2026 (1) TMI 661 - AT - IBC

Scope of CIRP for real estate corporate debtor with project-specific securities; CIRP initiation upheld, moratorium limited to charged projects

Dominant issue 1 - whether the Financial Creditor established debt and default under Section 7: the Tribunal found admitted debt under the loan and ... Resolution/reverse CIRP mechanism - essential requirement, which needs to be proved by a Financial Creditor for an application under Section 7 - resolution of Real Estate Projects - malicious proceedings - Loan Agreements - sufficient material to prove - debt and default on the part of the CD in repayment of dues of the Financial Creditor - exceeds the statutory threshold - non-completion of the project by the CD - avoid payment of legitimate dues of Government Authorities and defrauding the gullible home buyers - HELD THAT:- We fully concur with the findings and conclusions drawn by the Adjudicating Authority that CD has admitted the existence of the debt and the default, and the default amount exceeds the statutory threshold of Rs. 1 crore. We, thus, are satisfied that order of Adjudicating Authority initiating CIRP against the CD cannot be faulted. However, in view of the fact that CD is carrying various projects situated in different locations of the country, what would be the manner and procedure for conducting the CIRP against the CD, shall be considered and examined by us. The IL&FS (Financial Creditor) has brought sufficient material to prove that the CD has committed default in payment of its debt, due in respect of Loan Agreements dated 18.03.2016 and 25.11.2016 and there was sufficient ground to initiate CIRP against the CD. It is relevant to notice that a Settlement Agreement was entered between the CD and IL&FS dated 03.03.2022, under which the CD had agreed to make total payment of Rs. 109,66,00,000/- to the IL&FS. The Settlement Agreement in Schedule-B mentions “List of Existing Securities and Security Documents”. The securities mentioned at Sl. No.1, 2, 3 and 4 relates to assets at Lucknow and security mentioned at Sl. No.5 mention 27 units in building known as Ansal Royal Plaza, Jodhpur; 54 units in Orchid Plaza and 14 units in Tulip Plaza at Jaipur; Sl. No.6 mentions 59 built up units at Ajmer, Rajasthan; Sl. No.7 mentions property at Jodhpur, Jaipur, Lucknow and Ajmer; and Sl. No.8 deals with hypothecation. It is clear that apart from different projects at City Lucknow, State U.P., the CD had projects in the State of Haryana, Mohali (Punjab), Rajasthan – Ajmer, Jodhpur and Jaipur. There are 93 registered projects in the City of Lucknow alone. The question, which needs to be answered is as to whether securities, which have been taken by Financial Institutions, i.e. IL&FS in the present case has any relevance with respect to CIRP of a real estate Company. The securities obviously have been taken by the Financial Institutions to ensure repayment of its loan and when the CD commits default as per the Loan Agreement, the Financial Institutions are entitled to take remedy as per the Agreement and recover its dues by realization as per the insolvency process contemplated under the IBC. The IBC and CIRP Regulations, do not contain any provision so as to specify if Financial Institutions has receivable or securities of one or more projects of the CD in the CIRP, whether the CIRP should confine to one project of the CD or all projects or to the projects, in which lenders have receivables and securities. We in the order dated 25.04.2025 passed in these Appeal(s) have noticed that with respect to the CD, the CIRP has also earlier commenced at two occasions with respect to projects namely – Fernhill Project, Gurgaon State of Haryana and Serene Residency Group Housing Project in the State of UP. There are two instances with respect to CIRP against the CD, where the CIRP was confined to the respective projects only and the CIRP was not directed to be proceeded with respect to all projects of the CD. We have noticed in detail the securities, which have been provided for in the Loan Agreements between the CD and IL&FS. For the purpose of consideration as to whether the CIRP, which has been initiated by the impugned order dated 25.02.2025 should be confined to the assets which are included in the securities provided by the CD or it should engulf all Projects of the CD, the same shall be considered hereinafter. We are conscious that CIRP proceedings are not proceedings of repayment of dues or recovery of dues by the Financial Institutions and the object is to revive and rehabilitate the CD. When CIRP has commenced against a real estate project, the resolution, rehabilitation and revival of the project become necessary to safeguard interest of stakeholders, specially the allottees, who have been allotted residential/ commercial plots by the CD. In the present case, the CD, who has been developing different projects at the City of Lucknow and other cities, has allotted units to different Homebuyers and allottees of residential and commercial assets. For resolution of a real estate project, the interest of the Homebuyers has to be taken care and the Courts have always taken steps to protect the interests of Homebuyers. We in this context refer to a recent judgment of the Hon’ble Supreme Court in Mansi Brar Fernandes vs. Shubha Sharma and Anr. [2025 (9) TMI 879 - SUPREME COURT] and other Appeals in [2025 (9) TMI 879 - SUPREME COURT] The Hon’ble Supreme Court in the above case was also considering an Appeal arising out of CIRP of a real estate project. The Hon’ble Supreme Court has reiterated certain principles, which notices that IBC is a Forum of last resort, intended to secure revival and completion of viable projects, not to serve as a debt recovery mechanism. We are of the view that when