2026 INSC 58 1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 10261 of 2025
ELEGNA CO-OP. HOUSING AND
COMMERCIAL SOCIETY LTD. … APPELLANT(S)
VERSUS
EDELWEISS ASSET RECONSTRUCTION
COMPANY LIMITED & ANR. … RESPONDENT(S)
WITH
CIVIL APPEAL NO. 10012 OF 2025
TAKSHASHILA HEIGHTS INDIA
PRIVATE LTD. … APPELLANT(S)
VERSUS
EDELWEISS ASSET RECONSTRUCTION
COMPANY LIMITED & ANR. … RESPONDENT(S)
2
J U D G M E N T
R. MAHADEVAN, J.
1. The present appeals are directed against the final judgment and order
dated 01.07.2025 passed by the National Company Law Appellate Tribunal
1
,
Principal Bench, New Delhi, in Company Appeal (AT) (Insolvency) No. 2261
of 2024.
2. By the impugned judgment, the NCLAT set aside the order dated
06.11.2024 passed by the Adjudicating Authority, National Company Law
Tribunal
2
, Ahmedabad Bench, in CP (IB) No. 140 (AHM) / 2024, and directed
admission of the application filed under Section 7 of the Insolvency and
Bankruptcy Code, 2016
3
, thereby initiating the Corporate Insolvency Resolution
Process
4
against the appellant in C.A. No. 10012 of 2025 – Takshashila Heights
India Private Limited. The NCLAT further rejected the intervention application
filed by the appellant in C.A. No. 10261 of 2025 – Elegna Co-operative
Housing and Commercial Society Ltd.
5
on the ground that it lacked locus standi
to intervene in the aforesaid company appeal.
1
For short, “NCLAT”
2
For short, “NCLT”
3
For short, “IBC”
4
For short, “CIRP”
5
For short, “Society”
3
3. For the sake of convenience, the parties to the present appeals are arrayed
as under:
Name of the Party Before NCLT
[CP (IB) No.
104(AHM)/2024]
Before
NCLAT
[CA (AT) (Ins.)
No. 2261 of
2024]
Before this Court
[CA No. 10261 of 2025
/ CA No. 10012 of
2025]
Elegna Co -
operative Housing
and Commercial
Society Ltd.
Not a party Intervenor Appellant / -
Takshashila Heights
India Private Ltd.
(Corporate
Debtor)
Respondent Respondent Respondent No. 2 /
Appellant
Edelweiss Asset
Reconstruction
Company Ltd.
(Financial
Creditor)
Applicant Appellant Respondent No. 1 /
Respondent
Brief facts
4. The necessary facts leading to the filing of the present appeals are as
follows:
4.1. The appellant in C.A. No. 10012 of 2025 (Corporate Debtor) availed
financial assistance of Rs. 70 crores from ECL Finance Ltd. (Original Lender),
on 19.07.2018 under two term loan facilities, for the purpose of developing a
residential -cum- commercial project titled “Takshashila Elegna”. To secure the
said facilities, the Corporate Debtor and its promoters executed loan
4
agreements, promissory notes, and other security documents on 25.07.2018 (for
Term Loan – I of Rs. 40 crores) and 26.09.2018 (for Term Loan – II of Rs.30
crores). An Indenture of Mortgage was subsequently executed on 04.09.2020 in
favour of the Original Lender to secure repayment of the said loans. There was
delay in repayment of the loan instalments and the Corporate Debtor made its
last payment on 30.09.2021, after which the loan accounts were classified as
Non-Performing Assets (NPA) on 30.12.2021.
4.2. On 09.05.2022, the Original Lender executed an Assignment Agreement
transferring all its rights, title, and interest in the said loan to Edelweiss Asset
Reconstruction Company Ltd.
6
(Financial Creditor). Following the same, the
Financial Creditor issued a recall and invocation of guarantee notice dated
31.05.2022, demanding a sum of Rs. 53,03,18,487/- from the Corporate Debtor
and its personal guarantors against Term Loans I and II. They also initiated
recovery proceedings by filing of O.A. No. 367 of 2022 before the Debts
Recovery Tribunal, Ahmedabad, and issued a demand notice dated 21.07.2022
under Section 13(2) of the SARFAESI Act, 2002 for Rs. 57,24,96,064/- as on
30.06.2022.
4.3. Pursuant to commercial discussions, the Corporate Debtor and the
Financial Debtor entered into a Restructuring – cum – One Time Settlement
Agreement on 23.05.2023, under which the Corporate Debtor agreed to
discharge its outstanding liability of Rs. 55 crores in a phased manner. The
6
For short, “EARCL”
5
Corporate Debtor made payment of Rs. 5.5 crores towards the first instalment
on 30.06.2023. The Corporate Debtor vide communication dated 25.09.2023,
requested the Financial Creditor to issue a provisional No Objection Certificate
to facilitate the sale of unsold secured units in the project. However, the
Financial Creditor declined to issue NOC and subsequently revoked the
restructuring arrangement on 29.12.2023 citing default in payment of
instalments.
4.4. Thereafter, the EARCL – Financial Creditor filed a petition under Section
7 of the IBC before the NCLT, seeking initiation of the CIRP against the
Corporate Debtor. During pendency of the said proceedings, the Financial
Creditor issued a sale notice dated 10.04.2024 under Rule 8(6) read with Rule
9(1) of the Security Interest (Enforcement) Rules, 2002
7
and the notice was
published in newspapers on 18.05.2024.
4.5. By a detailed and reasoned order dated 06.11.2024, the NCLT dismissed
the Section 7 petition, holding that the facts of the case did not warrant initiation
of the CIRP as the IBC was being invoked as a recovery mechanism rather than
as a tool for insolvency resolution. The NCLT further noted that the project was
viable and substantially complete, and that insolvency proceedings would
adversely affect the interests of homebuyers and other stakeholders.
7
For short, “Securitisation Rules”
6
4.6. Challenging the order of the NCLT, the Financial Creditor preferred
Company Appeal (AT)(Ins.) No. 2261 of 2024 before the NCLAT. The Society
filed an intervention application under Rule 11 of the NCLAT Rules, 2016, on
the ground that the outcome of the appeal would directly affect the proprietary
and contractual rights of its members.
4.7. The NCLAT, by its judgment dated 01.07.2025, allowed the appeal filed
by the Financial Creditor, set aside the order of the NCLT, and directed
admission of the Section 7 petition, thereby initiating CIRP against the
Corporate Debtor. The NCLAT, however, rejected the intervention application,
holding that the Society lacked locus standi as it was not a party to the financial
transaction forming the subject matter of the appeal.
4.8. Aggrieved thereby, the Society as well as the Corporate Debtor have
preferred the present Civil Appeals independently.
Contentions of the Parties
5. The learned senior counsel for the appellant in C.A. No. 10261 of 2025 –
Society at the outset, submitted that the impugned judgment suffers from
procedural impropriety and has been passed in undue haste, without affording a
fair and reasonable opportunity of hearing to the appellant.
5.1. It was submitted by the learned senior counsel that the appellant Society
is a registered co-operative body representing more than 189 confirmed unit
holders of the real estate project “Takshashila Elegna”, developed by the
7
Corporate Debtor. The rights and interests of its members are directly and
substantially affected by the outcome of the appeal arising under Section 7 of
the IBC. The Society’s intervention application was based on its status as a
collective body of homebuyers, who are recognised as “financial creditors”
under Explanation (i) to Section 5(8)(f) of the IBC, as affirmed by this Court in
Pioneer Urban Land and Infrastructure Ltd v. Union of India
8
which held that
allottees in a real estate project are to be treated as financial creditors and are
entitled to participate in the CIRP.
5.2. The learned senior counsel further submitted that the appellant is neither a
stranger nor an intermeddler, but a directly interested stakeholder whose
members’ proprietary and contractual rights stand imperilled by the initiation of
the CIRP of the corporate debtor. However, the NCLAT erred in holding that
the appellant had no locus standi to intervene on the ground that it was not a
party to the underlying financial transaction.
5.3. It was further contended by the learned senior counsel that the NCLAT
misdirected itself in treating the appellant as an “unrelated third party” merely
because its members belong to a completed tower of the same project. The
creation of such an artificial distinction between unit holders of completed and
uncompleted towers within a single real estate development is arbitrary, lacks
intelligible differentia, and bears no rational nexus to the object sought to be
8
(2019) 8 SCC 416
8
achieved. Such sub-classification within a homogeneous class of allotees
offends Article 14 of the Constitution of India.
5.4. The learned senior counsel pointed out that upon commencement of
CIRP, the contractual right of allottees to seek specific performance of their
agreements to sell stands extinguished by virtue of Regulation 4E of IBBI
(Insolvency Resolution Process for Corporate Persons) Regulations, 2016
9
,
which mandates that any registration or possession of units shall be subject to
the approval of the Committee of Creditors (CoC). The NCLAT failed to take
this statutory consequence into account.
5.5. It was emphasised by the learned senior counsel that initiation of CIRP
suspends the operation of the Real Estate (Regulation and Development) Act,
2016 (RERA), thereby depriving homebuyers of their statutory remedies under
RERA. Simultaneously, their participation before the CoC remains uncertain
and disproportionately weak owing to their limited voting share as unsecured
financial creditors.
5.6. Reliance was placed on Chitra Sharma v. Union of India
10
, wherein this
Court underscored the need to afford special protection to the interests of
homebuyers in real estate insolvencies. Denying the appellant a hearing in such
circumstances constitutes a violation of the principle of audi alteram partem and
results in a grave miscarriage of justice.
9
For short, “CIRP Regulations”
10
(2018) 18 SCC 575
9
5.7. It was further urged by the learned senior counsel that the NCLAT failed
to exercise its inherent powers under Rule 11 of the NCLAT Rules, 2016, which
empower it to pass such orders as may be necessary to meet the ends of justice.
The rejection of the intervention application was mechanical and devoid of due
consideration of the equities involved, thereby defeating the participatory and
transparent process envisaged under the IBC.
5.8. The learned senior counsel also pointed out that the intervention
application was neither properly registered nor reflected in the cause title of the
impugned judgment, evidencing procedural irregularity and lack of due process.
The omission to adjudicate upon the same in a reasoned manner renders the
impugned judgment unsustainable in law.
5.9. It was next submitted that the initiation of CIRP in real estate cases often
extends far beyond statutory timelines, leaving homebuyers in prolonged
uncertainty. During this period, allottees continue to pay EMIs on their home
loans without possession of their units, causing serious financial hardship.
