Manish Kumar Vs Union of India UOI and Ors 1901202SC20212001211057171COM635343

MANU/SC/0029/2021
Equivalent Citation: [2021]225C ompC as1(SC ), (2021)5SC C 1
IN THE SUPREME COURT OF INDIA

Writ Petition (C) Nos. 26, 53, 28, 47, 27, 73, 328, 210, 191, 164, 163, 166, 173, 182,
176, 177, 257, 341, 267, 333, 337, 388, 402, 390, 393, 783/2020, Transferred Case
(C) No. 228/2020, Writ Petition (C) Nos. 579, 806, 714, 642, 805, 19, 33, 75, 165,
850, 374, 229, 228 and 209/2020
Decided On: 19.01.2021
Appellants: Manish Kumar
Vs.
Respondent: Union of India (UOI) and Ors.
Hon'ble Judges/Coram:
Rohinton Fali Nariman, Navin Sinha and K.M. Joseph, JJ.
Counsels:
For Appellant/Petitioner/Plaintiff: Vaibhav Manu Srivastava, AOR, Akash Vajpayee,
Akshay Ravi, Advs., Krishnamohan K. Menon, AOR, Chaitanyashil Priyadarshi, Dania
Nayyar, Parul Sachdeva, Advs., Namit Saxena, AOR, Piyush Singh, Aditya Parolia, Akshay
Srivastava, Nithin Chandran, Rajesh Kumar, Advs., Gaurav Goel, Ashwarya Sinha,
Deepak Anand, M.P. Sahay, AORs, Eccha Shukla, Awantika, Advs., Sudhir Kumar Gupta,
AOR, Shikhil Suri, Adv., Shiv Kumar Suri, AOR, Madhu Suri, Shilpa Saini, Nikita Thapar,
Vinishma Kaul, Advs., Priyanjali Singh, Rashi Bansal, Dinesh Chandra Pandey, AORs,
Dhruv Gupta, Adv., Arjun Singh Bhati, Annam D.N. Rao, AORs, Rahul Mishra, Adv.,
Saurabh Trivedi, AOR, Purti Marwaha Gupta, Adv., Anindita Pujari, AOR, Arvind Kumar
Gupta, Henna George, Deval Singh, Om Narayan, Advs., E.C. Agrawala, Bharti Tyagi,
Rajesh Goyal, AORs, Sumit Gehlawat, Tervernder Singh, Abhishek Bhardwaj, Advs., Pai
Amit, AOR, Pankhuri Bhardwaj, Rakesh Taneja, Advs., Pai Amit, AOR, Parshuram A.L.,
Rohit R. Saboo, Kumar Vaibhav, Ankit Agarwal, Rahat Bansal, Advs., Annam Venkatesh,
A O R , S.K. Gandhi, Manjula Gandhi, Shiv Kumar Pandey, Shivanshu Kumar,
Chandrashekhar A. Chakalabbi, Himanshu, Awanish Kumar, Anshul Rai, Advs.,
Dharmaprabhas Law Associates, Mayank Pandey, Misha Rohatgi and Pallav Mongia, AORs
For Respondents/Defendant: Arvind Kumar Sharma, Charu Ambwani, AORs, Sajan
Poovayya, Sr. Adv., Amar Gupta, Adv., Divyam Agarwal, AOR, Daksh Ahluwalia, Pallavi
Kumar, Adhiraj Gupta, Pratibhanu Singh, Shikhar Maniar, Raksha Agarwal, Hirender
Nath, Santanam Swaminadhan, Prakruti Golechha, Abhilasha Shrawat, Advs., Aarthi
Rajan, AOR, Keshav Mohan, Prashant Kumar, R.K. Awasthi, Piyush Vatsa, Ritu Arora,
Advs., Santosh Kumar-I, Rajesh P., AORs, Manoranjan Sharma, Prabhakar Tiwari, Advs.,
Krishna Dev Jagarlamudi, Vikram Hegde, AORs, Rahul Kumar, Adv. and Party-in-Person
Case Note:
Company - Insolvency resolution process - Amendment thereto - Sections
7(1), 11 and 32A of Insolvency and Bankruptcy Code, 2016, Sections 3, 4 and
10 of Insolvency and Bankruptcy Code (Amendment) Act 2020 and Section
11(1)(b) of Real Estate Regulation Act - Present petition filed challenging
Sections 3, 4 and 10 of Insolvency and Bankruptcy Code (Amendment) Act
2020 which relate to initiation of corporate insolvency resolution process by
financial creditor - Section 3 of impugned amendment, amends Section 7(1)
23-03-2022 (Page 1 of 166) www.manupatra.com Omnicom Media Group India Private Limited
of Code, 2016 - Section 4 of impugned amendment, incorporates additional
Explanation in Section 11 of Code and Section 10 of impugned amendment
inserts Section 32A in Code - Whether Sections 3, 4 and 10 of Code, 2020 was
unreasonable and arbitrary and liable to struck down.
Facts:
The Petitioners challenging Sections 3, 4 and 10 of the Insolvency and
Bankruptcy Code (Amendment) Act 2020. Section 3 of the impugned
amendment, amends Section 7(1) of the Insolvency and Bankruptcy Code,
2016. Section 4 of the impugned amendment, incorporates an additional
Explanation in Section 11 of the Code. Section 10 of the impugned
amendment inserts Section 32A in the Code. It was submitted that the
impugned amendment is arbitrary being in the teeth of the principles laid
down in Pioneer. The object of the law would stand defeated he contends.
The Ordinance would not only deprive the Petitioner of her right under
Section 7 but it also violates Article 14 of the Constitution of India. The
threshold limit was unreasonable and arbitrary. It was excessive and
irrational. It was not in public interest. He also points out that there exists
adequate shield against a single allottee misusing the Code. The threshold
was thrust upon only on the home buyer and is not applicable across the
board for other financial creditors. It was discriminatory. There was no
rationale. It treats equals unequally and unequals as equals. There was no
intelligible differentia. The law does not permit classes among financial
creditors. There was breach of the guarantee of equal protection of law.
Held, while disposing off the petition:
(i) Section 11(1) (b) of RERA contemplates details of booking qua apartments
and plots. This is sufficient to reject the argument that it could be based on a
total number of the units promised. What was required was allotment and not
promised flats as per a brochure. It is also not the total constructed units.
This was as what is relevant under the impugned provisos read with Section
5(8)(f) explanation and Section 2(d) of RERA read with Section 11(1)(b) and
the Rules made thereunder is the booking of apartments or plots. What was
allotted or booked may be more than what is constructed if there was a
mismatch at any given point of time. It was the number of units allotted.
Now, the allotment and the agreement to sell were not irreconcilable with
each other and may signify the same. [123]
(ii) The rationale behind, confining allottees to the same real estate project,
was to promote the object of the Code. Once the threshold requirement could
pass muster when tested in the anvil of a challenge based on Articles 14, 19
and 21, then, there was both logic and reason behind the legislative value
judgment that the allottees, who must join the application under the
impugned provisos, must be related to the same real estate project. The
connection with the same real estate project was crucial to the determination
of the critical mass, which Legislature had in mind, as a part of its scheme, to
streamline the working of the Code. If it was to embrace the total number of
allottees of all projects, which a Promoter of a real estate project, may be
having, in one sense, it would make the task of the applicant himself, more
cumbersome. It becomes a sword, which will cut both ways. This was for the
reason that the complaints, relating to different projects, may be different.
With regard to one project of a Promoter of real estate project, maybe, in the
advanced stage, the allottees in a particular project, may not have much of a
complaint. The complaint, in relation to yet another project, may be more
serious. If the complaint in respect of the latter, attracts the attention of a
critical mass of allottees, and the proposed applicant was part of that project
in the said project, then, it may be easier for the allottees to fulfil the
statutory mantra in the impugned provisos, with the junction of likeminded
souls. If, on the other hand, the requirement was to make a search for
allottees of different projects, as would be the case, if the entirety of the
allottees, under different projects, were to be reckoned, the task would have
been much more cumbersome. The requirement of the allottees, being drawn
from the same project, stands to reason and also does not suffer from any
constitutional blemish. [140]
(iii) In the matter of presentation of an application under Section 7, if the
threshold requirement, under the impugned provisos, stands fulfilled, the
requirement of the law must be treated as fulfilled. The contention, relating
to the ambiguity and consequent unworkability and the resultant
arbitrariness, was clearly untenable. If an allottee was able to, in other
words, satisfy the requirements, as on the date of the presentation, the
requirement of the impugned law was fulfilled. [143]
(iv) As far as allottees were concerned in regard to apartments and plots,
Section 11(1)(b) of the RERA makes it mandatory for the promoter to make
available information regarding the bookings. We have conflated bookings
with allotments. This court could not proceed on the basis of the contention
of the Petitioners that the impugned provisos were unworkable and arbitrary
on the basis that the court must take notice of the reality which was that the
promoters did not make available information as required of them. There
could not be a priori reasoning, and there was no burden on the state. If there
was defiance of the law by promoters, the allottees were not helpless. They
could always seek proper redress in the appropriate forum. It becomes the
duty of all the authorities to ensure that the promoters will stringently abide
by their duties under the act. Section 11(1)(b) of the RERA speaks about
information being made available regarding bookings which can be
understood as the allotments. The word allottee as defined in Section 2(d)
also takes in a person who subsequently acquires the allotment through sale,
transfer or otherwise. In Section 11(1)(b) there was reference to bookings. If
the information is to be limited to the original booking then the information
about assignment just mentioned may not be made available. In this regard
we may notice the Haryana Real Estate Regulatory Authority, Gurugram
(Quarterly Progress Report) Regulations 2018. Regulation 4 provides inter
alia that the promoter shall upload on the webpage which he has to create for
the project within fifteen days from the expiry of each quarter, namely, the
list of number and types of apartments/plots booked. A perusal of the report
would show that the promoter was obliged to submit the names of the
allottees. Obviously, if there was change in the allotment the changed name
should be reflected in the Report. This must undoubtedly be ensured by the
authorities stringently. There was merit in the contention of the Union that
the Association of allottees has to be formed under the mandate of the law it
was expected to play an important role. Information will certainly be
forthcoming in regard to allotments upon the allottees becoming members of
the Association as required. This court could not ignore the role of the
association in the matter of becoming the transferee of the common areas,
being clothed with the right of first refusal within the meaning of Section 7 of
the Act and also the right to complain otherwise under the Act. This aspect of
the association of allottees is not a matter of mere trifle. The allottees could
not truly possess and enjoy their properties be it an apartment or building
without their having right of common areas. The promoter is bound under
Section 17 to transfer title to the common areas to the association. Section
19(9) of RERA makes it a duty on the part of the allottee to participate
towards the formation of the association or cooperative society or the
federation of the same. The possession of the common areas was also to be
handed over to the association of the allottees. The law giver has therefore
created a mechanism, namely, the association of allottees through which the
allottees are expected to gather information about the status of the
allotments including the names and addresses of the allottees. This court
could not proceed on the basis in a case which involves a challenge to a
statute that the information to be gathered under the statute would not be
available on the basis that the statute would not be worked as contemplated
by the law giver. Hence,reject the contentions of the allottees. [163]
(v) This was not a case where there is no intelligible differentia. The law
under scrutiny was an economic measure. As laid down by this Court, in
dealing with the challenge on the anvil of Article 14, the Court would not
adopt a doctrinaire approach. Representatives of the people are expected to
operate on democratic principles. The presumption was that they are
conscious of every fact, which would go to sustain the constitutionality of the
law. A law could not operate in a vacuum. In the concrete world, when the
law is put into motion in practical experiences, bottlenecks that would flow
from its application, are best envisaged by the Law Givers. Solutions to vexed
problems made manifest through experience, would indeed require a good
deal of experimentation, as long as it passes muster in law. It was no part of
a court's function to probe into what it considers to be more wise or a better
way to deal with a problem. In economic matters, the wider latitude given to
the Law Giver was based on sound principle and tested logic over time. In
fact, though there was no rigid separation of powers in India, as it obtains in
the United States, there was broadly separation of powers, which in fact, had
been recognized as a basic feature of the Constitution. In any case, the Court
errs in the judicial veto of legislation, in a manner of speaking, it was
usurping the power, which is earmarked to another organ of the State, viz.,
the Legislature. The large number of validating acts would produce
undeniable proof of the same. [199]
(vi) It was to be noted also that it was not a case where the right of the
allottee is completely taken away. All that had happened was a half-way
house is built between extreme positions, viz., denying the right altogether to
the allottee to move the application under Section 7 of the Code and giving an
unbridled license to a single person to hold the real estate project and all the
stakeholders thereunder hostage to a proceeding under the Code which must
certainly pass inexorably within a stipulated period of time should
circumstances exists under Section 33 into corporate death with the
unavoidable consequence of all allottees and not merely the applicant under
Section 7 being visited with payment out of the liquidation value, the
amounts which are only due to the unsecured creditor. It must be
remembered that, the point of distinction, between a financial creditor in this
case, the allottees of a real estate project and the operational creditors, as
contained in Section 7 on the one hand and Sections 8 and 9 were preserved.
In other words, the operational creditor still had to cross the threshold of not
being shut off from the application not being processed in the teeth of the
defense allowed to the corporate debtor in regard to an operational creditor.
All that had happened was the Legislature in its wisdom has found that the
greater good lies in conditioning an absolute right which existed in favour of
an allottee by requirements which would ensure some certain element of
consensus among the allottees. It must be remembered that the requirement
was a mere one-tenth of the allottees. This was a number which goes to
policy and lies exclusively within the wisdom of the Legislature. Hence, there
was no hesitation in repelling the contentions in this regard. [214]
(vii) The impugned Explanation came to be inserted by the impugned
amendment. Apparently, interpreting Section 11, there appears to have been
some cleavage of opinion. This is apparent from the case set up on behalf of
the Petitioners and the case set up on behalf of the Union of India. The
intention of the Legislature was always to target the corporate debtor only
insofar as it purported to prohibit application by the corporate debtor against
itself, to prevent abuse of the provisions of the Code. It could never had been
the intention of the Legislature to create an obstacle in the path of the
corporate debtor, in any of the circumstances contained in Section 11, from
maximizing its assets by trying to recover the liabilities due to it from others.
Not only does it go against the basic common sense view but it would
frustrate the very object of the Code, if a corporate debtor is prevented from
invoking the provisions of the Code either by itself or through his resolution
professional, who at later stage, may, don the mantle of its liquidator. The
provisions of the impugned Explanation, thus, clearly amount to a clarificatory
amendment. A clarificatory amendment, it was not even in dispute, was
retrospective in nature. The Explanation merely makes the intention of the
Legislature clear beyond the pale of doubt. The argument of the Petitioners
that the amendment came into force and, therefore, in respect to applications
filed under Sections 7, 9 or 10, it would not have any bearing, could not be
accepted. The Explanation, in the facts of these cases, was clearly
clarificatory in nature and it would certainly apply to all pending applications
also. [243]
(viii) No case whatsoever was made out to seek invalidation of Section 32A.
The boundaries of this Court's jurisdiction are clear. The wisdom of the
legislation is not open to judicial review. Having regard to the object of the
Code, the experience of the working of the code, the interests of all
stakeholders including most importantly the imperative need to attract
resolution applicants who would not shy away from offering reasonable and
fair value as part of the resolution plan if the legislature thought that
immunity be granted to the corporate debtor as also its property, it hardly
furnishes a ground for this Court to interfere. The provision is carefully
thought out. It is not as if the wrongdoers are allowed to get away. They
remain liable. The extinguishment of the criminal liability of the corporate
debtor is apparently important to the new management to make a clean break
with the past and start on a clean slate. This court must also not overlook the
principle that the impugned provision is part of an economic measure. The
reverence courts justifiably hold such laws in cannot but be applicable in the
instant case as well. The provision deals with reference to offences committed
prior to the commencement of the CIRP. With the admission of the application
the management of the corporate debtor passes into the hands of the Interim
Resolution Professional and thereafter into the hands of the Resolution
Professional subject undoubtedly to the control by the Committee of
Creditors. As far as protection afforded to the property is concerned there is
clearly a rationale behind it. Having regard to the object of the statute this
court hardly see any manifest arbitrariness in the provision. [257]
(ix) There is a right which was vested in the cases where, the Petitioners
have filed application, fulfilling the requirements under unamended Section 7
of the Code. The very act of filing the application, even satisfies the apparent
test propounded by the Additional Solicitor General, that the right under
Section 7 is only one to take advantage of the statute and unless advantage
is actually availed it does not create an accrued right. When applications were
filed under the unamended provisions of Section 7, at any rate it would
transform into a vested right. The vested right is to proceed with the action
till its logical and legal conclusion. This court were unable to accept the stand
of the ASG, that a vested right to emerge still require an order under Section
7(5) of the Code. It was no doubt a stage, when the authority finds there is
default and takes the matter forward including appointing to begin with the
IRP and ordering a moratorium. In this regard, it was to be noted that in the
scheme of the Code, what takes place before admission, was that the
applicant tries to establish the debt and default. This was akin to the stage of
a trial in a suit. No doubt, this happens only if the application was free from
defects. But this was a far cry from saying that a vested right of action did not
inhere even on the version of the ASG upon the act of the creditor invoking
the Code. [316]
(x) Since withdrawal was ordained by the third proviso, it would not be a
withdrawal under Rule 8 on request. Secondly, even for the principle based on
public policy to apply to a withdrawal under Rule 8, there must be a request
and withdrawal. This court did not pronounce on the effect of the same, viz.,
withdrawal on request. Suffice it to conclude and hold that the withdrawal
under the third proviso would not bar a fresh application by the same party
after complying with the provision of the first or second proviso as the case
may be on the same default. [356]
(xi) As far as court fees was concerned, it was true that in the circumstances
of the case, there was compelled withdrawal of the applications. The other
side of the picture was, even, according to the Petitioners, the applications
engaged the Adjudicating Authority and time was spent on the applications.
