NCLAT Restores CIRP Of Hector Realty; Holds Resolution Professional’s Failure To Individually Inform Homebuyers Vitiates Proceedings
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench at New Delhi comprising Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member), and Mr. Indevar Pandey (Technical Member) has held that the failure of the Resolution Professional (RP) to individually inform homebuyers about insolvency proceedings, as mandated under Regulation 6A of the CIRP Regulations, 2016, vitiates the entire Corporate Insolvency Resolution Process (CIRP). The tribunal emphasized that such failure goes against the spirit of the Insolvency and Bankruptcy Code, 2016 (IBC), particularly during the Covid-19 pandemic when public announcements were not reasonably effective in reaching dispersed homebuyers.
Background
The case concerned Hector Realty Venture Pvt. Ltd., the developer of the Marvella City project in Haridwar. Several homebuyers, including the appellants, had invested substantial sums of money in the project as early as 2015 but the construction was never initiated. Following defaults, a group of homebuyers led by Anand Prakash Soni filed an application under Section 7 of the IBC before the NCLT, New Delhi, leading to initiation of CIRP against the corporate debtor on 09.12.2019.
Mr. Piyush Garg was appointed as the Interim Resolution Professional (IRP), who issued a public announcement on 09.01.2020 inviting claims from creditors. However, the appellants, who were allottees in the project, did not file their claims, contending that they had no knowledge of the proceedings and that public notices during the pandemic were insufficient to reach them.
Despite CIRP being in progress, the corporate debtor sold project land to Divya Yog Trust in violation of the moratorium. Later, in 2022, the IRP and corporate debtor sought withdrawal of the CIRP under Section 12A of the Code, claiming that no Committee of Creditors (CoC) had been formed and that all financial creditors had settled their dues. On 07.09.2022, the NCLT allowed withdrawal of CIRP.
The appellants, representing themselves and other homebuyers, challenged this order alleging fraud, suppression of facts, and exclusion of genuine creditors. Their recall applications before the NCLT were dismissed in May 2024, leading to the present appeal before NCLAT under Section 61 of the IBC.
Submissions
The appellants argued that the withdrawal order was obtained by misrepresentation, since minutes of a CoC meeting dated 07.09.2020 clearly showed that a CoC had been constituted. Despite this, the IRP claimed otherwise in his withdrawal application. They further submitted that homebuyers’ details were available in the corporate debtor’s records, yet no attempt was made to inform them individually. This resulted in selective settlement with only a few creditors, leaving out the larger group of allottees.
The appellants relied on the judgments in Amit Goyal v. Piyush Shelters India Pvt. Ltd., Puneet Kaur v. KV Developers Pvt. Ltd., and Rajputana Properties v. Ultratech Cement Ltd., wherein it was held that homebuyers, being financial creditors in a class, cannot be excluded merely due to lapses in public notice. They also relied on the five-member bench ruling in Union Bank of India v. Dinkar T. Venkatasubramanian, where it was held that NCLT and NCLAT have inherent power to recall orders obtained by fraud.
On the other hand, the respondent contended that none of the appellants had filed claims during CIRP and hence lacked locus standi. It was further submitted that the original financial creditors had settled their disputes and that NCLT rightly permitted withdrawal under Section 12A, relying on Vallal RCK v. Siva Industries and Holdings Ltd.
Findings of the Tribunal
The NCLAT observed that the initiation of CIRP and the period for filing claims coincided with the onset of the Covid-19 pandemic, when reliance solely on newspaper notices was unreasonable. The tribunal stressed that the RP had a statutory duty under Regulations 6 and 6A of the CIRP Regulations to individually inform creditors, especially homebuyers, whose details were available in the debtor’s records. It noted that only a handful of homebuyers who filed claims were included in the CoC, while many others, including the appellants, were excluded despite being financial creditors in the same class. The tribunal held: “This led to a situation where the ex-management of the Corporate Debtor settled dues only with those few homebuyers whose claims were filed—while leaving out others from the same class of creditors. Such selective treatment of creditors within the same class is against the basic principles of the IBC and cannot be accepted.”
The tribunal further found that the IRP had falsely stated before the NCLT that no CoC had been formed, even though minutes of the second CoC meeting dated 07.09.2020 were on record. This misrepresentation enabled withdrawal of CIRP without following the mandatory requirement of 90% CoC approval under Section 12A of the IBC. The NCLAT reiterated that Section 12A is a substantive protection against unilateral withdrawal once CIRP has commenced, and any deviation from this scheme is fraudulent.
Referring to the Supreme Court’s judgments in Swiss Ribbons Pvt. Ltd. v. Union of India and GLAS Trust Company LLC v. Byju Raveendran & Ors., the tribunal held that once CIRP is admitted, it becomes a collective proceeding and withdrawal without CoC approval cannot be permitted. The NCLAT concluded that the withdrawal order dated 07.09.2022 was vitiated by fraud and suppression of material facts. The NCLT’s refusal to recall the order despite cogent documentary evidence was held to be erroneous and a serious error of law.
Holding that fraud vitiates even the most solemn judicial proceedings, the NCLAT allowed the appeal, set aside the NCLT’s order dated 14.05.2024, and restored the CIRP of Hector Realty Venture Pvt. Ltd. The tribunal directed that the matter be placed before the NCLT for continuation of insolvency proceedings, thereby protecting the rights of the excluded homebuyers.
Appearance
For Appellants: Mr. Bilal Ali, Advocate.
For Respondents: Ms. Nisha G., Advocate.
Cause Title: Bharti Goyal and Anr. V. Hector Realty Venture Pvt. Ltd. and Ors.
Case No: Company Appeal (AT) (Ins.) No. 1545 of 2024 & I.A. No. 5594 of 2024
Coram: Justice Rakesh Kumar Jain [Judicial Member], Mr. Naresh Salecha [Technical Member], Mr. Indevar Pandey [Technical Member]
