NCLAT Imposes Limits on Insolvency Cases Against Real Estate Firms

The National Company Law Appellate Tribunal (NCLAT) has delivered a significant ruling, stating that insolvency proceedings initiated by homebuyers against real estate companies must be confined strictly to the specific project where the default has occurred and should not be extended to other projects of the corporate debtor. The tribunal emphasized that including unrelated projects in such proceedings would not be beneficial to homebuyers or stakeholders of those projects. It clarified that when financial creditors or homebuyers of a particular project file an application under Section 7, the Corporate Insolvency Resolution Process (CIRP) must remain limited to that specific project, as clearly outlined in the law.

Hearing an appeal filed by Naveen M. Raheja, the NCLAT bench observed that extending insolvency proceedings to unrelated projects would adversely affect the interests of homebuyers and stakeholders in other regions. The tribunal applied its earlier ruling related to the ‘Raheja Shilas’ project to the present case. Accordingly, it limited the ongoing CIRP against Raheja Developers not to the entire group, but specifically to the ‘Krishna Housing Scheme’ project. The tribunal further directed that claims filed by creditors and stakeholders in project-wise insolvency proceedings must also be restricted to the respective project alone.