In the circumstances of these cases, this court would resort to its power
under Article 142 of the Constitution to order as follows. This court would
direct that in case applications are moved by the applicants, who are
Petitioner, in regard to the very same corporate debtor, in the same real
estate project, as far as allottees were concerned, the applicants shall be
exempted from the requirement of paying court fee. This would obviously be a
one-time affair. This court, however, further make it clear that exemption
from paying court fee, in the case of joint applicants, would be limited only to
once, to a single application in future, in relation to the same subject matter,
as per the application. To make it clear, in a case where there are more than
one applicants in the pending application in respect of real estate project, if
they combine in future application, they would stand exempted. Secondly, in
case, any of the applicants, if they were to move jointly with the requisite
number under the second proviso, the exemption would be limited only to
once. Meaning thereby, if exemption had been availed of by any one out of
the joint applicants, in conjunction with others, then, the other joint
applicants could not claim exemption. If there were any applicants, falling
under the first proviso, and who were among the Petitioners, in regard to the
same corporate debtor, they would also be entitled to the exemption from
payment of the court fee. [371]
(xii) This court uphold the impugned amendments. However, this was subject
to the following directions, which we issue under Article 142 of the
Constitution of India:
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, this court 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. The time limit of two months is fixed only for conferring the benefits of
exemption from court fees and for condonation of the delay caused by the
applications pending before the Adjudicating Authority. In other words, it was
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 Authoriy, which were filed under the
unamended Section 7, as also thereafter. [372]
JUDGMENT
K.M. Joseph, J.
1 . The Petitioners have approached this Court Under Article 32 of the Constitution of
India. They call in question Sections 3, 4 and 10 of the Insolvency and Bankruptcy Code
(Amendment) Act 2020 (hereinafter referred to as 'the impugned amendments', for
short). Section 3 of the impugned amendment, amends Section 7(1) of the Insolvency
and Bankruptcy Code, 2016 (hereinafter referred to as 'the Code', for short). Section 4
of the impugned amendment, incorporates an additional Explanation in Section 11 of
the Code. Section 10 of the impugned amendment inserts Section 32A in the Code.
2. Section 7(1) of the Code before the amendment read as follows:
7. Initiation of corporate insolvency resolution process by financial creditor:
(1) A financial creditor either by itself or jointly with other financial
creditors, or any other person on behalf of the financial creditor, as
may be notified by the Central Government, may file an application for
initiating corporate insolvency resolution process against a corporate
debtor before the Adjudicating Authority when a default has occurred.
Explanation-For the purposes of this Sub-section, a default includes a default in
respect of a financial debt owed not only to the applicant financial creditor but
to any other financial creditor of the corporate debtor.
The amendment to the same by Section 3 of the impugned amendment incorporates 3
provisos to Section 7(1), which reads as under:
Provided that for the financial creditors, referred to in Clauses (a) and (b) of
Sub-section (6A) of Section 21, an application for initiating corporate
insolvency resolution process against the corporate debtor shall be filed jointly
by not less than one hundred of such creditors in the same class or not less
than ten per cent of the total number of such creditors in the same class,
whichever is less:
Provided further that for financial creditors who are allottees under a
real estate project, an application for initiating corporate insolvency
resolution process against the corporate debtor shall be filed jointly by
not less than one hundred of such allottees under the same real estate
project or not less than ten per cent of the total number of such
allottees under the same real estate project, whichever is less:
Provided also that where an application for initiating the
corporate insolvency resolution process against a corporate
debtor has been filed by a financial creditor referred to in the
first and second provisos and has not been admitted by the
Adjudicating Authority before the commencement of the
Insolvency and Bankruptcy Code (Amendment) Act, 2020, such
application shall be modified to comply with the requirements
of the first or second proviso within thirty days of the
commencement of the said Act, failing which the application
shall be deemed to be withdrawn before its admission.
3. Section 11 before the amendment read as follows:
11. Persons not entitled to make application. - The following persons shall not
be entitled to make an application to initiate corporate insolvency resolution
process under this Chapter, namely:
(a) a corporate debtor undergoing a corporate insolvency resolution
process; or
(b) a corporate debtor having completed corporate insolvency
resolution process twelve months preceding the date of making of the
application; or
(c) a corporate debtor or a financial creditor who has violated any of
the terms of resolution plan which was approved twelve months before
the date of making of an application under this Chapter; or
(d) a corporate debtor in respect of whom a liquidation order has been
made. Explanation 1[I]. - For the purposes of this section, a corporate
debtor includes a corporate applicant in respect of such corporate
debtor.
The explanation which was inserted through the impugned amendment reads as
follows:
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.
4. Section 32A inserted through the impugned amendment reads as follows:
32A. (1) Notwithstanding anything to the contrary contained in this Code or any
other law for the time being in force, the liability of a corporate debtor for an
offence committed prior to the commencement of the corporate insolvency
resolution process shall cease, and the corporate debtor shall not be prosecuted
for such an offence from the date the resolution plan has been approved by the
Adjudicating Authority Under Section 31, if the resolution plan results in the
change in the management or control of the corporate debtor to a person who
was not--
(a) a promoter or in the management or control of the corporate debtor
or a related party of such a person; or
(b) a person with regard to whom the relevant investigating authority
has, on the basis of material in its possession, reason to believe that he
had abetted or conspired for the commission of the offence, and has
submitted or filed a report or a complaint to the relevant statutory
authority or Court:
Provided that if a prosecution had been instituted during the
corporate insolvency resolution process against such corporate
debtor, it shall stand discharged from the date of approval of
the resolution plan subject to requirements of this Sub-section
having been fulfilled:
Provided further that every person who was a "designated
partner" as defined in Clause (j) of Section 2 of the Limited
Liability Partnership Act, 2008, or an "officer who is in default",
as defined in Clause (60) of Section 2 of the Companies Act,
2013, or was in any manner incharge of, or responsible to the
corporate debtor for the conduct of its business or associated
with the corporate debtor in any manner and who was directly
or indirectly involved in the commission of such offence as per
the report submitted or complaint filed by the investigating
authority, shall continue to be liable to be prosecuted and
punished for such an offence committed by the corporate
debtor notwithstanding that the corporate debtor's liability has
ceased under this Sub-section.
(2) No action shall be taken against the property of the corporate debtor in
relation to an offence committed prior to the commencement of the corporate
insolvency resolution process of the corporate debtor, where such property is
covered under a resolution plan approved by the Adjudicating Authority Under
Section 31, which results in the change in control of the corporate debtor to a
person, or sale of liquidation assets under the provisions of Chapter III of Part
II of this Code to a person, who was not--
(i) a promoter or in the management or control of the corporate debtor
or a related party of such a person; or
(ii) a person with regard to whom the relevant investigating authority
has, on the basis of material in its possession reason to believe that he
had abetted or conspired for the commission of the offence, and has
submitted or filed a report or a complaint to the relevant statutory
authority or Court.
Explanation.--For the purposes of this Sub-section, it is hereby clarified that,--
(i) an action against the property of the corporate debtor in relation to
an offence shall include the attachment, seizure, retention or
confiscation of such property under such law as may be applicable to
the corporate debtor;
(ii) nothing in this Sub-section shall be construed to bar an action
against the property of any person, other than the corporate debtor or a
person who has acquired such property through corporate insolvency
resolution process or liquidation process under this Code and fulfils the
requirements specified in this section, against whom such an action
may be taken under such law as may be applicable.
(3) Subject to the provisions contained in Sub-sections (1) and (2), and
notwithstanding the immunity given in this section, the corporate debtor and
any person who may be required to provide assistance under such law as may
be applicable to such corporate debtor or person, shall extend all assistance
and co-operation to any authority investigating an offence committed prior to
the commencement of the corporate insolvency resolution process.
WHO ARE THE PETITIONERS?
5 . More than the lion's share of the Petitioners are allottees under real estate projects
and hereinafter referred to as allotees. They have trained the constitutional gun at the
impugned provisos.
6. Under the second proviso, a new threshold has been declared for an allottee to move
an application Under Section 7 for triggering the insolvency resolution process under
the Code. The threshold is the requirement that there should be at least 100 allottees to
support the application or 10 per cent of the total allottees whichever is less. Moreover,
they should belong to the same project. Almost all (except in two petitions), the
Petitioners also had under the erstwhile regime which permitted even a single allottee to
move an application Under Section 7 filed petitions singly or with less than the number
required under the proviso and they are visited with the provisions of the third proviso
as per which such of those applications Under Section 7 which had not been admitted
would stand withdrawn within 30 days, if the newly declared threshold of 100 allottees
or 10 per cent of the allottee whichever is lower was not garnered by the
applicant/applicants.
7 . In some of the petitions, the Petitioners are money lenders, that is, they have
stepped in to provide finance for the real estate projects. They are also visited with the
requirement which is imposed upon them under the first impugned proviso which is on
similar lines as those comprised in the second proviso.
8. Then, there is, no doubt, Section 32A, which stands impugned by the creditors and
allottees.
THE CODE
9 . The Code was enacted in the year 2016. It is one of the most important economic
measures contemplated by the State to prevent insolvency, to provide last mile funding
to revive ailing businesses, maximise value of assets of the entrepreneurs, balance the
interest of all the stakeholders and even to alter the order of priority of payment of
Government dues. The Code is divided into five parts. The first part is shortest portion.
Part II deals with what we are concerned with in these cases and it purports to deal with
insolvency resolution and liquidation for corporate persons. 'Corporate person' has been
defined in Section 3(7) as follows:
3(7). "corporate person" means a company as defined in Clause (20) of Section
2 of the Companies Act, 2013, a limited liability partnership, as defined in
Clause (n) of Sub-section (1) of Section 2 of the Limited Liability Partnership
Act, 2008, or any other person incorporated with limited liability under any law
for the time being in force but shall not include any financial service provider.
1 0 . Section 3(8) defines 'corporate debtor' which provides that a corporate debtor
means a person who owes a debt to any person.
11. We may notice that Chapter II of Part II which consists of Sections 6 to 32 deal
with the corporate insolvency resolution process. Chapter III deals with ordinary
liquidation process in regard to corporate person. Chapter IV of Part II consisting of
four Sections deal with fast-track insolvency resolution process. Chapter V which
consists of Section 59 only deals with voluntary liquidation of corporate person. Chapter
VI deals with miscellaneous aspects. Chapter VII Part II deals with Penalties.
12. Part III deals with insolvency resolution and bankruptcy code for individuals and
partnership firms. It may be noticed at once that partnership firms with limited liability
as defined in the Limited Liability Partnership Act, 2008 fall within the definition of the
word 'Corporate person' and insolvency and liquidation process in regard to the same is
found in Part II of the Code. It is in regard to Insolvency resolution and bankruptcy for
the other partnership firms which one has to look to the provisions of Part III. Part III
begins with Section 78 and ends with Section 187. The further provisions relate to the
Regulation of insolvency professional agencies and information utilities. They are all key
instrumentalities for the effective working of the Code. Equally, it may be apposite to
bear in mind Section 238A. It reads as follows:
238A. Limitation-The provisions of the Limitation Act, 1963 (36 of 1963) shall,
as far as may be, apply to the proceedings or appeals before the Adjudicating
Authority, the National Company Law Appellate Tribunal, the Debt Recovery
Tribunal or the Debt Recovery Appellate Tribunal, as the case may be.
13. Shri Krishna Mohan Menon, learned Counsel for the Petitioners (allottees) in some
of the petitions has addressed the following submissions before us:
The impugned amendment clearly falls foul of the mandate of Articles 14, 19(1)
(g), 21 and 300A of the Constitution. The amendment by virtue of Section 3 of
the Amendment Act introducing the second proviso in Section 7(1) of the Code
makes a hostile discrimination between financial creditors, the category, to
which the Petitioners belong and the other financial creditors. Secondly, it is
contended that the amendment imposing a threshold restriction is afflicted with
the vice of palpable and hostile discrimination qua operational creditors. The
purported protection sought to be accorded to the real estate developer, cannot
form the premise for inflicting violation of constitutionally protected freedom
Under Article 19(1)(g) just as much as it also constitutes an insupportable
invasion of the grand mandate of equality. Next, he would submit that there are
inherent leakages in the impugned provisions which would make it unworkable.
Thereafter, learned Counsel would submit that the impugned amendment is also
bad in law for the reason that it is manifestly arbitrary. Yet another argument
addressed by Shri Krishna Mohan Menon, learned Counsel is that the
amendment has the legally pernicious effect of creating a class within a class, a
result, which is frowned upon by the law.
14. Learned Counsel would expatiate and submit that under the Code, the law provides
for a period of 14 days for the Adjudicating Authority to decide whether an application
Under Section 7 should be admitted. Section 12 declares an inflexible time limit for the
insolvency resolution process to be terminated. The whole purport of the provisions of
the Code and the manner in which it is structured is geared to achieve a laudable
object. The Code aims at improving the ranking of India in the matter of ease of doing
business. It is an economic measure which is intended to transform India into a country
which would attract capital and investment. The Code has indeed resulted in a
transformation of attitudes of the key players, in that it has come to be perceived as a
law not merely on paper but one with teeth to it. He would point out that this Court in
its decision in the Pioneer's Case Pioneer Urban Land and Infrastructure Ltd. and Anr. v.
Union of India and Ors. MANU/SC/1071/2019 : (2019) 8 SCC 416 has elaborately dealt
with the apprehension that allowing the home buyers like the Petitioners who finance
the builder's activities to invoke the CIRP process will lead to misuse of the provisions
and allayed the unfounded fears. Yet the legislature has ventured to place unjustifiable
clogs on the right of one category of financial creditors alone which is impermissible.
The spectre of a speculative investor running riot and playing havoc has been
adequately addressed by this Court. There is no worthwhile data of misuse by home
buyers. He points out the judgments passed by NCLAT where the financial creditors,
who are home buyers, approach the Tribunal and the cases reflect gross and inordinate
delay of nearly five years justifying the approach made by the home buyers under the
Code. In other words, there were genuine cases where the debtor had become insolvent
and hence the home buyer had complete justification in knocking at the doors of the
competent Tribunal under the Code. He took us through the reports of the Parliamentary
Committee and complained that no reasons are discernible to justify the amendments.
Equally, he commended for our acceptance the observations in the dissent notes and
contended that they fortify the submissions.
1 5 . In regard to the comparison sought to be made, with similar requirements in
Sections 397, 398 read with 399 of the Companies Act, 1956 and Section 241 and 244
of the Companies Act, 2013, he would submit that there are significant distinctions.
16. Firstly, he would submit that in the case of shareholders approaching the Tribunal
under the Companies Act, they would be armed with the details regarding shareholding
which are always available having regard to the scheme of the Companies Act. On the
other hand, he points that in regard to home buyers who have sunk their hard-earned
money in real estate projects there is no system under which they could obtain data or
information regarding the persons similarly circumstanced and whose co-operation and
support is necessary under the impugned amendment to activise the Code.
17. Secondly, he would submit that having regard to the explanation in Section 244 of
the companies Act, 2013, it brings about clarity in regard to the situation where there is
a joint holding. The absence of any such similar provision in Section 7 of the Code is
emphasised in an attempt at persuading the court to overturn the law. He would further
point out the practical difficulties in the working of the amended law. He submits that
the date of default of various home buyers may be different. Therefore, to forge a
common complaint impelling a group of home buyers to come together is impracticable
and not workable'. He would submit that legislature cannot be permitted to take away
through one hand what it has given by the other.
