Reverse Cirp On Real Estate Companies: More Confusion Than Clarity?

Chiranjivi Sharma and Soumyajit Saha seek to critically analyse a judgment on Reverse-Corporate Insolvency Resolution Process during the resolution process in view of the settled principles of law laid down by the Supreme Court as well as the legislative intent behind enacting the Code including all subsequent and proposed amendments.

  • Chiranjivi Sharma
  • Soumyajit Saha


Few years ago, homebuyers did not have adequate protection under the Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as “Code”). As a result, a lot of homebuyers were left in the lurch as they were not able to enforce their claims against real estate companies under the Code. In an effort to assuage the concerns of homebuyers, the legislature enacted the Insolvency and Bankruptcy (Amendment) Act, 2018 wherein, homebuyers were brought within the purview of ‘financial creditors’ under the Code. However, the recent ruling of National Company Law Appellate Tribunal (hereinafter referred to as “NCLAT”) in Flat Buyers Association Winter Hills-77, Gurgaon v. Umang Realtech Pvt. Ltd through IRP & Ors., (hereinafter referred to as “Winter Hills”) on Reverse-Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”) during the resolution process has raised a vital question on whether the judgment is contrary to the objects/scheme of the Code.


The essential issue involved in the matter was that the original applicants i.e. 2 of the allottees of the Project being developed by the Corporate Debtor, along with the Flat Buyers Association of the said Project wanted the CIRP, however, did not want approval of the resolution plan of any third-party applicant. While noting the unique status of allottees as creditors under the Code, the NCLAT noted that allottees do not have the expertise for assessing the viability and feasibility of the resolution plan or the commercial aspect / functioning of corporate debtors. Thus, they may not be able to approve a resolution plan which maximises the assets of the Corporate Debtor and balances the stakeholders.

Thereafter, on the premise that most allottees are interested in getting possession of their respective flats, the NCLAT allowed the promoter of the Corporate Debtor to stay outside the CIRP process and act as a lender, with an intention to complete the CIRP process and the Project, purportedly to enable the flat buyers to take possession of their flats.

The NCLAT noted that if CIRP is initiated against a real estate company by Financial Creditors or Operational Creditors of one project of the Corporate Debtor, the CIRP shall have to be limited to that very Project and not to other projects of the Corporate Debtor, where different plans, lands, allottees, financial institutions are involved. Accordingly, the NCLAT followed the process of Reverse CIRP in interest of the allottees and survival of real estate companies.


First and foremost, the NCLAT’s decision to ask one of the promoters of the Corporate Debtor to help the Interim Resolution Professional (“IRP”) financially so that the homebuyers/allottees can take possession of their flats during the CIRP period is contrary to the scheme of the Code. The Statement of Objects and Reasons of Insolvency and Bankruptcy (Amendment) Act, 2018 which brought Section 29-A into the Code states that, “Concerns have been raised that persons who with their misconduct contributed to defaults of companies or are otherwise undesirable, may misuse this situation due to lack of prohibition or restrictions to participate in the resolution or liquidation process and gain or regain control of the corporate debtor. This may undermine the processes laid down in the Code as the unscrupulous person would be seen to be rewarded at the expense of creditors”. It is pertinent to note that Section 29-A is intended to ensure that promoters responsible for insolvency of the corporate debtor do not participate in the resolution process.

Furthermore, Section 29-A has been enacted in the larger public interest and to facilitate effective corporate governance as the legislature had remedied a major loophole in the Code which allowed a backdoor entry to erstwhile promoters in the CIRP. In light of the legislative intent behind inclusion of Section 29-A, the authors argue that NCLAT’s directive to the promoter to act as a ‘lender’ and stay outside the CIRP is in violation of the Code. The NCLAT’s order to act in the capacity of a lender does not oust the fact that the intervenor is a ‘promoter’ and the Code excludes such ‘promoter’ to take part in the resolution process in order to gain an entry into the Corporate Debtor.