securities, which were given by the CD for repayment of the term loan given by the IL&FS are confined to only few projects, the CIRP initiated by the impugned order, cannot engulf all the projects of the CD, which are in no manner affected by financial facilities extended by the IL&FS to the CD. The purpose of the Loan Facility of Rs. 50 crores and Rs. 100 crores extended by the IL&FS was for utilizing the funds for any of the specified purpose [(a) to (d)] as noted in the Sanction Letter. The securities given by the CD in two loans, are securities of the projects of the CD at Mother City and Mother City Extension at Lucknow and the three assets situated at Ajmer, Jodhpur and Jaipur in the State of Rajasthan, as noted in the Sanction Letter dated 16.02.2016 and the securities, thus were confined to only few of the projects of the CD and not all the projects of the CD as noted above. The CIRP initiated and the moratorium imposed vide order dated 25.02.2025 is to extend to only the projects of the CD, which are referred to and relied in the Loan Agreements in both the Loan Facilities, as noted above and the moratorium cannot extend to other projects of the CD situated in different cities of the State of UP (except Mother City Lucknow Projects) and other States, i.e. States of Haryana and Punjab (except assets mentioned in City of Ajmer, Jaipur and Jodhpur in the State of Rajasthan). The Adjudicating Authority ought to have adverted to the fact that CD is running several real estate projects in different Cities of the U.P. and other States of the country. Before the Adjudicating Authority, the above facts were brought and clearly mentioned in the reply filed by the CD in Section 7 application. CIRP needs to be confined at Lucknow project Mother City Lucknow and Mother City Extension Lucknow, including Sushant Golf City Project as well as three Projects of the CD situated in the State of Rajasthan – Ajmer, Jodhpur and Jaipur as referred to in the Sanction Letter dated 16.02.2016. The Adjudicating Authority needs to consider mode and manner of resolution of the above projects of the CD. At the first instance, the resolution of the projects situated at Lucknow need to be undertaken. The CD has 93 projects at Lucknow, which are registered with UP RERA. The project wise resolution of the CD needs to be proceeded with as required by law. The Adjudicating Authority may also issue necessary direction regarding mode and manner of resolution of above Projects. The projects at Lucknow City being projects under Hi-Tech Township, the Adjudicating Authority has also to advert to all relevant facts to take a decision as to whether under the Agreement between the CD and the Lucknow Development Authority, the projects need to be completed by the Lucknow Development Authority. We dispose of both the Appeal(s). Issues: (i) Whether sufficient material was placed to prove default under the Loan Agreements dated 18.03.2016 and 25.11.2016 such that CIRP could be initiated under Section 7; (ii) What were the purpose and extent of the two loan facilities and whether the securities attached thereto extended to all projects of the corporate debtor or only certain projects; (iii) Whether the moratorium and CIRP admitted by the Adjudicating Authority should extend to all projects of the corporate debtor or be confined to projects covered by securities given to the lender; (iv) Whether the Adjudicating Authority ought to have considered project-wise resolution/reverse CIRP to protect stakeholders; (v) Whether CIRP should, in the facts of the case, be confined initially to the Lucknow (Mother City and Mother City Extension) projects or other specific projects; (vi) Whether the facts warranted directions for project-wise resolution/reverse CIRP in the interest of stakeholders; (vii) What further directions, if any, are required for conducting the CIRP.Issue (i): Whether sufficient material was brought to prove default under the Loan Agreements dated 18.03.2016 and 25.11.2016 and thereby justify admission of a Section 7 application.Analysis: The loan sanction letters, loan agreements, supplemental agreement, settlement agreement, details in Part-IV and Part-V of the Section 7 application and the corporate debtor's reply (which did not deny existence of debt but disputed quantum) form the documentary basis. Precedent authorities construe the Adjudicating Authority's remit under Section 7 as limited to satisfaction that a default has occurred, with disputes on quantum ordinarily for post-admission processes. The admitted payment history, termination of settlement by the creditor and particulars of amounts claimed were evaluated against that standard.Conclusion: In affirmative. Sufficient material was brought to show default under the two Loan Agreements and grounds existed to admit the Section 7 application; admission is sustained in favour of the Financial Creditor.Issue (ii): What were the purpose and extent of the two loans and whether securities extended to all projects of the corporate debtor.Analysis: The sanction letters and loan agreements specify permitted uses (project development across various projects, working capital, advances to subsidiaries and general corporate purposes) and enumerate identified securities and hypothecated receivables. Clause 21 and annexures delineate first-exclusive mortgages and hypothecations primarily over assets and receivables relating to Mother City (Lucknow), Mother City Extension (Lucknow) and specified built-up properties in Ajmer, Jodhpur and Jaipur; other projects were not included in those specific security schedules.Conclusion: The loans were for the stated corporate and project purposes, and the securities documented in the loan instruments were confined to specified Lucknow projects and certain