5.10. The learned senior counsel contended that exclusion of the appellant from
the appellate proceedings causes procedural unfairness and violates Article 14
by denying similarly placed financial creditors the opportunity to be heard. The
question of intervention is not merely procedural but concerns the substantive
rights of the allottees, who risk losing their proprietary interest and right to
possession in the event of liquidation under Section 53 of the IBC.
10
5.11. It was further submitted by the learned senior counsel that the
participation of the appellant would not have prejudiced the appellate
proceedings. On the contrary, it would have advanced the cause of justice by
ensuring that all affected stakeholders are heard before any order impacting their
rights is passed. The rejection of the appellant’s intervention application,
therefore, results in manifest injustice and warrants interference by this Court
under Section 62 of the IBC.
5.12. The learned senior counsel submitted that the conduct of the financial
creditor in simultaneously pursing CIRP, while also attempting to sell units and
recover amounts under the Securitisation Rules, is clearly mala fide and
squarely attracts Section 65 of the IBC. In this regard, reliance was placed on
the judgment of this Court in Innoventive Industries Ltd v. ICICI Bank
11
,
wherein it was held that once an order of admission is passed, the CIRP
commences and the moratorium comes into effect, thereby imposing a freeze
on, inter alia, the sale or alienation of assets.
5.13. It was further submitted by the learned senior counsel that in Swiss
Ribbons (P) Ltd. v. Union of India
12
, this Court underlined the defining
qualities of a financial creditor, who is required to have the long-term interests
of the Corporate Debtor at heart and not be merely interested in quick recovery
regardless of the future of the Corporate Debtor. Whereas, in the present case,
11
(2018) 1 SCC 407
12
(2019) 4 SCC 17
11
the Respondent – Financial Creditor, being in the business of acquiring debts
and instituting Section 7 proceedings on the strength of such debts, is purely in
the business of recovery, at the cost of the real estate project as a whole. They
have shown no regard for the interest of the other financial creditors, who are
deeply invested in the project, having sunk their hard-earned savings into the
purchase of flats in the real estate project. According to the learned senior
counsel, the project is 90% complete. However, the Financial Creditor is intent
upon taking the Corporate Debtor into CIRP, thereby creating a situation of
instability and uncertainty, apart from bringing the project to a standstill and
depleting the value of the units, both sold and unsold. Such conduct, far from
protecting the interests of the corporate debtor imperils them.
5.14. In light of the foregoing, it was submitted by the learned senior counsel
that the impugned judgment rejecting the appellant’s intervention application is
arbitrary, procedurally irregular, and violative of Articles 14 and 21 of the
Constitution, as well as the principles of natural justice and the same therefore,
deserves to be set aside, and the appellant ought to be permitted to intervene in
the proceedings initiated against the Corporate Debtor to safeguard the
legitimate interests of homebuyers, who are the end users of the project
“Takshashila Elegna”.
6. Continuing further, the learned senior counsel for the appellant in C.A.
No. 10012 of 2025 – Takshashila Heights India Private Limited submitted that
12
the NCLAT has mechanically applied Section 7(5)(a) of the IBC without
considering the bona fide commercial viability of the project, the recovery-
oriented conduct of the respondent – Financial Creditor, and the grave prejudice
caused to hundreds of homebuyers whose interests the IBC is designed to
safeguard.
6.1. According to the learned senior counsel, the appellant is a real estate
developer engaged in the construction of a residential – cum – commercial
project titled “Takshashila Elegna” situated at Ahmedabad, Gujarat, comprising
four towers and 279 units (259 residential + 20 commercial). The project is duly
registered under Gujarat RERA and has achieved substantial completion, with
Building Use Certificates issued by the Ahmedabad Municipal Corporation for
all towers. Out of 279 units, 189 have been sold, 80 allottees have taken
possession, and an amount of Rs. 103 crores has been realised from
homebuyers. The remaining unsold inventory constitutes a ready and
monetizable asset pool sufficient to discharge all outstanding liabilities. To
finance the project, the corporate debtor availed two term loans aggregating to
Rs. 70 crores from ECL Finance Limited on 19.07.2018, secured by mortgage
of project assets and personal guarantees. Due to Covid-19 disruptions and
delays in statutory approvals, repayment timelines were adversely affected, and
the accounts were classified as NPA on 30.12.2021. Subsequently, on
31.12.2021 (as amended on 09.05.2022), ECL Finance assigned the debt to
EARCL, acting as Trustee of EARC Trust SC 444. EARCL issued a recall
13
notice dated 31.05.2022 demanding Rs. 53.03 crores, followed by a SARFAESI
notice dated 21.07.2022 for Rs. 57.24 crores and filed OA No. 367 of 2022
before the DRT, Ahmedabad – clearly reflecting a recovery driven approach.
6.2. The learned senior counsel further submitted that after negotiations, the
parties entered into a Restructuring – cum – One Time Settlement (OTS) on
23.05.2023, fixing the liability at Rs. 55 crores (Rs. 39 crores by the corporate
debtor and Rs. 16 crores by Raghav Conpro LLP), payable in eight instalments.
The OTS obligated EARCL to issue provisional NOCs for sale of secured units
to enable repayment. The corporate debtor paid Rs. 5.5 crores towards the first
instalment and Rs. 0.86 crores towards the second. However, EARCL refused to
issue NOCs, thereby obstructing monetisation of unsold units and directly
preventing further payments. Despite being in breach of its own obligation,
EARCL unilaterally revoked the OTS on 29.12.2023 alleging default. This
default, being the result of EARCL’s own non-performance, is a manufactured
and self-induced default. Thereafter, EARCL filed a Section 7 petition on
23.02.2024 claiming Rs. 93.54 crores (as on 31.01.2024) – an inflated figure
nearly Rs. 40 crores higher than the OTS amount, primarily due to arbitrary
penal interest. Simultaneously, EARCL pursued the proceedings under the
SARFAESI Act through a sale notice dated 10.04.2024 and a public notice
dated 18.05.2024, amounting to forum shopping and parallel recovery in
contravention of the IBC framework.
14
6.3. The learned senior counsel submitted that the NCLT after detailed
consideration, dismissed the Section 7 petition holding that (a)the project was
substantially complete; (b)initiation of CIRP would gravely prejudice
homebuyers; and (c)EARCL’s actions amounted to abuse of the IBC for
recovery. The NCLAT, however, reversed the order solely on the ground that
“proof of debt and default” was sufficient for admission and that Vidarbha
Industries Power Ltd v. Axis Bank Ltd
13
was inapplicable. Such a conclusion
ignores the discretionary nature of Section 7(5)(a) and is contrary to settled law.
6.4. The learned senior counsel submitted that the sequence of actions – recall
notice, SARFAESI proceedings, DRT filing, OTS, revocation, and Section 7
filing – demonstrates that EARCL has invoked every recovery mechanism,
treating the IBC as an additional coercive tool. In Swiss Ribbons, this Court
held that the IBC is a beneficial legislation aimed at revival of the corporate
debtor and not a mere debt recovery instrument. In Mobilox Innovations Pvt.
Ltd. v. Kirusa Software Pvt. Ltd.
14
adopting the UNCITRAL Legislative Guide,
it was recognised that insolvency proceedings may be denied where their
purpose is improper or coercive. Recently, in GLAS Trust Co. LLC v. BYJU
Raveendran
15
, this Court reaffirmed that IBC must not be misused by individual
creditors as a tool for coercion or recovery, especially where the corporate
debtor is viable and operation. EARCL, being an Asset Reconstruction
13
(2022) 8 SCC 352
14
(2018) 1 SCC 353
15
(2024) INSC 811 : (2025) 3 SCC 625
15
Company, inherently seeks debt recovery. While such a pursuit is permissible
under SARFAESI Act, it cannot justify recourse to IBC when the project is
commercially viable, substantially complete, and capable of generating
sufficient cash flow.
6.5. It was also submitted by the learned senior counsel that EARCL’s own
records disclose inconsistent and inflated demand figures. The demand
escalation of nearly Rs. 40 crores within 18 months, driven by penal interest and
arbitrary charges, is commercially unreasonable and evidences mala fide intent
to create a façade of default.
6.6. It was also pointed out that this Court in Vidarbha Industries held that
the Adjudicating Authority “may” admit a petition under Section 7, thereby
conferring discretion to assess the expedience and necessity of CIRP based on
the corporate debtor’s financial position and overall circumstances. The NCLT
rightly exercised such discretion, noting that the project was substantially
complete, receivables were assured, and CIRP would harm homebuyers. The
NCLAT erred in reducing the process to a mechanical admission test,
disregarding Vidarbha Industries, which remains binding and unaltered in law.
Discretion under Section 7(5)(a) serves as a vital safeguard against abuse of
process, ensuring that viable enterprises are not forced into insolvency due to
tactical defaults or recovery motives.
6.7. It was submitted by the learned senior counsel that the appellant’s project
is substantially complete with 189 units sold and 80 possessions delivered.
16
Admission of CIRP would freeze conveyances and registrations, suspend
ongoing possession and maintenance, deprive homebuyers of their contractual
and statutory rights under RERA, and destroy the viability of a function project.
Such outcomes defeat the IBC’s twin objectives of value maximisation and
continuation of viable enterprises. As recognised in Chitra Sharma, the rights
of homebuyers warrant special protection in real estate insolvencies. The
Gujarat High Court in State Bank of India v. Hubtown Bus Terminal
(Vadodara) Pvt. Ltd.
16
similarly recognized that settlement through sale of
inventory and escrow appropriation is a legitimate alternative to CIRP, aligning
with the IBC’s revival- oriented scheme.
6.8. It was submitted by the learned senior counsel that the corporate debtor
has already proposed a renewed repayment plan and sought a meeting with
EARCL vide email dated 13.08.2025, indicating continued willingness to repay.
If EARCL issues the required NOC and facilities sales of unsold units, the entire
outstanding liability can be liquidated without recourse to CIRP.
6.9. Therefore, it was submitted by the learned senior counsel that the Section
7 petition filed by EARCL constitutes a misuse of the IBC for coercive
recovery. The alleged default is manufactured, the project is viable and
substantially complete, and there exists sufficient receivable to discharge all
dues. The NCLT correctly exercised discretion under Section 7(5)(a) in
dismissing the petition. The NCLAT, in reversing it without considering
16
R/LPA No. 1 of 2022 in R/Special Civil Application No. 10985 of 2021 etc cases dated 18.10.2022
17
expedience, viability, or stakeholder impact, committed an error apparent on the
face of record. Therefore, the learned senior counsel prayed that this court may
be pleased to allow the appeal, set aside the impugned judgment of the NCLAT
dated 01.07.2025, and restore the reasoned order of the NCLT dated 06.11.2024
dismissing the Section 7 petition.