1 8 . Learned Counsel would further contended that as far as the third proviso is
concerned while accepting the position that the 14 days period for disposal of the
matter under the Code has been understood to be directory and not mandatory, at the
same time, it cannot be the law that a case should grace the docket endlessly and never
witness an end and the retrospectivity which it reflects clearly renders it arbitrary.
19. Shri Shikhil Suri, learned Counsel for the Petitioner in Writ Petition (Civil) No. 191
of 2020 would submit that the impugned amendment is arbitrary being in the teeth of
the principles laid down in Pioneer (supra). The object of the law would stand defeated
he contends. The Ordinance would not only deprive the Petitioner of her right Under
Section 7 but it also violates Article 14 of the Constitution of India. The threshold limit
is unreasonable and arbitrary. It is excessive and irrational. It is not in public interest.
He also points out that there exists adequate shield against a single allottee misusing
the Code. The threshold is thrust upon only on the home buyer and is not applicable
across the board for other financial creditors. It is discriminatory. There is no rationale.
It treats equals unequally and unequals as equals. There is no intelligible differentia.
The law does not permit classes among financial creditors. There is breach of the
guarantee of equal protection of law. The threshold in Section 4, namely, default of
Rupees One crore is the one which applies to all creditors. It is inexplicable as to how
only in regard to home buyers, a different threshold should be insisted upon. The
remedy of the home buyer is defeated. The Ordinance was brought in haste without
proper discussion and debate. The amendment takes away the vested right of the home
buyers. There is no intelligible differentia bearing a nexus with the object and purpose
of the Act. He also emphasised the practical difficulties involved in arranging the
necessary numerical strength under the impugned provision.
20. Shri Piyush Singh, learned Counsel for the Petitioners would submit that once the
right is conferred to make an application, then it cannot come conditioned with
threshold limit as is provided in the impugned provisos. Secondly, he would point out
that there is manifest arbitrariness. That apart, he would also contend that there is
hostile discrimination qua other corporate debtor. The builder who is a corporate
debtor, in other words, is given a more favourable treatment than other corporate
debtors which is afflicted with the vice of hostile discrimination. He also complained of
both under and over inclusiveness in the impugned provisions. Next, learned Counsel
submits that the very object is discriminatory. Drawing our attention to both Chitra
Sharma and Ors. v. Union of India and Ors. MANU/SC/0834/2018 : (2018) 18 SCC 575
and Pioneer (supra), he would highlight that having regard to the background in which
the rights of the home buyer was recognised as being one of that of a financial creditor,
the amendment is clearly impermissible. He would also submit that having regard to the
stand taken by the Government in the case before this Court, in particular, Pioneer
(supra), the principles of promissory estoppel will apply and prevent enactment of the
impugned provisions. He would expatiate and submit that the conditions which have
been imposed render the remedy illusory. He drew our attention to Order 1 Rule 8 of
the Code of Civil Procedure and also took us to the explanation therein. He would
submit that the proviso is not on similar lines as Order 1 Rule 8. This is for the reason
that under the procedure Under Order 1 Rule 8, the numerical stipulation in the
impugned Provisos is not insisted upon. Once persons having same interest institute a
civil suit, after following the procedure all persons having the same interest become
involved and what is more would be bound by the decision. Section 12 of the Consumer
Protection Act which also captures and embodies the principle of Order 1 Rule 8 ensures
the protection of class interest and also protect class interest without putting stiff
barriers as threshold limits as done by the impugned amendment. He pointed out that
the real estate owners do not take any loan from financial institutions. They raise capital
exclusively from the allottees virtually. In such circumstances, to put this threshold limit
is clearly impermissible. He drew our attention to the judgment of the Court in Motilal
Padampat Sugar Mills Co. Ltd. v. State of U.P. MANU/SC/0336/1978 : (1979) 2 SCC
409, to buttress his submission regarding availability of principles of promissory
estoppel. There is manifest arbitrariness in the provisions. He complained that the RERA
has not been constituted in all the States. He also made an attempt at pointing out the
perception that the amendment is to confer an unmerited advantage on the builder. This
he purported to do by drawing our attention to an Article in a newspaper. He essentially
projected this argument as a thinly disguised argument of malice against the law giver.
He also sought to draw support from the judgment of this Court in Nagpur Investment
Trust and Ors. v. Vithal Rao and Ors. MANU/SC/0518/1972 : (1973) 1 SCC 500. He
reiterated the principle of hostile discrimination. He drew our attention to the definition
of the word 'allottee' in RERA. It is here that he complained of the provision being under
inclusive and over inclusive. The legislature, he points out should have waited and at
best could have acted if there is impeachable and empirical evidence warranting such a
drastic incursion into the vested right of the home buyer. He also highlights that in law
there can only be one default. A home buyer who before the amendment could by
himself set the law into motion, is now left at the mercy of similarly circumstanced
persons which itself is rendered impossible by the absence of an information generating
mechanism which is accessible. He would also point out that the dates of the
agreements of different home buyers would be different. Depending on the dates of the
agreements being different, it is incontrovertible, he points out that the date of default
would be different. He would pose the question as to how in such circumstances the law
could insist upon a home buyer assembling together other homebuyers and that too one
hundred in number or one-tenth of the total number of allottees. Allottees are spread all
over the world. It is inconceivable as to how the provision can be worked in a
reasonable and fair manner.
21. Shri Rahul Rathore, learned Counsel for the Petitioners in some of the writ petition
would apart adopting the contentions, contend that insolvency has been predicated
project wise. He would submit that under the impugned amendment, the allottees are to
be culled out from among a particular project. In other words, the requirement under
the provision is that the applicants must be 100 allottees or one-tenth of the allottees of
a particular real estate project. He would point out that a corporate body may be having
different projects. If that be so, there is no rationale in insisting that the said corporate
body has become insolvent, qua the particular project in which the applicants are
interested. Insolvency, in other words, would be a financial malaise, which afflicts the
corporate body as a whole, qua all its projects. If the allottees can be drawn from other
projects undertaken by the company then maybe it may have rendered the provisions
more reasonable appears to be the argument of the Petitioner. But this is not so. The
provisions are irrational. The home buyer is a person who invests his life time savings.
He is in a weak position already. Instead of conferring protection on him, the
homebuyer is being saddled with more oppressive and burdensome conditions. There is
no platform for the exchange and availability of information with details regarding the
allottees. The Limitation Act applies as held by this Court. He would also appear to rely
on the theory of a single default. The conditions are impossible to fulfil. The home
buyer is being shut out at the very threshold.
22. Shri Dinesh C. Pandey, learned Counsel would also contend that Section 6 of the
General Clauses Act would protect all the pending applications.
2 3 . Shri Dhruv Gupta, learned Counsel appearing in W.P. (C) No. 177 of 2020
complained against retrospectivity spelt out by the impugned provisions. The right
which was a vested right was substantive in nature. The law could only be prospective.
He draws our attention to the judgment of this Court in B.K. Educational Services (P)
Ltd. v. Parag Gupta & Associates MANU/SC/1160/2018 : (2019) 11 SCC 633. He also
lays store by the principles laid down by this Court in Swiss Ribbon Pvt. Ltd. and Ors. v.
Union of India and Ors. MANU/SC/0079/2019 : (2019) 4 SCC 17 and also in The
Pioneer (supra).
24. Ms. Purti Marwaha Gupta, learned Counsel in W.P.(C) No. 75 of 2020 adopted the
contentions of Shri Krishna Mohan Menon. Learned Counsel would make submissions
qua Section 32A which is yet another provision which is challenged. She drew our
attention to Section 2(u) and 20 of the Prevention of Money Laundering Act, 2002. She
would submit but for Section 32A, the properties which are acquired could be attached
but that is preempted by Section 32A. The civil remedies open are taken away in regard
to acts of crime. Section 14 of the Act which deals with Moratorium is referred to in this
regard.
25. Shri A.D.N. Rao, learned Counsel would submit that a substantive right cannot be
taken away by a procedural requirement. The home buyers have been conferred the
substantive right to invoke the code by moving an application Under Section 7. This
right cannot be taken away by providing for a procedure and what is more which is
impossible to attain. He drew our attention to the decision of this Court in Garikapati
Veeraya v. N. Subbiah Choudhry MANU/SC/0008/1957 : AIR 1957 SC 540 : 1957 SCR
488. He would submit that the law as on the date of initiation should prevail and it
cannot be taken away by the amendment which is made subsequently. Apparently, the
learned Counsel is making his submission qua the 3rd proviso inserted in Section 7(1)
of the Code. He seeks to drawn support from judgment of this Court in Thirumalai
Chemicals Limited v. Union of India and Ors. MANU/SC/0427/2011 : (2011) 6 SCC 739.
He also contends that a proviso cannot override the main provision. In this regard, he
relied upon the judgment of this Court in Delhi Metro Rail Corporation Ltd. v. Tarun Pal
Singh and Ors. MANU/SC/1681/2017 : (2018) 14 SCC 161. He would in fact point out
with reference to facts that the orders were reserved in the application Under Section 7
in November, 2019. The proviso came to be inserted on 28th December 2019.
Resultantly, when the order came to be pronounced regarding admission of the
application Under Section 7, the authorities stood overtaken by the amendment. All of
this is for no fault of the litigant who at the time when the application was moved was
governed by a different regime which did not contain the harsh and arbitrary provisions.
He would also point out practical difficulty in finding out other allottees.
2 6 . Smt. Tasleem Ahmadi, learned Counsel would submit that an amendment as
impugned in this case has the effect of setting at nought the directions and decision of
this Court. She would complain that an amendment has been engrafted without
removing the premise on which Pioneer was decided. She drew our attention to the
judgment of this Court in State of Karnataka and Ors. v. The Karnataka Pawn Brokers
Association and Ors. MANU/SC/0257/2018 : (2018) 6 SCC 363 (paragraphs-16, 20, 23
and 24).
27. Shri Aditya Parolia, learned Counsel would submit that while the legislature has the
freedom to experiment the power does not exist beyond certain limits. It cannot create
provisions which are arbitrary. Unequals are treated equally. The objections of the home
buyers were not discussed. The draft was not discussed. In this regard he points to the
dissent of Shri TK Rangarajan. There is no intelligible differentia to distinguish the
home buyers from the other creditors. The class action under the Consumer Protection
Act is denied under the code. Even a decree holder under the aegis of RERA is denied
relief. He also points out the lack of information required to properly work the statute.
Allottees are spread across the globe. The real estate investor siphons off major
amounts. The default is in rem.
2 8 . Shri Pallav Mongia, learned Counsel would point out that home buyers would
continue to be financial creditors. The proviso cannot take away the said right. Unequals
are being made equal. Information regarding allottees is not available. He refers to the
report of the Parliamentary Committee. He also complains about the absence of
undisputed documents. As regards information relating to allottees he would make the
point that the Code itself does not provide for a mechanism for a home buyer to glean
information. He is being called upon to collect information with reference to another
enactment namely RERA. This should be treated as fatal to the constitutionality of the
impugned amendments. He would further submit that the provision is bad for it being
vague. The argument of vagueness is addressed with reference to the following:
1. The date of default.
2. The court fee payable when there is more than one applicant.
3. The threshold amount of default stipulated Under Section 4 namely Rs. One
crore at present.
4. He also would complain against the retrospectivity involved.
29. Shri Rana Mukherjee, learned Senior Counsel appears in writ petition where first
proviso is called in question, he represents the cause of money lenders. He drew our
attention to paragraph-43 of the Pioneer (supra). He pointed out that the requirement
that the applicants must be of the same class and there must be 100 of them rendered
the provisions unachievable. He drew our attention to Sections 244 and 245 of the
Companies Act, 2013. He pointed out that the threshold under the said Act could be
relaxed whereas under the code the law giver has inflicted the requirement as an
inflexible mandate. He also complained of there being no information qua the
requirement of 10 percent. He drew our attention to Rule 8A. He would submit that
actually Parliament had in mind the home buyer. The insertion of the 1st proviso
betrays a mistaken roping in of the category of creditors represented by his clients. He
sought to draw considerable support from the judgment of this Court in Vasant Ganpat
Padvave (D) by LRs and Ors. v. Anant Mahadev Sawant (D) Through LRs. and Ors.
MANU/SC/1285/2019 : 2019 (12) SCALE 572 of his compilation. He commended for our
acceptance the principle that the law must be considered having regard to consequences
it produces. He requested that the court may bear in mind the requirement that the law
in its application must produce fair results.
3 0 . Per contra, the stand of the Union, as projected through Smt. Madhavi Divan,
learned ASG, and through the Written Submissions submitted, can be summed-up as
follows:
The impugned amendments are perfectly valid. The amendments are part of an
economic measure. There was a Report of an Expert Committee. The Expert
Committee recommended imposing a threshold amendment in respect of certain
classes of financial creditors. It is modelled on the Companies Act. There are
other statutory examples of such threshold requirements. The impugned
provisions conform to the principle of reasonable classification. Intelligible
differentia distinguishes the allottees and debenture holders and security
holders covered by the provisos from the other financial creditors. The
amendments were necessitated from experience. There is a rational nexus
between the differentia and the objects. The amendment, as far as the
impugned provisos are concerned, are essentially an extension of Sections
21(6A) and Section 25A of the Code, under which, the debenture holders and
security holders, on the one hand, and allottees, on the other, are treated
differently. The provisions are not manifestly arbitrary, they are, indeed,
workable. Having regard to the Explanation in Section 7(1), the default qua any
financial creditor, even if, he is not an applicant, can be made use of by other
allottees or debenture holders and security holders.
31. It is pointed out further that the constitutional validity of Sections 21(6A) and 25A
of the Code, was upheld by this Court in Pioneer (supra). In this regard, attention is
also drawn to the observations of this Court in paragraph-43 of Pioneer (supra). On the
strength of the said observations, it is contended that this Court has recognized that
allottees/home buyers are not a homogenous group. This Court also recognized, it is
pointed out, that the deposit-holders and security-holders form a sub-class/class of
financial creditors, who are treated a little differently, on account of the sheer number
of such creditors coupled with the heterogeneity within the group that may cause
difficulties in the decision-making process. The provisions were introduced for ironing
out the logistical/procedural complications that may arise on account of the peculiar
nature of these groups. The provisions impugned in the present litigation merely
supplement Sections 21(6A) and Section 25A of the Code. The rationale in the said
judgment should be applied in this case also. It is further pointed out that the challenge
in Pioneer (supra) was mounted by the developers and the home buyers accepted the
provisions, as being necessary to iron out the creases. The ASG drew support from
judgments of this Court which are as follows:
i. Ameerunnissa Begum and Ors. v. Mahboob Begum and Ors.
MANU/SC/0026/1952 : (1953) SCR 404;
ii. State of Jammu and Kashmir v. Triloki Nath Khosa and Ors.
MANU/SC/0401/1973 : (1974) 1 SCC 19;
iii. Murthy Match Works and Ors. v. Assistant Collector of Central Excise and
Anr. MANU/SC/0058/1974 : (1974) 4 SCC 428;
iv. Ajoy Kumar Banerjee and Ors. v. Union of India and Ors.
MANU/SC/0263/1984 : (1984) 3 SCC 127;
v. Ashutosh Gupta v. State of Rajasthan and Ors. MANU/SC/0209/2002 :
(2002) 4 SCC 34;
32. It is contended that there is a rational nexus with the objects of the Code insofar as
the impugned provisos are concerned and the classification is permissible Under Article
14 of the Constitution. She drew our attention to the Statements of Objects and Reasons
appended to the amendment Bill to the Code, 2019, which introduced Sub-section 3A in
Section 25A. It reads as follows:
[...]
2. The Preamble to the Code lays down the objects of the Code to include "the
insolvency resolution" in a time bound manner for maximisation of value of
assets in order to balance the interests of all the stakeholders. Concerns have
been raised that in some cases extensive litigation is causing undue delays,
which may hamper the value maximisation. There is a need to ensure that all
creditors are treated fairly, without unduly burdening the Adjudicating Authority
whose role is to ensure that the resolution plan complies with the provisions of
the Code. Various stakeholders have suggested that if the creditors were treated
on an equal footing, when they have different preinsolvency entitlements, it
would adversely impact the cost and availability of credit. Further, views have
also been obtained so as to bring clarity on the voting pattern of financial
creditors represented by the authorised representative.
[...]
