More trouble seems to be in store for real estate firm Supertech Limited, whose twin towers were recently demolished in Noida, as the Union Bank of India (UBI), one of its financial creditors, filed a petition in the Supreme Court (SC) on Monday alleging glaring irregularities in the company.
Referring to a status report filed by the Interim Resolution Professional (IRP) of Supertech in the National Company Appellate Law Tribunal (NCLAT), it said that the company has committed offenses such as diversion of funds, non-compliance with the Real Estate (Regulation and Development) Act, 2016 provisions, dishonoring of cheques and cases of serious fraud for which Serious Fraud Investigation Office proceedings are underway.
It has pleaded with the apex court to exclude R.K. Arora, the suspended director of the company, and his team from the ongoing corporate insolvency resolution process (CIRP). It further demanded that the current order of the NCLAT, which is in favor of Supertech and its suspended director, should be set aside.
Initially, the UBI had approached the National Company Law Tribunal (NCLT), the adjudicating authority on insolvency cases, alleging default by Supertech on its total claim of Rs 448 crore, and the NCLT initiated CIRP on March 25, 2022. Supertech later filed an appeal in the NCLAT, where decisions of the NCLT may be appealed, demanding relief.
Modifying the NCLT’s direction to initiate insolvency proceedings on the entire company, the NCLAT allowed the constitution of a committee of creditors for only one project, Eco Village II in Greater Noida, instead of all. Supertech has more than 20 realty projects in Delhi NCR. Besides, the NCLAT asked the IRP to complete all other projects with the assistance of ex-management, employees and workmen. This process has been termed “reverse CIRP”.
The NCLAT had also directed the IRP to file a status report on the company's financial status. According to the UBI, this status report highlights glaring irregularities in the company.
In the petition filed in the SC challenging the NCLAT order, the UBI said: “This is contrary to the scheme of IBC (Insolvency and Bankruptcy Code, 2016) which has prohibited involvement of any entity which is classified as a Non-Performing Asset as set out in Section 29A of IBC.”
“By enacting the mechanism of reverse CIRP, the Appellate Tribunal has opened a backdoor entry for defaulting promoters to gain indirect control of the CD (corporate debtor i.e. Supertech) which is otherwise prohibited under the provisions and against the objectiveness of IBC,” it added.
The UBI has primarily relied on the objective of Section 29A of the IBC which provides reasons for keeping the company’s promoters away from the resolution process.
“Concerns have been raised that persons who, with their misconduct, contributed to the default of companies or are otherwise undesirable, may misuse this situation due to lack of prohibition or restrictions to participate in the resolution or liquidation process and gain and regain control of CD,” the statement of object of the amendment to the IBC in 2018, said.
“This may undermine the process laid down in IBC as the unscrupulous person would be seen to be rewarded at the expense of creditors,” it added.
In its order, the NCLAT had said that it is experimenting with the reverse CIRP in Supertech as a ‘test case’. Objecting to it, the UBI said, “As per the provisions of IBC, a CIRP is initiated against a CD as a legal entity and not in parts since the debt was raised by the CD as a legal entity and not any project-specific legal entity.”
Highlighting the status of its current inventories, the UBI said that Supertech had launched 37,645 units under all its projects but has only managed to construct/sell 28,048 and delivered 9,597. The SC has listed the matter for final hearing on November 7.