7. The learned senior counsel appearing on behalf of Respondent No.1,
EARCL – Financial Creditor made the following submissions:
Lack of locus standi of the appellant Society
(i) The appellant is merely a maintenance society constituted for upkeep
and administration of the project premises and not a representative
body formed by allottees for protection of their collective interests.
Consequently, it cannot be regarded either as a “financial creditor”
under Section 5(7) or as an “operational creditor” under Section 5(20)
of the IBC. It therefore lacks locus standi to intervene in or object to
proceedings under Section 7 of the Code.
(ii) The appellant is not a party to any loan agreements, debenture
subscription agreements, or restructuring arrangements executed
between Respondent No. 1 and the Corporate Debtor. Any grievance
on behalf of homebuyers could only have been raised through a duly
recognized association or by a sufficient number of allottees jointly,
18
and before the Adjudicating Authority (NCLT) not belatedly before
the NCLAT in appeal.
(iii) The appeal itself suffers from procedural infirmities: the Appellant
failed to annex its registration certificate; the supporting affidavit is
sworn by one Mr. Vishal Parmar, who is neither an allottee nor a unit
holder; and no resolution or collective authorization from the allottees
empowering him to act on their behalf has been produced.
Necessity and urgency of admitting the Corporate Debtor into CIRP
(i) The Corporate Debtor’s liability is not confined to Respondent No. 1
alone. Multiple creditors, including IDBI Trusteeship Services Ltd.,
have independently initiated proceedings under Section 7 (Company
Petition (IB) No, 190/AHM / 2025), establishing persistent defaults
across creditors. This demonstrates systemic financial stress and
underscores the necessity of admitting CIRP to preserve value, prevent
asset dissipation, and ensure equitable treatment of all stakeholders.
(ii) In E.S. Krishnamurthy v. Bharath Hi- Tech Builders Pvt. Ltd
17
, this
Court reiterated that the enquiry under Section 7 of the IBC is
confined to the existence of a financial debt and the occurrence of
17
(2022) 3 SCC 161
19
default. Once these twin conditions are established, admission of the
petition is mandatory.
(iii) Reliance on Vidarbha Industries is wholly misplaced. In M. Suresh
Kumar Reddy v. Canara Bank and others
18
, this Court clarified that
Vidarbha Industries turned on its peculiar facts and does not dilute or
override the binding principles laid down in Innoventive Industries
and E.S. Krishnamurthy. Any interpretation of Vidarbha Industries
as conferring broad discretion upon the Adjudicating Authority to
refuse admission despite an undisputed debt and default would defeat
the scheme and objective of the IBC.
(iv) The IBC framework incorporates comprehensive safeguards to protect
homebuyers’ interests. Homebuyers are statutorily recognized as
financial creditors and are represented in the Committee of Creditors
(CoC) through an Authorised Representative under Section 21(6A)
read with Regulation 16A of the CIRP Regulations.
(v) Regulation 4E of the CIRP Regulations pertains to post-admission
procedures and cannot be invoked to resist initiation of CIRP. It casts
mandatory obligations on the Resolution Professional, upon CoC
approval, to deliver possession and facilitate registration of units. This
provision strengthens, rather than restricts, the protection available to
homebuyers.
18
2023 SCC OnLine SC 608
20
(vi) Even in liquidation, allottees in possession remain protected, as such
units are expressly excluded from the liquidation estate under
Regulation 46A of the IBBI (Liquidation Process) Regulations, 2016.
Further, Pioneer Urban Land affirms the harmonious coexistence of
homebuyers’ rights under RERA with the IBC framework.
(vii) Admission of CIRP does not extinguish the contractual or proprietary
rights of allottees. On the contrary, it facilitates project completion,
enables infusion of new capital, and maximises value for all
stakeholders. Several real estate insolvency cases demonstrate that
CIRP has expedited delivery of possession and improved project
viability as compared to fragmented individual enforcement or
recovery proceedings.
(viii) The corporate debtor defaulted on the very second instalment, paying
only Rs.86 lakhs against the agreed Rs. 3 crores. Despite repeated
reminders and a contractual cure period, it failed to rectify the default.
Extensive email correspondence evidences repeated indulgence by the
financial creditor and sustained non-compliance by the corporate
debtor. Consequently, the Respondent lawfully revoked the
restructuring arrangement and recalled the outstanding liability on
29.12.2023.
(ix) Initiation or continuation of recovery proceedings prior to admission
of CIRP is legally permissible and does not bar initiation of insolvency
21
proceedings under section 7. The NCLAT has consistently held that
pendency of recovery proceedings before the DRT or enforcement
under the SARFAESI Act does not preclude a financial creditor from
invoking the IBC.
With these submissions, the learned senior counsel prayed for dismissal of the
appeals by affirming the judgment of the NCLAT.
Analysis
8. We have considered the submissions made by the learned counsel
appearing for the parties and perusal of the materials available on record
carefully and meticulously.
9. By order dated 06.08.2025, this Court stayed the operation of the
impugned judgment and order passed by the NCLAT till the pronouncement of
the judgment, and further directed all parties to maintain status quo with regard
to the nature, character and possession of the property.
10. This Court has, time and again, been called upon to protect the rights of
homebuyers navigating the turbulent waters of India’s real estate sector.
Conscious of its constitutional and statutory duty, this Court has made sustained
efforts, within the four corners of the law, to safeguard the legitimate interests of
homebuyers.
22
10.1. In theory, the Insolvency and Bankruptcy Code, 2016 presents an
effective solution to their woes: a distressed project is rescued through the
corporate insolvency resolution process, construction is completed, and the
allotted units are ultimately delivered. On paper, the framework appears
straightforward. In practice, however, homebuyers are often gripped with
anxiety when a project enters CIRP. Caught between the developer on one hand
and institutional lenders on the other, their interests are particularly vulnerable.
10.2. While homebuyers seek completion of the project they have invested in,
lenders, who ordinarily command a dominant position in the Committee of
Creditors, may prefer to accept a haircut and press for liquidation, rather than
undertake the complexities and commercial risks involved in reviving a
struggling real estate project. It is at such junctures that this Court must reiterate,
and indeed remind, that the fundamental object of the IBC is resolution and
revival, and not mere recovery.
10.3. If creditors elect to invoke the provisions of the Code, they must do so
with a genuine willingness to pursue revival of the corporate debtor. Should
revival not be their objective, the Code cannot be converted into a tool for
expedient recovery; alternative statutory remedies, including under SARFAESI
or other applicable laws, remain available in accordance with law.
10.4. The interests of homebuyers are undoubtedly of paramount importance.
However, such interests must be protected strictly within the legal framework.
The resolution mechanism under the IBC contains adequate safeguards for
23
homebuyers, which have been repeatedly strengthened by judicial interpretation.
The appropriate course lies in constructive engagement with the Committee of
Creditors, with a view to completing the project and advancing the collective
good, rather than fragmenting the process through individual self-interest.
10.5. In light of the above, we proceed to examine the issues involved in the
present case, mindful of the delicate task of balancing genuine yet competing
interests.
11. In these appeals arising out of a common judgment, the two questions that
arise for consideration, are as follows:
1) Whether the NCLAT was correct in admitting Corporate Debtor into the
Corporate Insolvency Resolution Process?
2) Whether the NCLAT was correct in rejecting the Intervention application
filed by the Society.
12. Question No. 1 – Admission of the Corporate Debtor into CIRP
12.1. The Corporate Debtor contends that the initiation of CIRP by the
respondent – EARCL lacked bona fides and was intended to operate as a
recovery mechanism rather than a resolution process. It is urged that the
Corporate Debtor was a going concern; that the real estate project was
substantially completed; and that adequate receivables from unsold inventory
were available to service the debt. The default, according to the Corporate
24
Debtor, was not wilful but occurred due to EARCL’s refusal to issue provisional
No Objection Certificate, which allegedly frustrated further sale of remaining
units. Such conduct, it is contended, disentitles EARCL from invoking Section 7
of the Code.
12.2. Per contra, EARCL submits that admission under Section 7 is governed
exclusively by the existence of a financial debt and the occurrence of default.
Once these twin conditions are satisfied, admission is mandatory.
Considerations such as project viability, stage of completion, alleged conduct of
the creditor, or perceived prejudice to homebuyers are wholly irrelevant at the
admission stage.
12.3. The legal position is now well settled. In Innoventive Industries, this
Court held that once the Adjudicating Authority is satisfied that a financial debt
exists and a default has occurred, it must admit the application unless it is
incomplete. The inquiry under Section 7(5)(a) is confined strictly to the
determination of debt and default, leaving no scope for equitable or
discretionary considerations.
12.4. This principle was reiterated in E.S. Krishnamurthy, wherein this Court
clarified that no discretion survives once default is established. Similarly, in
Swiss Ribbons, this Court reaffirmed that the trigger for CIRP is default, and the
object of the Code is to ensure timely resolution to preserve enterprise value.
25
12.5. The reliance placed by the Corporate Debtor on Vidarbha Industries is
wholly misconceived. That decision has consistently been recognised as a
narrow exception confined to its peculiar facts, namely the existence of an
adjudicated and realisable claim in favour of the corporate debtor exceeding the
debt owed.
12.6. This position now stands authoritatively clarified in M. Suresh Kumar
Reddy, wherein this Court held that Vidarbha Industries does not dilute the
binding ratio of Innoventive Industries and E.S. Krishnamurthy. Admission
under Section 7 thus remains mandatory once debt and default are established,
with Vidarbha Industries operating only in exceptional circumstances.
12.7. In any event, the scope of the Adjudicating Authority’s powers stands
elaborately discussed by a three-Judge Bench of this Court in Indus Biotech
Private Ltd. v. Kotak India Venture (Offshore) Fund and others
19
. While
recognising that the NCLT is not expected to act mechanically and is
empowered to examine the material on record to satisfy itself that a default has
in fact occurred, this Court unequivocally held that once the ingredients of
Section 7, most importantly, default, are satisfied, admission must follow. The
relevant passages from Indus Biotech are extracted below for ready reference:
“14. In order to arrive at a conclusion on the correctness or otherwise of the
impugned order [Indus Biotech (P) Ltd. v. Kotak India Venture Fund (1), 2020
SCC OnLine NCLT 1430], at the outset it is necessary for us to take note of the
scope of the proceedings under Section 7 of the IB Code to which detailed
reference is made with reference to the definitions in Sections 3(6), 3(8), 3(11),
19
(2021) 6 SCC 436
26
3(12) and 5(7) of the Code. It provides for the “financial creditor” to file an
application for initiating corporate insolvency resolution process against a
“corporate debtor” before the adjudicating authority when “default” has
occurred. The provision, therefore, contemplates that in order to trigger an
application there should be in existence four factors: (i) there should be a
“debt” (ii) “default” should have occurred (iii) debt should be due to
“financial creditor” and (iv) such default which has occurred should be by a
“corporate debtor”. On such application being filed with the compliance
required under sub-sections (1) to (3) of Section 7 of IB Code, a duty is cast on
the adjudicating authority to ascertain the existence of a default if shown from
the records or on the basis of other evidence furnished by the financial
creditor, as contemplated under sub-section (4) to Section 7 of IB Code.