(d) to insert Sub-section (3A) in Section 25A of the Code to provide that an
authorised representative Under Sub-section (6A) of Section 21 will cast the
vote for all financial creditors he represents in accordance with the decision
taken by a vote of more than fifty per cent. of the voting share of the financial
creditors he represents, who have cast their vote, in order to facilitate decision
making in the committee of creditors, especially when financial creditors are
large and heterogeneous group;
33. Thus, the Statement of Objects and Reasons recognizes the heterogeneity within
the class and the need to streamline, smoothen and facilitate the process so as to avoid
unnecessary delay. There is also a concern about extensive litigation causing delays and
hampering the maximization of value, it is pointed out. Multiple applications by
members of this large class of financial creditors, in such a class, would also add to the
burden of the Adjudicating Authority, choke-up its docket and delay the process. This
would be counterproductive to the object of the Code which seeks to ensure time-bound
Resolution Process for the maximization of total value of assets. Reference is made to
the Report of the Insolvency Law Committee, dated February, 2020, which
recommended the insertion of a minimum number of financial creditors in a class. It
reads as follows:
ii. Application for Initiation of CIRP by Class of Creditors-As CIRP can be
initiated by a single financial creditor, such as a homebuyer or a deposit holder,
that belongs to a certain class of creditors following a minor dispute, it might
exert undue pressure on the corporate debtor and might jeopardize the interests
of the other creditors in the class who are not in favor of such initiation. It is
being recommended that there should be a requirement for a minimum
threshold number of certain financial creditors in a class for initiation of the
CIRP. So, an amendment to Section 7(1) to provide that for a class of creditors
falling within Clause (a) or (b) of Section 21(6A), the CIRP may only be
initiated by at least a hundred such creditors or 10 percent of the total number
of such creditors in a class.
4. APPLICATION FOR INITIATION OF CIRP BY CLASSES OF CREDITORS
4.1. Section 7 of the Code allows a financial creditor to initiate a CIRP against a
corporate debtor upon the occurrence of default, either by itself, or jointly with
other financial creditors.
4.2. It was brought to the Committee that for classes of financial creditors
referred to in Sub-clauses (a) and (b) of Section 21(6A) of the Code-such as
deposit holders, bondholders and homebuyers-there was a concern that the
CIRP can be initiated by only one or few such financial creditors following
minor disputes. This may exert undue pressure on the corporate debtor, and
has the potential to jeopardise the interests of the other creditors in the class
who are not in favour of the initiation of CIRP. This may also impose additional
burden upon the Adjudicating Authority to hear objections to heavily disputed
applications. The Committee noted that this may be antithetical to the value of
a time-bound resolution process, as the already over-burdened Adjudicating
Authorities are unable to list and admit all such cases filed before them.
4.3. The Committee discussed that classes of creditors such as homebuyers and
deposit holders have every right as financial creditors to initiate CIRP against a
corporate debtor that has defaulted in the repayment of its dues. However, it
was acknowledged that initiation of CIRP by classes of similarly situated
creditors should be done in a manner that represents their collective interests.
It was felt that a CIRP should be initiated only where there is enough number of
such creditors in a class forming a critical mass that indicates that there is in
fact largescale agreement that the issues against a corporate entity need to be
resolved by way of a CIRP under the Code. This may well be a more
streamlined way of allowing a well-defined class of creditors to agree upon
initiating what is a collective process of resolution under the Code.
4.4. In this regard, and specific to the interests of homebuyers, the Committee
also noted that in cases where a homebuyer cannot file an application for
initiation of CIRP for having failed to reach the aforesaid critical mass, she
would still have access to alternative fora under the RERA and under consumer
protection laws. For instance, as recognised by the Supreme Court in the case
of Pioneer Urban Land and Infrastructure Limited and Ors. v. Union of India, the
remedies under the Code and under the RERA operate in completely different
spheres. The Code deals with proceedings in rem, under which homebuyers
may want the corporate debtor's management to be removed and replaced so
that the corporate debtor can be rehabilitated. On the other hand, the RERA
protects the interests of the individual investor in real estate projects by
ensuring that homebuyers are not left in the lurch, and get either compensation
or delivery of their homes. Thus, if there is a failure to reach a critical mass for
initiation of CIRP, it may indicate that in such cases another remedy may be
more suitable.
4.5. Accordingly, it was agreed that there should be a requirement to have the
support of a threshold number of financial creditors in a class for initiation of
CIRP.
4.6. In this regard, the Committee considered if a cue may be taken from the
requirements for filing of class actions suits as provided under the Companies
Act, 2013. Class action suits may inter alia be filed by a hundred members or
depositors or by at least 5 per cent of the total number of members or
depositors of the company. 14 Similar to this requirement, and keeping with
the extant situation of classes of creditors under the Code, it was suggested
that Section 7 of the Code could be amended in respect of such classes of
creditors to allow initiation by a collective number of at least a hundred such
creditors or at least ten percent of the total number of such creditors forming
part of the same class. Thus, the Committee agreed that Section 7(1) of the
Code may be amended to provide that for classes of creditors falling within
Clauses (a) and (b) of Section 21(6A), the CIRP may only be initiated by at
least a hundred such creditors, or ten percent of the total number of such
creditors in a class.
4.7. The Committee also noted that the collective number of homebuyers that
form the threshold amount for initiation of a CIRP, should belong to the same
real estate project. This would allow homebuyers that have commonality of
interests, i.e. allottees under the same real estate project, to come together to
take action for initiating CIRP against a real estate developer. Thus, in such
cases, the CIRP may be initiated by at least a hundred such allottees or ten
percent of the total number of such allottees belonging to the same real estate
project.
4.8. However, to ensure that there is no prejudice to the interests of any such
creditor in a class whose application has already been filed but not admitted by
the Adjudicating Authority, the Committee agreed that a certain grace period
may be provided within which such creditor in a class may modify and file its
application in accordance with the above-stated threshold requirements.
However, if the creditor is unable to fulfil the threshold requirements to file
such modified application within the grace period provided, the application filed
by such creditor would be deemed withdrawn.
(Emphasis supplied)
34. In the Statement of Objects and Reasons to the Second Amendment Bill, 2019,
promulgated as an Ordinance, and thereafter, as the impugned Act, it was, inter alia,
stated that it was necessitated to prevent potential abuse of the Code by certain classes
of financial creditors, inter alia. This was necessary to prevent the derailing of the time-
bound CIRP, which was designed to secure the maximization of value of the assets. The
provision only supplements the protection Under Sections 65 and 75 of the Code. The
intelligible differentia is projected as follows:
i. Numerosity;
ii. Heterogeneity;
iii. Lack of special expertise and individuality in decision making. It is sought to
be contrasted with institutional decision-making which is associated with banks
and financial institutions;
iv. Typicality in determination of default. In other words, in the case of banks
and financial institutions, records of public utilities, would show a default. In
the case of allottees, records must be accessed through data publicly available
under RERA;
35. The object and rationale of the impugned provisions are stated to be as follows:
i. Preventing multiple individual applications, which has the effect of not only
crowding the docket of the Adjudicating Authority and further holding up a
process in which time is of the essence;
ii. Safeguarding the interest of hundreds or even thousands of allottees who
may oppose the application of a single home-buyer;
iii. Balancing the interest of members of the same sub-Class as also other
financial creditors and other operational creditors. The availability of remedies
to the members of the sub-class under RERA, in the case of allottees;
iv. Lastly, the process becomes smoother and cost-effective. Unnecessary
financial bleeding of the corporate debtor who is already in difficulty, is
avoided.
36. Time is of the essence of the Code. Proceedings are in the nature of proceedings in
rem. It impacts the rights of creditors, including similarly placed creditors. It is
therefore, reasonable and logical to place the threshold. The minimum threshold is a
minimum requirement. The threshold is kept low and reasonable. This Court has upheld
sub-classification provided there is a rational basis. She drew support from the
following decisions;
i. Indra Sawhney and Ors. v. Union of India and Ors. MANU/SC/0104/1993 :
1992 Supp.(3) SCC 217;
ii. Lord Krishna Sugar Mills Limited and Anr. v. Union of India and Anr.
MANU/SC/0022/1959 : (1960) 1 SCR 39;
iii. State of Kerala and Anr. v. N.M. Thomas and Ors. MANU/SC/0479/1975 :
(1976) 2 SCC 310;
iv. State of West Bengal and Anr. v. Rash Behari Sarkar and Anr.
MANU/SC/0440/1993 : (1993) 1 SCC 479;
v. State of Kerala v. Aravind Ramakant Modawdakar and Ors.
MANU/SC/0468/1999 : (1999) 7 SCC 400.
37. She sought to distinguish the judgment of this Court in Sansar Chand Atri v. State
of Punjab and Anr. MANU/SC/0242/2002 : (2002) 4 SCC 154, which was relied on by
the Petitioners on the basis that this Court in the said case, only frowned upon creating
a class within a class without rational basis. In this case, there was a rational basis for
creating a sub-class. Differential treatment is also contemplated under UNCITRAL
Legislative Guide and the Guidelines.
38. There is no basis in the contention that the amendments go against the law laid
down in Pioneer (supra). The question involved in the said case was not whether there
can be a different treatment to the real estate allottees for the purpose of initiating
CIRP. Secondly, it is pointed out that the Legislature is free to make laws to deal with
problems that manifest with experience. The numerical threshold was felt necessary
with experience and recommendations of an Expert Committee. There has been a
manifold increase of claim petitions filed by single or handful of allottees resulting in an
already overburdened Adjudicating Authorities being flooded with such petitions. The
amendment is consistent with the Pioneer (supra) judgment. The uniqueness of the
allottees as a class of financial creditors, has been recognized in Pioneer (supra). The
fact that they constituted a distinct and separate class of financial creditors meriting
distinct treatment, has been approved in Pioneer (supra). The minimum threshold
requirement is a procedural requirement. There is no deviation from Pioneer (supra) in
a manner which is irreconcilable with it. The legislation, being an economic measure,
free play in the joints, must be accorded to the Legislature. The impugned amendment
is reasonable, minimal and proportionate. The data gathered by the Respondent
discloses that between June, 2016 and 5th June, 2018, there were 253 cases filed by
allottees in the N.C.L.T.. However, between 6th June, 2018 and 28th December, 2019,
as many as 2201 cases were filed by the allottees. Thereafter, pursuant to the
Ordinance between December 29th, 2019 and August 26th, 2020, there is a sharp fall,
as, nearly in eight months, only 130 cases were filed. It is pointed out that the
argument, based on estoppel and malice against the Legislature, is untenable. There can
be no estoppel against the Legislature and the decision of this Court in Union of India
and Ors. v. Godfrey Philips India Ltd. MANU/SC/0036/1986 : (1985) 4 SCC 369, is
relied on. The concept of transferred malice is alien in the field of legislation. In this
regard, reference is placed on decisions of this Court in K. Nagaraj and Ors. v. State of
A.P. and Anr. MANU/SC/0343/1985 : (1985) 1 SCC 523 and State of Himachal Pradesh
v. Narain Singh MANU/SC/1129/2009 : (2009) 13 SCC 165.
39. The right to file an application Under Section 7 is a statutory right and it can be
conditioned. Reliance is placed on judgment of this Court in Gujarat Agro Industries Co.
Ltd. v. Municipal Corporation of the City of Ahmedabad and Ors. MANU/SC/0300/1999 :
(1999) 4 SCC 468. There is no inherent or absolute right to file an application Under
Section 7 of the Code. The Legislature is well within its power to impose conditions for
the exercise of such statutory rights. It is further contended that the third proviso
inserted in Section 7(1) does not affect any vested right of the creditors who have
already filed applications for initiating CIRP. A vested right has been the subject matter
of several decisions. In this regard reliance is placed on the following judgments:
i. Howrah Municipal Corporation and Ors. v. Ganges Rope Co. Ltd. and Ors.
MANU/SC/1073/2003 : (2004) 1 SCC 663;
ii. Arcelormittal India Private Limited v. Satish Kumar Gupta and Ors.
MANU/SC/1123/2018 : (2019) 2 SCC 1;
iii. Swiss Ribbons Private Limited and Anr. v. Union of India and Ors.
MANU/SC/0079/2019 : (2019) 4 SCC 17;
iv. Karnail Kaur and Ors. v. State of Punjab and Ors. MANU/SC/0061/2015 :
(2015) 3 SCC 206;
v. Committee of Creditors of Essar Steel India Limited Through Authorised
Signatory v. Satish Kumar Gupta and Ors. MANU/SC/1577/2019.
40. Mere right to take advantage of a statute is not a vested right. In this regard, the
following case law is relied upon:
i. Director of Public Works and Anr. v. Ho Po Sang and Ors.
MANU/UKPC/0007/1961 : [1961] 3 WLR 39;
ii. M.S. Shivananda v. Karnataka State Road Transport Corporation and Ors.
MANU/SC/0371/1979 : (1980) 1 SCC 149;
iii. Lalji Raja and Sons v. Hansraj Nathuram MANU/SC/0008/1971 : (1971) 1
SCC 721;
iv. Kanaya Ram and Ors. v. Rajender Kumar and Ors. MANU/SC/0235/1984 :
(1985) 1 SCC 436;
41. The third proviso is enacted to protect the collective interests of others in a class of
creditors. Before admission of the application for insolvency, no vested right accrues in
favour of the allottee. The amendment, therefore, cannot be said to have retrospective
application in a manner that impairs vested rights. Prior to admission, there is no vested
right. Insistence on compliance with the new provisos cannot be regarded as having
retrospective operation taking away vested rights. It is done to avoid needless
multiplicity and to ensure that no single allottee would be able to achieve admission
and its consequences, without having a threshold of his compatriots on board.
4 2 . Placing reliance on judgment of this Court, in Garikapati Veeraya (supra), it is
contended that even a vested right can be taken away by the Legislature, if a
subsequent enactment so expressly provides or if it so by necessary implication. A
minimum threshold requirement is a common feature of class action litigation. There
are several legislations which provide for a minimum threshold in order to initiate class
action. Section 245 of the Companies Act, 2013 and 241 of the said Act are relied upon.
Sections 397 and 398 of the Companies Act, 1956, read with Section 399, contemplated
a minimum threshold requirement for seeking relief Under Sections 397 and 398.
Reference is placed on the Bhabha Committee Report (Company Law Committee) in
1952. So also, is support, sought to be drawn from the judgment of this Court in J.P.
Srivastava & Sons (P) Ltd. and Ors. v. Gwalior Sugar Co. Ltd. and Ors.
MANU/SC/0927/2004 : (2005) 1 SCC 172. Under the Consumer Protection Act, this
Court, rendered the judgment in Anjum Hussain and Ors. v. Intellicity Business Park
Private Limited and Ors. MANU/SC/0750/2019 : (2019) 6 SCC 519. A minimum
threshold adds, authenticity and weightage to the claim in a class action, proving it to
be a common grievance and not a mere obstruction in the work of the opposite party.
Reference is made to Rule 23 of Federal Rules of Code of Civil Procedure in the United
States, which provide for class action suits. The said Rules contemplate numerosity,
commonality, typicality and adequacy of representation. It is pointed out that joint filing
was not only not alien to Section 7 but it was interwoven into its very DNA. Even as
originally enacted, Section 7 contemplated joint filing by financial creditors. Uniqueness
of the Code lies in the fact that the financial creditors may file an application based on a
default that occurred in respect of the third-party financial creditor, who may choose
not to file an application itself. At the triggering stage, an application Under Section 7
partakes the character of an application in rem proceeding rather than in personam one.
The impugned amendment merely extends the same rationale.
43. It is further pointed out that Debenture Trustees are defined in Section 2(bb) of the
Securities and Exchange Board of India Debenture Trustees Regulations, 1993, as a
Trustee of a trust deed for securing any issue of debentures of a body corporate.
Debenture is a long-term bond issued by a company or an unsecured loan that a
company issues without a pledge of assets, as for example, interest bearing bond.
Debenture Trustees are registered under Chapter 2 of the said Regulations. The
Regulations provide for responsibilities and duties of Debenture Trustees. In the case of
a debenture-holder and other security-holder, there is a Debenture Trustee to protect
their interest from the inception under SEBI.
4 4 . As far as absence of information, so far as debenture holders are concerned,
necessary information regarding them is available in the public domain, Under Section
88(1)(b) and Section 88(1)(c) of the Companies Act, 2013, which obliges every
company to maintain a register of its debenture holders and security holders. A penalty
for non-compliance is contemplated Under Section 88(5). Section 95 of the Companies
Act, 2013 provides that registers, required to be maintained by the Company Under
Section 88, shall be kept in the registered office. Without payment of fees, the register
is open to inspection by any member, debenture holder or other security holder.
Extracts and copies of such registered can be obtained. Reference is also made to Rule
4 of the Companies (Management and Administration) Rules, 2014, which contemplates
a separate register in Form-FMG-II for debenture holders. It contains all details of the
debenture holder, including the e-mail id, address, etc.. Thus, there is a reservoir of
information available for complying with the requirement under the first proviso.
