIRP fail (e.g., breach of MoU, failure to secure regulatory approvals, inability to keep corporate debtor as going concern). The Tribunal retains supervisory jurisdiction to revisit prior orders where circumstances change materially. Precedent Treatment: Prior directions had expressly provided that in case of breach of the MoU the IRP/homebuyers could apply to terminate reverse CIRP and continue with CIRP. The Tribunal therefore treated the present factual matrix as a trigger for reconsideration. Interpretation and reasoning: The Tribunal found material change/continuing non-visibility concerning regulatory approvals and practical inability to advance the project under reverse CIRP. It concluded that these developments warranted reconsideration of whether reverse CIRP should continue. Hence, the Tribunal directed listing of the appeal for further hearing on the specific question of reversing the reverse CIRP and directing CIRP to proceed in accordance with law, inviting parties to address submissions on that point. Ratio vs. Obiter: Ratio - Where the foundational conditions for a reverse CIRP (including performance under MoU, regulatory approvals and reasonable prospect of project completion) are not met, the Tribunal may order reconsideration and potentially direct resumption of CIRP. Obiter - The scheduling direction to list the appeal for reconsideration is procedural and anticipatory of further adjudication. Conclusion: The Tribunal ordered the matter to be listed for consideration of whether the reverse CIRP should be reversed and CIRP proceeded with, thereby leaving open the substantive decision pending further submissions and hearing.