prpri SC Upheld 2020 Amendment With Transitional Window To Pending Applications Which Are 'Deemed' To Be Withdrawn IBC 2020 Amendment Is Valid : Supreme Court

Ashutosh Gupta & Gaurav Rana

Supreme Court provided a window of two month from the order to the applicants/homebuyers to approach the NCLT after complying the first or second proviso to Sub-Section 1 to Section 7 of the IBC.

The Supreme Court on Tuesday in batch matters lead by Manish Kumar Vs UOI WP(C) No. 26 of 2020, upheld the validity of the Insolvency and Bankruptcy Code (Amendment) Act 2020 (hereinafter referred to as ‘the impugned amendments’, for short).

Petitioners challenged the impugned amendments being discriminatory, irrational and retrospective. Petitioners in their argument forcefully contended that the impugned amendment categorically first and second proviso to Sub-Section 1 to the Section 7 of the Insolvency Bankruptcy Code, 2016 (“Code”) is arbitrary and discriminatory. As threshold is thrust upon only on the home buyer and is not applicable across the board for other financial creditors. It is discriminatory and lacks rationale. Petitioner also asserted that it treats equals unequally and unequals as equals, and there is no intelligible differentia. Further the law does not permit classes among financial creditors. Thus, there is breach of the guarantee of equal protection of law.

On the other hand Union of India apprised the Court with the stats and asserted that between 2016, when the Code was enacted and June, 2018, there were 241 applications by the allottees. In the aftermath of the amendment, i.e., from 06.06.2018, there was a sudden spurt of applications by allottees (2201 cases in a short span of about eighteen months). This is again sought to be contrasted by a mere 130 applications, which came to be filed from 29.12.2019, over a period of eight months till August, 2020.

The Court noted that law under scrutiny is an economic measure thus as laid down by the Court, in dealing with the challenge on the anvil of Article 14, the Court will not adopt a doctrinaire approach. Apex court also echoed that

“Representatives of the people are expected to operate on democratic principles. The presumption is that they are conscious of every fact, which would go to sustain the constitutionality of the law. A law cannot operate in a vacuum.”

In the light of the above the Court held that, Solutions to vexed problems made manifest through experience, would indeed require a good deal of experimentation, as long as it passes muster in law. It is no part of a court’s function to probe into what it considers to be more wise or a better way to deal with a problem. The Court also noted that if the Legislature felt that having regard to the consequences of an application under the Code, when such a large group of persons, pull at each other, an additional threshold be erected for exercising the right under Section 7, certainly, it cannot suffer a constitutional veto at the hands of Court exercising judicial review of legislation.

The Court also taken into note that the right of homebuyers to reach to Adjudicating Authority is not completely taken away by the impugned amendment, instead it is more refined so much so that the single allottee having unbridled license to hold the real estate project and its stakeholders his hostage can be put to end and for the greater good same has been conditioned which would ensure consensus among the allottees while reaching Adjudicating Authority.

Accordingly, the Court upheld first and Second Proviso of the impugned amendments being within the wisdom of the legislature and ineligible differentia amongst unequals.

Similar challenges were also raised by the Debenture holders who after the amendment have to sail along with Homebuyers. The Court again reiterated that, 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.

Coming to third proviso Petitioner asserted that the third proviso, makes a clear incursion into a vested right. The impugned third proviso is afflicted with the vice of manifest arbitrariness. As the same intrude into the already filed petition under the unamended provision of the Code wherein there was no such requirement.

At this juncture the Court was apprised with the relevant stats on the eve of the ordinance on the 27.12.2019, as per UOI total 2201 applications, came to be moved, during a period of nearly eighteen months as in comparison to 253 applications during the preceding period representing a nearly 10-fold increase.

Though the Court held that third proviso dealt with vested right of the litigant who under assumption of no changes, filed application under Section 7 and post impugned amendment same is subject to pass muster under amendment provision and in case of default to meet the amendment requirement he has to face “deemed” withdrawal. The Court finds the same valid seeing 10 fold increase in filling and objective of impugned amendment, except the time period provided therein i.e. 30 days.

The Court while allowing the third proviso also noted confusion and ambiguity to be faced by the applicants/homebuyers while complying with the said proviso. Thereby, on its own considered the question of limitation and court fees on re-approaching the adjudicating authority by same set of applicants/homebuyers after complying the first or second proviso, as the case may be.

The Court noted that if same set of applicants/homebuyers or part of them along with other approached Adjudicating Authority on same cause of action then it would be covered under Section 14 of the Limitation Act and delay if any can be condoned under Section 5 of that Act. Further deliberating upon court fee, the court held that waiver against court fees paid previously can be claimed once by same set of applicants or part of them after complying the first or second proviso, as the case may be.

The Court uphold the validity of the impugned amendments but seeing peculiarity in the case and public interest involved passed slew of direction under Article 142 of the Constitution :

“i. If any of the petitioners move applications in respect of the same default, as alleged in their applications, within a period of two months from today, also compliant with either the first or the second proviso under Section 7(1), as the case may be, then, they will be exempted from the requirement of payment of court fees, in the manner, which we have detailed in the paragraph just herein before.

ii. Secondly, we direct that if applications are moved under Section 7 by the petitioners, within a period of two months from today, in compliance with either of the provisos, as the case may be, and the application would be barred under Article 137 of the Limitation Act, on the default alleged in the applications, which were already filed, if the petitioner file applications under Section 5 of the Limitation Act, 1963, the period of time spent before the Adjudicating Authority, the Adjudicating Authority shall allow the applications and the period of delay shall be condoned in regard to the period, during which, the earlier applications filed by them, which is the subject matter of the third proviso, was pending before the Adjudicating Authority.

iii. We make it clear that the time limit of two months is fixed only for conferring the benefits of exemption from court fees and for condonation of the delay caused by the applications pending before the Adjudicating Authority. In other words, it is always open to the petitioners to file applications, even after the period of two months and seek the benefit of condonation of delay under Section 5 of the Limitation Act, in regard to the period, during which, the applications were pending before the Adjudicating Authority, which were filed under the unamended Section 7, as also thereafter. “

Authors are advocates practicing at New Delhi and can be reached at +91 8588999046  and

Disclaimer: This article is for information purposes only. Nothing contained herein is, purports to be, or is intended as legal advice and you should seek legal advice before you act on any information or view expressed herein. Although we have endeavoured to accurately reflect the subject matter of this article, we make no representation or warranty, express or implied, in any manner whatsoever in connection with the contents of this article. No recipient or reader of this article should construe it as an attempt to solicit business in any manner whatsoever.

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Qualification: LL.B / Advocate
Company: Indo Legal Services LLP
Location: New Delhi, New Delhi, IN
Member Since: 18 Feb 2020 | Total Posts: 9
MR. GAURAV RANA(Advocate, CS) Mr. Rana, Advocate is a member of Bar Council Association of Delhi High Court, India and an Associate member of Institute of Company Secretaries of India. He has extensive experience in commercial litigation, arbitration and regularly argues at various fora. He advises View Full Profile

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July 2021