Supreme Court Upholds Sections 3, 4 & 10 Of IBC Amendment Act 2020

The Supreme Court on Tuesday upheld the constitutional validity of Sections 3, 4 and 10 of the Insolvency and Bankruptcy Code (Amendment) Act 2020.A bench comprising Justices RF Nariman, Navin Sinha and KM Joseph had considered the petitions. Justice KM Joseph authored the judgment delivered in Manish Kumar v Union of India and others and connected cases.While upholding the amendments, the court provided the following reliefs exercising powers under Article 142 of the Constitution :(1)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(2)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.(3) We make it clear that the time limit of two months is fixed only for conferring the benefits of exemption from court feesand 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 thereafterSection 3 of the IBC(Amendment) 2020 inserted certain additional conditions for homebuyers to initiate insolvency proceedings against defaulting builders. 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 petitioners challenged the additional conditions imposed on homebuyers as 'arbitrary and discriminatory' amounting to 'illegal classification'.They made reference to the 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 Court had passed an interim order directing status quo on the pending applications filed by homebuyers against builders.Highlighting the practical difficulties in homebuyers coming together to file joint application, one of the petitions said :"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 company continues to be in control, even after repeated defaults, which is completely contrary to the object of the IBC.Section 4 of the Amendment Act 2020 inserted the following explanation to Section 11 :Explanation II.-For the purposes of this section, it is hereby clarified that nothing in this section shall prevent a corporate debtor referred to in clauses (a) to (d) from initiating corporate insolvency resolution process against another corporate debtor."The petitions also challenged Section 10 of the Act which inserted Section 32A in the IBC, whereby the liability of a Corporate Debtor, will cease to exist on the date a Resolution Plan is approved and new management takes over the Corporate Debtor.This, according to the petitioners, leaves the individual creditor without remedies.While rejecting the arguments, the Supreme Court held "we cannot also lose sight of the fact that the Legislature has power to impair and take away vested rights".Imposing threshold on homebuyers application upheldWhile upholding Section 3 of the IBC Amendment Act 2020, which introduced the threshold limit for homebuyers application for insolvency, the SC observed :"Insisting on a threshold in regard to these categories of creditors would lead to the halt to indiscriminate litigation which would...

Supreme Court Upholds Sections 3, 4 & 10 Of IBC Amendment Act 2020

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