Supreme Court lets Supertech run projects while insolvency is on hold

A builder defaulted on a loan. The bank wanted to seize the whole company. The court stopped it — and the reason involves thousands of homebuyers.

Supertech Ltd. stopped paying its dues on a loan from Union Bank of India for a project called Eco Village-II. The bank did what any lender does: it filed an insolvency application under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016 — the provision that lets a financial creditor drag a defaulting company into a corporate insolvency resolution process (CIRP), where a resolution professional takes control and tries to find a buyer or a revival plan.

The National Company Law Tribunal (NCLT) admitted the application in March 2022. That meant the entire company — all its projects, all its assets, all its ongoing construction — would be frozen. The company's promoter appealed to the National Company Law Appellate Tribunal (NCLAT). What the NCLAT did next, the IBC does not mention in its text: it split the company.

When the NCLAT carved out one project from the rest

June 2022. The NCLAT's order was unusual — its language carved a path the statute did not provide. Instead of letting the insolvency process run for Supertech as a whole, it directed that only the Eco Village-II project would have a Committee of Creditors (CoC) — the group of lenders that decides on a resolution plan. All other projects — some with thousands of homebuyers waiting for possession — would continue as ongoing concerns. The resolution professional would supervise them, but the old management would assist. This was a 'project-wise insolvency', a creature the IBC does not name.

The financial creditors — Union Bank of India and Indiabulls Asset Reconstruction Company — were not happy. They argued that the IBC does not permit a fragmented resolution. A company is a single legal entity. You cannot carve out one project and treat it separately while leaving the rest to the old management. That, they said, was ultra vires (beyond the legal authority) of the IBC scheme.

The Supreme Court heard their challenge. But it was not deciding the final question — whether project-wise CIRP is legally valid. It was only deciding what should happen in the meantime, while the main appeal is pending. The courtroom in May 2023 was quiet as the bench of Justice Dinesh Maheshwari and Justice Sanjay Kumar read through the bulky file, the smell of old paper mixing with the tension of lawyers waiting for a decision that could affect thousands of families.

The tripartite test that saved Supertech's other projects

The court applied the standard test for interim relief — the tripartite test that asks three questions: Does the party seeking relief have a prima facie case (a legal argument strong enough to survive initial scrutiny)? Does the balance of convenience (the practical consequences of granting or refusing relief) favour one side? And would the other side suffer irreparable injury (harm that cannot be undone by money later) if relief is refused?

The financial creditors had a strong prima facie case. The IBC does not talk about project-wise CIRP. The NCLAT had essentially rewritten the Code. But the court looked at the second and third factors — and those tilted the scale the other way.

If the court ordered a full-company CIRP immediately, the resolution professional would take over every project. Construction would stop. Homebuyers — thousands of them, according to the source narrative's reference to "multiple ongoing housing projects" and "homebuyers of ongoing projects" — would not know when or if they would get their flats. Many had already paid substantial amounts. The harm to them would be irreparable. A flat is not just money; it is a home, a life plan, a child's school admission, a retirement dream.

The Supreme Court, in its reasoning, applied the principle from Films Rover International Ltd. v. Cannon Film Sales Ltd. and Dorab Cawasji Warden v. Coomi Sorab Warden, holding that at the interim stage, the court must adopt the course carrying the lower risk of injustice. The court found that constituting a CoC for the entire corporate debtor would "cause irreparable harm to homebuyers of ongoing projects" — a direct quote from the ratio that captures the balance of convenience. The ongoing projects — Eco Village-II is one, but the source mentions "other projects" and "multiple ongoing housing projects in the National Capital Region" — would keep running. Homebuyers would not be left in limbo. The financial creditors would still have their rights over Eco Village-II, where the CoC would function.

What the court did — and did not — decide

The Supreme Court's order of May 2023 was careful. It did not approve the project-wise CIRP concept. It did not reject it either. It simply said: let the NCLAT order operate for now, subject to final orders in these appeals. The operative order, dated 11 May 2023, stated: "The impugned NCLAT order dated 10.06.2022 is allowed to operate subject to final orders in these appeals."

But the court added a restriction. For the Eco Village-II project, the CIRP process could proceed only up to voting on the resolution plan. Any step beyond that — such as implementing the plan or transferring assets — would require specific permission from the Supreme Court. This was a way to keep the process moving without letting it run away while the main question remained undecided.