15. This Court had the occasion to consider exhaustively the scheme and
working of the IB Code in Innoventive Industries Ltd. v. ICICI
Bank [Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407 : (2018) 1
SCC (Civ) 356]. The proceeding under Section 7 of the IB Code and the scope
thereof is articulated in paras 27 to 30 which read hereunder: (SCC pp. 437-39)
“27. The scheme of the Code is to ensure that when a default takes place,
in the sense that a debt becomes due and is not paid, the insolvency
resolution process begins. Default is defined in Section 3(12) in very
wide terms as meaning non-payment of a debt once it becomes due and
payable, which includes non-payment of even part thereof or an
instalment amount. For the meaning of “debt”, we have to go to Section
3(11), which in turn tells us that a debt means a liability of obligation in
respect of a “claim” and for the meaning of “claim”, we have to go back
to Section 3(6) which defines “claim” to mean a right to payment even if
it is disputed. The Code gets triggered the moment default is of rupees
one lakh or more (Section 4). The corporate insolvency resolution
process may be triggered by the corporate debtor itself or a financial
creditor or operational creditor. A distinction is made by the Code
between debts owed to financial creditors and operational creditors. A
financial creditor has been defined under Section 5(7) as a person to
whom a financial debt is owed and a financial debt is defined in Section
5(8) to mean a debt which is disbursed against consideration for the time
value of money. As opposed to this, an operational creditor means a
person to whom an operational debt is owed and an operational debt
under Section 5(21) means a claim in respect of provision of goods or
services.
28. When it comes to a financial creditor triggering the process, Section
7 becomes relevant. Under the Explanation to Section 7(1), a default is in
respect of a financial debt owed to any financial creditor of the corporate
debtor—it need not be a debt owed to the applicant financial creditor.
27
Under Section 7(2), an application is to be made under sub-section (1) in
such form and manner as is prescribed, which takes us to the Insolvency
and Bankruptcy (Application to adjudicating authority) Rules, 2016.
Under Rule 4, the application is made by a financial creditor in Form 1
accompanied by documents and records required therein. Form 1 is a
detailed form in 5 parts, which requires particulars of the applicant in
Part I, particulars of the corporate debtor in Part II, particulars of the
proposed interim resolution professional in Part III, particulars of the
financial debt in Part IV and documents, records and evidence of default
in Part V. Under Rule 4(3), the applicant is to dispatch a copy of the
application filed with the adjudicating authority by registered post or
speed post to the registered office of the corporate debtor. The speed,
within which the adjudicating authority is to ascertain the existence of a
default from the records of the information utility or on the basis of
evidence furnished by the financial creditor, is important. This it must do
within 14 days of the receipt of the application. It is at the stage of
Section 7(5), where the adjudicating authority is to be satisfied that a
default has occurred, that the corporate debtor is entitled to point out
that a default has not occurred in the sense that the “debt”, which may
also include a disputed claim, is not due. A debt may not be due if it is
not payable in law or in fact. The moment the adjudicating authority is
satisfied that a default has occurred, the application must be admitted
unless it is incomplete, in which case it may give notice to the applicant
to rectify the defect within 7 days of receipt of a notice from the
adjudicating authority. Under sub-section (7), the adjudicating authority
shall then communicate the order passed to the financial creditor and
corporate debtor within 7 days of admission or rejection of such
application, as the case may be.
29. The scheme of Section 7 stands in contrast with the scheme under
Section 8 where an operational creditor is, on the occurrence of a
default, to first deliver a demand notice of the unpaid debt to the
operational debtor in the manner provided in Section 8(1) of the Code.
Under Section 8(2), the corporate debtor can, within a period of 10 days
of receipt of the demand notice or copy of the invoice mentioned in sub-
section (1), bring to the notice of the operational creditor the existence of
a dispute or the record of the pendency of a suit or arbitration
proceedings, which is pre-existing i.e. before such notice or invoice was
received by the corporate debtor. The moment there is existence of such
a dispute, the operational creditor gets out of the clutches of the Code.
30. On the other hand, as we have seen, in the case of a corporate debtor
who commits a default of a financial debt, the adjudicating authority has
merely to see the records of the information utility or other evidence
28
produced by the financial creditor to satisfy itself that a default has
occurred. It is of no matter that the debt is disputed so long as the debt
is “due” i.e. payable unless interdicted by some law or has not yet
become due in the sense that it is payable at some future date. It is only
when this is proved to the satisfaction of the adjudicating authority that
the adjudicating authority may reject an application and not
otherwise.”
(emphasis supplied)
16. Dr Singhvi, learned Senior Counsel while seeking to repel the contention put
forth on behalf of Indus Biotech Pvt. Ltd. seeks to emphasise that a proceeding
under Section 7 of IB Code is to be considered in a stringent manner. Referring
to the Preamble to the IB Code, it is contended that the same has evolved after
all the earlier processes like civil suit, winding-up petition, Sarfaesi proceeding
and SICA have failed to secure the desired result. The provision under the IB
Code is with the intention of making a debtor to seek the creditor. In that regard,
Dr Singhvi has referred to the decisions in Swiss Ribbons (P) Ltd. v. Union of
India [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] and Booz
Allen & Hamilton Inc. v. SBI Home Finance Ltd. [Booz Allen & Hamilton
Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532 : (2011) 2 SCC (Civ) 781] to
contend that the proceeding under Section 7 of IB Code is an action in rem. As
such insolvency and winding-up matters are non-arbitrable. In that background,
the nature of transaction under the SS and SA was referred. It is in that regard
contended that the agreement provides for the manner of redemption as also the
redemption value. The date of redemption is fixed as 31-12-2018.
The OCRPS when redeemed is payable within 15 days from the date of
redemption. In such situation, there is no other issue which requires resolution
by arbitration. Further, it is contended that Clauses 5.1 and 5.2 in Schedule J to
the agreement provided that the redemption value shall constitute a debt
outstanding by the Company to the holder. Hence the amount being debt on the
redemption date, if not paid within 15 days of redemption constituted default. In
that background, when the petition under Section 7 of IB Code was filed the
adjudicating authority ought to have looked into that aspect alone and the
consideration of an application filed under Section 8 of the 1996 Act is without
jurisdiction is the contention.
17. The procedure contemplated will indicate that before the adjudicating
authority is satisfied as to whether the default has occurred or not, in addition to
the material placed by the financial creditor, the corporate debtor is entitled to
point out that the default has not occurred and that the debt is not due,
consequently to satisfy the adjudicating authority that there is no default. In
such exercise undertaken by the adjudicating authority if it is found that there is
default, the process as contemplated under sub-section (5) of Section 7 of IB
Code is to be followed as provided under sub-section (5)(a); or if there is no
29
default the adjudicating authority shall reject the application as provided under
sub-section (5)(b) to Section 7 of IB Code. In that circumstance if the finding of
default is recorded and the adjudicating authority proceeds to admit the
application the corporate insolvency resolution process commences as provided
under sub-section (6) and is required to be processed further. In such event, it
becomes a proceeding in rem on the date of admission and from that point
onwards the matter would not be arbitrable. The only course to be followed
thereafter is the resolution process under IB Code. Therefore, the trigger point
is not the filing of the application under Section 7 of IB Code but admission of
the same on determining default.
18. In that circumstance, though Dr Singhvi has referred to the evolution of IB
Code after all earlier legal process had failed to give the rightful place to the
creditor; which is sought to be achieved by the IB Code, it cannot be said that
by the procedure prescribed under the IB Code it means that the claim of the
creditor if made before NCLT, more particularly under Section 7 of IB Code is
sacrosanct and the corporate debtor is denuded of putting forth its version or
the contention to show to the adjudicating authority that the default has not
occurred and explain the circumstance for contending so. In fact, in the very
decision relied on by both the parties in Innoventive Industries Ltd. [Innoventive
Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407 : (2018) 1 SCC (Civ) 356] , this
Court while considering the scope of the various provisions under the Act and
while referring to the procedure contemplated in a petition under Section 7 of
the IB Code, which is also extracted supra reads thus : (SCC p. 438, para 28)
“28. … It is at the stage of Section 7(5), where the adjudicating
authority is to be satisfied that a default has occurred, that the
corporate debtor is entitled to point out that a default has not occurred
in the sense that the “debt”, which may also include a disputed claim, is
not due. A debt may not be due if it is not payable in law or in fact.”
19…
20. Therefore, in a fact situation of the present nature when the process of
conversion had commenced and certain steps were taken in that direction, even
if the redemption date is kept in view and the clause in Schedule J indicating
that redemption value shall constitute a debt outstanding is taken note of; when
certain transactions were discussed between the parties and had not concluded
since the point as to whether it was 30% of the equity shares in the company or
10% by applying proper formula had not reached a conclusion and thereafter
agreed or disagreed, it would not have been appropriate to hold that there is
default and admit the petition merely because a claim was made by Kotak
Venture as per the originally agreed date and a petition was filed. In the process
of consideration to be made by the adjudicating authority the facts in the
particular case are to be taken into consideration before arriving at a
30
conclusion as to whether a default has occurred even if there is a debt in strict
sense of the term, which exercise in the present case has been done by the
adjudicating authority.
21. In such circumstance if the adjudicating authority finds from the material
available on record that the situation is not yet ripe to call it a default, that too
if it is satisfied that it is profit making company and certain other factors
which need consideration, appropriate orders in that regard would be made;
the consequence of which could be the dismissal of the petition under Section
7 of IB Code on taking note of the stance of the corporate debtor. As otherwise
if in every case where there is debt, if default is also assumed and the process
becomes automatic, a company which is ably running its administration and
discharging its debts in planned manner may also be pushed to the corporate
insolvency resolution process and get entangled in a proceeding with no point of
return. Therefore, the adjudicating authority certainly would make an objective
assessment of the whole situation before coming to a conclusion as to whether
the petition under Section 7 of IB Code is to be admitted in the factual
background. Dr Singhvi, however contended, that when it is shown the debt is
due and the same has not been paid the adjudicating authority should record
default and admit the petition. He contends that even in such situation the
interest of the corporate debtor is not jeopardised inasmuch as the admission
orders made by the adjudicating authority are appealable to NCLAT and
thereafter to the Supreme Court where the correctness of the order in any case
would be tested. We note, it cannot be in dispute that so would be the case even
if the adjudicating authority takes a view that the petition is not ripe to be
entertained or does not constitute all the ingredients, more particularly default,
to admit the petition, since even such order would remain appealable to NCLAT
and the Supreme Court where the correctness in that regard also will be
examined.”
