The Supreme Court on Monday agreed to examine the validity of the Centre’s decision to amend an Insolvency and Bankruptcy Code (IBC) provision to introduce a threshold of at least 10 per cent homebuyers in a project or 100 of the total allottees for initiating corporate Insolvency Resolution Process (IRP) against a real estate developer.
As per the Ordinance, at least 100 allottees or 10 per cent of total allottees under a 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 the buyers, who are financial creditors, remediless. Also, these 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 Articles 14 (equality before law) and 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.
“And 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 Petitioner Association,” said the petition filed by Association of Karvy Investors through advocates Aishwarya Sinha and Srijan Sinha.
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 Sections 3 and 10 of the Ordinance are manifestly arbitrary and violative of 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 Code. The petitioners said the promulgation of the Ordinance is contrary to Article 123 of the Constitution and is liable to be set aside.