Relevance for UPSC: GS Paper III – Economic Growth & Infrastructure Regulation

The National Company Law Appellate Tribunal (NCLAT) has restrained Raheja Developers from creating any third-party rights—such as sale or transfer—over its assets while insolvency proceedings are underway. The directive, issued under the Insolvency and Bankruptcy Code (IBC), 2016, aims to safeguard creditors, homebuyers, and investors from asset diversion during the resolution process.

About NCLAT (National Company Law Appellate Tribunal)

• Established: 1st June 2016 under Section 410 of the Companies Act, 2013.
  
• Purpose: It is the appellate authority that hears appeals against the orders of:
  
  • National Company Law Tribunal (NCLT) under the Companies Act, 2013 and Insolvency and Bankruptcy Code (IBC), 2016.
    
  • Competition Commission of India (CCI) under the Competition Act, 2002.
    
  • National Financial Reporting Authority (NFRA) under the Companies Act, 2013.
    
• Composition:
  Headed by a Chairperson (usually a retired Supreme Court or High Court judge) and includes Judicial and Technical Members.
  
• Key Functions:
  
  • Hears appeals related to corporate insolvency, mergers, and liquidation.
    
  • Ensures fairness and transparency in corporate governance and resolution processes.
    
  • Reviews penalties and directions issued by the CCI or NCLT.
    
  • Acts as a quasi-judicial body for speedy resolution of business disputes.
    

Why It matters

1. Protection for Homebuyers: Thousands of buyers in delayed projects are safeguarded against unfair transfers of assets or incomplete projects.
   
2. Investor Confidence: Ensures that developers cannot bypass financial obligations, thereby improving credibility in India’s real-estate market.
   
3. Systemic Stability: By linking IBC with RERA, the order demonstrates how India’s regulatory frameworks work together to maintain financial discipline and consumer protection.
   
4. Governance Reform: Highlights the growing importance of corporate governance, ethical business practices, and stricter compliance in infrastructure and housing sectors.
   

Parallel Legal and Financial Remedies

Apart from insolvency proceedings, several complementary mechanisms strengthen real estate and corporate accountability:

• RERA Adjudication: Enables individual buyers to seek compensation and penalties.
  
• Consumer Protection Act, 2019: Allows buyers to file complaints for delayed possession or misrepresentation.
  
• SARFAESI Act, 2002: Empowers financial institutions to recover non-performing assets efficiently.
  
• Alternative Dispute Resolution (ADR): Encourages mediation and arbitration to expedite settlement without lengthy litigation.
  

Together, these frameworks aim to ensure that growth in the real-estate sector remains transparent, fair, and financially sustainable.

UPSC Prelims Question

With reference to the NCLAT’s order concerning Raheja Developers, which of the following statements are correct?

1. The order prohibits creation of third-party rights over assets during insolvency proceedings.
   
2. The order is issued under the Insolvency and Bankruptcy Code, 2016.
   
3. It limits asset restraint only to land and excludes under-construction units.
   

Select the correct answer:
(a) 1 and 2 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) 1, 2 and 3
Answer: (a)

One-line Wrap:

By freezing Raheja Developers’ assets, NCLAT reinforces that real-estate recovery must prioritize fairness, transparency, and homebuyer protection over unchecked expansion.