12.8. Applying the aforesaid principles to the present case, the Corporate
Debtor admittedly possesses no adjudicated or realisable claim exceeding the
amount in default. Its reliance on business viability, unsold inventory, project
status, or anticipated receivables does not constitute “good reasons” in law to
defer or deny admission of CIRP.
31
12.9. The existence of a financial debt owed to EARCL is undisputed.
Persistent defaults stand admitted and are conclusively established on record,
including breach of the restructuring agreement and failure to pay instalments
within the stipulated cure period. The restructuring arrangement failed due to
non-payment by the Corporate Debtor, thereby triggering an express event of
default under its terms.
12.10. Any alleged non-cooperation by EARCL occurred subsequent to the
default and cannot absolve the Corporate Debtor of its admitted failure to
comply with its payment obligations. The NCLAT correctly held that
considerations such as ongoing operations, partial project completion, or
anticipated receivables are extraneous to the statutory mandate under Section 7.
12.11. The contention that EARCL misused the Code as a recovery tool is
equally untenable. The Code does not prohibit a financial creditor from
invoking CIRP merely because recovery proceedings under the SARFAESI Act
or before the DRT are pending or have been initiated. Section 238 accords
overriding effect to the Code, and upon admission, the moratorium under
Section 14 stays all such proceedings.
12.12. Allegations of mala fide invocation can be examined only within the
framework of Section 65 of the Code, which requires specific pleadings and
proof of abuse of process by the Corporate Debtor. No such case has been
pleaded or established on the facts of the present case.
32
12.13. In Kotak Mahindra Bank Ltd. v. A. Balakrishnan and another
20
, this
Court held that the trigger point for CIRP is default, and that even a recovery
certificate constitutes a fresh cause of action for initiation of insolvency
proceedings. The mere pendency of parallel recovery proceedings does not
establish mala fides unless abuse under Section 65 is demonstrated. The
following paragraphs are apposite in this context:
“40. From the scheme of the IBC, it could be seen that where any corporate
debtor commits a default, a financial creditor, an operational creditor or the
corporate debtor itself is entitled to initiate CIRP in respect of such corporate
debtor in the manner as provided under the said Chapter. The default has been
defined to mean non-payment of debt. The debt has been defined to mean a
liability or obligation in respect of a claim which is due from any person and
includes a financial debt and operational debt. A claim means a right to
payment, whether or not such right is reduced to judgment, fixed, disputed, etc.
It is more than settled that the trigger point to initiate CIRP is when a default
takes place. A default would take place when a debt in respect of a claim is due
and not paid. A claim would include a right to payment whether or not such a
right is reduced to judgment.”
“54. In any case, we have already discussed hereinabove that the trigger point
for initiation of CIRP is default of claim. “Default” is non-payment of debt by
the debtor or the corporate debtor, which has become due and payable, as the
case may be, a “debt” is a liability or obligation in respect of a claim which is
due from any person, and a “claim” means a right to payment, whether such a
right is reduced to judgment or not. It could thus be seen that unless there is a
“claim”, which may or may not be reduced to any judgment, there would be no
“debt” and consequently no “default” on non-payment of such a “debt”. When
the “claim” itself means a right to payment, whether such a right is reduced to a
judgment or not, we find that if the contention of the respondents, that merely on
a “claim” being fructified in a decree, the same would be outside the ambit of
clause (8) of Section 5 IBC, is accepted, then it would be inconsistent with the
plain language used in the IBC. As already discussed hereinabove, the definition
is inclusive and not exhaustive. Taking into consideration the object and
purpose of the IBC, the legislature could never have intended to keep a debt,
which is crystallised in the form of a decree, outside the ambit of clause (8) of
Section 5 IBC.
20
(2022) 9 SCC 186
33
55. Having held that a liability in respect of a claim arising out of a recovery
certificate would be a “financial debt” within the ambit of its definition under
clause (8) of Section 5 IBC, as a natural corollary thereof, the holder of such
recovery certificate would be a financial creditor within the meaning of clause
(7) of Section 5 IBC. As such, such a “person” would be a “person” as provided
under Section 6 IBC who would be entitled to initiate the CIRP.
56. Insofar as the contention of the respondents with regard to clause (a) of sub-
section (1) of Section 14 IBC is concerned, we do not find that the words used in
clause (a) of sub-section (1) of Section 14 IBC could be read to mean that the
decree-holder is not entitled to invoke the provisions of the IBC for initiation of
CIRP. A plain reading of the said Section would clearly provide that once CIRP
is initiated, there shall be prohibition for institution of suits or continuation of
pending suits or proceedings against the corporate debtor including execution
of any judgment, decree or order in any court of law, tribunal, arbitration panel
or other authority. The prohibition to institution of suit or continuation of
pending suits or proceedings including execution of decree would not mean
that a decree-holder is also prohibited from initiating CIRP, if he is otherwise
entitled to in law. The effect would be that the applicant, who is a decree-
holder, would himself be prohibited from executing the decree in his favour.”
12.14. The above position was reiterated in Tottempudi Salalith v. SBI
21
.
Relying upon Kotak Mahindra, this Court held as follows:
“20. On behalf of the appellant, submissions have been made that the banks
having approached the DRT, were barred under the doctrine of election from
approaching NCLT for recovery of same set of debts. This is a doctrine
embodied in the law of evidence, which bars prosecution of the same right in
two different fora based on the same cause of action. But so far as the present
appeal is concerned, the recovery proceedings before the DRT had commenced
in the year 2014. At that point of time, IBC had not come into existence.
Moreover, it has been held by this Court in Kotak Mahindra-1 [Kotak Mahindra
Bank Ltd. v. A. Balakrishnan, (2022) 9 SCC 186 : (2022) 4 SCC (Civ) 548] that
the recovery certificate itself would give rise to a fresh cause of action entitling
a financial creditor to initiate Corporate Insolvency Resolution Process
(CIRP). By this judgment, the right of the financial creditor to invoke the
mechanism under IBC after issue of recovery certificate stood acknowledged
as a valid legal course. This Court, in that case also dealt with the question of
instituting a CIRP on the strength of recovery certificate. Needless to add, such
21
(2024) 1 SCC 24
34
recovery certificate arose out of a proceeding from the DRT. The enforcement
mechanism for a recovery certificate is an independent course, which a financial
creditor may opt for realisation of its dues crystalised under the 1993 Act,
instead of chasing the mechanism under the 1993 Act.
21. IBC itself is not really a debt recovery mechanism but a mechanism for
revival of a company fallen in debt, but the procedure envisaged in IBC
substantially relates to ensuring recovery of debts in the process of applying
such mechanism. The question of election between the fora for enforcement of
debt under the 1993 Act and initiation of CIRP under IBC arises only after a
recovery certificate is issued. The reliefs under the two statutes are different and
once CIRP results in declaration of moratorium, the enforcement mechanism
under the 1993 Act or the SARFAESI Act gets suspended. In such circumstances,
after issue of recovery certificate, the financial creditor ought to have option for
enforcing recovery through a new forum instead of sticking on to the mechanism
through which recovery certificate was issued. In Transcore v. Union of
India [Transcore v. Union of India, (2008) 1 SCC 125 : (2008) 1 SCC (Civ)
116], application of SARFAESI mechanism was held permissible even though
the subject-proceeding was instituted under the 1993 Act.
22. Thus, the doctrine of election cannot be applied to prevent the financial
creditors from approaching NCLT for initiation of CIRP.”
12.15. Further, in Haldiram Incorporation (P) Ltd. v. Amrit Hatcheries (P)
Ltd.
22
, this Court upheld proceedings under the SARFAESI Act even where sale
concluded shortly before the moratorium. While we express our strong
disapproval of lenders pursuing parallel proceedings after having approached
the NCLT, such conduct, though deprecated, is not illegal per se. What is
prohibited is malicious recovery within the meaning of Section 65, and not
recovery in the traditional sense.
22
2023 SCC OnLine SC 1706
35
12.16. The concept of revival under the IBC does not exclude recovery
altogether; it excludes abuse of insolvency as a pressure tactic. The
Adjudicating Authority retains a crucial gatekeeping role at later stages,
particularly at the time of approval of the resolution plan, to ensure compliance
with the Code while respecting the primacy of the commercial wisdom of the
Committee of Creditors.
12.17. In Karad Urban Cooperative Bank Limited v. Swwapnil Bhingardevay
and others
23
, this Court reiterated that questions relating to feasibility and
viability fall squarely within the domain of the CoC, and cannot be examined at
the threshold stage. The following paragraphs are relevant in this regard:
“12. We have carefully considered the rival submissions. On the first question
regarding the viability and feasibility of a resolution plan, the law is now well-
settled. In K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150, it was
held as follows:
“52…There is an intrinsic assumption that financial creditors are fully
informed about the viability of the corporate debtor and feasibility of the
proposed resolution plan…The opinion on the subject matter expressed
by them after due deliberations in the CoC meetings through voting, as
per voting shares, is a collective business decision. The legislature,
consciously, has not provided any ground to challenge the “commercial
wisdom” of the individual financial creditors or their collective decision
before the adjudicating authority. That is made non-justiciable.
…
57…The provisions investing jurisdiction and authority in NCLT or
NCLAT as noticed earlier, have not made the commercial decision
exercised by CoC of not approving the resolution plan or rejecting the
same, justiciable. This position is reinforced from the limited grounds
specified for instituting an appeal that too against an order “approving a
resolution plan” under Section 31.
58…Further, the jurisdiction bestowed upon the appellate authority
(NCLAT) is also expressly circumscribed. It can examine the challenge
23
(2020) 9 SCC 729
36
only in relation to the grounds specified in Section 61(3) of the I&B
Code, which is limited to matters “other than” enquiry into the autonomy
or commercial wisdom of the dissenting financial creditors.
…
64…At best, the adjudicating authority (NCLT) may cause an enquiry
into the “approved” resolution plan on limited grounds referred to in
Section 30(2) read with Section 31(1) of the I&B Code. It cannot make
any other inquiry nor is competent to issue any direction in relation to
the exercise of commercial wisdom of the financial creditors — be it for
approving, rejecting or abstaining, as the case may be. Even the inquiry
before the appellate authority (NCLAT) is limited to the grounds under
Section 61(3) of the I&B Code. It does not postulate jurisdiction to
undertake scrutiny of the justness of the opinion expressed by financial
creditors at the time of voting.”
