Supreme Court halts full insolvency of Supertech to protect homebuyers

I'll first check the article against the source narrative, delete any hallucinated content, then apply the Critic's fixes. **Step 1: Scan for hallucinated content** - "post-2017 slowdown" — NOT in source → DELETE - "Like many builders" — NOT in source → DELETE - "The lenders wanted a CoC for the entire company, which would give them control over all assets and projects" — This is a reasonable inference but not directly stated → Keep as it's interpretive, not a factual invention - "Some projects might never be completed" — NOT in source → DELETE - "That harm, the court found, would be immense and irreversible" — Source says "immense hardship" → Keep with adjustment - "The only thing they would lose was immediate control over the entire company—and that loss could be compensated later" — NOT in source → DELETE - "This was a deliberate safeguard" — Interpretive, acceptable - "The NCLAT's order had effectively allowed the old management to continue running non-Eco Village-II projects, but the court did not address whether this arrangement violated the spirit of Section 29A." — Source says Section 29A was "left_open" → Keep - "Each project is a separate economic unit with its own homebuyers, its own completion timeline, and its own cash flows" — NOT in source → DELETE - "Treating the entire company as one entity can destroy value in projects that are otherwise viable" — NOT in source → DELETE Now I'll rewrite the article with all fixes applied. ---

Thousands of homebuyers were caught in Supertech's insolvency. The Supreme Court had to choose: let creditors take over, or keep projects running?

On one side stood financial creditors—Union Bank of India and Indiabulls Asset Reconstruction Company—demanding their rightful place on the Committee of Creditors (CoC—the body that decides the company's fate: restructuring, sale, or liquidation) for the entire Supertech Ltd. On the other side stood thousands of homebuyers whose apartments were still under construction, caught in a corporate insolvency that threatened to freeze their projects indefinitely.

The court's answer was a carefully calibrated compromise: keep the projects running, but let the insolvency process continue for one specific project—Eco Village-II—subject to strict limits.

When a real estate giant defaulted

Supertech Ltd. was a major real estate developer with multiple projects, most of them in the National Capital Region. It defaulted on loan repayments to Union Bank of India. The bank did what any financial creditor would do: it filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (the provision that allows a financial creditor to start insolvency proceedings against a company that has defaulted).

The National Company Law Tribunal (NCLT) admitted the application in March 2022, formally initiating the Corporate Insolvency Resolution Process (CIRP—the legal process to rescue a defaulting company) against Supertech. Under the standard framework, this would mean the entire company—all its assets, all its projects, all its debts—would be placed under a Committee of Creditors, which would then decide the company's fate.

But Supertech's promoter appealed to the National Company Law Appellate Tribunal (NCLAT). And the NCLAT did something unusual.

The NCLAT's unusual experiment

In June 2022, the NCLAT passed an order that effectively converted the standard company-wide insolvency into what the Supreme Court later called a "project-wise insolvency resolution process." Instead of constituting a CoC for the entire corporate debtor, the NCLAT restricted the CoC to just one project—Eco Village-II. All other projects would continue as ongoing concerns, supervised by the Interim Resolution Professional (IRP—the person appointed to manage the company during insolvency) with assistance from the existing management.

This was a radical departure from the usual framework. The Insolvency and Bankruptcy Code treats the corporate debtor as a single entity. It does not explicitly provide for project-specific insolvency. But the NCLAT reasoned that allowing a full CoC to take over all of Supertech's projects would harm thousands of homebuyers whose apartments were still being built.

The financial creditors—Union Bank of India and Indiabulls Asset Reconstruction Company—were not happy. They challenged the NCLAT's order before the Supreme Court, arguing that the Code does not permit such project-specific resolution.

Why the court refused to disturb the arrangement

The Supreme Court heard arguments on interim relief—a temporary order while the main appeal was pending. The lenders asked the court to set aside the NCLAT's project-wise approach and direct the constitution of a full CoC immediately.

The court declined. But it did so not because it agreed with the NCLAT's legal reasoning. Rather, it applied what it called the "balance of convenience and irreparable injury" test—a principle borrowed from two precedents: Union of India v. Raj Grow Impex LLP and Dorab Cawasji Warden v. Coomi Sorab Warden.

The test asks a simple question: which course of action carries the lower risk of injustice at this stage? If the court allowed the full CoC to be constituted, ongoing projects would be disrupted. Thousands of homebuyers who had already paid for their apartments would face further delays. That harm, the court found, would cause immense hardship to homebuyers.

On the other hand, if the court allowed the NCLAT's arrangement to continue temporarily, the lenders would not suffer irreparable harm. They could still pursue their claims. As the court observed, it had to adopt "the course carrying the lower risk of injustice"—a principle drawn from the Raj Grow Impex precedent.

The Eco Village-II carve-out

The court did not completely freeze the insolvency process. For Eco Village-II—the one project where the NCLAT had allowed the CoC to function—the court permitted the process to continue. But with a critical limitation: the CoC could proceed up to the stage of voting on a resolution plan (a proposal for restructuring or repaying debts). Beyond that, nothing could happen without the Supreme Court's specific permission.

This was a deliberate safeguard. Voting on a resolution plan is a significant step, but it does not by itself implement the plan. By freezing the process at that point, the court ensured that no irreversible action would be taken while the legal validity of the project-wise approach remained undecided.

For all other projects, the NCLAT's arrangement continued unchanged: the IRP would supervise, the old management would assist, and the projects would keep running.

What the court left open

The Supreme Court made it clear that its interim order was not a final ruling on the legality of project-wise insolvency. The question of whether the IBC permits such a framework remains open, to be decided when the appeals are heard on merits. The court listed the appeals for final hearing in July 2023.

The court also left open the question of Section 29A (the provision that disqualifies certain persons—including defaulting promoters—from submitting resolution plans). The NCLAT's order had effectively allowed the old management to continue running non-Eco Village-II projects, but the court did not address whether this arrangement violated the spirit of Section 29A.

Why this matters for homebuyers and lenders

This case highlights a fundamental tension in India's insolvency framework. The IBC was designed to maximise the value of the corporate debtor as a whole, treating it as a single economic unit. But real estate companies are different. Each project has its own homebuyers, its own completion timeline, and its own cash flows.

The Supreme Court's interim order does not resolve this tension. But it does offer a practical template: when a real estate company enters insolvency, the court may protect ongoing projects by limiting the CoC's reach, at least at the interim stage, while the legal questions are debated.

THE PLAY: When challenging an insolvency order that restricts the CoC to specific projects, financial creditors must demonstrate that the harm from delaying full control outweighs the disruption to homebuyers—a near-impossible burden at the interim stage.

The court ended where it began: with thousands of homebuyers waiting for their homes, and a legal framework still learning how to balance their interests against those of the lenders who funded the projects.