NCLT Mumbai Admits Homebuyers' Insolvency Plea Against Developers Of Stalled Avenue 54 Project

The Mumbai Bench of the National Company Law Tribunal (NCLT) on Friday admitted an insolvency plea by Avenue 54 Welfare Association, representing homebuyers of the stalled Avenue 54 housing project in Santacruz (West), Mumbai, against Sumer Buildcorp Private Limited and Sumer Radius Realty Private Limited.

The plea concerns an alleged financial debt of Rs 203.27 crore arising from failure to complete the project and hand over possession.

A Bench of Judicial Member Nilesh Sharma and Technical Member Charanjeet Singh Gulati found the petition to be complete. The Tribunal also held that the homebuyers' association satisfied the threshold requirements under the Insolvency and Bankruptcy Code.

The dispute arose from the “Avenue 54” project being jointly developed on plots situated at S.V. Road, Santacruz (West), Mumbai. Pursuant to a Development Agreement dated June 29, 2017, development rights over part of the project land were granted to Sumer Radius Realty.

The project was registered with MahaRERA as a single housing project comprising eight buildings across five towers and common amenities. Between 2016 and 2018, flats were allotted to homebuyers. Possession was assured within 24 months and, in certain cases, by January 31, 2020.

The homebuyers said the promoters later revised the possession date to December 2023. However, the project remained incomplete.

The homebuyers alleged that construction had remained stalled since October 2019 after YES Bank took possession of the project under the SARFAESI Act following the classification of the account as an NPA.

The corporate debtors opposed the plea on multiple grounds. They argued that the association had no independent claim apart from its members, challenged maintainability, and said the development agreement stood terminated on April 27, 2023.

Rejecting the objections, the Tribunal relied on GLAS Trust Company LLC v. BYJU Raveendran and Ors. It held that the petitioner association was created solely to represent the homebuyers as financial creditors and had no independent claim separate from its members.

The Tribunal observed that the association was entitled to initiate insolvency proceedings on behalf of the allottees.

“However, in the present case, the Petitioner is Association of Homebuyers, brought into existence for the sole purpose of filing the present Petition as the Financial Creditor, having no independent dues/claim of its own, separate from its members and has the right to initiate insolvency resolution as a representative of the allottees.”

The Tribunal also held that the pendency of CIRP against Radius Estate Projects did not bar continuation of the present proceedings. It said continuation of the project merely gave effect to pre-existing rights under the Development Agreement and did not create any new title or encumbrance over the land.

“In such circumstances, the status of the land remains governed by the pre-existing rights created under the Development Agreement. Section 14 prohibits transfer, encumbrance, alienation or disposal of assets of the Corporate Debtor during moratorium to preserve and maximise the value of its assets. In the present case, continuation of the project does not create or transfer any new legal title in the land, but merely gives effect to rights already existing under the Development Agreement.”

Accordingly, the tribunal admitted the insolvency plea, imposed a moratorium, and appointed Aegis Resolution Services Private Limited as the Interim Resolution Professional.