Supreme Court Denies Housing Societies Locus To Intervene In Insolvency Admission; Issues Directions For CoC

The Supreme Court has held that housing societies lack the locus standi to intervene in the admission stage of insolvency proceedings, ruling that “right to initiate or participate in CIRP flows from the debt transaction and the statute, not from associative or representational interest.” 

While limiting third-party intervention, the court simultaneously directed that the Committee of Creditors (CoC) “shall mandatorily record cogent and specific reasons in writing” whenever it recommends liquidation or denies possession to homebuyers.

A bench comprising Justices J.B. Pardiwala and R. Mahadevan dismissed appeals filed by a housing society and a corporate debtor challenging the admission of insolvency proceedings, but issued prospective directions to check arbitrary decision-making by CoC. Observing that the CoC's autonomy is not immune to accountability, the court held that any “extraordinary or non-routine decision taken by the CoC must, therefore, be supported by cogent reasons duly recorded in writing.”

The dispute arose from the insolvency admission of Takshashila Heights India Private Limited, developer of the “Takshashila Elegna” project in Ahmedabad. The petition was filed by Edelweiss Asset Reconstruction Company after the developer defaulted on loan facilities totalling Rs. 70 crores. While the NCLT initially dismissed the petition, citing project viability, the National Company Law Appellate Tribunal (NCLAT) reversed this order and admitted the company into insolvency. The NCLAT also rejected an intervention application by the Elegna Co-operative Housing Society, which claimed to represent the homebuyers.

Aggrieved by NCLAT's decision, the corporate debtor argued that the petition was a “malicious recovery tactic” initiated despite the project being substantially complete. It alleged the default was “manufactured” by the creditor's refusal to issue No Objection Certificates (NOCs) for unit sales. Meanwhile, the housing society argued it had a “participatory right” to intervene to protect the interests of 189 unit holders.

Conversely, the financial creditor contended that once debt and default are established, admission is mandatory. It argued that the society was merely a maintenance body with no privity of contract and thus lacked locus standi under the Insolvency and Bankruptcy Code (IBC).

The Supreme Court upheld the admission, ruling that the “concept of revival under the IBC does not exclude recovery altogether; it excludes abuse of insolvency as a pressure tactic.” It rejected the society's standing, holding that intervention rights are statutory and cannot arise from mere associative or representational interest.

Acknowledging that the “interests of homebuyers are undoubtedly of paramount importance,” the court cautioned that “such interests must be protected strictly within the legal framework.”

However, to ensure transparency and safeguard homebuyer interests in future cases, the court issued specific prospective directions. It mandated that the Information Memorandum of the corporate debtor must disclose “comprehensive and complete details of all allottees” to ensure they are identified early in the process.

Furthermore, if the CoC decides it is not viable to handover possession to allottees under Regulation 4E of the CIRP Regulations, or if it recommends liquidation of the corporate debtor, it must mandatorily record its reasons for such a decision in writing, evidencing a proper application of mind and consideration of viable alternatives.

Accordingly, the court dismissed the appeals, confirming the insolvency admission.

Case Title: Elegna Co-op Housing And Commercial Society Ltd. v. Edelweiss Asset Reconstruction Company Limited & Anr.