Joint Section 7 Application Against Multiple Corporate Debtors in Real Estate Projects: NCLAT Delhi Rules on Maintainability, Threshold and Limitation

Case Background and Overview

Case Name: Mist Avenue Pvt. Ltd. Vs Nitin Batra & Ors. (NCLAT Delhi)
Appeal Number: Company Appeal (AT) (Insolvency) No. 127 of 2023
Date of Order: 17/11/2023
Forum: National Company Law Appellate Tribunal, New Delhi

The National Company Law Appellate Tribunal (NCLAT), New Delhi, rendered a significant ruling in the context of real estate insolvency proceedings by dismissing three separate appeals directed against the National Company Law Tribunal's order dated 21 October 2022. The NCLT had held that a joint application under Section 7 of the Insolvency and Bankruptcy Code, 2016 filed by allottees of the Festival City real estate project was maintainable against three related entities — Anand Infoedge Pvt. Ltd., Mist Avenue Pvt. Ltd., and Mist Direct Sales Pvt. Ltd. — simultaneously. The NCLAT, upon careful examination of the collaboration arrangements, builder-buyer obligations, and the statutory threshold requirements, affirmed the NCLT's findings in their entirety.

Project Background: The Festival City Development and Collaboration Chain

Land Ownership and Initial Development Arrangement

Anand Infoedge Pvt. Ltd. held a lease over approximately 100,980 square metres of land at Plot No. 1, Sector 143, Noida, granted by the New Okhla Industrial Development Authority under a Lease Deed dated 21 August 2008. Possession of the land was handed over on 28 August 2008. Thereafter, Anand Infoedge entered into a Collaboration Agreement with Mist Avenue Pvt. Ltd., effective from 26 October 2012, for the development of what was to be known as the Festival City project.

Under the terms of this first Collaboration Agreement, Mist Avenue, as the designated developer, was authorised to develop the entire plot, entitled to 85% of the constructed units, and was additionally empowered to sell the remaining 15% on behalf of the landowner Anand Infoedge. Critically, the Agreement stipulated that all sales transactions — including advances collected by the developer — would be binding on the landowner, and that both parties would be jointly and severally responsible for delivering units as per contracts executed with buyers and investors.

The relevant extract of the Collaboration Agreement reads:

"All sales transactions including advances collected by the Developer for any are sold in the entire project, whether out of the Developer's share or the Owner's share will be binding on the Owner both the parties shall be jointly and severally responsible to deliver as per contracts/deals entered by the Developer with such buyers/customers/Investors."

Allotments Under the First Collaboration Period

Pursuant to the Collaboration Agreement, Mist Avenue allotted various units in the Festival City project to allottees — including the respondents in the present proceedings — between the years 2012 and 2017. Builder-Buyer Agreements were executed accordingly. The possession clause under those agreements contemplated completion within 36 months with an additional 12-month grace period from the execution date, with a delay compensation provision of Rs. 9 per sq. ft. per month payable by the company in the event of delayed handover.

Cancellation and the Second Collaboration Agreement

On 27 July 2017, Anand Infoedge Pvt. Ltd. terminated the first Collaboration Agreement with Mist Avenue. On the same date, a new Collaboration Agreement was executed among Anand Infoedge, Mist Direct Sales Pvt. Ltd., and Mist Avenue, under which development and construction rights were assigned to Mist Direct. Mist Direct's revenue entitlement mirrored the earlier structure — 85% developer share to Mist Direct and 15% to the landowner.

Shortly thereafter, on 2 December 2017, Mist Direct issued a formal communication to all existing allottees informing them that it had assumed charge of the project, taken over all previously sold inventories, and received documents along with payment records from the earlier collaborator. The letter read:

"We wish to inform you that we have also taken charge of the inventories already sold by the earlier company and have received all your papers/documents together with the account of money paid by you under the assignment arrangements made for the said purpose."

Project Failure and UPRERA Revocation

Notwithstanding the transition to the second collaborator, the Festival City project remained unfinished. UPRERA revoked the project's registration by order dated 7 December 2019. On 11 October 2021, a joint Section 7 application was filed by Mr. Nitin Batra and other allottees of 115 units in the project, seeking initiation of the Corporate Insolvency Resolution Process (CIRP) simultaneously against all three entities.

Questions Framed by NCLAT

The Appellate Tribunal identified three principal questions arising in the appeals:

1. Whether a joint application under Section 7 against three separate corporate entities — Anand Infoedge Pvt. Ltd., Mist Avenue Pvt. Ltd., and Mist Direct Sales Pvt. Ltd. — was maintainable?
2. Whether the Section 7 application met the statutory threshold of allottees prescribed under the Insolvency and Bankruptcy Code, 2016?
3. Whether each individual applicant in a joint Section 7 application must independently satisfy all eligibility conditions, including the existence of a financial debt, the occurrence of default, and compliance with limitation?