The NCLAT’s argument that the normal mechanism as is followed in a CIRP cannot be followed in cases of real estate infrastructure companies, is an attempt to circumvent the settled principles of law laid down by the Apex Court. In Chitra Sharma v. Union of India 1, homebuyers/allottees approached the Apex Court for protection of their financial interest in an insolvency proceeding against Jaypee Infratech Ltd., a SPV created by holding company Jaiprakash Associates Ltd. The Supreme Court acknowledged that liquidation of the Corporate Debtor will not sub-serve the interest of homebuyers but also added that courts must not supplant the mechanisms which have been laid down in the IBC by substituting them with a mechanism under judicial directions.

Interestingly, the NCLAT in the Winter Hills judgment noted that “Reverse Corporate Insolvency Resolution Process’ can be followed in the cases of real estate infrastructure companies in the interest of the allottees and survival of the real estate companies and to ensure completion of projects which provides employment to large number of unorganized workmen”. However, under the garb of protecting the interest of allottees, the NCLAT cannot circumvent the mechanism laid down by the legislature including precedents propounded by the Supreme Court.

The concept of Reverse CIRP as mooted in Winter Hills judgement is based on several surmises, which may have been applicable in the said case but cannot be followed as a practice for other real estate companies. Some of the facts peculiar in this case were as follows:-

  • a. The flats had been substantially constructed and were at the verge of being handed over for possession;
  • b. Most allottees wanted possession of flats;
  • c. Allottees did not possess knowledge and expertise to assess viability of resolution plans

However, it is important to note that the aforesaid situation may not be applicable in cases of other real estate developers, where the agreed date of possession has surpassed and the flats are still not ready, which is more common than the peculiar situation in the Winter Hills case. Thus, in such cases, even though the allottees may not agree to third party resolution plans, however they would, in all likelihood, not agree to wait for the possession of flats and seek refund of money with interest by liquidating the company.

1. Writ Petition (Civil) No.744 of 2017

Further, the legislature as well as the Supreme Court have time and again recognized allottees to be a special category of financial creditors and it has also been acknowledged in the Insolvency and Bankruptcy Code (Amendment) Act, 2020, whereunder it has been stated that at least one hundred allottees or ten percent of the total number of allottees of a Project are required to initiate CIRP against real estate developers. However, at the same time, formulating the Reverse CIRP only on the basis of assumption that allottees do not have the knowledge to ascertain the financial viability of plans is highly ill-placed. The Code does not provide for any differentiation or any benchmark whatsoever regarding the qualifications of the financial creditors, thus, any CIRP initiated by the allottees ought to be treated in a similar manner as the CIRP initiated by any other financial creditor as per Section 7 of the Code. In fact, as was observed by the Supreme Court in Pioneer Urban Land and Infrastructure Ltd. v. Union of India 2 , there are other financial creditors who may be on a similar footing as allottees, such as individual debenture holders and fixed deposit holders, who may not have the expertise to assess the feasibility of resolution plans, however, the same does not bar them from being a part of the Committee of Creditors.

Moreover, in the Winter Hills judgement, the Promoter was willing to disburse funds to avoid CIRP, thus the process of reverse CIRP could be followed. However, in a situation where the promoter fails to disburse funds or the amount generated from dues of Allottees during CIRP is insufficient to keep the Corporate Debtor as a going concern, then the concept of Reverse CIRP may not be a solution for homebuyers or Corporate Debtor. Thus, the very objective of the Code, which is revival and continuation of the Corporate Debtor by protecting the company from its own management has been completely overlooked by NCLAT. Furthermore, the mechanism adopted by NCLAT in the Reverse CIRP is too peculiar to the fact and circumstances of the Winter Hills Judgment and it is unlikely that the same can be used as a precedent to be followed in other matters involving real estate developers.


The NCLAT’s decision to confine CIRP against the real estate company (Corporate Debtor) to a particular project and not across all projects is devoid of any reason. As the Apex Court in Swiss Ribbons (P) Ltd. v. Union of India 3, highlighted that the object of the Code is reorganization and insolvency resolution of Corporate Debtors and therefore, maximisation of value of the assets of such persons so that they are efficiently run as going concerns.

