NCLAT Modifies NCLT Order, Restricts Vatika Insolvency CIRP Solely to 'Aspirations' Project in Sector 88B, Gurgaon
NCLAT Modifies Vatika Insolvency, Confines CIRP to Single Project
The National Company Law Appellate Tribunal (NCLAT) on 27 March held that insolvency proceedings in real estate cases must be confined to the specific project for which financing was raised. The tribunal modified the NCLT order, allowing CIRP to proceed but confined it to the "Aspirations" project in Sector 88B, Gurgaon.
Scope of the Ruling
The Appellate Tribunal held that insolvency proceedings could continue only in relation to the "Aspirations" project in Sector 88B, Gurgaon, and could not be extended to the company's other 58 projects. The Tribunal held: "In the facts of the present case, CIRP against the corporate debtor ought to have been confined only to the project in question 'Aspirations' and the CIRP cannot be extended to other projects of the corporate debtor, situated in state of Haryana and other places."
This order reverses a broader insolvency admission by the National Company Law Tribunal (NCLT) Chandigarh bench, which had initiated proceedings against Vatika Limited as a whole.
The Default and Financing
On 30 June 2017, Vatika Limited entered into a Debenture Trust Deed with IDBI Trusteeship Limited and subsequently raised ₹146 crore through non-convertible debentures. The redemption date was later extended to 30 June 2024. However, the company defaulted in payment of quarterly coupon interest. On 29 December 2023, the debenture trustee issued a demand notice for ₹29.72 crore towards unpaid interest.
The Debenture Trust Deed and related documents clearly established that the debt and security were linked to a specific project—land admeasuring 12.212 acres in Sector 88B, Gurgaon, subsequently registered as 'Project Aspirations' under RERA.
NCLAT's Legal Position on Project-Specific Insolvency
Relying on precedents including Mansi Brar Fernandes, Flat Buyers Association Winter Hills, and Gagan Tandon, the Tribunal held that where financing and security are tied to a specific project, the CIRP should ordinarily be confined to that project to prevent prejudice to other stakeholders.
The Tribunal observed that extending CIRP to the entire corporate debtor, which had multiple independent projects, would adversely impact stakeholders and homebuyers of unrelated projects. The NCLAT emphasized that in real estate cases, the legal remedy should prioritize project-wise resolution to safeguard the interests of unrelated stakeholders, including homebuyers.
Verification of Default Amount
The Tribunal noted that the valid default was ₹29.72 crore in unpaid interest, exceeding the ₹1 crore threshold under Section 4 of the IBC. Including the principal in the default claim was incorrect. The Rs. 37.2 crore paid during the Section 7 proceedings did not cure the default, as arrears remained.
Vatika Group's Portfolio
Founded in 1986, Vatika Group has delivered over 36 million sq ft of residences to 32,000+ customers. The group offers living-ready and future-ready residential spaces in Gurugram, Jaipur, and Ambala, and commercial spaces at MG Road, Golf Course Road, Golf Course Extension, Sohna Road, Huda City Center, NH 48, and Mathura Road.
Vatika Limited develops multiple residential and commercial projects across Haryana and the National Capital Territory region.
Implications for Real Estate Insolvency Law
The NCLAT's decision on Vatika Limited's insolvency represents a significant shift in managing risk for the real estate sector. By requiring resolution on a project-by-project basis, the tribunal aims to stop problems in one project from affecting the entire company and its healthy developments. This strategy protects unaffected assets and stakeholders, including homebuyers in successful projects.
The NCLAT's clear position on project-wise insolvency will likely shape how Indian real estate developers structure their companies and finances, promoting a clearer separation of project debts, possibly leading to more specific companies (SPVs) for each development.