NCLAT New Delhi Modifies NCLT Order In Vatika Ltd. Insolvency, Restricts CIRP To 'Aspirations' Project

The New Delhi National Company Law Appellate Tribunal (NCLAT) on 27 March, held that insolvency proceedings in real estate cases must be confined to the specific project for which financing was raised.

A Bench comprising Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra heard an appeal by Surender Singh, the suspended director of Vatika Limited in relation to the “Aspirations” project in Sector 88B, Gurgaon. The Tribunal held:

“In the facts of the present case, CIRP against the corporate debtor ought to have been confined only to the project in question 'Aspirations' and the CIRP cannot be extended to other projects of the corporate debtor, situated in state of Haryana and other places.”

Vatika Limited (the Corporate Debtor) develops multiple residential and commercial projects across Haryana and the National Capital Territory region.

On 30 June 2017, it executed a Debenture Trust Deed (DTD) with IDBI Trusteeship Limited. Later in 2017, it raised Rs. 146 crore through non-convertible debentures, secured by project land and receivables. The Debenture Trustee extended the redemption date to 30 June 2024. Despite this, Vatika defaulted on quarterly interest payments.

On 29 December 2023, IDBI Trusteeship issued a notice demanding Rs. 29.72 crore in unpaid interest. When Vatika did not pay, IDBI filed a Section 7 application before the NCLT Chandigarh, claiming a default of Rs. 274 crore, including principal sums.

The NCLT admitted the application, imposed a moratorium, and initiated the Corporate Insolvency Resolution Process (CIRP) against Vatika Limited as a whole.

Surender Singh argued that the only default was Rs. 29.72 crore in interest and that the principal of Rs. 146 crore was not due until 30 June 2024. It added that Vatika paid Rs. 37.2 crore during the Section 7 proceedings, partially curing the default. He also stated that the debenture financing related specifically to the “Aspirations” project under RERA.

It cited precedents such as Flat Buyers Association Winter Hills‑77 v. Umang Realtech and Mansi Brar Fernandes v. Shubha Sharma and argued that admitting insolvency across all 58 projects would prejudice thousands of homebuyers and other stakeholders unrelated to the “Aspirations” project.

IDBI Trusteeship countered that the default began in March 2022, and the Corporate Debtor missed quarterly coupon interest payments. It argued that Clause 19.2(b) of the DTD accelerated the entire debenture amount. It added that the Rs. 37.2 crore payment did not eliminate the default because interest arrears remained.

It also submitted that insolvency under the IBC attaches to the corporate debtor and that project-wise resolution could only occur later through the Committee of Creditors.

The NCLAT examined the Debenture Trust Deed and the notices. It found that the principal of Rs. 146 crore was extended to 30 June 2024, and no notice demanded immediate redemption. Therefore, including the principal in the default claim was incorrect.

The Tribunal noted that the valid default was Rs. 29.72 crore in unpaid interest, exceeding the Rs. 1 crore threshold under Section 4 of the IBC. It observed that the Rs. 37.2 crore paid during the Section 7 proceedings did not cure the default, as arrears remained.

Regarding project-wise insolvency, the Tribunal referred to its own precedents and the Supreme Court ruling in Mansi Brar Fernandes. It held that in real estate cases, CIRP must target the specific project for which financing was raised. The NCLT erred in admitting insolvency against the entire corporate debtor. It observed:

“...law laid down by this Tribunal and the Hon'ble Supreme Court is fully binding on the adjudicating authority without adverting to the said judgements which had clearly held that project-wise insolvency process can begin and where the CIRP initiated by allottees or a financial institution, with respect to one project, it cannot take in its fold in other cities or other states.”

Therefore, the NCLAT modified the NCLT order, allowing CIRP to proceed but confined it to the “Aspirations” project in Sector 88B, Gurgaon.

Accordingly, it disposed of the appeal.

For Appellants: Senior Advocates Kapil Sibbal, Viremdra Ganda and Arun Kathpalia with Advocates Vishal Gands, Ayandeb Mitra, Manisha Singh, Diksha and Riya Palnitkar

For Respondents: Senior Advocates Gopal Jain, Nalin Kohli and Abhijeet Sinha with Advocates Meghna Mishra, Nikhil Ratti Kapoor, Yashodhara Gupta, Kevin Chadha and Saikat Sarkar.