Homebuyers Cannot Be Made to Suffer in Real Estate CIRP Where Authority Failed to Monitor Stalled Projects and Developer Used Subsidiaries as Fronts

Held: The Supreme Court held that in real estate insolvency, CIRP may proceed project-wise so that viable projects and genuine homebuyers are not prejudiced by disputes relating to other projects. The Court further held that where the corporate debtor was the real driving force behind development, payments and project execution, and its subsidiary landholding entities were merely fronts, it is permissible to lift the corporate veil to give effect to the real commercial structure. The Court held that GNIDA’s prolonged inaction in monitoring stalled projects and recovering dues disentitled it from claiming penal interest, penal charges and time-extension penalties, though it remained entitled to recover principal dues after recalculation. The Court also emphasised that homebuyers who had already suffered due to stalled projects should not be burdened with GNIDA’s recalculated dues when the successful resolution applicants had undertaken to bear them.

Summary: The dispute arose from the CIRP of Earth Infrastructures Limited, which had undertaken development of several real estate projects, including Earth Towne, Earth TechOne, Earth Sapphire Court and Earth Copia. Though the lands for Earth Towne, Earth TechOne and Earth Sapphire Court were leased by GNIDA to subsidiary or special purpose entities, the development was effectively carried out by Earth Infrastructures Limited. Resolution plans submitted by Roma for Earth Towne and Alpha for Earth TechOne, Earth Sapphire Court and Earth Copia were approved by the CoC and later by the NCLT. GNIDA challenged the approvals before the NCLAT, contending that the leased lands belonged to separate subsidiaries and could not be dealt with in the CIRP of Earth Infrastructures Limited without GNIDA’s permission. The NCLAT set aside the NCLT orders and directed a fresh process. The Supreme Court found that GNIDA had long been aware that Earth Infrastructures Limited was developing the projects, had failed to monitor the projects or take timely action despite defaults and complaints from buyers, and had raised belated and inconsistent claims during the CIRP. The Court held that this was an appropriate case to lift the corporate veil because the subsidiaries were merely fronts, while also protecting GNIDA’s principal dues and ensuring completion of stalled projects.

Decision: The Supreme Court allowed Civil Appeal Nos. 1526 of 2023, 1743 of 2023, 2491 of 2023, 2466 of 2023, 3438 of 2023 and 4619 of 2023, disposed of Civil Appeal Nos. 2406-2407 of 2023 in terms of the judgment, and dismissed Civil Appeal Nos. 3435-3437 of 2023, Civil Appeal (Diary) No. 19132 of 2023, and GNIDA’s Civil Appeal Nos. 2756 and 2763 of 2023. The Court restored the resolution plans of Alpha and Roma and directed GNIDA to recalculate its dues after deducting penal interest, penal charges and time-extension penalties, and communicate the recalculated amounts to Alpha and Roma within two weeks. Alpha and Roma were directed to clear the recalculated principal dues in equated monthly instalments over 24 months, with the first payment due on or before 7 July 2026, without burdening homebuyers or office-space buyers. Registration of homes and office spaces in favour of allottees was directed to take place only after full payment of GNIDA’s dues and with GNIDA’s active participation, while project completion timelines under the restored resolution plans were to run from 1 June 2026.