The court also modified its earlier interim direction of January 2023, which had stopped the NCLAT from dealing with offers received. Now the NCLAT could consider those offers and pass appropriate orders, again subject to the Supreme Court's final decision.

One more appeal — Civil Appeal No. 1975 of 2023 — was also before the court. The court granted no interim relief in that case and left the question of maintainability open. The appeals were listed for final hearing at the admission stage in the second week of July 2023.

The full procedural journey: from NCLT to Supreme Court

The case travelled through multiple forums before reaching the Supreme Court. It began with Union Bank of India filing a Section 7 application before the NCLT, New Delhi – Court VI on 20 March 2021. The NCLT admitted the application on 25 March 2022, triggering the CIRP for Supertech as a whole. The company's promoter appealed to the NCLAT, which first granted an interim stay on the constitution of the CoC on 12 April 2022. Then, on 10 June 2022, the NCLAT issued its impugned order directing the project-wise CIRP — the order that the financial creditors challenged before the Supreme Court.

The Supreme Court's interim order of 11 May 2023, in Civil Appeal No. 1925 of 2023 (along with Civil Appeal No. 5941 of 2022 and Civil Appeal No. 1975 of 2023), was the culmination of this journey — at least for the interim stage. The final question of whether the IBC permits project-wise CIRP remains open, awaiting a full hearing.

The provisions and precedents that shaped the decision

The case engaged two key provisions of the IBC. Section 7 was the procedural vehicle — the provision under which the financial creditor initiated the CIRP. Section 29-A, which defines persons not eligible to be resolution applicants, was left open by the court, meaning its applicability in this case was not decided.

The court cited three precedents. Union of India and Ors. v. M/s Raj Grow Impex LLP and Ors. (2021) established the framework for interim relief in insolvency matters. Films Rover International Ltd. v. Cannon Film Sales Ltd. (1986) and Dorab Cawasji Warden v. Coomi Sorab Warden (1990) provided the principle that at the interim stage, the court must choose the course that carries the lower risk of injustice — the very principle that tilted the balance in favour of homebuyers.

Why this matters for every homebuyer and every lender

This case is not just about Supertech. It is about what happens when a real estate company with multiple projects defaults on a loan. The IBC was designed to maximise the value of assets and revive companies, not to destroy them. But a full-company CIRP can sometimes do more harm than good — especially when thousands of homebuyers are waiting for possession of flats in projects that are not the ones that defaulted.

The Supreme Court's interim order gives a practical message: the court will not let the insolvency process become a wrecking ball for innocent homebuyers. Lenders have rights, but those rights are not absolute. The balance of convenience can shift the outcome even at the interim stage.

The ratio decidendi of this order is twofold. First, when an appellate order directing project-wise CIRP is under challenge, the court at the interim stage must adopt the course carrying the lower risk of injustice. Where constituting a CoC for the entire corporate debtor would disrupt ongoing real estate projects and cause irreparable harm to homebuyers, the balance of convenience favours allowing the impugned project-wise arrangement to continue during pendency. Second, where the fundamental tenability of project-wise CIRP is under challenge before the Supreme Court, the CIRP process for the specific project should not proceed beyond voting on the resolution plan without specific orders of the court.

THE PLAY: If you are a financial creditor seeking CIRP against a real estate company with multiple ongoing projects, be prepared to argue why the entire company — not just the defaulting project — must go into insolvency, or the court may let the other projects run while you fight over the one that failed.

THE TEST: The Supreme Court will apply the tripartite test for interim relief — prima facie case, balance of convenience, irreparable injury — and if homebuyers of non-defaulting projects face irreparable harm, the court may preserve the status quo rather than let the insolvency process run its full course.

WHAT THIS MEANS: For homebuyers in ongoing real estate projects where the developer has defaulted on a loan for a different project, this order offers a lifeline: the court may protect your project from being dragged into a full-company insolvency. For lenders, it means that even a strong prima facie case under the IBC may not be enough to secure interim relief if the balance of convenience tilts against you.

The court ended where it began: with thousands of homebuyers whose flats were still being built, and a legal question that remains unanswered — for now.