Supreme Court upholds validity of Insolvency and Bankruptcy Code (Amendment) Act, 2020 mandating ‘minimum threshold’ on the home-buyers [Read judgment]

Supreme Court - Insolvency and Bankruptcy Code (Amendment) Act - home-buyers - Taxscan

The Supreme Court upheld the constitutional validity of Insolvency and Bankruptcy Code (Amendment) Act, 2020 mandating ‘minimum threshold’ on the home-buyers.

According to the amended Section 3, Homebuyers can move an application for insolvency only when 100 real estate allottees under the same real estate project or 10 percent of the total allottees of such project come together. Section 10 of the Amendment Act introduced a new provision, Section 32A.

The petitioner organisation, Association of Karvy Investors was of the view that this puts a stringent and onerous condition on an individual financial creditor and negatively affects its rights to initiate insolvency proceedings.

The petitioners also highlighted the logistical and practical difficulties accruing out of the amendment made to section 3. A simple example given by them in this regard was that the individual investors are spread out across the country and their contact details are not available in public domain.

The petition stated, “most of such investments are made through an intermediary, which itself is hand in gloves with the defaulting Corporate Debtor. In the absence of the contact details being available with the Investor about other similar investors in the Company, it is not possible for them to contact each other and arrive at a consensus to prefer an Application against the Corporate Debtor”.

The partition further stated that the government “failed to appreciate” that the individual investors of a company are not necessarily localised and are spread out across the country.

The three-judge bench of Justice Rohinton Fali Narriman, Justice Navin Sinha, and Justice K.M. Joseph upheld the legislature’s lawmaking power to impair and take away vested rights. However, the court provided two reliefs to the petitioner.

Firstly, the petitioner association was exempted from the stipulation of paying court fees if they moved the application for default within a period of 2 months.

Secondly, the Adjudicating Authority shall condone the delay in regard to the period, during which, the earlier applications filed by them were pending before the Adjudicating Authority.

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