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The National Company Law Appellate Tribunal (NCLAT) has modified the insolvency order against Vatika Limited, limiting the Corporate Insolvency Resolution Process (CIRP) only to its Gurugram-based project Aspirations. The tribunal upheld the default but ruled that insolvency should remain project-specific where debt is linked to a particular development. The decision offers partial relief to the developer while allowing creditors of other projects to take separate legal action. It also strengthens the approach of handling real estate insolvency on a project-wise basis under the Insolvency and Bankruptcy Code.
The National Company Law Appellate Tribunal (NCLAT) has revised the insolvency order against Vatika Limited by limiting the proceedings only to its Gurugram-based project, Aspirations. The earlier order had admitted insolvency proceedings against the entire company, but the appellate tribunal has now narrowed its scope. Advertisement
The case relates to a financial default linked to non-convertible debentures raised by the company. Vatika had raised around INR 146 crore through these instruments, backed by project-linked cash flows, guarantees, and other securities. The company failed to meet its repayment obligations despite extensions, following which the financial creditor approached the tribunal under the Insolvency and Bankruptcy Code (IBC).
While reviewing the matter, the tribunal confirmed that a default had occurred. However, it observed that the debt was specifically tied to the Aspirations project. Based on this, it held that the Corporate Insolvency Resolution Process (CIRP) should be confined only to that project and not extended to the entire company or its other developments.
The tribunal also noted that in real estate cases, funding structures are often project-specific, and financial exposure is clearly linked to individual developments. Extending insolvency proceedings across unrelated projects could impact stakeholders who are not connected to the default. It therefore modified the earlier order to align with this principle.
As part of the directions, the resolution professional has been asked to proceed only with the Aspirations project and issue fresh public notices inviting claims related to this specific development. Creditors associated with other projects have been given the option to initiate separate insolvency proceedings if required.
Vatika had argued during the proceedings that the default was limited to a particular project and should not trigger insolvency for the entire company. The financial creditor, on the other hand, maintained that the default justified a broader insolvency process. The tribunal balanced both positions by upholding the default while restricting the scope of action.
Background information indicates that multiple petitions from different creditors against the company are pending before tribunals, which adds to the complexity of the case. The matter also reflects the challenges faced by developers in managing debt raised through structured instruments like debentures, especially when linked to specific projects.
This ruling follows a series of judicial observations in recent years where courts and tribunals have increasingly treated real estate insolvency as project-driven rather than company-wide. It also reflects the need to protect the interests of homebuyers and other stakeholders in projects that are not directly linked to the default.
Source PTI
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