AI Drafter 
TaxTMI 
TaxTMI 
2026 (4) TMI 15
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....Krishnendu Datta, Sr. Adv. along with Mr. Gaurav Mitra, Ms. Aakashi Lodha, Mr. Sanjeevi Seshadi, Ms. Aishwarya Modi Seth & Ms. Nishtha Jindal. For the Respondents Mr. Kunal Tandon, Sr. Adv. along with Mr. Amit Singh, Mr. Gauram Singhal, Mr. Rajat Chaudhary, Ms. Anjali Maurya, Ms. Suraksha Mandhya & Mr. Adarsh Nair, for R-1 to 40. Mr. Neeraj Malhotra, Sr. Adv. along with Mr. Abhishek Anand, Mr. Karan Kohli, Ms. Palak Kalra, Mr. Rajat Gupta, Mr. Abhyuday D & Mr. Shailendra Singh, for RP. JUDGEMENT NARESH SALECHA, MEMBER (TECHNICAL) 1. The present appeal has been filed by the Appellant i.e., SGN Universal Construction Company Private Limited under Section 61 of the Insolvency and Bankruptcy Code, 2016 ('Code') against the Impugned Order dated 19.11.2024 passed by the National Company Law Tribunal, New Delhi, Court -IV ('Adjudicating Authority') in CP No. (IB) - 62(ND) / 2024. Shailendra Kumar Singh and others, who are homebuyers, are Respondent No.1 to 40 herein. M/s Morpheus Prodevelopers Pvt Ltd, who is the Corporate Debtor through Interim Resolution Professional, Mr. Shailendra Singh, is the Respondent No.41 herein. 2. The Appellant submitted that the projec....
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....hts. The Appellant further submitted that, to counter such misrepresentations, it was constrained to issue a public notice in September 2022 asserting its extensive rights in Tower 5, yet the Corporate Debtor continued to mislead homebuyers regarding Tower 5. 5. The Appellant stated that it was compelled to institute a petition under Section 9 of the Arbitration and Conciliation Act, 1996, being OMP (I) COMM No. 311 of 2022 before the Hon'ble Delhi High Court, wherein, by order dated 04.11.2022, the Corporate Debtor was restrained from creating any third-party rights in units in Tower 5 of "Morpheus Bluebell"; such restraint was reiterated and clarified by a further order dated 16.01.2023, which categorically prohibited the Corporate Debtor from creating or giving effect to any third-party rights in respect of Tower 5. The Appellant contended that these interim orders and details of the proceedings were widely circulated in the WhatsApp group of homebuyers, and were acknowledged by the association of allottees in its representation to RERA authorities dated 19.12.2022, thereby demonstrating that the homebuyers were fully aware of the protective orders in favour of the Appellant ....
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....024 the said I.A. was merely adjourned to 27.05.2024 and the homebuyers were directed to file written submissions in the Section 7 application, and that on 27.05.2024 the Adjudicating Authority reserved orders both in the Section 7 application and on the maintainability of the Appellant's I.A. No. 2197 without issuing notice to any party on the merits of the Appellant's rights and without requiring pleadings on those merits; the Appellant thereafter filed a written note of submissions dated 27.05.2024 confined to its limited prayer. 9. The Appellant submitted that in the meantime the Sole Arbitrator's order dated 08.06.2024 under Section 17 of the Arbitration Act further fortified the Appellant's extensive, irrevocable and absolute rights in Tower 5, and a copy of this order was duly handed over to the Adjudicating Authority during the hearing on 07.10.2024; nevertheless, the Impugned Order has not even referred to or considered this crucial order. The Appellant contended that, despite the limited scope of its I.A. and despite no notice, pleadings or arguments on the merits of its rights, the Adjudicating Authority, by the Impugned Order dated 19.11.2024, has (i) included units ....
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....that any scrutiny under Sections 43, 49 or 66 of the Code could arise, it can only be undertaken, post-commencement of CIRP, at the instance of the Resolution Professional through appropriate applications, and cannot be initiated against a third party like the Appellant in the course of a Section 7 admission order, much less on ex parte assumptions without pleadings or evidence. 13. The Appellant submitted that the Adjudicating Authority has failed to appreciate that the homebuyers themselves were aware of and had acknowledged the High Court's interim order dated 04.11.2022, yet it appears that those orders and the subsequent arbitral order dated 08.06.2024 were not candidly disclosed to the Adjudicating Authority, thereby enabling the Corporate Debtor and others, in collusion and by misleading the homebuyers of Towers 3 and 4, to continue attempts to defeat the Appellant's vested rights in Tower 5. The Appellant contended that the Adjudicating Authority has, as a result, proceeded on unfounded assumptions and presumptions, incorrectly treating the total number of units as 356 by including Tower 5, and then using that figure to test the minimum numerical threshold under the firs....
