Monday, March 4, 2024

Plea in Supreme Court against 100-allottee clause in IBC for home buyers

New Delhi (ILNS): A plea has been filed in the Supreme Court challenging section 3 of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 and Section 7 of the IBC and to set out new conditions for real estate allottees to approach the NCLT as being in violation of Article 14 and 21 of the Constitution. The allottees, as per such amendment will have to bring 100 allottees to satisfy the clause.

The matter is listed today before the bench of Justice Rohinton Fali Nariman, Justice Navin Sinha and Justice K. M. Joseph.

At the outset, it is submitted that the present writ petition is maintainable because the Petitioner is a Home Buyer and has approached the NCLT undersection 7 of the IBC. After coming into effect, the aforesaid amendment in Section 7, there is a likelihood that Petitioner case will be withdrawn, if he fails to comply with the new requirement given in section 7 of the IBC. Further, the challenge is against the Union of India which is a State within the meaning of Art 12 of the Constitution.

It is further submitted that the code is a beneficial piece of legislation. The financial creditors already form a “class” within the creditors under the code and debt owed to them forms a “class” under section 5 (8) of the code. The Ordinance dissects Financial Creditor further and imposes a condition on that newly created class. This condition hinders them from reaping the benefits available to others under the Code. This amounts to creation of a “class within a class” and is unconstitutional and manifestly arbitrary, violating Art. 14 of the Constitution. Creation of a class within a class was unconstitutional and arbitrary, thus making it ultra vires the Constitution, said the apex court.

The object of the Ordinance ought to be made clearer. It appears that the present Ordinance may have been brought to prevent home buyers from misusing the Code. The said object has already been answered by this Hon’ble Court while dealing with the Constitutional validity of section 5 (8) (f) of the Code in the ccase of Pioneer Urban Land and Infrastructure Ltd. and Ors. v/sUnion of India and Ors.which states that 

“The Code is thus a beneficial legislation which can be triggered to put the corporate debtor back on its feet in the interest of unsecured creditors like allottees.”

The Ordinance have been brought in hurried manner, there appears to be a sinister move to over-turn a law laid down by the court. When the present ordinance denies home buyers their right of approaching NCLT, actually denies them accessing their Fundamental Rights. Petitioner submitted that the present ordinance is vague and would only serve to exacerbate the confusion, if any. While it posits that home buyers have to constitute 10% of the total allottees or be 100 in number, it remains silent on what ought to be done when some of the allottees settle or withdraw. Debenture holder or fixed deposit holder who has claim of more than one lakh against real estate company can approach the NCLT under section 7 of the IBC but a home buyer irrespective of his claim amount, will have to unnecessarily comply with the condition given in section 7 i.e. to bring 100 real estate allottees or 10% of the total allottees under a real estate projection order to approach NCLT.

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Further, the petitioner submits that the ordinance has been given a retrospective effect. This would severely affect the existing Allottees who have not only lost their money and home approached the Hon’ble NCLT but paid Rs 25000 as court fee. Even those whose cases are listed for the final arguments before the NCLT, will have to comply with this condition within one month or else their cases will be considered as withdrawn.



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