Rajasthan built-up properties, not to all projects of the corporate debtor; this conclusion is adverse to the appellants (in favour of the Financial Creditor on the point of documented securities scope).Issue (iii): Whether moratorium and CIRP should extend to all projects or be confined to projects covered by the securities.Analysis: Regulatory amendments and judicialprecedents support project-wise resolution in real estate matters as the default rule, subject to circumstances justifying otherwise. The loan documents’ specified securities define the lender's secured scope; extension of moratorium beyond assets identified as security would affect unrelated stakeholders and projects. Prior tribunal decisions confined CIRP when the initiating creditors’ claims pertained to specific projects.Conclusion: The moratorium and CIRP admitted are to extend only to those projects and assets specifically referred to in the Loan Agreements and security documents (Lucknow Mother City and Mother City Extension, Lucknow Golf Plots and identified Rajasthan built-up properties); not to other unrelated projects of the corporate debtor. This conclusion disfavors the appellants’ claim for a company-wide moratorium.Issue (iv): Whether the Adjudicating Authority ought to have considered project-wise resolution/reverse CIRP to protect stakeholder interests.Analysis: The Adjudicating Authority's role at admission is limited to determining existence of default; nonetheless, where materials before it disclose multiple projects and significant stakeholder impact, directions clarifying extent and manner of CIRP are appropriate. Statutory amendments and jurisprudence indicate project-wise resolution/reverse CIRP is the norm for real estate insolvencies to protect allottees and preserve value.Conclusion: Yes. The Adjudicating Authority ought to have adverted to project multiplicity and provided directions on project-wise resolution; the appellate order requires the Adjudicating Authority to consider mode and manner of project-wise resolution.Issue (v): Whether CIRP should be confined at first instance to the Lucknow projects including Sushant Golf City.Analysis: The loan instruments identify Mother City and Mother City Extension (Lucknow), related receivables and specified built-up properties in Rajasthan as securities. Precedent supports confining CIRP to projects covered by initiating creditor’s claim or securities. Consideration of MoUs and development agreements relevant to Lucknow projects and statutory rights of development authorities further bear on appropriate initial focus.Conclusion: CIRP is to be confined, at first instance, to the corporate debtor’s projects at Lucknow (Mother City, Mother City Extension, Sushant Golf City and related Lucknow assets) and to the specified built-up properties in Ajmer, Jodhpur and Jaipur; this conclusion limits the CIRP scope in favour of intervenors seeking project confinement.Issue (vi): Whether facts warrant directions for project-wise resolution/reverse CIRP in the interest of stakeholders.Analysis: The corporate debtor operates multiple, geographically distinct projects with large numbers of allottees; statutory/regulatory scheme and judicial guidance favour project-wise mechanisms, involvement of competent authorities (RERA), and procedures for handing over possession and facilitating registration where appropriate. Security documentation and settlement schedules demonstrate specific assets to be subject to resolution.Conclusion: In affirmative. Project-wise resolution and appropriate directions (including inviting competent authorities, considering MoU/development-agreement remedies and framing the mode of project-wise resolution) are warranted to protect stakeholders.Issue (vii): What further directions are required for conducting CIRP.Analysis: Practical measures identified by the tribunal include (inter alia) treating the commencement date as 25.02.2025 for the CIRP, confining scope to identified projects/assets, permitting relevant development authorities and statutory bodies to participate and file claims or seek exclusion of specific assets, and directing the Adjudicating Authority to consider the mode and manner of project-wise resolution, including whether public authority completion rights under MoUs/Development Agreements should be invoked.Conclusion: Directions given include (a) upholding admission subject to confinement of CIRP to specified projects/assets, (b) directing the Adjudicating Authority to frame and oversee project-wise resolution measures (including inviting development authorities/RERA participation), (c) permitting statutory authorities to seek exclusion of assets and to file claims, and (d) treating 25.02.2025 as the CIRP commencement date. These directions implement project-wise resolution safeguards in favour of stakeholders while preserving the admitted CIRP.Final Conclusion: The admission of the Section 7 petition is sustained while the CIRP’s scope is limited to the projects and assets expressly covered by the loan securities and identified in the loan instruments; the Adjudicating Authority is directed to proceed with project-wise resolution and to consider appropriate measures to protect stakeholders and to address rights arising under development agreements and statutory schemes.Ratio Decidendi: Where a Section 7 petition is supported by documentary proof of debt and default, admission is proper, but in insolvencies of multi-project real estate companies the CIRP and moratorium should, as a rule, be confined to projects and assets expressly covered by the initiating creditor’s security interest or the projects to which the creditor’s claim relates, and the adjudicating authority must frame project-wise resolution measures to protect other stakeholders.