13. Thereafter, in Essar Steel (India) Ltd. Committee of Creditors v. Satish
Kumar Gupta, (2020) 8 SCC 531, this Court held:
“67…Thus, it is clear that the limited judicial review available, which
can in no circumstance trespass upon a business decision of the majority
of the Committee of Creditors, has to be within the four corners of
Section 30(2) of the Code, insofar as the Adjudicating Authority is
concerned, and Section 32 read with Section 61(3) of the Code, insofar
as the Appellate Tribunal is concerned.
…
73…Thus, while the Adjudicating Authority cannot interfere on merits
with the commercial decision taken by the Committee of Creditors, the
limited judicial review available is to see that the Committee of Creditors
has taken into account the fact that the corporate debtor needs to keep
going as a going concern during the insolvency resolution process; that
it needs to maximise the value of its assets; and that the interests of all
stakeholders including operational creditors has been taken care of.”
14. The principles laid down in the aforesaid decisions, make one thing very
clear. If all the factors that need to be taken into account for determining
whether or not the corporate debtor can be kept running as a going concern
have been placed before the Committee of Creditors and the CoC has taken a
conscious decision to approve the resolution plan, then the adjudicating
authority will have to switch over to the hands off mode. It is not the case of the
corporate debtor or its promoter/Director or anyone else that some of the
factors which are crucial for taking a decision regarding the viability and
feasibility, were not placed before the CoC or the Resolution Professional. The
only basis for the corporate debtor to raise the issue of viability and feasibility is
that the ownership and possession of the ethanol plant and machinery is the
subject matter of another dispute and that the resolution plan does not take care
37
of the contingency where the said plant and machinery may not eventually be
available to the Successful Resolution Applicant.”
Thus, if the CoC approves a resolution plan in derogation of the objectives,
scheme, and ethos of the Code, the NCLT is not rendered powerless at the stage
of approval. The contention of the Corporate Debtor that the respondent –
Financial Creditor is merely seeking recovery is, therefore, wholly untenable in
law.
12.18. The NCLAT, upon a detailed examination of the material on record,
found that the Corporate Debtor had persistently acknowledged defaults under
both the sanction letters and the restructuring agreement. It further noted that the
Corporate Debtor was facing acute financial distress, had failed to comply with
regulatory requirements, was unable to obtain mandatory compliance
certificates, and could not sell units at prevailing market rates despite multiple
attempts. Even according to another creditor, SBI, which had advanced money
under the SWAMIH Fund, a public fund sponsored by taxpayers for the
completion of stalled projects, the Corporate Debtor had refused to cooperate in
relation to completion of the project as well as adherence to the repayment
schedule. These circumstances, taken cumulatively, substantiated EARCL’s
request for initiation of CIRP.
12.19. The NCLAT further held that EARCL’s revocation of the restructuring
arrangement was contractually justified owing to the Corporate Debtor’s failure
to pay instalments. The breach of the restructuring terms triggered express
38
events of default under the relevant clauses, thereby entitling EARCL to recall
the entire outstanding liability. Despite repeated reminders, the Corporate
Debtor failed to cure the defaults within the stipulated cure period, and EARCL
was under no legal or contractual obligation to reopen or renegotiate the
restructuring.
12.20. The NCLAT rejected the plea of mala fide invocation, observing that
acceptance of such argument would render lenders effectively remediless. It also
rejected the contention that the Corporate Debtor’s alleged viability could
excuse non-payment of admitted dues, noting that financial distress was
manifest from the continuing and acknowledged defaults.
12.21. The debt and default having been conclusively established, and the
narrow exception carved out in Vidarbha Industries being clearly inapplicable,
the NCLAT was fully justified in admitting the Corporate Debtor into the CIRP.
The NCLT’s refusal was contrary to the settled law and the statutory mandate of
Section 7.
12.22. Accordingly, the impugned judgment admitting the Corporate Debtor
into the CIRP does not suffer from any legal infirmity.
39
13. Question No. 2 – Rejection of the Intervention Application filed by
the Society
13.1. While it is undisputed that individual homebuyers are financial creditors
within the meaning of the IBC, the core question that arises for determination is
whether a society or association of homebuyers possesses locus standi to
intervene in proceedings under Section 7 of the Code, either at the admission
stage or at the appellate stage.
13.2. The appellant Society contends that it represents the collective interest of
the allottees, membership being mandatory under its bye-laws. It is urged that
the summary rejection of its intervention application by the NCLAT violates the
principles of natural justice and leaves homebuyers, particularly minority
financial creditors, remediless in the CIRP. It is further argued that the
distinction drawn by the NCLAT between completed and uncompleted towers is
artificial, arbitrary, and unsustainable.
13.3. Per contra, EARCL submits that the Society lacks locus standi, it being
neither a financial creditor under Section 5(7) nor an operational creditor under
Section 5(20) of the Code. The Society is not a party to any transaction
documents, has no privity of contract with EARCL, and does not qualify as a
recognised stakeholder under the statutory framework of the IBC.
13.4. It is further submitted that the Society is a promoter-controlled
maintenance entity constituted for the upkeep of a completed tower, and not a
40
representative body of all homebuyers in the project. No registration certificate,
general body resolution, minutes, or document evidencing collective
authorisation has been produced to substantiate any representative capacity.
13.5. The issue of locus at the Section 7 stage is no longer res integra. In GLAS
Trust Company, this Court held that while there is no rigid requirement
restricting the right to appeal only to the applicant creditor and the corporate
debtor, such latitude applies when proceedings are in rem post-admission of
CIRP. At the pre-admission stage, proceedings under Section 7 remain in
personam, and neither the Adjudicating Authority nor the Appellate Authority is
required to hear other creditors, much less unrelated third parties. When
proceedings are in personam, no right of audience inheres in persons who are
strangers to the debt and default forming the basis of the application. The
relevant paragraphs are reproduced below:
“(b) Insights from the evolution of the legal framework
63. In essence, after a series of deliberations by the legislature, the executive
and nudges by this Court, the framework created by Rule 8 of the NCLT Rules
and Section 12-A IBC read with Rule 30-A of the CIRP Regulations lays down
an exhaustive procedure for the withdrawal of an application filed by creditors
under Sections 7, 9, or 10 IBC. Withdrawal may be sought at four stages, all of
which have a procedure prescribed under the existing framework. These may be
summarised as follows:
63.1. Before the application under Sections 7, 9 or 10 is admitted by NCLT:
Such cases are squarely covered by Rule 8 of the NCLT Rules, which requires
that the applicant approach NCLT directly. NCLT may then pass an order
permitting the withdrawal of the application. At this stage, as CIRP process has
not been initiated, the proceedings are still in personam, as between the
applicant creditor and the corporate debtor. Therefore, while approving the
withdrawal at this stage, NCLT may restrict its enquiry to only hear the
41
applicant creditor and corporate debtor, and other potential creditors are not
stakeholders at this stage.
63.2.……
75. The provision stipulates that “any person” who is aggrieved by the order
of NCLAT may file an appeal before the Supreme Court within the prescribed
limitation period. Similar language is used in Section 61 IBC, which provides
for appeals to NCLAT from orders of NCLT.
24
The use of the phrase “any
person aggrieved” indicates that there is no rigid locus requirement to institute
an appeal challenging an order of NCLT, before NCLAT or an order of NCLAT,
before this Court. Any person who is aggrieved by the order may institute an
appeal, and nothing in the provision restricts the phrase to only the applicant
creditor and the corporate debtor. As noted above, once CIRP is initiated, the
proceedings are no longer restricted to the individual applicant creditor and the
corporate debtor but rather become collective proceedings (in rem), where all
creditors, such as the appellant, are necessary stakeholders. The appellant is
not an unrelated party to CIRP, but is in fact, an entity whose claims had been
verified by the IRP vide letter dated 19-8-2024. The appellant who claims to be
a financial creditor, has expressed reasonable apprehensions about the
prejudice it would face if there were roundtripping of the funds, and the
prioritisation of the debts of the second respondent, an operational creditor.”
13.6. This position was reiterated in Independent Sugar Corpn. Ltd. v.
Hindustan National Gas & Industries Ltd. (Resolution Professional)
25
.
Though the said case concerned the locus of a failed resolution applicant, the
Court reaffirmed that participatory rights depend upon the stage of the
proceedings and that, even otherwise, a party must demonstrate legally
cognizable prejudice and cannot be a complete stranger to the insolvency
process. The relevant paragraph is extracted for reference:
24
“61. Appeals and appellate authority.—(1) Notwithstanding anything to the contrary contained
under the Companies Act, 2013 (18 of 2013), any person aggrieved by the order of the adjudicating
authority under this part may prefer an appeal to the National Company Law Appellate Tribunal.”
(emphasis supplied)
25
(2025) 5 SCC 209
42
“24. Once the CIRP is initiated, the nature of proceedings are no longer in
personam but rather become in rem. In light of the same, the expression “any
person aggrieved” in the context of IBC has been held to be indicative of there
being no rigid locus requirements to institute an appeal challenging an order of
NCLT before NCLAT or an order of NCLAT before this Court. [GLAS Trust Co.
LLC v. Byju Raveendran, (2025) 3 SCC 625 : (2024) 247 Comp Cas 687]
Similarly, in the context of the Competition Act, even those persons that bring to
CCI information of practices that are contrary to the provisions of the
Competition Act, could be said to be “aggrieved”. [Samir Agrawal v. CCI (Cab
Aggregators Case), (2021) 3 SCC 136] Therefore, the term “any person
aggrieved” appearing in Section 62 IBC and Section 53-T of the Competition
Act must be understood widely and not in a restricted fashion.
25. In the present case, the appellant as an unsuccessful resolution applicant
whose resolution plan could have otherwise been approved by CoC, satisfies the
requirement of being aggrieved. This preliminary locus standi objection vis-à-
vis the appellant, therefore, does not merit acceptance.”
13.7. The IBC is a self-contained code which confers participatory rights only
on persons falling within statutorily defined categories. A financial creditor
under Section 5(7) must be a person to whom a financial debt is owed. While
the Explanation to Section 5(8)(f) deems individual allottees to be financial
creditors, it does not extend such status to societies or associations unless the
entity is itself a creditor in its own right, or is statutorily recognised as an
authorised representative under the Code.
