EVOLUTION OF THE CONCEPT OF REVERSE CIRP:
The Hon’ble NCLAT in one of its recent decisions in Flat Buyers Association Winter Hills – 77, Gurgaon v. Umang Realtech Pvt. Through IRP and Ors.[1] has laid down the concept of Reverse CIRP. Through its decision of reverse CIRP the promoter of the real estate company has been given the opportunity to revive the company and act as a lender or Financial Creditor, rather than following the standard procedure of CIRP as laid down in the IBC Code, 2016. By laying down the principles of Reverse CIRP the Hon’ble NCLAT has tried to resolve the issue of conflicting claims between the secured and the unsecured Financial Creditors which especially arises in real estate companies undergoing CIRP. Further, the Hon’ble NCLAT through its decision has tried to create a balance between the secured financial creditors and the homebuyers i.e., unsecured financial creditors, keeping in mind the purpose of equitable relief to all the stakeholders. In this regard it is also relevant to mention the order laid down by the Hon’ble NCLT Jaipur bench in the matter of Rajputana Constructions Pvt. Ltd. v. Rajasthan Land Holdings Limited[2] wherein it was held:
“12. …Needless to say that the Hon’ble NCLAT has evolved and set the path for special methodology in specific situations for greater overall interests, such as Reverse CIRP…”
THE PURPOSE OF SECTION 29A OF THE CODE IS CONTRAVENED:
The Legislative intent behind Section 29A of the Code is to disqualify certain persons from being the resolution applicants and that includes the promoters. However, under the Reverse CIRP the IRP instead of inviting any third-party plans, undertakes resolution plans from the Promoters of the company itself. Although in the Umang Realtech order, the home buyers themselves wanted the promoter to act as the lender and the same was affirmed by the Hon’ble NCLAT, but the concept of Reverse CIRP is not found in the scheme of IBC. Further, the objective of Section 29A is to prevent the initial defaulters of the Corporate Debtor from re-gaining control of the company and to protect the creditors.[3] In view of the same the Hon’ble NCLAT’s decision for the promoter to act as the Financial Creditor is in violation of the Code.
REVERSE CIRP IS NOT APPLICABLE TO ALL REAL ESTATE INSOLVENCY MATTERS:
The mechanism of the Reverse CIRP may be applicable to the Umang Realtech matter having some peculiar facts where the flats were on the verge of being handed over for possession. However, it is not the same for every situation. In most real estate insolvency matters it is found that the flats are not yet ready for possession and in such cases the allottees would be more inclined to refund of money by following the normal CIRP.
CONCLUSION:
The concept of reverse CIRP is not within the ambit of IBC and it is more of a judicial innovation propounded by the Hon’ble NCLAT. The sole purpose of IBC to rehabilitate the corporate debtor by replacing its management through a resolution plan is not fulfilled with the concept of Reverse CIRP. The legislative mandate of IBC is also violated through the concept of Reverse CIRP. Therefore, in order to make the judicial innovation a legislative mandate, there have to be certain amendments wherein certain parameters have to be set for the invocation of Reverse CIRP and further, the promoters involvement in the CIRP will not be in violation of Section 29A of the Code and has to be of benefit to all the stakeholders.
[1] 2020 SCC OnLine NCLAT 1199
[2] 2021 SCC OnLine NCLT 8697
[3] Arcelor Mittal India (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1 [27].
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