Threshold Requirement Brought So That Other Homebuyers & Creditors Are Not Hurt: Centre Defends IBC Amendment Act 2020

The Supreme Court on Thursday heard the Centre in a batch of petitions challenging the constitutional validity of conditions introduced by the Insolvency and Bankruptcy Code (Amendment) Act, 2020, on the homebuyers' right to file insolvency petitions against defaulting builders. A Bench of Justices R. F. Nariman, Navin Sinha and K. M. Joseph heard arguments advanced by Additional Solicitor General Madhavi Diwan.The petitions challenge 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, whichever is lesser, to maintain an insolvency petition in respect of a real estate project. The amendment also states that the application of Section 3 of the amendment Act shall be retrospective, affecting pending applications. Also, the threshold limit for initiating insolvency proceedings has been increased from INR 1 Lakh to INR 1 Crore"The concept of 'going solo' has been long diluted by Your Lordships in Pioneer(decision). To iron out the creases, Your Lordships had held that 51% votes in favour of a plan would go as 100%. So this principle of 10% homebuyers or 100 is an extension of the same logic. We introduced this measure to facilitate the process, to prevent unnecessary delay and to do away with the clogging before the COC or the adjudicating authority", submitted the ASG."The joint-filing is an extension of the principle of the act of one binding all. The homebuyers at that stage had not objected and had in fact supported it. It was the developers who were opposing it as they didn't want the resolution process to go smoothly", she argued."Joint-filing was inherent in section 7, even as it stood originally. Even then it read that a financial creditor, either by itself or jointly with the other financial creditors, may file an application for the initiation of the resolution process. Now it has just been made mandatory", she explained."By virtue of a notification dated 27.2.2019, even a Guardian, executor or trustee can file such an application. In case of debenture holders, there may be a representative, a debenture trustee, at the first instance also. In case of home buyers, you can't have a trustee at the outset itself- 10% or 100 are needed- though you may appoint an authorised representative later", she continued."Joint filing is needed as this is an in-rem concept. A single person can file an application even on the basis of somebody else's debt, even if it is not your own. That is why it is an in-rem concept...the 10% or the 100 can also file for a third party, say, a bank. So the concept of in-rem is sown deep...it is superficial to say that such in-rem concept can be brought in only at the stage of the COC and not at the initiation. The Legislature can enforce the 10% requirement at even the initiation, particularly when the process which is triggered is unstoppable. It may be for resolution but it may go out of the control of the individuals...so it is necessary to apply your mind and get at least some people on board for the sake of your own compatriots...we cannot allow a lone-ranger, on a frolic of his own, to set in motion an unstoppable process...where a single home buyer wants to move the NCLT, there may be a 100 others who want to go to RERA, they want that builder! So it is important to put your heads together a little bit, get at least the minimal number of people together in the interest of your brethren and then go ahead, as otherwise there is a moratorium...and 10% is not logistically difficult. It is important for balancing the interests of the small home-buyers and the debenture-holders", she elaborated.Intelligible differentia linked to the larger object of the CodeNext, she expounded the characteristics of the classes for whom these conditions have been introduced- the intelligible differentia linked to the larger object the Code. "The numerosity- the sheer number of these persons; the heterogeneity; and the individual decisions...Pioneer also said that these home-buyers are not experts. We are guided by robust common sense, that these people either want their flat or compensation...but here, there is an individuality involved rather than institutional decision-making as in the case of banks. You are not in the domain of a public utility so the approach of the adjudicating authority is different", she continued.Discussing the larger object of the Code, she narrated that prior to the introduction of the IBC, the framework for corporate bankruptcy and insolvency was inadequate and resulted in undue delays in resolution. So the IBC was introduced to consolidate and amend the laws to provide for a timb-bound procedure which maximises the value of assets and balances interests of stakeholders. with a view to promote entrepreneurship and investment, she...

Threshold Requirement Brought So That Other Homebuyers & Creditors Are Not Hurt: Centre Defends IBC Amendment Act 2020

Mehal Jain

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