The National Company Law Appellate Tribunal has delivered a landmark ruling affirming that Corporate Insolvency Resolution Process (CIRP) initiated under the Insolvency and Bankruptcy Code, 2016, against a real estate developer must be confined to the specific project where default occurred. This decision reinforces the principle that IBC is not a debt recovery mechanism but a tool for project revival, safeguarding the interests of homebuyers and preventing collateral damage to unrelated projects.
Background & Facts
The Dispute
The dispute arose from a Section 7 application filed by 130 homebuyers (Respondents R-1 to R-130) against M/s. Raheja Developers Ltd., a real estate developer, for failure to deliver possession of units in the "Raheja Krishna Housing Scheme" located in Sector 14, Sohna, Gurugram, Haryana. The homebuyers, who had entered into Builder-Buyer Agreements (BBAs) for 1644 residential units and commercial spaces, alleged default in delivery of possession by the stipulated date of 10.06.2019, as mandated under the Haryana Affordable Housing Policy, 2013, and the RERA Registration No. 21/2017.
Key Facts
- The corporate debtor obtained License No. 115/2014 from the Directorate of Town & Country Planning (DTCP), Haryana for the Krishna Housing Scheme.
- The project was registered under HRERA with Registration No. 21/2017 and qualifies under Pradhan Mantri Awas Yojana and Rinn Yojana.
- The BBA stipulated that delay in possession would attract 15% per annum interest.
- The total debt claimed by the 130 homebuyers was quantified in Part IV of the Section 7 application, with individual claims such as Shravan Minocha (R-1) claiming Rs. 14,14,169 for Unit D-2-3005.
- The corporate debtor admitted default but claimed financial strain due to the COVID-19 pandemic, citing project cost escalation from Rs. 183.36 crore to Rs. 204 crore, with Rs. 107 crore already incurred.
- The corporate debtor had previously initiated CIRP for another project, "Raheja Shilas (Low Rise)", under C.P. (IB) No. 239(PB)/2023, which was confined to that project by NCLAT order dated 21.11.2024.
Procedural History
- 28.02.2025: Section 7 application filed by R-1 to R-130 before NCLT, New Delhi (C.P. (IB) No. 284/2025).
- 21.08.2025: NCLT admitted the Section 7 application and initiated CIRP against the corporate debtor as a whole.
- 25.08.2025: NCLAT heard the appeal and recorded a settlement proposal by the appellant to refund all homebuyer amounts within six months with 9% interest.
- 02.09.2025: NCLAT directed payments to be routed through the Interim Resolution Professional (IRP), permitted intervention applications, and barred constitution of a Committee of Creditors.
- 02.03.2026: NCLAT identified the core legal issue: whether CIRP should be confined to the Krishna Housing Scheme only.
- 17.03.2026: Parties filed short notes and judgments, including Mansi Brar Fernandes v. Shubha Sharma and Gagan Tandon v. IL&FS Financial Services Ltd.
- 10.04.2026: NCLAT delivered judgment disposing of the appeal.
The Parties' Positions
For the Appellant (Navin M. Raheja, Suspended Director)
The appellant contended that the CIRP must be confined to the Krishna Housing Scheme only, as the Section 7 application was filed exclusively by homebuyers of that project. Reliance was placed on NCLAT’s own judgment in Comp. App. (AT) (Ins.) No. 2168/2024 (dated 20.03.2026), which confined CIRP to the Raheja Shilas (Low Rise) project, and on the Supreme Court’s judgment in Mansi Brar Fernandes, which held that IBC is a forum of last resort and CIRP should proceed on a project-specific basis.
For the Respondents (Homebuyers R-1 to R-130)
The homebuyers supported confinement of CIRP to the Krishna Housing Scheme, as their claims were limited to that project. They accepted the appellant’s proposal for refund with 9% interest, subject to payment through the IRP.
For the Intervenors (PNB, Edelweiss ARC, Other Creditors)
Intervenors, including Punjab National Bank and Edelweiss Asset Reconstruction Company, opposed confinement, arguing that their financial exposure to the corporate debtor extended across multiple projects and that CIRP should cover the entire entity to ensure equitable distribution. PNB cited Glass Trust Company LLC v. BYJU Raveendran to argue that withdrawal of CIRP requires Section 12A application.
Relief Sought
The appellant sought modification of the NCLT’s order dated 21.08.2025 to confine CIRP solely to the Krishna Housing Scheme. The homebuyers sought implementation of the refund proposal. Intervenors sought continuation of CIRP against the entire corporate debtor.