45. As regards the allottees are concerned, the submission, is as follows:
Reference is made to Section 19 of RERA. Thereunder, Section 19(9) obliges
every allottee of a real estate project to participate towards the Association of
Allottees. Section 11(4)(e) of RERA also obliges the Promoter to enable the
formation of such an Association. RERA compels the constitution of such an
Association, prior to the allotment. This is for the reason that an Association
plays an important role during the development of the project. It is pointed out
that Under Section 8 of RERA, upon lapse of or revocation of the registration,
the Authority is obliged to take such action, as it may deem fit, including the
carrying out of the remaining development works. The Association of allottees
have been given the right of first refusal for carrying out the remaining
development works. Section 11(4) contemplates the obligations to be
discharged by the Promoter towards the Association. Reference is also made to
Section 4(2)(c) of RERA. Under Section 17 of the RERA, the Promoter is to
execute a registered conveyance in regard to the undivided proportionate title
in the common areas to the Association of the allottees. Physical possession of
the common areas is to be handed over to the Association of the Allottees.
Under Section 31 of RERA, the Association can file complaint with the Authority.
Apart from this, it is also pointed out that Under Section 11(1)(b), the Promoter
is bound to create a webpage on the website of the RERA Authority and enter
thereon the quarterly up-to-date list of the number and the types of the
plots/apartments as may be booked.
46. Shri Sajan Poovayya, learned Senior Counsel who appears on behalf of Respondent
No. 4 in Writ Petition No. 191 of 2020, which is a builder, also supported the Union.
The second proviso, he contends is a logical and legitimate method to strike a fair
balance between all stakeholders. It makes the Code workable. The object of the
Amendment Act is to prevent the use of the Code for an extraneous purpose and not to
shield and protect an errant real estate developer. He has referred to the facts
pertaining to his client by way of an example of the misuse which has happened under
the earlier regime. He drew support from paragraph-41 of the judgment in Pioneer
(supra). Second proviso is an independent provision to made the Code workable. He
drew our attention to paragraph-43 of this Court in MANU/SC/0387/1985 : 1985 1 SCC
591. As regards the information, he also pointed out Section 11 of RERA, pointing to
the information which is available in public domain. Illustratively, he drew our attention
to the Haryana Real Estate Regulatory Authority, (Gurugram, Quarterly Progress Report
Regulations), 2018, under which the format provides various details which include the
names of the allottees and the date of booking, inter alia. He also points out that there
is no unfair discrimination.
CHALLENGE TO PLENARY LEGISLATION; GROUNDS
47. The grounds on which plenary law can be challenged are well established. In the
first two decades decisions of this Court unerringly point to three grounds which render
legislation vulnerable. A law can be successfully challenged if contrary to the division of
powers, either the Parliament or the State Legislature usurps power that does not fall
within its domain thus, rendering it incompetent to make such law. Secondly, a law
made contravening Fundamental Rights guaranteed under Part III of the Constitution of
India would be visited with unconstitutionality and declared void to the extent of its
contravention. Needless to say, a law within the meaning of Article 19 of the
Constitution would remain valid qua a non-citizen (see in this regard The State of
Gujarat and Ors. v. Shri Ambica Mills Ltd., Ahmedabad and Ors. MANU/SC/0092/1974 :
(1974) 4 SCC 656). Thirdly, apart from Fundamental Rights, the supremacy of the
Constitution vis-à-vis the ordinary legislation, even when the law is plenary legislation,
is preserved with a view that legislation must be in conformity with the other provisions
of the Constitution.
48. While on breaches of the Fundamental Right, furnishing a plank of attack against
plenary law, it is necessary to notice a challenge to law Under Article 14, was
essentially confined to the law, being class legislation. In other words, a law, if it
manifested reasonable classification for treating different persons or things differently,
the law would pass muster. Interestingly, even while the theory of reasonable
classification had come to be proclaimed in the first year of the Republic, and what is
more followed in State of West-Bengal v. Anwar Ali MANU/SC/0033/1952 : AIR 1952 SC
75, the following doubts were expressed by Justice Vivian Bose:
82. I can conceive of cases where there is the utmost good faith and where the
classification is scientific and rational and yet which would offend this law. Let
us take an imaginary cases in which a State legislature considers that all
Accused persons whose skull measurements are below a certain standard, or
who cannot pass a given series of intelligence tests, shall be tried summarily
whatever the offence on the ground that the less complicated the trial the fairer
it is to their substandard of intelligence. Here is classification. It is scientific
and systematic. The intention and motive are good. There is no question of
favouritism, and yet I can hardly believe that such a law would be allowed to
stand. But what would be the true basis of the decision? Surely simply this that
the judges would not consider that fair and proper. However much the real
ground of decision may be hidden behind a screen of words like 'reasonable',
'substantial', 'rational' and 'arbitrary' the fact would remain that judges are
substituting their own judgment of what is right and proper and reasonable and
just for that of the legislature; and up to a point that, I think, is inevitable when
a judge is called upon to crystallise a vague generality like Article 14 into a
concrete concept. Even in England, where Parliament is supreme, that is
inevitable, for, as Dicey tells us in his Law of the Constitution:
Parliament is the supreme legislator, but from, the moment Parliament
has uttered its will as law-giver, that will becomes subject to the
interpretation put upon it by the judges of the land, and the judges,
who are influenced by the feelings of magistrates no less than by the
general spirit of the common law, are disposed to construe statutory
exceptions to common law principles in a mode which would not
commend itself either to a body of officials, or the Houses of
Parliament, if the Houses were called upon to interpret their own
enactments.
But the following caveat by the learned Judge is worth noticing:
83. This, however, does not mean that judges are to determine what is for the
good of the people and substitute their individual and personal opinions for that
of the government of the day, or that they may usurp the functions of the
legislature. That is not their province and though there must always be a
narrow margin within which judges, who are human, will always be influenced
by subjective factors, their training and their tradition makes the main body of
their decisions speak with the same voice and reach impersonal results
whatever their personal predilections or their individual backgrounds. It is the
function of the legislature alone, headed by the government of the day, to
determine what is, and what is not, good and proper for the people of the land
and they must be given the widest latitude to exercise their functions within the
ambit of their powers, else all progress us barred. But, because of the
Constitution, there are limits beyond which they cannot go and even though it
falls to the lot of judges to determine where those limits, lie, the basis of their
decision cannot be whether the Court thinks the law is for the benefit of the
people of not. Cases of this type must be decided solely on the basis whether
the Constitution forbids it.
(Emphasis supplied)
49. The seed of this idea had a muted growth. It was in the decision of this Court in
E.P. Royappa v. State of Tamil Nadu and Anr. MANU/SC/0380/1973 : (1974) 4 SCC 3
that this Court laid bare a new dimension in the majestic provisions of Article 14. This
Court took the view that arbitrariness and fairness are sworn enemies. The guarantee of
Article 14 is not confined in other words to it being a prohibition against equals being
discriminated against or unequals being treated alike. State action must be fair and not
arbitrary if it is to be pass muster in a court of law. It is essentially following the dicta
laid down as aforesaid that this Court in the case of Shayara Bano v. Union of India
MANU/SC/1031/2017 : (2017) 9 SCC 1, wherein one of us (Justice Rohinton F.
Nariman), speaking for the majority, held as follows:
101. It will be noticed that a Constitution Bench of this Court in Indian Express
Newspapers (Bombay) (P) Ltd. v. Union of India [Indian Express Newspapers
(Bombay) (P) Ltd. v. Union of India, MANU/SC/0406/1984 : (1985) 1 SCC 641
: 1985 SCC (Tax) 121] stated that it was settled law that subordinate legislation
can be challenged on any of the grounds available for challenge against plenary
legislation. This being the case, there is no rational distinction between the two
types of legislation when it comes to this ground of challenge Under Article 14.
The test of manifest arbitrariness, therefore, as laid down in the aforesaid
judgments would apply to invalidate legislation as well as subordinate
legislation Under Article 14. Manifest arbitrariness, therefore, must be
something done by the legislature capriciously, irrationally and/or without
adequate determining principle. Also, when something is done which is
excessive and disproportionate, such legislation would be manifestly arbitrary.
We are, therefore, of the view that arbitrariness in the sense of manifest
arbitrariness as pointed out by us above would apply to negate legislation as
well Under Article 14.
(Emphasis supplied)
50. This view, namely, that be it a plenary law if it is found to be manifestly arbitrary it
become vulnerable has been followed in the following decisions, among other
judgments:
(1) Navtej Singh Johar and Ors. v. Union of India and Ors.
MANU/SC/0947/2018 : (2018) 10 SCC 1;
(2) Joseph Shine v. Union of India MANU/SC/1074/2018 : (2019) 3 SCC 39;
(3) Justice K.S. Puttuswamy and Ors. v. Union of India and Ors.
MANU/SC/1044/2017 : (2017) 10 SCC 1.
(4) Hindustan Construction Co. Ltd. and Ors. v. Union of India and Ors.
MANU/SC/1638/2019 : AIR 2020 SC 122.
51. Yet another ground recognised by this Court is that a law, be it the offspring of a
Legislature, it falls foul of Article 14 if it is found to be vague - (see in this regard
Shreya Singhal v. Union of India MANU/SC/0329/2015 : (2015) 5 SCC 1). It must be
elaborated and we must remember that the case involved overturning Section 66A of
the Information Technology Act which purported to create a criminal offence, the
ingredients of which were found to be vague.
52. While, on the basis, furnished under law, for impugning the plenary legislation, we
may notice two grounds, which have been urged before us by some of the Petitioners. It
has been urged that the law was created by way of pandering to the real estate lobby
and succumbing to their pressure or by way of placating their vested interests. Such an
argument is nothing but a thinly disguised attempt at questioning the law of the
Legislature based on malice. A law is made by a body of elected representatives of the
people. When they act in their legislative capacity, what is being rolled out is ordinary
law. Should the same legislators sit to amend the Constitution, they would be acting as
members of the Constituent Assembly. Whether it is ordinary legislation or an
amendment to the Constitution, the activity is one of making the law. While malice may
furnish a ground in an appropriate case to veto administrative action it is trite that
malice does not furnish a ground to attack a plenary law [See in this regard K. Nagaraj
and Ors. v. State of Andhra Pradesh and Anr. MANU/SC/0343/1985 : (1985) 1 SCC 523
and State of Himachal Pradesh v. Narain Singh MANU/SC/1129/2009 : (2009) 13 SCC
165].
53. Yet another ground which has been urged in these cases is that when this Court
decided Pioneer (supra) the Union of India defended the amendment to the Code which
included the insertion of the explanation to Section 5(8)(f) of the Code. It was this
explanation which made it clear that home buyers would be financial creditors. All
grounds urged by the financial creditors were fiercely countered by the very same Union
of India by contending that the home buyers are financial creditors and what is more,
there existed sufficient safeguards against abuse of power by the individual home
buyers. What is contended before us by some of the Petitioners is that the supreme
legislature is in such circumstances estopped by the principle of promissory estoppel
from enacting the impugned enactment.
54. A supreme legislature cannot be cribbed, cabined or confined by the doctrine of
promissory estoppel or estoppel. It acts as a sovereign body. The theory of promissory
estoppel, on the one hand, has witnessed an incredible trajectory of growth but it is
incontestable that it serves as an effective deterrent to prevent injustice from a
Government or its agencies which seek to resile from a representation made by them,
without just cause [See in this regard Union of India and Ors. v. Godfrey Philips India
Ltd. MANU/SC/0036/1986 : (1985) 4 SCC 369 - Paragraph-13].
UNRAVELLING THE WORKING OF THE CODE AS REGARDS CORPORATE DEBTOR
CORPORATE DEBTOR
55. The Code was passed by Parliament in the year 2016 however, Under Section 1(3)
provisions were to come into force on such day as the Central Government was to
appoint. The provisions of the Code stand enforced from 2017.
5 6 . Part II of the code applies to matters relating to Insolvency and Liquidation of
Corporate Debtors where the minimum amount of default is Rupees One crore as it
stands [Section 4]. Under Section 6 of the Code when any corporate debtor commits a
default, a financial creditor, an operational creditor or the corporate debtor itself is
permitted to initiate the corporate insolvency resolution process (hereinafter referred to
as CIRP) in respect of the corporate debtor in the manner provided under Chapter II.
Chapter II consists of Section 6 to Section 32A. Section 7(1) provides that a financial
creditor by himself or joining with other financial creditors or any other person on
behalf of the financial creditor as may be notified by the Central Government may file
an application Under Section 7 for initiating the CIRP before the adjudicating authority
when a default has occurred. The adjudicating authority defined in Section 5(1) of the
Code is the NCLT constituted Under Section 408 of the Companies Act 2013. The
unamended Section 7(1) read as follows:
7. (1) A financial creditor either by itself or jointly with other financial creditors
may file an application for initiating corporate insolvency resolution process
against a corporate debtor before the Adjudicating Authority when a default has
occurred.
Explanation-For the purposes of this Sub-section, a default includes a default in
respect of a financial debt owed not only to the applicant financial creditor but
to any other financial creditor of the corporate debtor.
57. The three impugned provisos which we have already noted and which have been
inserted vide the impugned amendment have been sandwitched in between the
provisions of Sub-section (1) and the explanation. Sub-section 2 of Section 7 provides
that the financial creditor shall make the application which shall be in such manner and
form and accompanied by such fee as may be prescribed.
58. Section 3(26) defines the word 'prescribed' as meaning prescribed by Rules made
by the Central Government. Section 239, inter alia, confers power on the Central
Government to make Rules for carrying out the provisions of the Code. Accordingly, the
Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 came to
be made and were enforced from 1.12.2016. Rule 4 reads as under:
4. Application by financial creditor.--
(1) A financial creditor, either by itself or jointly, shall make an
application for initiating the corporate insolvency resolution process
against a corporate debtor Under Section 7 of the Code in Form 1,
accompanied with documents and records required therein and as
specified in the Insolvency and Bankruptcy Board of India (Insolvency
Resolution Process for Corporate Persons) Regulations, 2016.
(2) Where the applicant Under Sub-rule (1) is an assignee or transferee
of a financial contract, the application shall be accompanied with a
copy of the assignment or transfer agreement and other relevant
documentation to demonstrate the assignment or transfer.
(3) The applicant shall dispatch forthwith, a copy of the application
filed with the Adjudicating Authority, by registered post or speed post
to the registered office of the corporate debtor.
(4) In case the application is made jointly by financial creditors, they
may nominate one amongst them to act on their behalf.
59. Rule 8 contemplates withdrawal of application. It reads as follows:
8. Withdrawal of application --
The Adjudicating Authority may permit withdrawal of the application
made Under Rules 4, 6 or 7, as the case may be, on a request made by
the applicant before its admission.
60. It must be noticed that Rules 6 and 7 deal with applications by operational creditors
and corporate applicants respectively. Rule 10(1) (2) and (3) read as follows:
10. Filing of application and application fee --
(1) Till such time the Rules of procedure for conduct of proceedings
under the Code are notified, the application made Under Sub-section
(1) of Section 7, Sub-section (1) of Section 9 or Sub-section (1) of
Section 10 of the Code shall be filed before the Adjudicating Authority
in accordance with Rules 20, 21, 22, 23, 24 and 26 of Part III of the
National Company Law Tribunal Rules, 2016.
(2) An applicant under these Rules shall immediately after becoming
aware, notify the Adjudicating Authority of any winding-up petition
presented against the corporate debtor.
(3) The application shall be accompanied by such fee as specified in
the Schedule.
61. Form 1 is the application prescribed in relation to an application to be filed by the
financial creditor. It reads as follows:
FORM 1
(See Sub-rule (1) of Rule 4)
APPLICATION BY FINANCIAL CREDITOR(S) TO INITIATE CORPORATE
INSOLVENCY RESOLUTION PROCESS UNDER CHAPTER II OF PART II UNDER
CHAPTER IV OF PART II OF THE CODE.
[*strike out whichever is not applicable]
(Under Section 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4
of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,
2016)
[Date]
To,
The National Company Law Tribunal
[Address]
From,
[Names and addresses of the registered officers of the financial creditors]
In the matter of [name of the corporate debtor]
Subject: Application to initiate corporate insolvency resolution process in the
matter of [name of the corporate debtor] under the Insolvency and Bankruptcy
Code, 2016.
