The Supreme Court on Tuesday upheld the constitutional validity of Insolvency and Bankruptcy Code (Amendment) Act, 2020 mandating minimum threshold on the home-buyers. It prescribes that at least 100 allottees of 10% of allottees from the same real estate project should apply for the initiation of corporate insolvency resolution process in the National Company Law Tribunal (NCLT) against the builder.
A three-judge Bench comprising of Justice Rohinton Fali Nariman, Justice KM Joseph and Justice Navin Sinha upheld the Constitutional validity of Sections 3, 4 and 10 introduced by the Insolvency and Bankruptcy Code (Amendment) Act, 2020.
“The contentions of the petitioners that there is hostile discrimination forbidden Article 14 is untenable. There cannot be any doubt that intrinsically a financial creditor and an operational creditor are distinct. An operational creditor is one to whom money is due on account of goods or services supplied to the debtor. The financial creditor on the other hand, is so described, on account of there being the element of borrowing. This distinction is indisputable,” the judgment said.
The Court also noted that the homebuyer can seek remedies under the RERA Act and the Consumer Protection Act against the builder against the non-delivery of the property.
The court added that “what we mean by avoidable applications is a decision which would not be taken by similarly placed creditors keeping in mind the consequences that would ensue not only in regard to persons falling in the same category but also the generality of creditors and other stakeholders. All that the amendment is likely to ensure is that the filing of the application is preceded by a consensus at least by a minuscule percentage of similarly placed creditors that the time has come for undertaking a legal odyssey which is beset with perils for the applicants themselves apart from others. As far as the percentage of applicants contemplated under the proviso it is clear that it cannot be dubbed as an arbitrary or capricious figure”.
“A law is made by a body of elected representatives of the people. When they act in their legislative capacity, what is being rolled out is ordinary law. Should the same legislators sit to amend the Constitution, they would be acting as members of the Constituent Assembly. Whether it is ordinary legislation or an amendment to the Constitution, the activity is one of making the law. While malice may furnish a ground in an appropriate case to veto administrative action it is trite that malice does not furnish a ground to attack a plenary law,” the apex court said in a judgment.
The court also said “it does not matter whether a person has one or more allotments in his name or in the name of his family members. As long as there are independent allotments made to him or his family members, all of them would qualify as separate allottees and they would count both in the calculation of the total allotments, as also in reckoning the figure of hundred allottees or one-tenth of the allottees, whichever is less”.