The Legal Issue
The central question was whether a Corporate Insolvency Resolution Process initiated under Section 7 of the Insolvency and Bankruptcy Code, 2016, by financial creditors (homebuyers) relating to a single real estate project must be confined to that project, or whether it can extend to all projects of the corporate debtor irrespective of the scope of the default.
Arguments Presented
For the Appellant
The appellant relied on two key precedents: (1) NCLAT’s own judgment in Comp. App. (AT) (Ins.) No. 2168/2024, which held that CIRP initiated by homebuyers of one project must be confined to that project; and (2) Mansi Brar Fernandes v. Shubha Sharma (2025 SCC OnLine SC 1972), where the Supreme Court affirmed that IBC is not a debt recovery mechanism and that real estate insolvency should proceed on a project-specific basis unless exceptional circumstances justify otherwise. The appellant argued that extending CIRP to unrelated projects would prejudice innocent homebuyers in other developments and violate the statutory intent of the Code.
For the Respondent
The homebuyers did not oppose confinement. The intervenors, particularly PNB and Edelweiss ARC, contended that the corporate debtor’s financial structure was interlinked, and that assets and funds were commingled across projects. They argued that allowing project-specific CIRP would enable promoters to shield assets and evade liability. Edelweiss claimed assignment of term loans covering working capital, which they argued supported a corporate-wide CIRP.
The Court's Analysis
The NCLAT undertook a comprehensive review of its own precedents and the Supreme Court’s jurisprudence on real estate insolvency. The Tribunal emphasized that the Insolvency and Bankruptcy Code, 2016, is designed to revive viable businesses, not to serve as a collective debt recovery forum. The Court noted that the Section 7 application was filed exclusively by homebuyers of the Krishna Housing Scheme, with no claimants from other projects.
"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."
The Tribunal relied on its own judgment in Flat Buyers Association Winter Hills v. Umang Realtech (2019), which held that CIRP against a real estate company must be confined to the project for which the application was filed, as each project is a separate legal and financial entity with distinct land, approvals, and stakeholders. The Court further cited Gagan Tandon v. IL&FS Financial Services Ltd. (2026), where it held that financial creditors with project-specific securities cannot compel CIRP against unrelated projects.
The Court rejected the intervenors’ argument that commingling of funds justified a corporate-wide CIRP, noting that the Code requires a clear nexus between the default and the project. The Tribunal observed that the IRP’s role is to maximize the value of the assets of the specific project, not the entire corporate entity. It further held that other creditors, including banks and financial institutions, retain the right to pursue remedies against other projects through independent proceedings under RERA, DRT, or civil courts.
The Court also clarified that the IRP must issue a corrigendum to the earlier public notice under Form-A, restricting claims to the Krishna Housing Scheme only, and granting an additional 14 days for stakeholders to file claims.
The Verdict
The appellant succeeded. The NCLAT modified the NCLT’s order dated 21.08.2025 to confine the Corporate Insolvency Resolution Process solely to the "Krishna Housing Scheme" project. The Interim Resolution Professional is directed to issue a corrigendum to the public notice under Form-A, limiting claims to this project, with a 14-day window for submission. The date of initiation of CIRP remains 21.08.2025. Claims of R-1 to R-130 who received partial payments under the Tribunal’s earlier orders must be updated by the IRP. All other creditors, including PNB and Edelweiss ARC, are free to pursue independent proceedings against other projects of the corporate debtor. Liberty is reserved to R-1 to R-130 to file a Section 12A application if a settlement is reached. Parties shall bear their own costs.
What This Means For Similar Cases
CIRP Must Be Project-Specific for Real Estate Developers
- Practitioners must now argue that Section 7 applications filed by homebuyers of a single project cannot trigger CIRP against unrelated projects of the same developer.
- The burden shifts to creditors seeking corporate-wide CIRP to prove commingling of funds or interdependency between projects, which is a high threshold.
- Applications under Section 7 must clearly specify the project and the units affected; generic claims against the corporate debtor will be rejected.
Homebuyers’ Claims Are Protected from Collateral Damage
- Homebuyers in other projects of the same developer are no longer at risk of losing their rights due to insolvency proceedings initiated by unrelated homebuyers.
- RERA remains the primary forum for grievances related to other projects; IBC is strictly a last resort for project-specific defaults.
- IRPs must issue corrigenda to public notices to restrict claims to the relevant project, ensuring procedural fairness.
Financial Institutions Must File Project-Specific Claims
- Banks and NBFCs with project-specific security interests must file claims only against the project they financed.
- General corporate loans without project-specific collateral cannot justify extending CIRP beyond the defaulting project.
- Creditors must pursue remedies under DRT, civil courts, or RERA for claims arising from other projects.
