The Supreme Court of India has upheld the initiation of the Corporate Insolvency Resolution Process (CIRP) against a real estate developer, ruling that the admission of a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) is mandatory once the existence of a financial debt and default is established. The Court further held that a Co-operative Housing Society, which is neither a financial creditor in its own right nor an authorized representative under the Code, lacks the locus standi to intervene in such proceedings.
A Division Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan dismissed the appeals filed by Elegna Co-Op. Housing and Commercial Society Ltd. and the corporate debtor, Takshashila Heights India Private Ltd., challenging the judgment of the National Company Law Appellate Tribunal (NCLAT).
Background of the Case
The case pertains to a residential-cum-commercial project titled “Takshashila Elegna” developed by Takshashila Heights India Private Ltd. (Corporate Debtor) in Ahmedabad. The developer had availed financial assistance of Rs. 70 crores from ECL Finance Ltd. in 2018. Following defaults in repayment, the loan accounts were classified as Non-Performing Assets (NPA) on December 30, 2021. The debt was subsequently assigned to Edelweiss Asset Reconstruction Company Ltd. (Financial Creditor/EARCL).
Despite a Restructuring cum One Time Settlement (OTS) agreement in May 2023, the Corporate Debtor failed to adhere to the repayment schedule, leading to the revocation of the settlement. Consequently, EARCL filed a petition under Section 7 of the IBC before the National Company Law Tribunal (NCLT), Ahmedabad Bench.
The NCLT, by an order dated November 6, 2024, dismissed the petition, holding that the project was viable and substantially complete, and that the insolvency proceedings were being invoked as a recovery mechanism. However, on appeal, the NCLAT set aside the NCLT’s order on July 1, 2025, and directed the admission of the CIRP. The NCLAT also rejected an intervention application filed by Elegna Co-operative Housing and Commercial Society Ltd., holding that it lacked locus standi.
Arguments of the Parties
The Corporate Debtor argued that the project was a going concern with substantial completion and sufficient receivables to discharge liabilities. It contended that the Financial Creditor was using the IBC as a tool for “coercive recovery” rather than resolution, citing the Supreme Court’s decision in Vidarbha Industries Power Ltd. v. Axis Bank Ltd. to argue that the Adjudicating Authority has the discretion to decline admission.
The Appellant Society contended that it represented the collective interests of homebuyers and that the outcome of the appeal would affect their proprietary rights. It argued that the denial of its intervention violated the principles of natural justice and that the distinction drawn by the NCLAT between unit holders of completed and uncompleted towers was arbitrary.
Edelweiss ARC, the Financial Creditor, submitted that the inquiry under Section 7 is strictly confined to the existence of debt and default. It argued that once these twin conditions are met, admission is mandatory. Regarding the Society, it submitted that the appellant was merely a maintenance society and not a “financial creditor” under the Code, and thus had no right to intervene.
Court’s Analysis
Mandatory Admission under Section 7
The Supreme Court rejected the Corporate Debtor’s reliance on Vidarbha Industries, clarifying that the said judgment operates as a narrow exception applicable only where there is an adjudicated claim in favor of the corporate debtor exceeding the debt owed.
Reaffirming the principles laid down in Innoventive Industries Ltd. v. ICICI Bank and E.S. Krishnamurthy v. Bharath Hi-Tech Builders Pvt. Ltd., the Court observed:
“The inquiry under Section 7(5)(a) is confined strictly to the determination of debt and default, leaving no scope for equitable or discretionary considerations… Once the ingredients of Section 7, most importantly, default, are satisfied, admission must follow.”
The Bench noted that the Corporate Debtor possessed no adjudicated claim exceeding the default amount, and arguments regarding business viability or project status did not constitute “good reasons” to deny admission.
Locus Standi of the Housing Society
Addressing the intervention by the Society, the Court held that while individual homebuyers are financial creditors, a society or association does not automatically acquire such status unless it is a creditor in its own right.
The Court observed:
“A society is a distinct juristic entity separate from its members. Unless it has itself advanced funds, executed allotment agreements, or received allotments, it cannot claim financial creditor status… The Code does not contemplate ad hoc or self-appointed representation at the pre-admission or appellate stage.”
The Court clarified that the right to participate in CIRP flows from the statute, and under Section 21(6A) of the IBC, collective representation of allottees is strictly regulated through an “Authorized Representative” after the admission of CIRP.
Decision and Directions
The Supreme Court dismissed both appeals, upholding the NCLAT’s decision to admit the Corporate Debtor into CIRP.
However, recognizing the need to protect the interests of homebuyers, the Court issued the following prospectively operating directions to the Committee of Creditors (CoC):
- Transparency: The Information Memorandum must mandatorily disclose comprehensive details of all allottees.
- Possession: If the CoC decides not to approve the handover of possession under Regulation 4E of the CIRP Regulations, it must “mandatorily record cogent and specific reasons in writing.”
- Liquidation: Any recommendation for liquidation must be accompanied by a “reasoned justification recorded in writing, evidencing proper application of mind and due consideration of all viable alternatives.”
Case Details:
- Case Title: Elegna Co-Op. Housing and Commercial Society Ltd. v. Edelweiss Asset Reconstruction Company Limited & Anr. (With connected matter)
- Case No.: Civil Appeal No. 10261 of 2025 and Civil Appeal No. 10012 of 2025
- Coram: Justice J.B. Pardiwala and Justice R. Mahadevan