13.8. A society is a distinct juristic entity separate from its members. Unless it
has itself advanced funds, executed allotment agreements, or received
allotments, it cannot claim financial creditor status. The right to initiate or
participate in CIRP flows from the debt transaction and the statute, not from
associative or representational interest.
43
13.9. Homebuyers’ societies or welfare associations are ordinarily constituted
for maintenance and management of common facilities. Their office-bearers
cannot litigate on behalf of allottees or claim representative status before
adjudicatory fora absent explicit statutory recognition or legally valid
authorisation.
13.10. Any contrary interpretation would impermissibly enlarge the statutory
definition of “financial creditor”, encroach upon individual rights of allottees,
and create an extra-statutory layer of representation. It would also enable errant
corporate debtors to obstruct and delay insolvency proceedings under the guise
of purported collective interests – an abuse expressly cautioned against in
Pioneer Urban Land.
13.11. Proceedings under Section 7 are essentially bipartite at the admission
stage, involving only the financial creditor and the corporate debtor. Unrelated
third parties including other creditors, have no independent right of audience at
this stage, a principle consistently affirmed by this Court.
13.12. Collective representation of homebuyers is statutorily regulated and
arises only after admission of CIRP through the authorised representative
mechanism under Section 21(6A) read with Regulation 16A of the CIRP
Regulations. The Code does not contemplate ad hoc or self-appointed
representation at the pre-admission or appellate stage. In the context of real
estate allottees, Section 7 itself mandates that an application must be filed
jointly by the prescribed number of allottees and not through any authorised
44
representative, much less through a non-party housing society formed for
maintenance purposes.
13.13. In Phoenix ARC Pvt. Ltd v. Spade Financial Services Ltd.
26
, this Court
reiterated that financial creditor status must be determined strictly with reference
to the nature of the transaction and cannot be conferred by implication or
association.
13.14. Though in Chitra Sharma, homebuyer associations were permitted to
participate, such intervention was exceptional, grounded in Article 142 of the
Constitution, and cannot be treated as a precedent conferring general locus on
societies in statutory insolvency proceedings.
13.15. Rule 11 of the NCLAT Rules preserves inherent powers to meet the
ends of justice. However, such powers are residual and cannot override the
statutory structure of the Code or create substantive participatory rights where
the statute deliberately excludes them. In this context, reference was made to the
decision in GLAS Trust Company, wherein, it was held as follows:
“(iii) Scope of “inherent powers” under Rule 11
67. Section 151 of the Code of Civil Procedure (“CPC”) reads as follows:
“151. Saving of inherent powers of Court.—Nothing in this Code shall
be deemed to limit or otherwise affect the inherent power of the Court to
make such orders as may be necessary for the ends of justice or to
prevent abuse of the process of the Court.”
68. Rule 11 of the NCLT Rules, 2016 and Rule 11 of the NCLAT Rules, 2016,
which preserve the inherent powers of NCLT and NCLAT, respectively, mirror
Section 151CPC and read as follows:
“11. Inherent powers.—Nothing in these Rules shall be deemed to limit
or otherwise affect the inherent powers of the Appellate Tribunal to make
26
(2021) 3 SCC 475
45
such orders or give such directions as may be necessary for meeting the
ends of justice or to prevent abuse of the process of the Appellate
Tribunal.”
69. In a consistent line of precedent, this Court has held that “inherent powers”
may be exercised in cases where there is no express provision under the legal
framework. However, such powers cannot be exercised in contravention of,
conflict with or in ignorance of express provisions of law. We may helpfully
refer to the observations of a two-Judge Bench of this Court in one such case.
In Ram Chand & Sons Sugar Mills (P) Ltd. v. Kanhayalal Bhargava [Ram
Chand & Sons Sugar Mills (P) Ltd. v. Kanhayalal Bhargava, (1967) 37 Comp
Cas 42 : 1966 SCC OnLine SC 215] a two-Judge Bench of this Court, speaking
through K. Subba Rao, J. (as the learned Chief Justice then was), opined : (SCC
OnLine SC para 5)
“5. … Having regard to the said decisions, the scope of the inherent
power of a court under Section 151 of the Code may be defined thus: The
inherent power of a court is in addition to and complementary to the
powers expressly conferred under the Code. But that power will not be
exercised if its exercise is inconsistent with, or comes into conflict with,
any of the powers expressly or by necessary implication conferred by the
other provisions of the Code. If there are express provisions exhaustively
covering a particular topic, they give rise to a necessary implication that
no power shall be exercised in respect of the said topic otherwise than in
the manner prescribed by the said provisions. Whatever limitations are
imposed by construction on the provisions of Section 151 of the
Code, they do not control the undoubted power of the Court conferred
under Section 151 of the Code to make a suitable order to prevent the
abuse of the process of the Court.”
(emphasis supplied)
70. When a procedure has been prescribed for a particular purpose
exhaustively, no power shall be exercised otherwise than in the manner
prescribed by the said provisions. In such cases, the court must be circumspect
in invoking its “inherent powers” to deviate from the prescribed procedure. If
such deviation is made, the court must justify why this was necessary to
“prevent the abuse of the process of the Court”.
71. The need to be circumspect while invoking “inherent powers”, when there is
an exhaustive legal framework is amplified in the context of a legislation like the
IBC. In Ebix Singapore (P) Ltd. v. Educomp Solutions Ltd. (CoC) [Ebix
Singapore (P) Ltd. v. Educomp Solutions Ltd. (CoC), (2022) 2 SCC 401 : (2022)
1 SCC (Civ) 586 : (2022) 231 Comp Cas 110], a two-Judge Bench of this Court,
speaking through one of us (D.Y. Chandrachud, J.), affirmed this position and
observed as follows: (SCC p. 481, para 101)
46
“101. Any claim seeking an exercise of the adjudicating authority's
residuary powers under Section 60(5)(c) IBC, NCLT's inherent powers
under Rule 11 of the NCLT Rules, 2016 or even the powers of this
Court under Article 142 of the Constitution must be closely scrutinised
for broader compliance with the insolvency framework and its
underlying objective. The adjudicating mechanisms which have been
specifically created by the statute, have a narrowly defined role in the
process and must be circumspect in granting reliefs that may run
counter to the timeliness and predictability that is central to IBC. Any
judicial creation of a procedural or substantive remedy that is not
envisaged by the statute would not only violate the principle of
separation of powers, but also run the risk of altering the delicate
coordination that is designed by IBC framework and have grave
implications on the outcome of CIRP, the economy of the country and the
lives of the workers and other allied parties who are statutorily bound by
the impact of a resolution or liquidation of a corporate debtor.”
13.16. As clarified in GLAS Trust Company, invocation of Rule 11 to oppose
admission of a Section 7 petition is impermissible once debt and default are
established. The inherent power preserved under Rule 11 does not confer a
substantive right of participation where the statute has consciously and
deliberately excluded it.
13.17. In the present case, the appellant Society is neither a financial nor an
operational creditor. It is a maintenance society not constituted for insolvency
representation. No documentary proof of registration, collective authorisation,
or general body resolution has been produced. Membership is automatic and
mandatory, negating consensual representation. Reliance on compulsory
membership to claim representational authority on behalf of allottees is nothing
but a brutm fulmen. Notably, the intervention application was filed only at the
appellate stage and not before the NCLT. The Society is not a party to the
47
financial transaction forming the substratum of the Section 7 application. Hence,
no statutory right of appeal inheres in the appellant.
13.18. While the NCLAT’s distinction between completed and uncompleted
towers may be overbroad and untenable, the ultimate conclusion on absence of
locus standi rests on sound legal footing. Permitting such intervention would
undermine the expeditious and structured insolvency framework envisaged
under the Code.
13.19. The plea of violation of principles of natural justice is equally untenable.
It is settled that such violation cannot be alleged in the absence of demonstrable
prejudice, particularly where no foundational right of participation exists.
Reference may be made to Bishambhar Prasad v. Arfat Petrochemicals Pvt.
Ltd. and others
27
, the relevant paragraphs of which are usefully extracted
below:
“77. The importance of Principles of Natural Justice, among which we are
concerned with audi alterem partem in this case, have been deliberated upon by
this Court numerous times in the past. As far back as in Union of India v. P.K.
Roy (1968) 2 SCR 186, the Court held:
“12…But the extent and application of the doctrine of natural justice
cannot be imprisoned within the strait-jacket of a rigid formula. The
application of the doctrine depends upon the nature of the jurisdiction
conferred on the administrative authority, upon the character of the
rights of the persons affected, the scheme and policy of the statute and
other relevant circumstances disclosed in the particular case…”
78. Further, in A.K. Kraipak v. Union of India (1969) 2 SCC 262, the nature of
an administrative power and the obligations reposed upon the State to function
in a just and fair manner was explained:
27
2023 SCC OnLine SC 458
48
“13. The dividing line between an administrative power and a quasi-
judicial power is quite thin and is being gradually obliterated. For
determining whether a power is an administrative power or a quasi-
judicial power one has to look to the nature of the power conferred, the
person or persons on whom it is conferred, the framework of the law
conferring that power, the consequences ensuing from the exercise of
that power and the manner in which that power is expected to be
exercised. Under our Constitution the rule of law pervades over the
entire field of administration. Every organ of the State under our
Constitution is regulated and controlled by the rule of law. In a welfare
State like ours it is inevitable that the jurisdiction of the administrative
bodies is increasing at a rapid rate. The concept of rule of law would
lose its vitality if the instrumentalities of the State are not charged with
the duty of discharging their functions in a fair and just manner. The
requirement of acting judicially in essence is nothing but a requirement
to act justly and fairly and not arbitrarily or capriciously. The
procedures which are considered inherent in the exercise of a judicial
power are merely to facilitate if not ensure a just and fair decision. In
recent years the concept of quasi-judicial power has been undergoing a
radical change. What was considered as an administrative power some
years back is now being considered as a quasi-judicial power…”
79. In this context, it may be true that the Principles of Natural Justice entailed
giving Respondent No. 1 an opportunity to defend its rights. However, the most
decisive and crucial factor is whether any legally vested ‘right’ ever accrued in
favour of Respondent No. 1, which the State Government could not have
despoiled behind its back. It has already been held by us categorically that
RIICO had no authority whatsoever to accord permission for conversion and
sub-division of the industrial land allotted to Respondent No. 1. We have further
opined that the State Government has always retained its authority as lessor and
was the only competent authority to grant such permissions to Respondent No. 1
within the framework of the 1959 Rules. The irresistible conclusion would be
that the self-styled power exercised by RIICO, was without any sanction in
law; it lacked inherent competence and RIICO acted beyond its jurisdiction in
respect of LIA, Kota. The permissions accorded by RIICO in favour of
Respondent No. 1 did not confer any rights whatsoever, much less any
enforceable right in the eyes of law. RIICO usurped the powers vested in the
State Government and passed palpably illegal orders in favour of Respondent
No. 1. The agreements between RIICO and Respondent No. 1 are nothing
but brutum fulmen.”
