In a first, the National Company Law Appellate Tribunal (NCLAT) has passed an order for reverse insolvency process that could set a template for stressed real estate projects.
The process will give a chance to the promoter to complete the project within a specified time frame. The resolution plan would then achieve the same objective of the insolvency process but not involve any third party approval or a resolution applicant to submit a bid.
The NCLAT has also said that if insolvency is initiated against a project, it will not extend to the entire company or any of its other projects.
The NCLAT order has come in the matter of a real estate company — Flatbuyers Association of Winter Hills-77, Gurugram, a project of Umang Realtech — to discourage the use of insolvency and bankruptcy code (IBC) as a recovery tool.
“As we find it is very difficult to follow the process as in normal course is followed in a corporate insolvency resolution process (CIRP), we are of the view that a reverse CIRP can be followed in cases of real estate infrastructure companies in the interest of allottees and survival of real estate companies and to ensure completion of projects,” the NCLAT order said.
The two-judge Bench of the NCLAT has directed the interim resolution professional to expend the amount received by one of the promoters for completion of the project in a time-bound manner.
“The ruling will give impetus to the real estate sector. More than 70 per cent cases in the National Company Law Tribunal are of allottees asking for a refund. The IBC is not a recovery model. First right of the buyer is to achieve completion of the project and the NCLAT has enabled this,” said Manoj Kumar Singh, founding partner, Singh & Associates.
The appellate tribunal has directed the interim resolution professional to ensure the amount deposited by the allottees is utilised exclusively for the purpose of providing amenities, facilities, and completion of work in the respective projects. The NCLAT also noted that some of the allottees were adopting arm-twisting tactics for recovery of the amount as they were not willing to take possession of their flats/apartments.
While not allowing refund to the homebuyer, the NCLAT has said that an allottee has the option to request the interim resolution professional or the promoter — whoever is in charge — to find a third-party to purchase the said flat and get the money back.