SC To Continue Hearing Challenge Against IBC Ordinance 2020 On 8th October [Read Order]

The Supreme Court on Tuesday heard arguments on behalf of the Petitioners in a batch of petitions challenging the constitutional validity of conditions introduced by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020, on the homebuyers' right to file insolvency petitions against defaulting bidders. A Bench headed by Justice RF Nariman heard arguments submitted by Advocates Shikhil Suri, Piyush Singh, Rahul Rathore, Dinesh C. Pandey, Dhruv Gupta and Purti Marwaha Gupta. It will continue hearing the arguments of AOR AND Rao on 8th October. In today's hearing, Advocate Shikhil Suri commenced his submissions by informing the Court that the Amendment was in the teeth of the Pioneer judgment and deprived the beneficiaries of their statutory rights. He further submitted that the Amendment was discriminatory and treated unequals equally. Further, there was no substantial nexus with the object of the Act. It also ignored the fact that the question of abuse by the homebuyers had already been answered by virtue of Amendment in Section 4 and Section 65, which dealt with malicious prosecution, was available with the corporate debtor. Suri additionally highlighted the fact that in case the Amendment was held to be valid, it should be prospective in nature. Advocate Piyush Singh also submitted his arguments and stated to the Court that the remedies which had been provided to the homebuyers was completely illusionary. He shed a light on the aspect of "class action suits" as stipulated under Order 1 Rule 8 of the Code of Civil Procedure. Singh submitted that there could not be a barrier at the entry point itself and relied upon the Pioneer judgement to elaborate how the rights of the homebuyers to trigger Section 7 of the IBC had been recognized. He further submitted that the arguments which had been previously placed, such as homebuyers not having the right to be a part of the Committee of Creditors, or not having the financial wisdom to trigger Section 7, had been negated. Singh also argued that every differentiation was not a discrimination and it had to be founded on reasons. He made submissions to the Bench on what could constitute "reasonable classification" when it came to compensation and why the classification was not sustainable. Further, he stated that the object of the Amending Act was to make the process seamless. Singh also referred to the Shayara Bano case on the aspect of Article 14 to buttress his submissions. Post Singh, Advocates Rahul Rathore, Dinesh C. Pandey, Dhruv Gupta and Purti Marwaha Gupta also made their submissions. While Advocate ADN Rao commenced his submissions, the Court noted that they would continue the same on 8th October. Accordingly, the matter has now been listed on 8th October, 2020. One of the petitions, filed by Association of Karvy Investors, challenged Section 3 of the Insolvency and Bankruptcy Code (Amendment) Act 2020. The said provision, adds certain provisos to Section 7 of the Insolvency and Bankruptcy Code (IBC) to state there should be at least one hundred real estate allottees or ten percentage of the total number of allottees, which ever is lesser, to maintain an insolvency petition in respect of a real estate project. The amendment also stated that the application of Section 3 of the amendment Act shall be retrospective, affecting pending applications. The plea states that the classification made with respect to homebuyers is "arbitrary and discriminatory". "The classification as sought to be made vide the Impugned Act is without any intelligible differential and therefore is ultra vires Article 14 of the Constitution of India", the plea reads. Reference is also made to the recent SC decision in Pioneer Urban Land and Infrastructure case, which upheld the right of a homebuyer to move insolvency petition against a defaulting builder. The plea states that the condition is "onerous" for homebuyers, who are also covered under the definition of "financial creditors" under Section 5(7) of the IBC. "Such an onerous and one sided condition makes it abundantly clear that the Impugned Act reeks of biasness and indifference towards the plight of an Individual Investor. It goes without saying that the only person who benefits out of the aforesaid amendment are the promoters of the defaulting corporate debtor, since in a case wherein the only Creditors are individuals, till the time joint application is not filed by such Creditors, the promoters of the defaulting company continue to be in control".Highlighting the practical difficulties in homebuyers coming together to file joint application, the plea states: "The effect of the Impugned Act is that in cases wherein the Corporate Debtor has availed loans only from individuals, till the time the Creditors do not prefer an Application jointly against the Corporate Debtors, the management of the defaulting...

SC To Continue Hearing Challenge Against IBC Ordinance 2020 On 8th October [Read Order]

Radhika Roy

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