Why the Supreme Court allowed a project-wise CIRP for Supertech — for now.

When a builder defaults, can the insolvency process be split project-by-project?

Supertech Ltd. is one of the largest real estate developers in the National Capital Region. It had borrowed Rs. 431,92,53,302 from Union Bank of India for its Eco Village-II project. It defaulted. The bank filed an insolvency application under Section 7 of the Insolvency and Bankruptcy Code, 2016. The NCLT admitted it. That triggered a full-company corporate insolvency resolution process (CIRP) for Supertech as a whole.

Then the NCLAT did something unusual. It directed that only the Eco Village-II project would have a Committee of Creditors. All other projects would continue as ongoing concerns under the supervision of the resolution professional, with assistance from the old management. This 'project-wise insolvency' concept was challenged by financial creditors Union Bank of India and Indiabulls Asset Reconstruction Company Limited before the Supreme Court. The stakes were enormous: if project-wise CIRP is permissible, every large real estate group with multiple projects could be carved up into separate resolution processes. If it is not, the entire NCLAT order collapses.

The Supreme Court, in an interim order dated 11 May 2023, decided not to disturb the NCLAT's arrangement for non-Eco Village projects. But it imposed a critical restriction: for the Eco Village-II project, no step beyond voting on a resolution plan can be taken without specific Supreme Court permission.

The loan, the default, and the insolvency application

Union Bank of India had extended a loan to Supertech Ltd. for its Eco Village-II project. The company defaulted. On 20 March 2021, the bank filed an application under Section 7 of the IBC before the NCLT, New Delhi – Court VI, claiming Rs. 431,92,53,302. On 25 March 2022, the NCLT admitted the application and directed initiation of CIRP. Mr. Hitesh Goel was appointed as the Interim Resolution Professional.

The company's promoter, Ram Kishore Arora, appealed to the NCLAT. On 12 April 2022, the NCLAT passed an interim order directing that the Committee of Creditors shall not be constituted until the next date. Then, on 10 June 2022, the NCLAT passed its impugned order. It directed that the CoC would be constituted only for the Eco Village-II project. All other projects of Supertech would continue as ongoing concerns under the supervision of the IRP, with assistance from the ex-management.

What the financial creditors argued

Union Bank of India and Indiabulls Asset Reconstruction Company Limited challenged this order before the Supreme Court. Their core argument was straightforward: the IBC does not permit a fragmented or project-wise resolution process. The Code contemplates CIRP for the corporate debtor as a whole. The NCLAT's approach, they argued, was ultra vires the statutory scheme. It created a hybrid process where some projects were under CIRP and others were not, with the old management still involved. This, they said, was neither contemplated by the IBC nor workable in practice.

What the NCLAT had done — and why it mattered

The NCLAT's order was unusual. It had, in effect, created two parallel regimes within the same corporate debtor. For Eco Village-II, there would be a full CIRP with a CoC. For all other projects, the IRP would supervise but the old management would continue to operate. The NCLAT had adopted this approach in another matter too, observing that it may be started as a test to find out the success of such resolution. The Supreme Court noted this with some skepticism, observing that the NCLAT's interim order "prima facie gives rise to several questions worth consideration, including the fundamental one as to the tenability of the proposition of 'project-wise resolution' as adopted by the Appellate Tribunal."

The test the Supreme Court applied

The Supreme Court was dealing only with interim relief. It applied the well-established tripartite test for interim injunctions, as reaffirmed in Union of India and Ors. v. M/s Raj Grow Impex LLP and Ors. (2021 SCC OnLine SC 429). That test requires the court to consider: (1) prima facie case, (2) balance of convenience, and (3) irreparable injury. The Court also cited the fundamental principle from Films Rover International Ltd. v. Cannon Film Sales Ltd. (1986) 3 All ER 772: the court should take whichever course appears to carry the lower risk of injustice if it turns out to have been 'wrong'.

The Court also referred to Dorab Cawasji Warden v. Coomi Sorab Warden (1990) 2 SCC 117, which laid down the test for interlocutory mandatory injunctions: (1) a strong case for trial (higher than prima facie), (2) necessity to prevent irreparable or serious injury not compensable in money, and (3) balance of convenience favoring the applicant.

Why the Supreme Court did not disturb the NCLAT order

The critical factor was the impact on homebuyers. Supertech had multiple ongoing projects with thousands of homebuyers. If the Supreme Court had directed constitution of a CoC for the entire corporate debtor, the CIRP would have covered all projects. That would have disrupted ongoing construction across all projects. Homebuyers would have been left in limbo. The Court found that this would cause irreparable harm to homebuyers of ongoing projects. The balance of convenience, therefore, favored allowing the NCLAT's project-wise arrangement to continue during the pendency of the appeals.

THE TEST: 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 CoC for the entire corporate debtor would disrupt ongoing real estate projects and cause irreparable harm to homebuyers, balance of convenience favors allowing the impugned project-wise arrangement to continue during pendency.

The restriction the Supreme Court imposed

But the Court did not give the NCLAT a blank cheque. It imposed a critical restriction: for the Eco Village-II project, any process beyond voting on the resolution plan shall await further orders of the Supreme Court. This means the CoC can receive and vote on resolution plans, but cannot implement any plan or take any further steps without specific Supreme Court permission. The Court also modified its earlier interim direction dated 27 January 2023 to allow the NCLAT to deal with offers received and pass appropriate orders, subject to the orders in these appeals.

In Civil Appeal No. 1975 of 2023, the Court declined to grant any interim relief and kept the question of maintainability open.

What this means for practitioners

This is an interim order. The final hearing is scheduled for the second week of July 2023. But the order signals several things. First, the Supreme Court is skeptical about the legal basis for project-wise CIRP under the IBC. The obiter dicta make this clear: the NCLAT's order "prima facie gives rise to several questions worth consideration, including the fundamental one as to the tenability of the proposition of 'project-wise resolution'." Second, the Court is acutely aware of the practical consequences for homebuyers. The protection of homebuyers' interests was the decisive factor in allowing the NCLAT order to operate. Third, the Court is not willing to let the NCLAT experiment with novel resolution structures without judicial oversight. The restriction on the Eco Village-II process ensures that the Supreme Court retains control over the final outcome.

For financial creditors, this order is a setback. They wanted a full-company CIRP. They got a project-wise process that they consider ultra vires. But the Court has kept the legal question open. For homebuyers, the order is a reprieve. Their projects will continue under the supervision of the IRP with assistance from the old management. For the resolution professional, the order creates a complex dual regime: one project under full CIRP, others under a hybrid supervision model.

The bottom line

For now, project-wise CIRP survives as an interim arrangement, but the Supreme Court has made clear that its fundamental tenability under the IBC will be decided at final hearing — and no resolution plan for Eco Village-II can be implemented without the Court's specific permission.