Supertech Insolvency: Glimmer Of Hope For Homebuyers
If all projects of Supertech are brought under insolvency, it would cause immense hardship to homebuyers, the Supreme Court says.
Irreparable injury would be caused to homebuyers if all projects of Supertech Ltd., a real estate major, were made part of the insolvency process, the Supreme Court said. In doing so, the apex court has permitted a first under the Insolvency and Bankruptcy Code by allowing project-wise resolution of the insolvent real estate company.
In an interim ruling, the apex court upheld the order of the National Company Law Appellate Tribunal to say that except ‘Eco Village-II’, all other projects of Supertech are to be treated as ongoing projects.
Project-wise resolution is not explicitly contemplated under IBC, Karishma Dodeja, partner at Trilegal, highlighted. However, this is not an unfounded step given the sector we are talking about, she said.
In large real estate projects, lenders appraise and lend on a project-to-project basis, according to Soumitra Majumdar, partner at JSA. So, what the court has permitted appears to be in line with market practice.
This arrangement might work only in situations where there are separate distinguishable projects in an entity, but might not work in cases where it is not possible to clearly distinguish between projects/businesses.Soumitra Majumdar, Partner, JSA
Before the apex court, Supertech's creditors had argued that the insolvency appellate tribunal does not have the power to allow a project-wise insolvency resolution process and that there is no concept of a project-wise resolution under the Code.
The apex court said that if insolvency proceedings against Supertech are admitted as a whole at present, it is likely to affect the ongoing projects and thereby cause immense hardship to homebuyers while throwing every project into a state of uncertainty.
If you look at it, there is no other way to undertake a resolution process for a real estate project. Even the Insolvency and Bankruptcy Board of India has said that there cannot be over-regulation in the IBC and that there have to be smart and innovative solutions that must flow from the judiciary and other stakeholders.Karishma Dodeja, Partner, Trilegal
The balance of convenience and likelihood of irreparable injury is not an empty formality, the Supreme Court said. "In our view, greater inconvenience is likely to be caused by passing any interim order of constitution of the Committee of Creditors in relation to the corporate debtor as a whole and may cause irreparable injury to the homebuyers."
While giving this interim relief, the apex court said that at this point, a course that appears to carry a lower risk of injustice must be adopted, even if ultimately it decides on any other course.
Majumdar cautioned that this is just an interim arrangement that the court has permitted to be continued pending the final determination. It does not indicate the mind of the Supreme Court as to how the law pertaining to this issue will take course, he said.