Introduction
When a body of individuals, each holding a legitimate financial stake in a failing corporation, chooses to consolidate their strength by delegating authority to a registered society for legal action, the question arises: Does the efficiency of the collective supersede the explicit rights of the individual under law? The NCLAT1, Delhi in Sumer Radius Realty Pvt. Ltd. Versus Avenue 54 Welfare Association2, has unequivocally answered this, ruling that the initiation of an insolvency application by a homebuyers’ society under the IBC3 must be anchored by explicit, individual authorisation from every single homebuyer.
This crucial pronouncement by a bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra clarified that a mere resolution passed by the society’s core committee is insufficient to meet the statutory requirement. The underlying issue arose when the Avenue 54 Welfare Association, representing 98 homebuyers, filed a Section 7 application against developers Sumer Radius Realty Private Limited and Sumer Buildcorp Private Limited. The Appellate Tribunal affirmed that while a financial creditor may act through an authorised person, “Any authorisation has to be by all the members on whose behalf the application is claimed to be filed,” thereby directing the society to obtain individual affidavits from all 98 members. This ruling fundamentally examines the foundational principle upon which this pronouncement rests. The article delves into a profound analysis of the delicate balance between the practical demands of group action and the supreme legal requirement of uncompromised individual assent in the eyes of the Code, scrutinizing the inviolable necessity of individual creditor consent even within a representational framework to ensure the collective voice retains the integrity of its constituent parts and to firmly establish the precise limits of delegated authority within the context of corporate debt resolution.
Can a Welfare Association Initiate CIRP When Its Status Isn’t Notified by the Central Government?
The heart of the challenge to the Section 7 application lay in the fundamental question of the applicant’s legal standing. The Corporate Debtors vigorously contended that the Avenue 54 Welfare Association, a registered society, was not a “financial creditor” under Section 7 of the IBC. This argument was buttressed by the submission that the Central Government’s notification, issued under Section 7(1) to specify “any other person on behalf of the financial creditor,” did not include a Welfare Association registered under the Societies Registration Act. A perusal of the notification revealed five specific categories of authorised persons, and the Association did not fall within any of them. Therefore, a technical objection was raised that the application, on its face, was not maintainable.
Do Conflicting Precedents Nullify the Requirement for Individual Consent?
In resisting this technical challenge, the Association’s counsel strategically invoked several previous rulings. The submission cited NCLT, New Delhi Bench decisions in Vipul Green Residents Welfare Association Vs. Vipul Ltd4. and Krrish Florence Estate Buyer’s Welfare Association (KFEBWA) Vs. Angle Infrastructure Private Limited5. These rulings, which reportedly found no infirmity in filing a Section 7 application by a Welfare Association, were presented to support the maintainability of the current application. Furthermore, the Association drew a parallel to the Supreme Court’s pronouncement in JK Jute Mill Mazdoor Morcha Vs. Juggilal Kamlapat Jute Mills Company Ltd6.,. In that judgment, the Apex Court had held that a registered trade union of workers could file an application under Section 9 for the dues of its worker members. By analogy, the Association argued that this Supreme Court precedent fully covered the issue, affirming the maintainability of its application under Section 7 as a representative body of financial creditors.
When an Authorisation is Defective, Should the Door Be Closed to Curing the Defect?
While the Appellate Tribunal acknowledged that Section 7(1) permits a financial creditor to file an application “by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor,” it zeroed in on the requirement for valid authorisation. The Tribunal observed that even though Form 1 of the IBC Rules provides space for an authorised person, and that authorised person could be a registered society, the authorisation itself must emanate from the financial creditors. In the case at hand, the resolution relied upon was not from all 98 individual flat buyers but only from the Core Committee of the Association. This constituted a defect in authorisation.
However, the NCLAT then shifted its focus to the procedural fairness observed by the Adjudicating Authority (NCLT). The Association’s counsel, Mr. Sinha, had made a clear offer before the NCLT to cure the defect by filing individual affidavits and authorisations from all 98 flat purchasers, a plea that was opposed by the Corporate Debtor and subsequently rejected by the NCLT. The Appellate Tribunal deemed this refusal erroneous, stating that “when Section 7 applicants offered to file individual affidavits and authorisation to cure the defect, if any, adjudicating authority ought to have been given opportunity to the applicant to cure the defects.”
In its final determination, the NCLAT subtly bypassed a detailed consideration of the conflicting maintainability precedents, including the arguments based on ‘Vipul Green,’ ‘Krrish Florence Estate,’ and the ‘JK Jute Mill Mazdoor Morcha’ case. Instead, the NCLAT pivoted to the core legal principle: with a valid authorisation in place, the application must be treated as maintainable. By allowing the Association a period of seven days to file the individual affidavits—thereby curing the defect—the Appellate Tribunal ensured that the spirit of justice prevailed over a hyper-technical reading of the law, affirming that the ultimate statutory requirement is the uncompromised will of the individual financial creditor.
Conclusion
The NCLAT’s ruling in Sumer Radius Realty Pvt. Ltd. v. Avenue 54 Welfare Association delivers a decisive clarification that anchors the procedural requirements of the IBC to the foundational principles of creditor rights. By insisting on individual authorisation from every homebuyer, the Tribunal has reinforced the solemnity of the Section 7 application, treating it not merely as a matter of collective convenience but as a potent legal instrument that mandates the unambiguous and explicit consent of every financial creditor whose dues form the basis of the claim. This decision effectively circumscribes the authority of a representative body, ensuring that while an association may act as an authorised person, it cannot substitute its internal committee’s mandate for the individual, independent will of its members, thereby safeguarding the integrity of the process against any suggestion of implied or generalized consent.
The most significant aspect of this judgment lies in its pragmatic approach to procedural errors. The Tribunal’s directive to the NCLT to permit the filing of individual affidavits and authorisations demonstrates a commitment to achieving substantive justice over technical rejection. This curative approach acknowledges the realities of large-scale collective action while maintaining the strict standards of the law, establishing a critical precedent: defects in authorization, where the applicant is a genuine representative body like a welfare association, are generally considered curable. This stance discourages corporate debtors from employing hyper-technical objections solely to delay the insolvency process, ensuring that the remedial objective of the IBC—to resolve insolvency in a time-bound manner—is not defeated by procedural quibbles.
Looking ahead, this ruling raises profound questions about the future role of representative bodies within the IBC framework. While the Avenue 54 judgment settles the issue of authorisation, future litigation may explore: What level of detail must these individual affidavits contain to prove the ‘financial creditor’ status of each member? And perhaps more critically, Does the collective strength of a welfare association, once properly authorized, grant it a distinct legal standing or simply consolidate the individual rights of its members? This decision, therefore, is not an endpoint; rather, it is a crucial landmark that affirms the supremacy of individual creditor rights, setting the stage for subsequent jurisprudence to define the precise contours of collective action in India’s evolving corporate insolvency landscape.
Citations
- National Company Law Appellate Tribunal
- Sumer Radius Realty Pvt. Ltd. Versus Avenue 54 Welfare Association Company Appeal (AT) (Insolvency) No. 1572 of 2025
- The Insolvency and Bankruptcy Code,2016
- Vipul Green Residents Welfare Association Vs. Vipul Ltd.IB 541(ND)/2019
- Krrish Florence Estate Buyer’s Welfare Association Infrastructure Private Limited(KFEBWA) Vs. AngleIB-238 (ND)2024
- K Jute Mill Mazdoor Morcha Vs. Juggilal Kamlapat Jute Mills Company Ltd.Civil Appeal No. 20978/2017
Expositor(s): Adv. Anuja Pandit
