CIRP against real estate developers is project-specific and confined to the project involving the default.

The Corporate Debtor (CD), M/s Raheja Developers Ltd., launched a residential project named ‘Raheja Shilas (Low Rise)’ in Gurugram

Respondent Nos. 1 to 43 (Financial Creditors in a class) were allotted units with possession due by 2012-13, but the CD failed to deliver

In August 2023, the Respondents filed a Section 7 application under the Insolvency and Bankruptcy Code, 2016 (IBC)

The Adjudicating Authority (NCLT) admitted the petition on 19.11.2024, initiating a company-wide Corporate Insolvency Resolution Process (CIRP)

The Appellant (Suspended Director) challenged this, arguing that the CIRP should be confined only to the specific project in question

During the pendency of the appeal, the NCLAT issued interim directions resulting in the CD obtaining an Occupancy Certificate (OC) and handing over possession to 33 homebuyers

1. Whether the Financial Creditors proved the existence of 'debt' and 'default' on the part of the CD

2. Whether the CIRP against the CD should be confined to the specific project 'Raheja Shilas (Low Rise)'

3. Whether the CIRP should be closed following the handover of possession to the Respondents

4. Whether Financial Creditors of other projects of the CD are entitled to prosecute their own Section 7 or Section 9 applications

The court primarily applied Section 7 of the IBC regarding the initiation of CIRP by financial creditors

It relied on the doctrine of "Project-wise CIRP" or "Reverse Corporate Insolvency Resolution Process" as established in Flat Buyers Association Winter Hills – 77, Gurgaon v. Umang Realtech Pvt. Ltd.

This principle holds that in real estate insolvencies, the process should be confined to the specific project in default to maximize assets for its specific creditors without paralyzing the CD’s other viable projects

The court further cited Gagan Tandon & Ors. v. IL&FS Financial Services Ltd. and the Supreme Court's observations in Mansi Brar Fernandes v. Shubha Sharma regarding the IBC as a forum of last resort for project revival, not mere debt recovery

The Tribunal affirmed the NCLT's finding of 'debt' and 'default', noting that possession due in 2012-14 remained undelivered for over a decade

However, the Tribunal found that the NCLT erred in initiating a company-wide CIRP

Applying the Winter Hills and Gagan Tandon precedents, the Tribunal reasoned that since the Applicants were allottees of a single project, the CIRP must be localized to 'Raheja Shilas (Low Rise)' to balance the interests of stakeholders across different projects

Regarding the closure of CIRP, the Tribunal rejected the Appellant's request for immediate termination; despite the handover of possession, the Respondents raised unresolved issues concerning delay compensation, electricity dues, and registration of units

The Tribunal concluded that until a formal settlement or Section 12A application is filed, the CIRP must continue, albeit restricted to the specific project

The Tribunal directed the IRP to continue the process for this project only, including updating creditor claims and accounting for payments made during the appeal

It further clarified that allottees and creditors of other projects are free to pursue independent legal proceedings against the CD, unaffected by this specific CIRP

Liberty was granted to the Respondents to file a Section 12A application for withdrawal if a full settlement is reached