2. Writ Petition (Civil) No.43 of 2019
3. Writ Petition (Civil) No.99 of 2018

Apparently, the NCLAT, while restricting the CIRP in cases of real estate companies to a Project has gone beyond the scope of the Code as the entire Code only contemplates the insolvency of the Corporate Debtor and there is no concept of limited CIRP under the Code. For that matter be it Section 2 or Section 4 or even the recently added Explanation to Section 7 i.e. minimum number of allottees allowed to initiate CIRP against real estate developers, all such sections only talk about the insolvency resolution of the Corporate Debtor and not of any of its specific projects.

The NCLAT whilst passing such a decision which seeks to amend the law for CIRP, ought to have taken care of the following points, which it has failed to do:-

  • a. The NCLAT assumes that the creditors of each Project of real estate developers are different. However, many creditors, particularly operational creditors maintain the same ledger account for the real estate developers, regardless of the Project where they are supplying the goods. Thus, such operational creditors may be left remediless incase of a Project insolvency as they may not have sufficient documents / accounts to prove their claim;
  • b. The NCLAT ought to have clarified nature and impact of Section 14 i.e. moratorium in cases of Project CIRP;
  • c. The NCLAT has given handle to real estate companies to manage the less lucrative projects through their subsidiaries / SPVs to protect themselves as the CIRP would only be initiated in relation to the Project;
  • d. While following the process of Project CIRP, the NCLAT noted that the customers /allottees of other Projects of such real estate developers would be protected if the CIRP is restricted to a particular project. However, on the contrary, there are also situations where the allottees of a loss making / incomplete Project are allotted flats in alternate projects of the real estate developer, which remedy shall stand cancelled in view of such limited CIRP.

Further, this approach may result in real estate developers adopting a careless attitude towards one of their projects because companies know they can get away with insolvency of that particular project and assets of other projects won’t be maximised for CIRP. Not only that, the decision can have far reaching consequences to the extent real estate companies may even siphon off funds from the project under CIRP to any other project it deems fit. Therefore, implementing a mechanism as provided in the Code is the most appropriate solution in real estate matters. As the Apex Court rightly remarked in the Pioneer Judgment, that the Code is a beneficial legislation which can be triggered to put the Corporate Debtor back on its feet in the interest of unsecured creditors like allottees, so that a replaced management may carry out the real estate project as originally envisaged and deliver the flat/apartment as soon as possible and/or pay compensation in the event of late delivery or non-delivery or refund amounts advanced together with interest.


In the authors’ views, the judgment is an attempt by the NCLAT to protect the real estate developers more than it seeks to protect the rights of the allottees. The fact that the judgment has come around the same time as the recent amendment regarding the threshold of minimum 100 or 10% allottees of a Project to initiate CIRP against Corporate Debtors shows a collective effort towards the protection of builders from CIRP under the Code. Further, the entire Judgment has been premised on the fact that the amount of Rs.2 lakh deposited by the original applicants at the time of initiation of CIRP was not sufficient for meeting the expenses for keeping the Corporate Debtor as a going concern and, hence, the promoter was directed to shell out funds for completion of project. However, following the principles of RERA, the Corporate Debtor ought to have kept 70% of funds received from the allottees in an escrow account to be utilized towards the Project.

As has been stated above, the judgment may be seen well in isolation with regard to the facts therein, however, there are way too many variables involved in the mechanism of Reverse CIRP and Project CIRP laid down by the NCLAT, which may not serve as a precedent. Further, though the Judgment states that in case the promoter fails to comply with the undertaking to invest or fails to cooperate with the IRP, the process of CIRP as per the code may continue, however, in such a scenario, there is a high likelihood that the Promoter(s) may approach the NCLAT / NCLT seeking extension of time for following the directions. Such conduct of the promoters and /or the failure of the promoter to comply with the Reverse CIRP directions shall only lead to wastage of the Tribunal’s time as well as delay the remedies for innocent allottees of projects. Thus, the authors conclusively state that the Winter Hills Judgment seeks to set a dangerous precedent of Reverse CIRP as well as Project CIRP, which are not only against the provisions of the Code and the precedents, but may also give a handle to the real estate developers in escaping their liabilities.

CHIRANJIVI SHARMA is an Advocate at Wadia Ghandy & Co. and SOUMYAJIT SAHA is a law student at the National Law University of Study and Research in Law, Ranchi. They can be reached at and respectively.