Supreme Court allows joint insolvency plea against linked realty companies
The Supreme Court has allowed a single insolvency plea against multiple real estate firms where entities are closely linked in a project's execution and operations
 "Supreme Court allows joint insolvency plea against linked realty companies")
The Supreme Court on Monday ruled that a single insolvency application under Section 7 of the Insolvency and Bankruptcy Code (IBC) can be maintained against more than one corporate entity in a real estate project, where the entities are closely linked in the project’s execution and marketing.
A Bench of Justices Sanjay Kumar and K Vinod Chandran upheld an order of the National Company Law Appellate Tribunal (NCLAT) permitting a joint corporate insolvency resolution process (CIRP), or insolvency process, against two companies associated with the same project.
The proceedings stemmed from complaints by allottees of Grand Venezia Commercial Towers Private Limited and Bhasin Infotech and Infrastructure Private Limited, who were not handed possession of their commercial units despite significant delays. The National Company Law Tribunal (NCLT) admitted the insolvency plea filed by the homebuyers, a decision that was subsequently affirmed by the NCLAT.
Challenging this, the developers and their directors moved the Supreme Court, arguing that the IBC does not permit the initiation of a joint CIRP against multiple corporate entities through a single petition. Dismissing the appeals, the court held that the objection was unsustainable in the facts of the case.
Writing for the Bench, Justice Sanjay Kumar noted that the developer and the marketing entity were operationally and functionally intertwined, with common directors, overlapping roles, and interchangeable dealings with allottees. The court recorded that communications, demand notices, possession letters, and even payment receipts were issued by the two companies interchangeably, underscoring their intrinsic connection in relation to the project.
“The NCLT and the NCLAT were, therefore, justified in concluding that the corporate debtors were intrinsically linked and that it would be in their interest to have a joint insolvency process to maximise asset realisation,” the judgment said.
The court observed that while the project was originally undertaken by the developer, marketing rights were later granted to the other company, and the manner in which both entities functioned demonstrated a unified commercial operation. These circumstances, it held, justified treating them together for insolvency proceedings.
Endorsing earlier NCLAT rulings, the Supreme Court reiterated that where corporate entities collaborate in developing a project and their business operations are inseparable, the group of companies principle can be invoked to allow a joint insolvency process.
In such cases, an application under Section 7 of the IBC would be maintainable against the entities jointly, rather than requiring separate proceedings.