Single Insolvency Petition Against Intrinsically Linked Real Estate Companies Maintainable: Supreme Court

The Supreme Court on Monday upheld insolvency proceedings against two closely linked real estate companies, holding that a single insolvency petition can be maintained against multiple corporate entities under the Insolvency and Bankruptcy Code, 2016, where the companies are intrinsically linked in the same project.

A Division Bench of Justice Sanjay Kumar and Justice K. Vinod Chandran dismissed appeals filed by the erstwhile directors of Grand Venezia Commercial Towers Private Limited and Bhasin Infotech and Infrastructure Private Limited, affirming the orders of the National Company Law Tribunal and the National Company Law Appellate Tribunal admitting the insolvency petition.

“In any event, as they were jointly answerable to the allottees, the filing of a single company petition against them was justified,” the Court said.

This conclusion was reached after the Bench applied principles earlier recognized by the NCLAT and affirmed by the Supreme Court in cases permitting joint insolvency proceedings in real estate projects involving multiple entities.

The case stemmed from a December 2023 order of the NCLT in Delhi initiating insolvency proceedings against these developer companies on a petition filed by 141 allottees of the Grand Venezia Commercial Tower, a project built on leasehold land allotted by UPSIDA.

While the allottees alleged that no possession was granted by the agreed time in May 2013, the promoters claimed that the project was complete.

However, both the NCLT and the NCLAT found otherwise, relying on inspection reports and official records showing that large parts of the project remained incomplete.

A key issue before the Supreme Court was whether a single insolvency petition under Section 7 of the Insolvency and Bankruptcy Code could be maintained against two separate companies.

On this issue, the Bench endorsed the NCLAT's reliance on its earlier decision in Mist Avenue Pvt Ltd v. Nitin Batra, which held that the Code does not bar a single insolvency petition where multiple companies are closely connected in implementing a real estate project.

The Supreme Court further noted that this approach was consistent with the NCLAT's ruling in Edelweiss Asset Reconstruction Company Ltd v. Sachet Infrastructure Pvt Ltd, where group insolvency proceedings were directed against multiple companies jointly developing a township, a view that was affirmed by the Supreme Court in earlier proceedings.

Similar reliance was placed on Mamatha v. Amb Infrabuild Pvt Ltd, a decision later affirmed by the Supreme Court, which recognised that where corporate debtors act together in a real estate project, a joint application under Section 7 is maintainable.

Applying these settled principles to the facts of the case, the Bench noted that the two companies had common directors, issued demand notices and possession letters interchangeably, and dealt with allottees jointly in relation to the same project.

“The NCLT and the NCLAT were, therefore, justified in concluding that the corporate debtors were intrinsically linked and that it would be in their interest to have a joint insolvency process so as to maximise asset realisation,” the Court observed, relying on these earlier precedents.

During the pendency of the appeals, one of the former directors offered to deposit Rs 15.62 crore to settle claims, but the NCLAT rejected the offer. The Supreme Court declined to interfere, holding that the offer was premised on an incorrect assumption about the number of subsisting claimants.

For Appellants: Advocate Malik Manish Bhatt

For Respondents: Advocates Mandeep Kalra, Subhanshu Gupta, Ritika Gambhir Kohli and Salvador Santosh Rebello