Summary
| Category | Data |
|---|---|
| Court | Supreme Court of India |
| Case Number | C.A. No. 10261 of 2025 / C.A. No. 10012 of 2025 |
| Diary Number | 37766/2025 |
| Judge Name | HON’BLE MR. JUSTICE R. MAHADEVAN |
| Bench |
HON’BLE MR. JUSTICE J.B. PARDIWALA HON’BLE MR. JUSTICE R. MAHADEVAN |
| Precedent Value | Binding Authority |
| Overrules / Affirms | Affirms Innoventive Industries, E.S. Krishnamurthy and Innoventive–line mandatory admission test; confines Vidarbha Industries as narrow exception |
| Type of Law | Insolvency and Bankruptcy Code, 2016 |
| Questions of Law |
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| Ratio Decidendi |
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| Judgments Relied Upon |
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| Logic / Jurisprudence / Authorities Relied Upon by the Court |
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| Facts as Summarised by the Court |
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Practical Impact
| Category | Impact |
|---|---|
| Binding On | All Adjudicating Authorities (NCLTs), Appellate Tribunals (NCLATs), and subordinate courts |
| Persuasive For | High Courts (in interpretation of Section 7 admission), RERA authorities (on representation of allottees) |
| Overrules | Scope of Vidarbha Industries as a general discretion to defer admission (confined to its facts) |
| Distinguishes | Use of inherent powers under Rule 11 to grant locus to non-creditor third parties |
| Follows | Innoventive Industries, E.S. Krishnamurthy (mandatory “debt + default” admission test), GLAS Trust (in personam vs in rem) |
What’s New / What Lawyers Should Note
- The “debt + default” test under Section 7 is strictly mechanical; no justiciable discretion remains once default is established.
- Vidarbha Industries remains a narrow exception confined to cases with an adjudicated counterclaim exceeding the claim, not a broad escape hatch.
- Pre-admission CIRP proceedings are in personam; only the financial creditor and corporate debtor have standing—no third-party intervention.
- Self-styled housing societies that have not advanced funds or executed loan documents cannot claim locus standi to intervene.
- Recovery actions under SARFAESI/DRT do not bar or vitiate a Section 7 petition; moratorium flows from admission.
- Inherent powers under Rule 11 cannot create participatory rights contrary to the IBC framework.
Summary of Legal Reasoning
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Mandatory Admission under Section 7
- Sections 3(11), 3(12), 5(7), 5(8): debt and default definitions.
- Section 7(5): once default is established, admission is mandatory unless form is incomplete.
- Innoventive Industries, E.S. Krishnamurthy: no scope for equitable considerations.
- Vidarbha Industries is a narrow, fact-specific exception (actual adjudicated counterclaim).
- Indus Biotech: gate-keeping on existence of default, but admission once default is found.
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Parallel Recovery Proceedings
- Kotak Mahindra: recovery certificate gives fresh cause of action; parallel SARFAESI/DRT is permissible; moratorium on admission.
- Tottempudi: doctrine of election inapplicable; IBC is a revival tool but includes recovery.
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Locus at Admission and Appeal
- Section 7 stage: in personam between creditor and debtor; no hearing for unrelated third parties (GLAS Trust).
- Post-admission CIRP is in rem; collective stakeholder representation only via authorised representatives under Section 21(6A) + Reg 16A.
- Phoenix ARC: creditor status tied to actual debt transaction; no implied representation by associations.
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Limitations on Inherent Powers
- Rule 11 mirrors Section 151 CPC but cannot override exhaustive IBC scheme (Ram Chand & Sons, Ebix Singapore).
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Protections for Homebuyers
- RERA rights and IBC coexist; CoC and RP must respect Regulation 4E, Regulation 46A, and RERA.
- Mansi Brar: sectoral remedies primary; IBC is last-resort revival tool.
Arguments by the Parties
Petitioner
- Petition 1: Society lacks procedural fairness—denied hearing; represents 189 homebuyers as financial creditors under Section 5(8)(f).
- Artificial distinction between completed vs uncompleted towers violates Article 14.
- CIRP suspension of RERA remedies and weakening of CoC voting share prejudices allottees.
- EARCL’s dual recovery via SARFAESI and IBC is mala fide (Section 65 abuse).
- Project commercially viable; OTS payments and instalments; unsold inventory sufficient for debt servicing.
- NCLT’s discretionary refusal valid under Section 7(5)(a) (Vidarbha Industries).
Respondent
- Existence of ₹53 cr+ financial debt and admitted default; mandatory admission (Innoventive, E.S. Krishnamurthy).
- Vidarbha Industries inapplicable; no adjudicated counterclaim.
- Parallel recovery proceedings do not bar CIRP (Kotak Mahindra, Tottempudi).
- Society is a maintenance body, not a creditor; lacks locus.
- Homebuyers’ participation post-admission via authorised representative (Reg 16A).
- OTS revoked for debtor’s breach; default not manufactured.
Factual Background
Takshashila Heights (Corporate Debtor) borrowed ₹70 crore from ECL Finance in 2018 to develop “Takshashila Elegna.” After repayment delays, the loan was classified NPA in December 2021. ECL assigned debt to Edelweiss ARC, which issued recall and SARFAESI demands. A restructuring-cum-OTS was agreed in May 2023; partial instalments paid; ARC revoked on alleged default. ARC filed a Section 7 petition; NCLT dismissed it on viability and homebuyer impact. NCLAT allowed ARC’s appeal, admitted CIRP, and denied intervention by the homebuyers’ society. Both debtor and society appealed.
Statutory Analysis
- Section 3(11), 3(12): “debt” and “default” definitions.
- Section 5(7), (8): “financial creditor” and “financial debt.” Explanation (i) to (5)(8)(f): allottees as financial creditors individually.
- Section 7(5)(a): duty to admit when debt and default exist; no discretion.
- Section 14: moratorium on parallel recovery post-admission.
- Section 21(6A), Regulation 16A CIRP Regulations: authorised representative for homebuyers.
- Regulation 4E CIRP Regs: CoC approval for possession/registration of units.
- Regulation 46A Liquidation Regs: possession by allottees excluded from liquidation estate.
- Section 65: inherent power to penalise abuse of process.
- Section 238: overriding effect of IBC.
Procedural Innovations
- Clarification that pre-admission proceedings are strictly in personam; no third-party intervention.
- Affirmation of exhaustive withdrawal and locus framework under Rule 8 NCLT Rules, Rule 11 NCLAT Rules, Section 62 appeals.
Alert Indicators
- ✔ Precedent Followed