Madam/Sir,
[Names of the financial creditor(s)], hereby submit this application to initiate a
corporate insolvency resolution process in the matter of [name of corporate
debtor]. The details for the purpose of this application are set out below:
PARTICULARS OFAPPLICANT (PLEASE PROVIDE FOR EACH
FINANCIAL CREDITOR MAKING THE APPLICATION)
1. NAME OF FINANCIAL CREDITOR
2. DATE OF INCORPORATIONOF FINANCIAL
CREDITOR
3. IDENTIFICATION NUMBEROF FINANCIAL
CREDITOR
4. ADDRESS OF THEREGISTERED OFFICE
OF THE FINANCIAL CREDITOR
5. NAME AND ADDRESS OF THEPERSON
AUTHORISED TO SUBMIT APPLICATION
ON ITS BEHALF (ENCLOSE
AUTHORISATION)
6. NAME AND ADDRESS OFPERSON
RESIDENT IN INDIA AUTHORISED TO
ACCEPT THE SERVICE OF PROCESS ON
ITS BEHALF (ENCLOSE AUTHORISATION)
PART-II
PARTICULARS OF THE CORPORATE DEBTOR
1. NAME OF THE CORPORATE DEBTOR
2. IDENTIFICATION NUMBEROF
CORPORATE DEBTOR
3. DATE OF INCORPORATIONOF
CORPORATE DEBTOR
4. NOMINAL SHARE CAPITALAND THE
PAID-UP SHARE CAPITAL OF THE
CORPORATE DEBTOR AND/OR
DETAILS OFGUARANTEE CLAUSE AS
PER MEMORANDUM OF ASSOCIATION
(AS APPLICABLE)
5. ADDRESS OF THEREGISTERED
OFFICE OF THE CORPORATE DEBTOR
6. DETAILS OF THECORPORATE
DEBTOR AS PER THE NOTIFICATION
Under Section 55(2) OF THE CODE-
(i) ASSETS AND INCOME
(ii) CLASS OF CREDITORSOR
AMOUNT OF DEBT
(iii) CATEGORY OFCORPORATE
PERSON
(WHERE APPLICATION ISUNDER
CHAPTER IV OF PART II OF THE
CODE)
Part-III
PARTICULARS OF THEPROPOSED INTERIM RESOLUTION
PROFESSIONAL
1. NAME, ADDRESS, EMAILADDRESS
AND THE REGISTRATION NUMBER
OF THE PROPOSED INTERIM
RESOLUTION PROFESSIONAL
Part-IV
PARTICULARS OF FINANCIAL DEBT
1. TOTAL AMOUNT OF DEBTGRANTED
DATE(S) OF DISBURSEMENT
2. AMOUNT CLAIMED TO BE IN
DEFAULT AND THE DATE ON WHICH
THE DEFAULT OCCURRED (ATTACH
THE WORKINGS FORCOMPUTATION
OF AMOUNT AND DAYS OF DEFAULT
IN TABULAR FORM)
Part-V
Part-V
PARTICULARS OFFINANCIAL DEBT [DOCUMENTS, RECORDS
AND EVIDENCE OF DEFAULT]
1. PARTICULARS OF SECURITYHELD, IF ANY, THE DATE OF
ITS CREATION, ITS ESTIMATED VALUE AS PER THE
CREDITOR.
ATTACH A COPY OF ACERTIFICATE OF REGISTRATION
OF CHARGE ISSUED BY THE REGISTRAR OF COMPANIES
(IF THE CORPORATE DEBTOR IS A COMPANY)
2. PARTICULARS OF AN ORDEROF A COURT, TRIBUNAL OR
ARBITRAL PANEL ADJUDICATING ON THE DEFAULT, IF
ANY (ATTACH A COPY OF THE ORDER)
3. RECORD OF DEFAULT WITHTHE INFORMATION UTILITY,
IF ANY (ATTACH A COPY OF SUCH RECORD)
4. DETAILS OF SUCCESSIONCERTIFICATE, OR PROBATE OF
A WILL, OR LETTER OF ADMINISTRATION, OR COURT
DECREE (AS MAY BE APPLICABLE), UNDER THE INDIAN
SUCCESSION ACT, 1925 (10 OF 1925) (ATTACH A COPY)
5. THE LATEST AND COMPLETECOPY OF THE FINANCIAL
CONTRACT REFLECTING ALL AMENDMENTS AND
WAIVERS TO DATE (ATTACH A COPY)
6. A RECORD OF DEFAULT ASAVAILABLE WITH ANY
CREDIT INFORMATION COMPANY (ATTACH A COPY)
7. COPIES OF ENTRIES IN ABANKERS BOOK IN
ACCORDANCE WITH THE BANKERS BOOKS EVIDENCE
ACT, 1891 (18 OF 1891) (ATTACH A COPY)
8. LIST OF OTHER DOCUMENTSATTACHED TO THIS
APPLICATION IN ORDER TO PROVE THE EXISTENCE OF
FINANCIAL DEBT, THE AMOUNT AND DATE OF DEFAULT
I, hereby certify that, to the best of my knowledge, [name of proposed
insolvency professional], is fully qualified and permitted to act as an insolvency
professional in accordance with the Insolvency and Bankruptcy Code, 2016 and
the associated Rules and Regulations.
[Name of the financial creditor] has paid the requisite fee for this application
through [state means of payment] on [date].
Yours sincerely,
Signature of person authorised to act on behalf of the
financial creditor
Name in block letters
Position with or in relation to the financial creditor
Address of person signing
Instructions
Please attach the following to this application:
Annex I Copies of all documents referred to in this application.
Annex II Written communication by the proposed interim resolution
professional as set out in Form 2.
Annex III Proof that the specified application fee has been paid.
Annex IV Where the application is made jointly, the particulars
specified in this form shall be furnished in respect of all the joint
applicants along with a copy of authorisation to the financial creditor to
file and act on this application on behalf of all the applicants.
62. The Schedule prescribes the fees which is contemplated Under Rule 10(3). It, inter
alia, provides that for an application by a financial creditor (whether solely or jointly a
sum of Rupees Twenty-five thousand). Sub-section 3 of Section 7 provides that
financial creditor along with the application shall furnish record of the default recorded
by the information utility or all such other record or evidence before as may be
specified. The word 'specified' has been defined in Section 3(32) as meaning specified
by Regulations made by the Board and the term 'specify' is to be construed accordingly.
63. Section 7(3) (b) requires the financial creditor who makes the application to furnish
the name of the Resolution Professional proposed as an Interim Resolution Professional
(hereafter referred to as "RP" and "IRP" respectively). Section 5(27) defines the word
'Resolution Professional' for the purpose of Part 2 to mean an insolvency professional
appointed to conduct the CIRP and includes an interim resolution professional. In turn
Section 3(19) defines 'insolvency professional' as the person enrolled Under Section
206 with an insolvency professional agency as its member and registered with the
Board as an insolvency professional Under Section 207. Sub-section (5) of Section 7
proclaims that when adjudicating authority is satisfied that a default has occurred and
the application Under Sub-section is complete and that there is no disciplinary
proceedings pending against the proposed resolution professional, it may by order
admit an application. Inter alia on the ground that default has not occurred, it is open to
adjudicating authority to reject the application. If rejection is intended, the proviso
obliges the adjudicating authority to issue a notice to rectify any defect in the
application (this is for the reason that Under Sub-section 5 apart from there being no
default, if there is any disciplinary action against the proposed resolution professional,
the application is liable to be rejected) This is apart from the application being
otherwise defective. The application is to contain other information as may be specified
Under Regulations by the Code. The adjudicating authority is required by the letter of
the law and indeed we may say so, in accordance with the spirit to ascertain within 14
days of the receipt of the application if there is any default from the records of
information utility or on the basis of other evidence made available by the financial
creditor Under Sub-section (3) [In Pioneer (supra), the period has been understood as
directory]. 'Information utility' has been defined in Section 3(21), as a person who is
registered with the Board as information utility Under Section 210. The word 'Board' has
been defined in Section 3(1) to be the 'Insolvency and Bankruptcy Board of India' which
is established Under Sub-section (1) of Section 188.
64. Section 7(6) declares that the CIRP shall commence from the date of admission of
the application Under Sub-section (5).
65. Section 8 read with Section 9 deal with application for initiation of the CIRP by an
operational creditor. Section 10 deals with an application by the corporate applicant.
The word Corporate applicant is defined to refer to the corporate debtor and other
entities associated with it. More about it at a later stage. It is thereafter that law giver
has in Section 11 proscribed applications which should otherwise be maintainable. This
is a provision in which we will devote more time later on in this judgment. Section 12
places the time limit. Section 12 has a marginal note which is to the following effect:
12. Time-limit for completion of insolvency resolution process.-
(1) Subject to Sub-section (2), the corporate insolvency resolution
process shall be completed within a period of one hundred and eighty
days from the date of admission of the application to initiate such
process.
(2) The resolution professional shall file an application to the
Adjudicating Authority to extend the period of the corporate insolvency
resolution process beyond one hundred and eighty days, if instructed to
do so by a resolution passed at a meeting of the committee of creditors
by a vote of seventy-five per cent of the voting shares.
(3) On receipt of an application Under Sub-section (2), if the
Adjudicating Authority is satisfied that the subject matter of the case is
such that corporate insolvency resolution process cannot be completed
within one hundred and eighty days, it may by order extend the
duration of such process beyond one hundred and eighty days by such
further period as it thinks fit, but not exceeding ninety days:
Provided that any extension of the period of corporate
insolvency resolution process under this Section shall not be
granted more than once.
Provided further that the corporate insolvency resolution
process shall mandatorily be completed within a period of
three hundred and thirty days from the insolvency
commencement date, including any extension of the period of
corporate insolvency resolution process granted under this
Section and the time taken in legal proceedings in relation to
such resolution process of the corporate debtor:
Provided also that where the insolvency resolution process of a
corporate debtor is pending and has not been completed within
the period referred to in the second proviso, such resolution
process shall be completed within a period of ninety days from
the date of commencement of the Insolvency and Bankruptcy
Code (Amendment) Act, 2019.
66. Coming to Sub-section 2, the CIRP is to be completed within 180 days from the
date of admission of the application to initiate the process. As far as an application by a
financial creditor is concerned, the date of admission is the date of the order admitting
the application. Under Sub-section (2) however if the Committee of creditors by a vote
of 66 per cent of the voting share instructs the RP to extend the period of CIRP beyond
180 days, the RP is bound to file an application. The adjudicating authority on receipt of
the application can extend the period of 180 days for a maximum period of 90 days.
Such extension can be granted only once. With effect from 16.8.2019, two provisos
have been inserted. The provisos were added in fact as noted in paragraph-74 of the
Essar Steel (supra) to overcome what was laid down in MANU/SC/1123/2018 : (2019) 2
SCC 1 decided by this Court 04.10.2018. In the latter decision in Arcellormittal (supra),
this Court purported to hold that the time taken in legal proceedings must be excluded.
Under the first proviso, the CIRP has to be mandatorily completed within a period of
330 days from the insolvency commencement date. This period of 330 days is to
include any extension granted Under Sub-section (3) by the Adjudicating Authority and
also the time taken in legal proceedings in relation to the resolution process of the
corporate debtor. However, in Committee Creditors of Essar Steel (supra), this Court
struck down the word 'mandatorily' as being manifestly arbitrary and in violation of
Article 19(1)(g) and proceeded to hold as follows:
...The effect of this declaration is that ordinarily the time taken in relation to
the corporate resolution process of the corporate debtor must be completed
within the outer limit of 330 days from the insolvency commencement date,
including extensions and the time taken in legal proceedings. However, on the
facts of a given case, if it can be shown to the Adjudicating Authority and/or
Appellate Tribunal under the Code that only a short period is left for completion
of the insolvency resolution process beyond 330 days, and that it would be in
the interest of all stakeholders that the corporate 10-12-2020 (Page 69 of 85)
debtor be put back on its feet instead of being sent into liquidation and that the
time taken in legal proceedings is largely due to factors owing to which the
fault cannot be ascribed to the litigants before the Adjudicating Authority
and/or Appellate Tribunal, the delay or a large part thereof being attributable to
the tardy process of the Adjudicating Authority and/or the Appellate Tribunal
itself, it may be open in such cases for the Adjudicating Authority and/or
Appellate Tribunal to extend time beyond 330 days. Likewise, even under the
newly added proviso to Section 12, if by reason of all the aforesaid factors the
grace period of 90 days from the date of commencement of the Amending Act
of 2019 is exceeded, there again a discretion can be exercised by the
Adjudicating Authority and/or Appellate Tribunal to further extend time keeping
the aforesaid parameters in mind. It is only in such exceptional cases that time
can be extended, the general Rule being that 330 days is the outer limit within
which resolution of the stressed assets of the corporate debtor must take place
beyond which the corporate debtor is to be driven into liquidation.
6 7 . At this juncture, it must be noted that under the first proviso inserted by the
amendment dated 16.08.2019, reference to the period of 330 days is made with regard
to the insolvency commencement date. The insolvency commencement date has been
defined in Section 5(12). Section 5(12) reads as follows:
5(12) "insolvency commencement date" means the date of admission of an
application for initiating corporate insolvency resolution process by the
Adjudicating Authority Under Sections 7, 9 or Section 10, as the case may be.
There was a proviso but it stands omitted by Act 1/2020 (with effect from 28/12/2019).
68. In this regard, it is to be noticed that the scheme appears to be that the name of
the RP to act as the IRP is to be indicated in the application. While admitting the
application Under Section 7(5), the adjudicating authority is to appoint the proposed
resolution professional. In fact, Section 16(2) of the Code contemplates such
appointment. We may refer to Section 12A which was inserted with effect from
6.6.2018. Section 12A reads as follows:
12A. Withdrawal of application admitted Under Section 7, 9 or 10. - The
Adjudicating Authority may allow the withdrawal of application admitted Under
Section 7 or Section 9 or Section 10, on an application made by the applicant
with the approval of ninety per cent voting share of the committee of creditors,
in such manner as may be specified.
69. The above provision dealing with withdrawal of application after admission may be
contrasted with Rule (8) which apparently deals with withdrawal before admission.
7 0 . Section 16 of the Code, however, indicates that the adjudicating authority shall
appoint an interim resolution professional within 14 days from the insolvency
commencement date. We have already noted the definition of the words 'insolvency
commencement date' as the date of admission. Section 13 contemplates steps to be
taken upon admission Under Section 7, inter alia.
1. A moratorium contemplated Under Section 14 is to be declared.
2 . A Public announcement of the initiation of the CIRP and inviting claims
against the corporate debtor is to be made.
3. The appointment of the IRP-the appointment is to be done in the manner as
provided in Section 16. The announcement is to be made immediately after the
appointment of resolution professional.
71. Section 14 deals with moratorium.
14. Moratorium. - (1) Subject to provisions of Sub-sections (2) and (3), on the
insolvency commencement date, the Adjudicating Authority shall by order
declare moratorium for prohibiting all of the following, namely:
(a) the institution of suits or continuation of pending suits or
proceedings against the corporate debtor including execution of any
judgment, decree or order in any court of law, tribunal, arbitration
panel or other authority;
(b) transferring, encumbering, alienating or disposing off by the
corporate debtor 1 Ins. by Act No. 26 of 2019, Section 4 (w.e.f. 16-8-
2019). 2 Ins. by Act No. 26 of 2018, Section 9 (w.e.f. 6-6-2018). 20
any of its assets or any legal right or beneficial interest therein;
(c) any action to foreclose, recover or enforce any security interest
created by the corporate debtor in respect of its property including any
action under the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 (54 of 2002); (d) the
recovery of any property by an owner or lessor where such property is
occupied by or in the possession of the corporate debtor.
Explanation.-For the purposes of this Sub-section, it is hereby clarified that
notwithstanding anything contained in any other law for the time being in force,
a licence, permit, registration, quota, concession, clearance or a similar grant
or right given by the Central Government, State Government, local authority,
sectoral regulator or any other authority constituted under any other law for the
time being in force, shall not be suspended or terminated on the grounds of
insolvency, subject to the condition that there is no default in payment of
current dues arising for the use or continuation of the license, permit,
registration, quota, concession, clearances or a similar grant or right during the
moratorium period.
(2) The supply of essential goods or services to the corporate debtor as may be
specified shall not be terminated or suspended or interrupted during
moratorium period.
(2A) Where the interim resolution professional or resolution professional, as
the case may be, considers the supply of goods or services critical to protect
and preserve the value of the corporate debtor and manage the operations of
such corporate debtor as a going concern, then the supply of such goods or
services shall not be terminated, suspended or interrupted during the period of
moratorium, except where such corporate debtor has not paid dues arising from
such supply during the moratorium period or in such circumstances as may be
specified.
(3) The provisions of Sub-section (1) shall not apply to
(a) such transactions, agreements or other arrangement as may be
notified by the Central Government in consultation with any financial
sector regulator or any other authority;
(b) a surety in a contract of guarantee to a corporate debtor.
