The Supreme Court on Tuesday upheld the Constitutional validity of the amendments made to the Insolvency and Bankruptcy Code (IBC) in 2020. The amendments mandated a minimum of 100 home buyers from the same real estate project to come together to file an insolvency application in the National Company Law Tribunal (NCLT) to trigger the IBC against a defaulting property developer.
A three-judge Bench comprising of Justices Rohinton Fali Nariman, KM Joseph and Navin Sinha held that Sections 3 and 10 of the Insolvency and Bankruptcy Code (Amendment) Act, 2020 which introduced these amendments are not violative of right to equality under Article 14 of the Constitution.
Section 3 of the Insolvency and Bankruptcy Code (Amendment) Act, 2020 amended Section 7 of IBC, while Section 10 of the Amendment Act introduced a new provision, Section 32A.
As per Section 3, only if 100 real estate allottees under the same real estate project or 10 percent of the total allottees of such project, whichever was less come jointly and file an insolvency application against the defaulter developer.
Petitioners had also challenged the new added Section 32A of the code. It was contended that immunity granted to the corporate debtors and its assets acquired from the proceeds of crimes and any criminal liability arising from the offences of the erstwhile management for the offences committed prior to initiation of CIRP and approval of the resolution plan by the adjudicating authority further jeopardizes the interest of the allottees/ financial creditors. However, the Supreme Court has held that "no case whatsoever is made out to seek invalidation of Section 32A."
The court agrees with the Legislature that having a single allottee approach the Tribunal would be risky, considering that a corporate insolvency resolution may also entail a complete overhaul or replacement of the property developer's company management. Such an initiative by a single allottee would derail the plans of other allottees, who still had faith in the existing developer or were pursuing other legal remedies.
The 465-page judgment, based on petitions filed by different allottees of various real estate projects and financers who fund such property-seekers said, there is sound rationale behind the law's requirement that the 100 applicants should be from the same project. Several allottees group together from different projects would lead to confusion as their complaints would vary and make the insolvency resolution process difficult.