[ By Bobby Anthony ]The Supreme Court has agreed to examine the validity of the central government’s decision to amend an Insolvency and Bankruptcy Code (IBC) provision to introduce a threshold of at least 10% homebuyers in a project or 100 of the total allottees to initiate Corporate Insolvency Resolution Process (CIRP) against real estate developers.A clutch of petitions challenging...
The Supreme Court has agreed to examine the validity of the central government’s decision to amend an Insolvency and Bankruptcy Code (IBC) provision to introduce a threshold of at least 10% homebuyers in a project or 100 of the total allottees to initiate Corporate Insolvency Resolution Process (CIRP) against real estate developers.
A clutch of petitions challenging a provision of the IBC (Amendment) Ordinance 2019, promulgated on December 28 last year, was listed before a bench comprising Justice RF Nariman and Justice S Ravindra Bhat, which issued notice to the central government and sought its response.
As per the ordinance, at least 100 allottees or 10% of total allottees under a housing project, whichever is less, could move the court initiating insolvency against the realtor.
The petitioners, most of whom are homebuyers, have challenged Section 3 of the ordinance which left home buyers, who are financial creditors, remediless.
Also, home buyers are prone to face discrimination by putting a pre-condition, which involves a minimum number of allottees of a particular project required for filing an application under Section 7 of the IBC for initiation of insolvency proceedings.
The petitioners claimed that this ordinance violates Article 14 (equality before law) and Article 21 (protection of life and personal liberty) of the Constitution.
“The NCLT shall allow an application under Section 7 of the IBC only if 100 members of such a class of individual investors or a group of individual investors that represent 10 per cent of such a class have jointly preferred the said application”.
“Additionally, it has also been stated that the application of Section 3 of the impugned ordinance shall be retrospective, thereby directly prejudicing the members of the Petitioners’ Association,” the petition filed by Association of Karvy Investors through advocates Ashwarya Sinha and Srijan Sinha stated.
The petitioners also challenged the retrospective application of the ordinance, especially with respect to the homebuyers' plea in tribunals.
The petition seeks to challenge the vires of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019, since Section 3 and Section 10 of the ordinance are manifestly arbitrary and violates Article 14 of the Constitution.
The petitioners, who had already moved the tribunal under IBC, said after these changes, their cases would be adversely affected and this could potentially lead to withdrawal of cases.
The pleas largely contend that financial creditors already form a ‘class’ within the creditors under the IBC and debt owed to them forms a ‘class’' under the IBC. The petitioners said the promulgation of the ordinance is contrary to Article 123 of the Constitution and is liable to be set aside.