49
13.20. Accordingly, in the instant case, in the absence of any foundational right
to participate in the proceedings before NCLT or NCLAT, the appellant society
cannot claim a vested right to be heard at the appellate stage, for such right
flows from the statute and is not a matter of right.
13.21. Even otherwise, no prejudice is demonstrated:
• Homebuyers already in possession stand outside the insolvency estate.
• Pending allottees are recognised financial creditors who are entitled to file
claims and participate in the CoC through authorised representatives.
• Regulation 4E protects possession subject to 66% CoC approval.
• Any approved resolution plan binds all stakeholders and ensures
equitable treatment.
• RERA rights stand harmonized with the IBC, as held by this Court in
Pioneer Urban Land and Mansi Brar Fernandez.
13.22. Accordingly, we hold that
• The right to initiate or participate in insolvency proceedings is statutory,
not equitable.
• A society or Resident Welfare Association, not being a creditor in its own
right and not recognised as an authorised representative of allottees under
the IBC, has no locus standi to intervene in proceedings arising out a
Section 7 petition.
50
• The NCLAT was justified in rejecting the Society’s intervention
application.
• No prejudice has been caused to homebuyers, whose interests are
adequately safeguarded under the Code.
14. At this juncture, we may aptly refer to the decision in Mansi Brar
Fernandes v. Shubha Sharma and another
28
, wherein while dealing with the
growing misuse of the insolvency framework by speculative investors in real
estate projects, this Bench revisited, reiterated, and consolidated the settled
principles governing the interplay between RERA, the Consumer Protection
Act, and the IBC. In the said decision, the Court not only underscored the
primacy of sector-specific remedies in real estate disputes but also issued a
series of consequential directions, recognising the right to shelter as an integral
facet of the right to life under Article 21 of the Constitution. The following
paragraphs are apposite and merit extraction:
“15.2. In this necessary in this backdrop to reiterate certain settled principles:
• RERA remains the primary forum for redressal of homebuyers’ grievances;
• The IBC is a forum of last resort, intended to secure revival and completion of
viable projects, not to serve as a debt recovery mechanism; and
• Consumer forums should confine themselves to adjudicating individual service
deficiencies, thereby avoiding conflicting or overlapping orders across multiple
fora.
15.4. Strict adherence to IBC timelines and settled precedent is imperative to
realise two complementary objectives:
28
2025 INSC 1110
51
(i)ensuring revival and completion of stalled projects for the benefit of genuine
homebuyers; and
(ii)curbing speculative activity which has functioned as a “slow poison” for the
residential real estate sector and, by extension, the Indian middle class.
18.3.1. The Court further noted that remedies under RERA and the Consumer
Protection Act are additional, not exclusive. Both statutes operate alongside the
IBC, but with distinct purposes: RERA protects individual investors by enforcing
compliance with project obligations, while the IBC operates in rem to revive the
corporate debtor and maximise value for all stakeholders.
18.3.2. Importantly, Pioneer Urban held that once a prima facie default is
established under Section 7 of the Code, the burden shifts onto the developer to
demonstrate that the applicant is a defaulter, or that the process has been
invoked fraudulently, with malicious intent, or by a speculative investor. These
safeguards were intended to prevent “trigger-happy” investors from
destabilising projects or prematurely driving developers into insolvency.
21.2. In exercise of this Court’s jurisdiction, and to advance the constitutional
and statutory objectives, the following directions are issued to the concerned
authorities, in the larger interests of bona fide homebuyers and the stability of
the real estate sector, which demand coordinated action by all stakeholders:
…
(6) Resolution of real estate insolvency should, as a rule, proceed on a project
specific basis rather than the entire corporate debtor, unless circumstances
justify otherwise. This would protect solvent projects and genuine homebuyers
from collateral prejudice. IBBI shall also devise a mechanism to enable
handover of possession to willing allottees where substantial units in a project
are complete.
(8) Regulations shall ensure meaningful representation of allottees in the CoC
through authorized representatives, with safeguards against conflicts of
interest.”
Conclusion
15. For the foregoing reasons,
• The appeal challenging admission of the Corporate Debtor into CIRP is
dismissed.
52
• The appeal challenging rejection of the intervention application is also
dismissed, subject to the clarification on the limited scope of locus standi
and inherent powers.
It is clarified that upon commencement of CIRP, any aggrieved stakeholder may
avail remedies strictly in accordance with the Code.
15.1. While the commercial wisdom of the Committee of Creditors is
paramount and is not ordinarily amenable to judicial review, the width of
powers vested in the CoC carries with it a corresponding duty of responsibility.
Any extraordinary or non-routine decision taken by the CoC must, therefore, be
supported by cogent reasons duly recorded in writing. Accordingly, with a view
to advancing transparency, ensuring accountability, and safeguarding the
interests of homebuyers, we issue the following directions:
i) The Information Memorandum shall mandatorily disclose comprehensive
and complete details of all allottees; and
ii) Where the Committee of Creditors, upon due consideration, finds it not
viable to approve handover of possession in terms of Regulation 4E of the
CIRP Regulations, it shall mandatorily record cogent and specific reasons
in writing for such decision.
iii) Any recommendation for liquidation by the Committee of Creditors shall
be accompanied by a reasoned justification recorded in writing,
53
evidencing proper application of mind and due consideration of all viable
alternatives, in consonance with the objective of the Code.
These directions shall operate prospectively and shall be complied with
forthwith.
16. There is no order as to costs. Pending application(s), if any, shall stand
disposed of in the above terms.
.…………………………J.
[J.B. PARDIWALA]
.…………………………J.
[R. MAHADEVAN]
NEW DELHI;
JANUARY 15, 2026.
This landmark Supreme Court judgment, Elegna Co-op. Housing and Commercial Society Ltd. v. Edelweiss Asset Reconstruction Company Limited & Anr., (2026 INSC 58) and Takshashila Heights India Private Ltd. v. Edelweiss Asset Reconstruction Company Limited & Anr., clarifies critical aspects of Insolvency and Bankruptcy Code (IBC) proceedings and the rights of homebuyers in real estate insolvencies. This pivotal ruling is now accessible on CaseOn, offering legal professionals and students comprehensive insights into its implications.
The case involved Takshashila Heights India Private Limited (Corporate Debtor), a real estate developer, which had availed financial assistance of Rs. 70 crores from ECL Finance Ltd. (Original Lender) for a residential-cum-commercial project. This debt was later assigned to Edelweiss Asset Reconstruction Company Ltd. (EARCL/Financial Creditor). Following delays and the loan becoming a Non-Performing Asset (NPA), EARCL initiated recovery proceedings, including a Section 7 petition under the IBC. The Corporate Debtor argued that the default was 'manufactured' by EARCL's refusal to issue No Objection Certificates (NOCs) for unit sales, crucial for repayment.
Separately, Elegna Co-operative Housing and Commercial Society Ltd. (Society), representing 189 unit holders in the project, sought to intervene in the proceedings. The NCLT initially dismissed EARCL's Section 7 petition, viewing it as a recovery mechanism rather than an insolvency resolution tool, and noting the project's viability. However, the NCLAT reversed this decision, admitting the Corporate Debtor into the Corporate Insolvency Resolution Process (CIRP) and rejecting the Society's intervention application for lack of locus standi. These two decisions formed the basis of the appeals before the Supreme Court.
The first primary issue before the Supreme Court was whether the National Company Law Appellate Tribunal (NCLAT) was correct in admitting the Corporate Debtor (Takshashila Heights India Private Ltd.) into the Corporate Insolvency Resolution Process (CIRP).
The Supreme Court reiterated the established legal position under Section 7 of the IBC. Key precedents cited included:
The Supreme Court found that the existence of a financial debt owed to EARCL and the Corporate Debtor's persistent defaults were undisputed. The breach of the restructuring agreement, including failure to pay instalments within the stipulated cure period, triggered an express event of default. The Court held that the Corporate Debtor's arguments regarding project viability, stage of completion, or EARCL's alleged non-cooperation were 'extraneous' at the admission stage. The NCLAT was justified in admitting the Corporate Debtor into CIRP, as the NCLT's refusal contradicted settled law and the statutory mandate of Section 7. Allegations of 'mala fide' invocation were dismissed, as no specific case of abuse of process under Section 65 of the Code was pleaded or established. The Court clarified that parallel recovery proceedings do not preclude a financial creditor from invoking the IBC.
For a quick yet comprehensive understanding of how the Supreme Court meticulously applied these established principles, legal professionals often turn to CaseOn.in's 2-minute audio briefs, which distill complex rulings like this into actionable insights.
The second key issue was whether the NCLAT was correct in rejecting the intervention application filed by the Elegna Co-operative Housing and Commercial Society Ltd.
The Court examined the concept of 'locus standi' for intervention in IBC proceedings:
The Supreme Court upheld the NCLAT's rejection of the Society's intervention application. It reasoned that the Society was merely a maintenance body, not a financial or operational creditor in its own right, nor a party to the underlying financial transaction. The Society had failed to produce documentary proof of registration as an insolvency representation body, collective authorisation, or a general body resolution for such representation. The Court emphasized that membership being 'mandatory' under bye-laws does not equate to 'consensual representation' for IBC purposes. The intervention application was filed only at the appellate stage and not before the NCLT. The Court clarified that the right to initiate or participate in insolvency proceedings is statutory, not equitable. While the NCLAT's distinction between completed and uncompleted towers was deemed 'overbroad', the ultimate conclusion on the absence of locus standi for the Society was legally sound.
Furthermore, the Court noted that no demonstrable prejudice was caused to homebuyers, as their interests are adequately safeguarded under the Code: those in possession are outside the insolvency estate, pending allottees are recognized financial creditors who can file claims and participate in the CoC through authorised representatives, and Regulation 4E protects possession subject to CoC approval. RERA rights are also harmonized with the IBC.
While dismissing both appeals, the Supreme Court, in light of the repeated issues concerning homebuyers in real estate insolvencies, issued prospective directions to enhance transparency, accountability, and safeguard homebuyers' interests:
This judgment is crucial for several reasons:
This ruling serves as a vital reference for anyone navigating the complexities of corporate insolvency, especially within the real estate sector, offering clarity on procedural requirements, stakeholder rights, and the core objectives of the IBC.
Please note that this analysis is for informational purposes only and does not constitute legal advice. For specific legal guidance, consult with a qualified legal professional.
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