(4) The order of moratorium shall have effect from the date of such order till
the completion of the corporate insolvency resolution process:
Provided that where at any time during the corporate insolvency
resolution process period, if the Adjudicating Authority approves the
resolution plan Under Sub-section (1) of Section 31 or passes an order
for liquidation of corporate debtor Under Section 33, the moratorium
shall cease to have effect from the date of such approval or liquidation
order, as the case may be.
7 2 . It will be noticed that while Section 6 read with Section 7 contemplates that a
financial creditor may move the application individually, he may also move the
application jointly with other financial creditors. Even if a single financial creditor was
to be the applicant, after the appointment of the interim resolution professional, the
applicant ceases to be in seisin of the lis. The provisions of Section 17 is to be noticed.
It reads as follows:
1 7 . Management of affairs of corporate debtor by interim resolution
professional. - (1) From the date of appointment of the interim resolution
professional, -
(a) the management of the affairs of the corporate debtor shall vest in
the interim resolution professional;
(b) the powers of the board of directors or the partners of the
corporate debtor, as the case may be, shall stand suspended and be
exercised by the interim resolution professional;
(c) the officers and managers of the corporate debtor shall report to the
interim resolution professional and provide access to such documents
and records of the corporate debtor as may be required by the interim
resolution professional;
(d) the financial institutions maintaining accounts of the corporate
debtor shall act on the instructions of the interim resolution
professional in relation to such accounts and furnish all information
relating to the corporate debtor available with them to the interim
resolution professional.
(2) The interim resolution professional vested with the management of the
corporate debtor, shall-
(a) act and execute in the name and on behalf of the corporate debtor
all deeds, receipts, and other documents, if any;
(b) take such actions, in the manner and subject to such restrictions, as
may be specified by the Board;
(c) have the authority to access the electronic records of corporate
debtor from information utility having financial information of the
corporate debtor;
(d) have the authority to access the books of accounts, records and
other relevant documents of corporate debtor available with
government authorities, statutory auditors, accountants and such other
persons as may be specified; and
(e) [be responsible for complying with the requirements under any law
for the time being in force on behalf of the corporate debtor.
73. Section 17 contemplates that the management of the affairs of the corporate debtor
will vest with the IRP. This takes effect from the date of the appointment of the interim
resolution professional. Furthermore, the powers of the Board of Directors who are
partners of the corporate debtors shall stand suspended.
74. Virtually, the entire control of the management including all the acts and authority
indicated in Sub-section 2 is to be carried out by interim resolution professional and
authority exercised by him. Section 18 details the duties of the IRP. It reads as follows:
18. Duties of interim resolution professional. -
The interim resolution professional shall perform the following duties,
namely:
(a) collect all information relating to the assets, finances and
operations of the corporate debtor for determining the financial
position of the corporate debtor, including information relating
to -
(i) business operations for the previous two years;
(ii) financial and operational payments for the previous two
years;
(iii) list of assets and liabilities as on the initiation date; and
(iv) such other matters as may be specified;
(b) receive and collate all the claims submitted by creditors to
him, pursuant to the public announcement made Under
Sections 13 and 15;
(c) constitute a committee of creditors;
(d) monitor the assets of the corporate debtor and manage its
operations until a resolution professional is appointed by the
committee of creditors;
(e) file information collected with the information utility, if
necessary; and
(f) take control and custody of any asset over which the
corporate debtor has ownership rights as recorded in the
balance sheet of the corporate debtor, or with information
utility or the depository of securities or any other registry that
records the ownership of assets including -
(i) assets over which the corporate debtor has ownership rights
which may be located in a foreign country;
(ii) assets that may or may not be in possession of the
corporate debtor;
(iii) tangible assets, whether movable or immovable;
(iv) intangible assets including intellectual property;
(v) securities including shares held in any subsidiary of the
corporate debtor, financial instruments, insurance policies;
(vi) assets subject to the determination of ownership by a
court or authority:
(g) to perform such other duties as may be specified by the
Board.
Explanation. - For the purposes of this section, the term
"assets" shall not include the following, namely:
(a) assets owned by a third party in possession of the
corporate debtor held under trust or under contractual
arrangements including bailment;
(b) assets of any Indian or foreign subsidiary of the corporate
debtor; and
(c) such other assets as may be notified by the Central
Government in consultation with any financial sector regulator.
75. It will be noticed that amongst his duties, is the duty to constitute a Committee of
Creditors. The constitution of the committee of creditors and the method of voting and
the extent of the same are found detailed inter alia in Section 21. Since much may turn
on the said provision we refer to the same:
21. Committee of creditors. -
(1) The interim resolution professional shall after collation of all claims
received against the corporate debtor and determination of the financial
position of the corporate debtor, constitute a committee of creditors.
(2) The committee of creditors shall comprise all financial creditors of
the corporate debtor:
Provided that a financial creditor or the authorised
representative of the financial creditor referred to in Sub-
section (6) or Sub-section (6A) or Sub-section (5) of Section
24, if it is a related party of the corporate debtor, shall not
have any right of representation, participation or voting in a
meeting of the committee of creditors:
Provided further that the first proviso shall not apply to a
financial creditor, regulated by a financial sector regulator, if it
is a related party of the corporate debtor solely on account of
conversion or substitution of debt into equity shares or
instruments convertible into equity shares or completion of
such transactions as may be prescribed], prior to the
insolvency commencement date.
(3) Subject to Sub-sections (6) and (6A), where the corporate debtor
owes financial debts to two or more financial creditors as part of a
consortium or agreement, each such financial creditor shall be part of
the committee of creditors and their voting share shall be determined
on the basis of the financial debts owed to them.
(4) Where any person is a financial creditor as well as an operational
creditor -
(a) such person shall be a financial creditor to the extent of the
financial debt owed by the corporate debtor, and shall be
included in the committee of creditors, with voting share
proportionate to the extent of financial debts owed to such
creditor;
(b) such person shall be considered to be an operational
creditor to the extent of the operational debt owed by the
corporate debtor to such creditor.
(5) Where an operational creditor has assigned or legally transferred
any operational debt to a financial creditor, the assignee or transferee
shall be considered as an operational creditor to the extent of such
assignment or legal transfer.
(6) Where the terms of the financial debt extended as part of a
consortium arrangement or syndicated facility provide for a single
trustee or agent to act for all financial creditors, each financial creditor
may-
(a) authorise the trustee or agent to act on his behalf in the
committee of creditors to the extent of his voting share;
(b) represent himself in the committee of creditors to the
extent of his voting share;
(c) appoint an insolvency professional (other than the
resolution professional) at his own cost to represent himself in
the committee of creditors to the extent of his voting share; or
(d) exercise his right to vote to the extent of his voting share
with one or more financial creditors jointly or severally.
(6A) Where a financial debt--
(a) is in the form of securities or deposits and the terms of the
financial debt provide for appointment of a trustee or agent to
act as authorised representative for all the financial creditors,
such trustee or agent shall act on behalf of such financial
creditors;
(b) is owed to a class of creditors exceeding the number as
may be specified, other than the creditors covered under
Clause (a) or Sub-section (6), the interim resolution
professional shall make an application to the Adjudicating
Authority along with the list of all financial creditors,
containing the name of an insolvency professional, other than
the interim resolution professional, to act as their authorised
representative who shall be appointed by the Adjudicating
Authority prior to the first meeting of the committee of
creditors;
(c) is represented by a guardian, executor or administrator,
such person shall act as authorised representative on behalf of
such financial creditors, and such authorised representative
under Clause (a) or Clause (b) or Clause (c) shall attend the
meetings of the committee of creditors, and vote on behalf of
each financial creditor to the extent of his voting share.
(6B) The remuneration payable to the authorised representative-
(i) under Clauses (a) and (c) of Sub-section (6A), if any, shall
be as per the terms of the financial debt or the relevant
documentation; and
(ii) under Clause (b) of Sub-section (6A) shall be as specified
which shall be form part of the insolvency resolution process
costs.
(7) The Board may specify the manner of voting and the determining of
the voting share in respect of financial debts covered Under Sub-
sections (6) and (6A).
(8) Save as otherwise provided in this Code, all decisions of the
committee of creditors shall be taken by a vote of not less than fifty-
one per cent of voting share of the financial creditors:
Provided that where a corporate debtor does not have any
financial creditors, the committee of creditors shall be
constituted and shall comprise of such persons to exercise such
functions in such manner as may be specified.
(9) The committee of creditors shall have the right to require the
resolution professional to furnish any financial information in relation
to the corporate debtor at any time during the corporate insolvency
resolution process.
(10) The resolution professional shall make available any financial
information so required by the committee of creditors Under Sub-
section (9) within a period of seven days of such requisition.
Section 22(1) and (2) read as follows:
22. Appointment of resolution professional. -
(1) The first meeting of the committee of creditors shall be held within
seven days of the constitution of the committee of creditors.
(2) The committee of creditors, may, in the first meeting, by a majority
vote of not less than sixty-six per cent of the voting share of the
financial creditors, either resolve to appoint the interim resolution
professional as a resolution professional or to replace the interim
resolution professional by another resolution professional.
Section 23 reads as follows:
2 3 . Resolution professional to conduct corporate insolvency resolution
process.-
(1) Subject to Section 27, the resolution professional shall conduct the
entire corporate insolvency resolution process and manage the
operations of the corporate debtor during the corporate insolvency
resolution process period:
Provided that the resolution professional shall continue to
manage the operations of the corporate debtor after the expiry
of the corporate insolvency resolution process period, until an
order approving the resolution plan Under Sub-section (1) of
Section 31 or appointing a liquidator Under Section 34 is
passed by the Adjudicating Authority.
(2) The resolution professional shall exercise powers and perform
duties as are vested or conferred on the interim resolution professional
under this Chapter.
(3) In case of any appointment of a resolution professional Under Sub-
sections (4) of Section 22, the interim resolution professional shall
provide all the information, documents and records pertaining to the
corporate debtor in his possession and knowledge to the resolution
professional.
76. Section 24 deals with the meeting of committee of creditors. Now that resolution
professional has been appointed, as contemplated Under Section 22, Section 24(2)
declares that all the meetings of the committee of creditors shall be convened by
resolution professional. Section 25 speaks about the duties of the resolution
professional. Section 25(2)(h) and (i) read as follows:
25(2) (h) invite prospective resolution applicants, who fulfil such criteria as
may be laid down by him with the approval of committee of creditors, having
regard to the complexity and scale of operations of the business of the
corporate debtor and such other conditions as may be specified by the Board,
to submit a resolution plan or plans.
(i) present all resolution plans at the meetings of the committee of creditors.
77. Section 25A, which was inserted with effect from 06.06.2018 will be separately
dealt with. No doubt, Section 27 contemplates that a committee of creditors may at any
time during the CIRP replace the resolution professional as provided in the section.
Section 28, no doubt, constrains the resolution professional in regard to the matters
provided therein. The approval of the committee of creditors is required in such
matters. It includes making any change in the management of corporate debtor and its
subsidiary (Section 28(j)). Section 30 contemplates that resolution applicant may
submit a resolution plan. The 'resolution applicant' has been defined in Sub-section 25
of Section 5 which reads as follows:
5(25) "resolution applicant" means a person, who individually or jointly with
any other person, submits a resolution plan to the resolution professional
pursuant to the invitation made under Clause (h) of Sub-section (2) of Section
25.
The resolution plan has been defined in Section 5(26). The same reads as under:
5(26) "resolution plan" means a plan proposed by resolution applicant for
insolvency resolution of the corporate debtor as a going concern in accordance
with Part II.
Explanation.- For removal of doubts, it is hereby clarified that a resolution plan
may include provisions for the restructuring of the corporate debtor, including
by way of merger, amalgamation and demerger.
78. The resolution professional has to examine each resolution plan received by him on
the basis of the invitation made by the resolution professional Under Section 25(h) and
ascertain whether the plan is in conformity with the various criteria mentioned in
Section 30(2) of the Code. The matter is thereafter put up by the resolution professional
before the committee of creditors. All resolution plans which conform with the
conditions in Sub-section (2) of Section 30 are, in fact, to be placed before the
committee of creditors. The committee of creditors may approve the resolution plan
after considering its feasibility and viability, the manner of distribution proposed, which
may take into account the hurdles, priority amongst creditors as laid down in
sub-section(1) of Section 53 including the priority and the value of security interest of
secured creditors and such other requirements as may be specified by the Board. There
are other details with which we are not concerned in Section 30. Section 31 requires
approval of the resolution plan by the adjudicating authority. It reads inter-alia as
follows:
31. Approval of resolution plan. -
(1) If the Adjudicating Authority is satisfied that the resolution plan as
approved by the committee of creditors Under Sub-section (4) of
Section 30 meets the requirements as referred to in Sub-section (2) of
Section 30, it shall by order approve the resolution plan which shall be
binding on the corporate debtor and its employees, members, creditors,
including the Central Government, any State Government or any local
authority to whom a debt in respect of the payment of dues arising
under any law for the time being in force, such as authorities to whom
statutory dues are owed, guarantors and other stakeholders involved in
the resolution plan:
Provided that the Adjudicating Authority shall, before passing
an order for approval of resolution plan under this Sub-section,
satisfy that the resolution plan has provisions for its effective
implementation.
The scope of these provisions have been dealt with in the decision of this Court in Essar
Steel India Limited v. Satish Kumar Gupta and Ors. and (2019) 2 SCC 1 among other
decisions authored by one of us (Justice R.F. Nariman).
7 9 . Sub-section (2) of Section 31 enables the adjudicating authority to reject the
resolution plan. Section 31(3) contemplates that after the approval of the resolution
plan that the moratorium order passed by the adjudicating authority Under Section 14
shall cease to have effect. Section 32A will be separately dealt with.
80. Section 33, which is in Chapter III in Part II, compels announcing the death knell of
the corporate debtor. That is if, before the expiry of insolvency resolution process
period or the maximum period permitted which is CIRP Under Section 12, inter alia, a
resolution plan is not received or though received is rejected by the adjudicating
authority, then Under Section 33, order is to be passed. The curtains are wrung down
on the insolvency resolution process. The corporate debtor goes into liquidation. The
adjudicating authority is bound to pass an order requiring corporate debtor to be
liquidated as provided in chapter III Part II. Section 33(2) contemplates that before the
confirmation of the resolution plan if the committee of creditors so approved by not less
than 66% of the voting decide to liquidate the corporate debtor, the adjudicating
authority is to pass the liquidation order. Section 33(5) may be noticed at this stage:
33(5) Subject to Section 52, when a liquidation order has been passed, no suit
or other legal proceeding shall be instituted by or against the corporate debtor:
Provided that a suit or other legal proceeding may be instituted by the
liquidator, on behalf of the corporate debtor, with the prior approval of
the Adjudicating Authority.
An explanation has been added to Section 33(2) of the Code.
Explanation-For the purpose of this Sub-section, it is hereby declared that the
committee of creditors may take the decision to liquidate the corporate debtor,
any time after constitution Under Sub-section (1) of Section 21 and before the
confirmation of the resolution plan, including at any time before the preparation
of the information memorandum.
THE REAL ESTATE (REGULATION AND DEVELOPMENT) ACT, 2016 AND ITS SCHEME
(HEREINAFTER REFERRED TO AS 'RERA', FOR SHORT).
81. The Real Estate Regulation and Development Bill was introduced in the Rajya Sabha
in 2013. Noticing the fact that though the Consumer Protection Act, 1986 is available as
a Forum in the real estate market for the buyers, the recourse is only curative and is not
adequate to address all the concerns of the buyers and promoters in the said sector, it
was felt that there should be a central legislation in the interest of effective consumer
protection, uniformity and standardization of business practices and transactions in the
real estate sector. The Bill was passed by both the Houses of Parliament and received
the assent of the President of India on the 25.03.2016. By 01.05.2017, the provisions of
the Act came into force, even though, certain Sections have come into force earlier on
01.05.2016.