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....or to hand over possession of the flats to the homebuyers, Respondents No. 1 to 40 initiated proceedings under Section 7 of the Code seeking initiation of CIRP against the Corporate Debtor for the entire project consisting of Towers 3, 4 and 5. The Respondents stated that during the pendency of these proceedings, the Appellant filed I.A. No. 2197 (ND)/2024 merely for the limited purpose of placing certain interim orders passed by the Hon'ble Delhi High Court in arbitration proceedings on record. 19. The Respondents contended that the Adjudicating Authority, considered the said interlocutory application strictly within the limited scope of the prayer made therein and while deciding the Section 7 application examined only the statutory parameters of existence of debt, occurrence of default and satisfaction of the statutory threshold. The Respondents further submitted that the Adjudicating Authority also reaffirmed the overriding effect of Section 238 of the Code over other laws, including arbitration proceedings. 20. The Respondents stated that in view of the moratorium imposed under Section 14 of the Code, no parallel proceedings including arbitration can continue against the ....
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....the mandatory authorization required under the earlier agreement dated 20.09.2014. The Respondents submitted that no tripartite or quadripartite agreement was executed as required under clauses 6.5, 6.6, 11.6 and 11.7 of the earlier agreement, and therefore the Development Rights Agreement lacks legal validity. The Respondents also stated that the said agreement was subsequently terminated by the Corporate Debtor through notice dated 20.06.2022. 25. It was pleaded by the Respondents that the Appellant cannot assert any independent or parallel rights over Tower No. 5 outside the CIRP framework and only remedy for the Appellant is to file its claim before the Resolution Professional. 26. The Respondents submitted that there is no arbitral award or final judicial order granting any rights in favour of the Appellant over Tower No. 5. The Respondents contended that the Appellant has sought to rely upon interim proceedings to claim exclusive rights over Tower No. 5 and thereby obstruct the CIRP process, which is wholly untenable and malafide. The Respondents further stated that all homebuyers including those belonging to Tower No. 5 have already filed their claims before the Resolu....
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.... the Corporate Insolvency Resolution Process. The Respondent No. 41 contended that Section 238 of the Code, which provides that the provisions of the Code shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force, unequivocally overrides the Arbitration and Conciliation Act, 1996. The Respondent No. 41 submitted that the interim stay granted by the Delhi High Court is specific to the parties and does not operate in rem, thereby having no bearing on the ongoing CIRP proceedings initiated under the Code. 31. The Respondent No. 41 contended that the Impugned Order is free from any infirmity, as the Adjudicating Authority has balanced the statutory mandate under Section 7 with the overriding effect of Section 238, ensuring that the rights of the 356 allottees represented by the 40 homebuyers are protected without any interference from parallel proceedings. The Respondent No. 41 submitted that the decision aligns squarely with established judicial precedents affirming the supremacy of the Code over other dispute resolution mechanisms, rendering the Appellant's challenge wholly without merit. 32. The Respondent No. 41 submitte....
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....t" within the meaning of Sections 18(f) and 25(2)(a) of the Code. 36. The Respondent No. 41 submitted that the Resolution Professional, is statutorily mandated under Section 18(f) of the Code to take control and custody of all assets of the Corporate Debtor, including ownership rights recorded in the balance sheet, assets located in foreign countries, intangible assets, and crucially, assets subject to determination of ownership by a court or authority under Section 18(f)(vi) of the Code. The Respondent No. 41 contended that Tower-5, being subject to pending arbitration proceedings before the Sole Arbitrator, falls squarely within this category, thereby entitling the Resolution Professional to take possession and preserve the asset during the CIRP. 37. The Respondent No. 41 submitted that, following the valid termination of the Agreement vide letter dated 20.06.2022, the development rights over Tower- 5 have reverted exclusively to the Corporate Debtor. The Respondent No. 41 contended that any failure to secure these rights would result in diminution of value and confer undue benefit upon parties not entitled thereto, at the expense of the creditors of the Corporate Debtor, t....
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....last P. Ltd. v. State of Maharashtra (2009) 10 SCC 388, emphasising that interim orders cannot become a fait accompli before final hearing. 41. The Respondent No. 41 contended that additional authorities, including Kaka Ram v. Mangat Ram (CM(M) No. 20/2024), State of U.P. v. Ram Sukhi Devi (AIR 2005 SC 284) and Cotton Corporation of India v. United Industrial Bank (1983 AIR 1272), uniformly establish that interim relief is ancillary, prohibitory or preventive in nature and cannot mirror or pre-empt the final relief. The Respondent No. 41 submitted that the Appellant's attempt to elevate the interim order to confer absolute development rights over Tower-5 is legally misconceived and must be rejected outright. 42. The Respondent No. 41 submitted that upon commencement of CIRP, Section 14(1)(a) of the Code imposes a comprehensive moratorium prohibiting institution, continuation or execution of any suits, proceedings or arbitration against the Corporate Debtor. The Respondent No. 41 contended that the expression "proceedings" has been expansively interpreted by the Hon'ble Supreme Court in P. Mohanraj v. M/s. Shah Brothers Ispat Pvt. Ltd. (AIR 2021 SC 1308) to include arbitral pr....
