ELEGNA CO-OP HOUSING AND COMMERCIAL SOCIETY LTD. VS. EDELWEISS ASSET RECONSTRUCTION COMPANY LIMITED : CASE SUMMARY

The Supreme Court in Elegna Co-op Housing and Commercial Society Ltd. Vs Edelweiss Asset Reconstruction Company Ltd (Civil Appeal 10261/2025) held that the right to initiate or participate in insolvency proceedings is statutory, not equitable. The Supreme Court further held that a society or Resident Welfare Association, not being a creditor in its own right and not recognised as an authorised representative of allottees under the IBC, has no locus standi to intervene in proceedings arising out a Section 7 petition.

FACTS OF THE CASE

The Corporate Debtor availed financial assistance  of Rs. 70 Crore from ECL Finance Ltd. under two loan agreements  for developing  project Takshila Elegna and executed requisite documents. The loan accounts were classified NPA on 30.12.2021. On 09.05.2022 loan was assigned to Edelweiss Asset Reconstruction Company Ltd. Subsequent to that  Financial Creditor initiated recovery proceedings for amount of Rs. 57,24,96,064/ before DRT. One time settlement was entered which also failed.  Subsequently, the Financial Creditor also filed Petition for initiation of insolvency proceedings against the Corporate Debtor. During pendency of proceedings the Financial Creditor issued notice for sale of secured assets. NCLT dismissed the Petition on the ground that IBC was invoked as recovery mechanism rather than a tool of insolvency resolution. The NCLT also observed that the project was viable and admitting the corporate debtor into insolvency will adversely affect the interests of home buyers.

The Financial Creditor preferred an appeal before Hon’ble NCLAT.  Elegna Co-op. Housing and Commercial Society also filed an intervention application. NCCLAT allowed the appeal and also rejected the intervention application on the ground of lack of locus standi. Appeal was filed before the Hon’ble Supreme Court.

FINDINGS OF THE SUPREME COURT

The Hon’ble Supreme determined two issues in the matter –

(i) Whether the NCLAT was correct in admitting Corporate Debtor into the Corporate Insolvency Resolution Process ?

The Supreme Court reiterated the well settled principle that once the Adjudicating Authority is satisfied that a financial debt exists and a default has occurred, it must admit the application unless it is incomplete. The Supreme relied on judgments of the Supreme Court in Innoventive Industries Vs ICICI Bank (2018) 1 SCC 407, E.S. Krishnamurthy v. Bharath Hi- Tech Builders Pvt. Ltd (2022) 3 SCC 161, M. Suresh Kumar Reddy v. Canara Bank and others (2023 SCC OnLine SC 608)  and Indus Biotech Private Ltd. v. Kotak India Venture (Offshore) Fund (2021) 6 SCC 436. The Supreme Court observed that the Vidarbha Industries is a narrow exception on its peculiar facts and is not applicable.

The Supreme Court observed that reliance on business viability, unsold inventory, project status, or anticipated receivables does not constitute “good reasons” in law to defer or deny admission of CIRP.

The Supreme Court also observed that the Code does not prohibit a financial creditor from invoking CIRP merely because recovery proceedings under the SARFAESI Act or before the DRT are pending or have been initiated. Allegations of mala fide invocation can be examined only within the framework of Section 65 of the Code, which requires specific pleadings and proof of abuse of process by the Corporate Debtor.

The Supreme Court observed that the concept of revival under the IBC does not exclude recovery altogether; it excludes abuse of insolvency as a pressure tactic. The Adjudicating Authority retains a crucial gatekeeping role at later stages, particularly at the time of approval of the resolution plan, to ensure compliance with the Code while respecting the primacy of the commercial wisdom of the Committee of Creditors.

The Supreme Court concluded that the debt and default having been conclusively established, and the narrow exception carved out in Vidarbha Industries being clearly inapplicable, the NCLAT was fully justified in admitting the Corporate Debtor into the CIRP.

(ii) Whether the NCLAT was correct in rejecting the Intervention application filed by the Society ?

The Supreme Court observed that in GLAS Trust Co. LLC v. BYJU Raveendran (2025) 3 SCC 625, it held that while there is no rigid requirement restricting the right to appeal only to the applicant creditor and the corporate debtor, such latitude applies when proceedings are in rem post-admission of CIRP. At the pre-admission stage, proceedings under Section 7 remain in personam, and neither the Adjudicating Authority nor the Appellate Authority is required to hear other creditors, much less unrelated third parties. When proceedings are in personam, no right of audience inheres in persons who are strangers to the debt and default forming the basis of the application.

The Supreme Court observed that a financial creditor under Section 5(7) must be a person to whom a financial debt is owed. While the Explanation to Section 5(8)(f) deems individual allottees to be financial creditors, it does not extend such status to societies or associations unless the entity is itself a creditor in its own right, or is statutorily recognised as an authorised representative under the Code. A society is a distinct juristic entity separate from its members. Unless it has itself advanced funds, executed allotment agreements, or received allotments, it cannot claim financial creditor status. The right to initiate or participate in CIRP flows from the debt transaction and the statute, not from associative or representational interest.

The Supreme Court concluded that in the present case, the appellant Society is neither a financial nor an operational creditor. It is a maintenance society not constituted for insolvency representation. No documentary proof of registration, collective authorisation, or general body resolution has been produced. Membership is automatic and mandatory, negating consensual representation. Reliance on compulsory membership to claim representational authority on behalf of allottees is nothing but a brutm fulmen. Notably, the intervention application was filed only at the appellate stage and not before the NCLT. The Society is not a party to the financial transaction forming the substratum of the Section 7 application. Hence, no statutory right of appeal inheres in the appellant.

Although the Supreme Court affirmed the findings of the Hon’ble NCLAT, it issued following directions for safeguarding interests of home-buyers- (i) The Information Memorandum shall mandatorily disclose comprehensive and complete details of all allottees; (ii) Where the Committee of Creditors, upon due consideration, finds it not viable to approve handover of possession in terms of Regulation 4E of the CIRP Regulations, it shall mandatorily record cogent and specific reasons in writing for such decision. (iii)Any recommendation for liquidation by the Committee of Creditors shall be accompanied by a reasoned justification recorded in writing,

__________________________________________________