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....istent conduct demonstrates clear collusion and conflict of interest, warranting outright dismissal of the appeal at the threshold. 47. The Respondent No. 41 specifically denied the Appellant's unsubstantiated claim of having expended over Rs. 20 Crore for acquisition of alleged irrevocable development rights in Tower-5 and construction of 17 floors thereof, for want of any proof. The Respondent No. 41 contended that the Adjudicating Authority correctly included units in Tower-5 as part of the Corporate Debtor's assets while satisfying the Section 7 threshold. The Respondent No. 41 submitted that the Appellant's reliance on interim orders is misplaced, that Tower-5 forms integral assets of the Corporate Debtor, and that the Impugned Order dated 19.11.2024 is sustainable in law and free from any error warranting interference. 48. The Respondent No.41 submitted that the Appellant has deliberately suppressed material facts relating to pre-CIRP termination of the Agreement, namely: (i) termination letter dated 20.06.2022; and (ii) its reply dated 27.06.2022. The Corporate Debtor validly terminated the Agreement and revoked the GPA in terms of Clauses 1 and 6 of the Addendum read ....
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..... No.2197 of 2024, in accordance with Code. 53. We take into consideration that during section 7 proceeding against the Corporate Debtor, the Appellant filed LA. No. 2197 (ND)/2024 to place certain interim orders of the Hon'ble Delhi High Court on record, without seeking exclusion of Tower No. 5 or adjudication of title. The Adjudicating Authority considered the I.A. No. 2197 of 2024 w.r.t. this specific prayer and, while deciding Section 7, examined the statutory parameters of debt, default, and threshold. The Adjudicating Authority decided that due to the overriding effect of Section 238 of the Code over all other laws, including Arbitration, held that the interim orders with respect to Arbitration, not being in rem, could not impact the CIRP. 54. It has been argued that the development rights over Tower No. 5 constitute "property" and hence "assets" of the Corporate Debtor under Sections 3(27), 18(f), and 25(2)(a) of the Code. At this stage we take into consideration the relevant section of the Code which reads as under: "Section 3: Definitions (27) "property" includes money, goods, actionable claims, land and every description of property situated in ....
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....repetition, it must be recapitulated that the definition of the expression "property" under Section 3(27) includes "every description of interest, including present or future or vested or contingent interest arising out of or incidental to property". Since the expression "asset" in common parlance denotes "property of any kind", the bundle of rights that the Corporate Debtor has over the property in question would constitute "asset" within the meaning of Section 18(f) and Section 25(2)(a) of IBC. " (Emphasis supplied) The above ratio, laid down by the Supreme Court, is self-explanatory. 56. In the contextual background, it is sufficed to note that the impugned Order was passed initiating CIRP against the Corporate Debtor with Separate order disposed of I.A. 2197/2024. We note that the Appellant filed two Appeals before us. It is Company Appeal (AT) (INS) No. 2207 of 2024 against Impugned Order dated 19.11.2024 which allowed admitting Section 7 Application and in Company Appeal (AT) (INS) No. 2208 of 2024 against the Impugned Order dated 19.11.2024 under which the Adjudicating Authority disposed of I.A. No. 2197 of 2024 filed by the Appellant. 57. Tower No. 5 was an inte....
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....seeking limited prayer to place certain facts on record and the Adjudicating Authority reserved orders after hearing Section 7 Petition and I.A. 2197/2024. 60. We also take note of the fact that h the sole Arbitrator passed interim order on 08.06.2024, restraining the Corporate Debtor from creating third-party rights in Tower 5, however the Sole Arbitrator on 06.05.2025 held that arbitral proceedings cannot continue due to Section 14 moratorium against the Corporate Debtor in view of the CIRP. We also note that the sole Arbitrator finally terminated arbitration proceedings under Section 32(2) of the Arbitration & Conciliation Act, 1996. It is brought to our notice that the Appellant has since then, filed application seeking re-call of order dated 24.11.2025 before Sole Arbitrator, which is pending for disposal. 61. We observe that Section 14 of the Code imposes a mandatory moratorium prohibiting continuation of suits, proceedings, or arbitration against the Corporate Debtor during CIRP. The Sole Arbitrator has also terminated Arbitration proceedings in view of section 14 of the Code. We are of view that Section 238 of the Code gives overriding effect over inconsistent laws, i....
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.... 6.1 of the Impugned Order dated 19.11.2024 in CP No. IB 62(ND)/2024 The present Petition has been filed by 40 homebuyers, who are the allottees of residential dwelling units in Towers-3 and Tower-4 of the real estate project developed by the Corporate Debtor. These homebuyers collectively represent a total of 356 flats. In considering the maintainability of the Petition, it is necessary to refer to the threshold requirement applicable to financial creditors who are allottees under a real estate project, as stipulated in the second proviso to Section 7 of the Code. (Emphasis supplied) We note that the Adjudicating Authority has simply recorded the facts of the case and statutory threshold for filing a Section 7 Application. Moreover, once the Appellant is not challenging admission of CIRP against the Corporate Debtor, Para 6.1 is not consequential for the Appellant. We find the Adjudicating Authority has done due diligence and has taken care to find out about the threshold being maintained by the Homebuyers who initiated Section 7 before the Adjudicating Authority. We do not find anything wrong in this Para 6.1 of the Impugned Order. B) Para 6.3 of the....
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....than ten per cent. of the total number of such allottees under the same real estate project, whichever is less: Provided also that where an application for initiating the corporate insolvency resolution process against a corporate debtor has been filed by a financial creditor referred to in the first and second provisos and has not been admitted by the Adjudicating Authority before the commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, such application shall be modified to comply with the requirements of the first or second proviso within thirty days of the commencement of the said Act, failing which the application shall be deemed to be withdrawn before its admission.] [Inserted by Act No. 1 of 2020, dated 13.3.2020.] Explanation. - For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor." (Emphasis supplied) Above provision of the Code makes it very clear that the Adjudicating Authority was duty bound to examine the threshold. This can be found with by taking both denominator and numerator into c....
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....ments of the Appellant on this issue. D) Para 6.8 of the Impugned Order dated 19.11.2024 in CP No. IB 62(ND)/2024 "As a matter of general prudence, if the possession of the flats was to be handed over in June 2017, when the Corporate Debtor signed the first Development Rights Agreement on 22.02.2017, substantial progress on construction should have been made by that time, had everything proceeded as planned. However, it appears that no substantial work had been completed as of 22.02.2017, and consequently, possession could not have been transferred in June 2017. In light of this, it seems that the Corporate Debtor, unable to fulfill its commitment to deliver possession, sought to mitigate its liabilities by transferring the development rights of Tower-5. This transfer could be viewed as an attempt to salvage at least a portion of the project by retroactively adjusting its contractual obligations, thereby raising further questions about the timing and motivations behind such actions." (Emphasis supplied) This paragraph is in continuation of para 6.7 discussed above which deal with I.A. 2197/2024 filed by the Appellant itself. The paragraph 6.8 is also i....
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....same as they were sought by the Appellant itself to be noted by the Adjudicating Authority and the Impugned Order recorded same in Para 6.9 of the Impugned Order. We do not find merit in the contentions of the Appellant on this Para 6.9 and reject the same. F) Para 6.10 and 6.11 of the Impugned Order dated 19.11.2024 in CP No. IB 62(ND)/2024 "We further take note of Section 238 of the Insolvency and Bankruptcy Code, 2016, which unequivocally provides that the provisions of the IBC shall override any other conflicting law. This provision reads: "Section 238 - Provisions of this Code to override other laws: The provisions of this Code shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force." This provision is a clear and unambiguous declaration that, in the event of any inconsistency or conflict between the provisions of the IBC and any other law, the provisions of the IBC shall take precedence. This overriding effect includes conflicts with other statutes, such as the Companies Act, 2013, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act), and the ....
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....event the continuation of the insolvency proceedings. It is pertinent to observe that arbitration proceedings cannot act as a hindrance to the IBC process. The IBC is a self-contained code with its own mechanisms, and Section 238 of the Code explicitly ensures that the provisions of the IBC override any other law, including the Arbitration and Conciliation Act, 1996. Once insolvency proceedings are initiated under the IBC, they take precedence over all other legal proceedings, including any parallel arbitration proceedings. H) Para 6.13 of the Impugned Order dated 19.11.2024 in CP No. IB 62(ND)/2024 "This principle has been consistently reaffirmed by the Hon'ble Supreme Court in various judgments, which uphold the supremacy of the IBC over other dispute resolution mechanisms, such as arbitration. Relevant rulings in this regard include: a) K. Kishan v. Vijay Nirman Company Pvt. Ltd. (2020) 16 SCC 308: The Hon'ble Supreme Court held that even if a matter is pending arbitration, the corporate insolvency resolution process (CIRP) can be initiated and continued under the IBC. Arbitration cannot hinder or stay the process of insolvency resolution. The....