8 2 . We may advert to the following definition clauses. Section 2(b) defines
'advertisement', as follows:
2(b) "advertisement" means any document described or issued as
advertisement through any medium and includes any notice, circular or other
documents or publicity in any form, informing persons about a real estate
project, or offering for sale of a plot, building or apartment or inviting persons
to purchase in any manner such plot, building or apartment or to make
advances or deposits for such purposes;
83. Section 2(c) defines 'agreement for sale', as follows:
2(c) "agreement for sale" means an agreement entered into between the
promoter and the allottee;
8 4 . Section 2(d), which is at the centerstage of the controversy, defines the word
'allottee', which reads as follows:
2(d) "allottee" in relation to a real estate project, means the person to whom a
plot, apartment or building, as the case may be, has been allotted, sold
(whether as freehold or leasehold) or otherwise transferred by the promoter,
and includes the person who subsequently acquires the said allotment through
sale, transfer or otherwise but does not include a person to whom such plot,
apartment or building, as the case may be, is given on rent;
85. As can be seen, the word 'allottee' includes, plot, apartment or building. The words
'apartment' and 'building' are defined. Section 2(e) defines the word 'apartment' and it
reads as follows:
2(e) "apartment" whether called block, chamber, dwelling unit, flat, office,
showroom, shop, godown, premises, suit, tenement, unit or by any other name,
means a separate and self-contained part of any immovable property, including
one or more rooms or enclosed spaces, located on one or more floors or any
part thereof, in a building or on a plot of land, used or intended to be used for
any residential or commercial use such as residence, office, shop, showroom or
godown or for carrying on any business, occupation, profession or trade, or for
any other type of use ancillary to the purpose specified;
86. Section 2(j) defines the word 'building' and it reads as follows:
2(j) "building" includes any structure or erection or part of a structure or
erection which is intended to be used for residential, commercial or for the
purpose of any business, occupation, profession or trade, or for any other
related purposes;
Section 2(s) defines 'development' and it reads as follows:
2(s) "development" with its grammatical variations and cognate expressions,
means carrying out the development of immovable property, engineering or
other operations in, on, over or under the land or the making of any material
change in any immovable property or land and includes redevelopment;
'Development works' is defined in Section 2(t) and it reads as follows:
2(t) "development works" means the external development works and internal
development works on immovable property;
The word 'promoter' is defined in 2(zk) and it reads as follows:
2(zk) "promoter" means,--
(i) a person who constructs or causes to be constructed an independent
building or a building consisting of apartments, or converts an existing
building or a part thereof into apartments, for the purpose of selling all
or some of the apartments to other persons and includes his assignees;
or
(ii) a person who develops land into a project, whether or not the
person also constructs structures on any of the plots, for the purpose of
selling to other persons all or some of the plots in the said project,
whether with or without structures thereon; or
(iii) any development authority or any other public body in respect of
allottees of-- (a) buildings or apartments, as the case may be,
constructed by such authority or body on lands owned by them or
placed at their disposal by the Government; or (b) plots owned by such
authority or body or placed at their disposal by the Government, for the
purpose of selling all or some of the apartments or plots; or
(iv) an apex State level co-operative housing finance society and a
primary co-operative housing society which constructs apartments or
buildings for its Members or in respect of the allottees of such
apartments or buildings; or
(v) any other person who acts himself as a builder, coloniser,
contractor, developer, estate developer or by any other name or claims
to be acting as the holder of a power of attorney from the owner of the
land on which the building or apartment is constructed or plot is
developed for sale; or
(vi) such other person who constructs any building or apartment for
sale to the general public.
Explanation.--For the purposes of this clause, where the person who constructs
or converts a building into apartments or develops a plot for sale and the
person who sells apartments or plots are different person, both of them shall be
deemed to be the promoters and shall be jointly liable as such for the functions
and responsibilities specified under this Act or the Rules and Regulations made
thereunder;
Section 2(zn) defines 'real estate project', it reads as follows:
2(zn) "real estate project" means the development of a building or a building
consisting of apartments, or converting an existing building or a part thereof
into apartments, or the development of land into plots or apartments, as the
case may be, for the purpose of selling all or some of the said apartments or
plots or building, as the case may be, and includes the common areas, the
development works, all improvements and structures thereon, and all easement,
rights and appurtenances belonging thereto;"
87. Section 3 prohibits any promoter from advertising, marketing, etc. or even inviting
persons to purchase any plot, apartment or building in any real estate project or part of
it without there being registration. Sub-section (2), however, exempts certain projects
from the requirement of registration and it reads as follows:
3(2) Notwithstanding anything contained in Sub-section (1), no registration of
the real estate project shall be required--
(a) where the area of land proposed to be developed does not exceed
five hundred square meters or the number of apartments proposed to
be developed does not exceed eight inclusive of all phases:
Provided that, if the appropriate Government considers it
necessary, it may, reduce the threshold below five hundred
square meters or eight apartments, as the case may be,
inclusive of all phases, for exemption from registration under
this Act;
(b) where the promoter has received completion certificate for a real
estate project prior to commencement of this Act;
(c) for the purpose of renovation or repair or re-development which
does not involve marketing, advertising selling or new allotment of any
apartment, plot or building, as the case may be, under the real estate
project.
Explanation.--For the purpose of this section, where the real estate project is to
be developed in phases, every such phase shall be considered a stand alone
real estate project, and the promoter shall obtain registration under this Act for
each phase separately.
Section 7 contemplates revocation of registration. It is relevant to note Section 7(1),
which reads as follows:
7(1) The Authority may, on receipt of a complaint or suomotu in this behalf or
on the recommendation of the competent authority, revoke the registration
granted Under Section 5, after being satisfied that--
(a) the promoter makes default in doing anything required by or under
this Act or the Rules or the Regulations made thereunder;
(b) the promoter violates any of the terms or conditions of the approval
given by the competent authority;
(c) the promoter is involved in any kind of unfair practice or
irregularities.
Explanation.--For the purposes of this clause, the term "unfair practice means"
a practice which, for the purpose of promoting the sale or development of any
real estate project adopts any unfair method or unfair or deceptive practice
including any of the following practices, namely:
(A) The practice of making any statement, whether in writing or by
visible representation which,--
(i) falsely represents that the services are of a particular
standard or grade;
(ii) represents that the promoter has approval or affiliation
which such promoter does not have;
(iii) makes a false or misleading representation concerning the
services;
(B) the promoter permits the publication of any advertisement or
prospectus whether in any newspaper or otherwise of services that are
not intended to be offered;
(d) the promoter indulges in any fraudulent practices.
We may also further notice Section 7(3). It read as follows:
7(3) The Authority may, instead of revoking the registration Under Sub-section
(1), permit it to remain in force subject to such further terms and conditions as
it thinks fit to impose in the interest of the allottees, and any such terms and
conditions so imposed shall be binding upon the promoter.
We may further bear in mind Section 8 and it reads as follows:
8 . Obligation of Authority consequent upon lapse of or on revocation of
registration.--Upon lapse of the registration or on revocation of the registration
under this Act, the Authority, may consult the appropriate Government to take
such action as it may deem fit including the carrying out of the remaining
development works by competent authority or by the association of allottees or
in any other manner, as may be determined by the Authority:
Provided that no direction, decision or order of the Authority under this
Section shall take effect until the expiry of the period of appeal
provided under the provisions of this Act:
Provided further that in case of revocation of registration of a
project under this Act, the association of allottees shall have
the first right of refusal for carrying out of the remaining
development works.
88. Section 11 deals with the functions and duties of a promoter and is of considerable
importance, and it reads as follows:
11. Functions and duties of promoter --
(1) The promoter shall, upon receiving his Login Id and password
under Clause (a) of Sub-section (1) or Under Sub-section (2) of
Section 5, as the case may be, create his web page on the website of
the Authority and enter all details of the proposed project as provided
Under Sub-section (2) of Section 4, in all the fields as provided, for
public viewing, including--
(a) details of the registration granted by the Authority;
(b) quarterly up-to-date the list of number and types of
apartments or plots, as the case may be, booked;
(c) quarterly up-to-date the list of number of garages booked;
(d) quarterly up-to-date the list of approvals taken and the
approvals which are pending subsequent to commencement
certificate;
(e) quarterly up-to-date status of the project; and
(f) such other information and documents as may be specified
by the Regulations made by the Authority.
(2) The advertisement or prospectus issued or published by the
promoter shall mention prominently the website address of the
Authority, wherein all details of the registered project have been
entered and include the registration number obtained from the
Authority and such other matters incidental thereto.
(3) The promoter, at the time of the booking and issue of allotment
letter shall be responsible to make available to the allottee, the
following information, namely:
(a) sanctioned plans, layout plans, along with specifications,
approved by the competent authority, by display at the site or
such other place as may be specified by the Regulations made
by the Authority;
(b) the stage wise time Schedule of completion of the project,
including the provisions for civic infrastructure like water,
sanitation and electricity.
(4) The promoter shall--
(a) be responsible for all obligations, responsibilities and
functions under the provisions of this Act or the Rules and
Regulations made thereunder or to the allottees as per the
agreement for sale, or to the association of allottees, as the
case may be, till the conveyance of all the apartments, plots or
buildings, as the case may be, to the allottees, or the common
areas to the association of allottees or the competent authority,
a s the case may be: Provided that the responsibility of the
promoter, with respect to the structural defect or any other
defect for such period as is referred to in Sub-section (3) of
Section 14, shall continue even after the conveyance deed of
all the apartments, plots or buildings, as the case may be, to
the allottees are executed.
(b) be responsible to obtain the completion certificate or the
occupancy certificate, or both, as applicable, from the relevant
competent authority as per local laws or other laws for the time
being in force and to make it available to the allottees
individually or to the association of allottees, as the case may
be;
(c) be responsible to obtain the lease certificate, where the real
estate project is developed on a leasehold land, specifying the
period of lease, and certifying that all dues and charges in
regard to the leasehold land has been paid, and to make the
lease certificate available to the association of allottees;
(d) be responsible for providing and maintaining the essential
services, on reasonable charges, till the taking over of the
maintenance of the project by the association of the allottees;
(e) enable the formation of an association or society or
cooperative society, as the case may be, of the allottees, or a
federation of the same, under the laws applicable: Provided
that in the absence of local laws, the association of allottees,
by whatever name called, shall be formed within a period of
three months of the majority of allottees having booked their
plot or apartment or building, as the case may be, in the
project;
(f) execute a registered conveyance deed of the apartment, plot
or building, as the case may be, in favour of the allottee along
with the undivided proportionate title in the common areas to
the association of allottees or competent authority, as the case
may be, as provided Under Section 17 of this Act;
(g) pay all outgoings until he transfers the physical possession
of the real estate project to the allottee or the associations of
allottees, as the case may be, which he has collected from the
allottees, for the payment of outgoings (including land cost,
ground rent, municipal or other local taxes, charges for water
or electricity, maintenance charges, including mortgage loan
and interest on mortgages or other encumbrances and such
other liabilities payable to competent authorities, banks and
financial institutions, which are related to the project):
Provided that where any promoter fails to pay all or any of the
outgoings collected by him from the allottees or any liability,
mortgage loan and interest thereon before transferring the real
estate project to such allottees, or the association of the
allottees, as the case may be, the promoter shall continue to be
liable, even after the transfer of the property, to pay such
outgoings and penal charges, if any, to the authority or person
to whom they are payable and be liable for the cost of any
legal proceedings which may be taken therefor by such
authority or person;
(h) after he executes an agreement for sale for any apartment,
plot or building, as the case may be, not mortgage or create a
charge on such apartment, plot or building, as the case may
be, and if any such mortgage or charge is made or created then
notwithstanding anything contained in any other law for the
time being in force, it shall not affect the right and interest of
the allottee who has taken or agreed to take such apartment,
plot or building, as the case may be;
(5) The promoter may cancel the allotment only in terms of the
agreement for sale:
Provided that the allottee may approach the Authority for relief,
if he is aggrieved by such cancellation and such cancellation is
not in accordance with the terms of the agreement for sale,
unilateral and without any sufficient cause.
(6) The promoter shall prepare and maintain all such other details as
may be specified, from time to time, by Regulations made by the
Authority.
89. Section 14 declares that the proposed project shall be developed and completed by
the promoter in accordance with the sanctioned plans, layout plans and specifications,
as approved by the Competent Authorities.
90. Sub-section (2) of Section 14, reads as follows:
14. (2) Notwithstanding anything contained in any law, contract or agreement,
after the sanctioned plans, layout plans and specifications and the nature of the
fixtures, fittings, amenities and common areas, of the 16 apartment, plot or
building, as the case may be, as approved by the competent authority, are
disclosed or furnished to the person who agree to take one or more of the said
apartment, plot or building, as the case may be, the promoter shall not make--
(i) any additions and alterations in the sanctioned plans, layout plans
and specifications and the nature of fixtures, fittings and amenities
described therein in respect of the apartment, plot or building, as the
case may be, which are agreed to be taken, without the previous
consent of that person:
Provided that the promoter may make such minor additions or
alterations as may be required by the allottee, or such minor
changes or alterations as may be necessary due to architectural
and structural reasons duly recommended and verified by an
authorised Architect or Engineer after proper declaration and
intimation to the allottee.
Explanation.--For the purpose of this clause, "minor additions or
alterations" excludes structural change including an addition to the area
or change in height, or the removal of part of a building, or any change
to the structure, such as the construction or removal or cutting into of
any wall or a part of a wall, partition, column, beam, joist, floor
including a mezzanine floor or other support, or a change to or closing
of any required means of access ingress or egress or a change to the
fixtures or equipment, etc.
(ii) any other alterations or additions in the sanctioned plans, layout
plans and specifications of the buildings or the common areas within
the project without the previous written consent of at least two-thirds
of the allottees, other than the promoter, who have agreed to take
apartments in such building.
Explanation.--For the purpose of this clause, the allottee, irrespective
of the number of apartments or plots, as the case may be, booked by
him or booked in the name of his family, or in the case of other
persons such as companies or firms or any association of individuals,
etc., by whatever name called, booked in its name or booked in the
name of its associated entities or related enterprises, shall be
considered as one allottee only.
91. A similar Explanation, as found in Section 14, regarding what the word allottee
means for the purpose of Section 15 is found in Section 15. Section 15 deals with
obligations of promoter in the case of transfer of a real estate project to a third party
and Section 15(1) reads as follow:
15. Obligations of promoter in case of transfer of a real estate project to a third
party.--(1) The promoter shall not transfer or assign his majority rights and
liabilities in respect of a real estate project to a third party without obtaining
prior written consent from two-third allottees, except the promoter, and without
the prior written approval of the Authority: Provided that such transfer or
assignment shall not affect the allotment or sale of the apartments, plots or
buildings as the case may be, in the real estate project made by the erstwhile
promoter. ...
Section 17(1) of the RERA, reads as follows:
17. Transfer of title.--(1) The promoter shall execute a registered conveyance
deed in favour of the allottee along with the undivided proportionate title in the
common areas to the association of the allottees or the competent authority, as
the case may be, and hand over the physical possession of the plot, apartment
of building, as the case may be, to the allottees and the common areas to the
association of the allottees or the competent authority, as the case may be, in a
real estate project, and the other title documents pertaining thereto within
specified period as per sanctioned plans as provided under the local laws:
Provided that, in the absence of any local law, conveyance deed in
favour of the allottee or the association of the allottees or the
competent authority, as the case may be, under this Section shall be
carried out by the promoter within three months from date of issue of
occupancy certificate
92. Section 18 deals with the right of the allottee to obtain the amount given by the
allottee and even compensation. It reads as follows:
18. Return of amount and compensation.--(1) If the promoter fails to complete
or is unable to give possession of an apartment, plot or building,--
(a) in accordance with the terms of the agreement for sale or, as the
case may be, duly completed by the date specified therein; or
(b) due to discontinuance of his business as a developer on account of
suspension or revocation of the registration under this Act or for any
other reason, he shall be liable on demand to the allottees, in case the
allottee wishes to withdraw from the project, without prejudice to any
other remedy available, to return the amount received by him in respect
of that apartment, plot, building, as the case may be, with interest at
such rate as may be prescribed in this behalf including compensation in
the manner as provided under this Act:
Provided that where an allottee does not intend to withdraw
from the project, he shall be paid, by the promoter, interest for
every month of delay, till the handing over of the possession,
at such rate as may be prescribed.
(2) The promoter shall compensate the allottees in case of any loss caused to
him due to defective title of the land, on which the project is being developed
or has been developed, in the manner as provided under this Act, and the claim
for compensation under this Sub-section shall not be barred by limitation
provided under any law for the time being in force.
(3) If the promoter fails to discharge any other obligations imposed on him
under this Act or the Rules or Regulations made thereunder or in accordance
with the terms and conditions of the agreement for sale, he shall be liable to
pay such compensation to the allottees, in the manner as provided under this
Act.
Finally, Section 19 deals with the rights and obligations of an allottee and it reads as
follows:
19. Rights and duties of allottees.--
(1) The allottee shall be entitled to obtain the information relating to
sanctioned plans, layout plans along with the specifications, approved
by the competent authority and such other information as provided in
this Act or the Rules and Regulations made thereunder or the
agreement for sale signed with the promoter.
(2) The allottee shall be entitled to know stage-wise time Schedule of
completion of the project, including the provisions for water,
sanitation, electricity and other amenities and services as agreed to
between the promoter and the allottee in accordance with the terms
and conditions of the agreement for sale.
(3) The allottee shall be entitled to claim the possession of apartment,
plot or building, as the case may be, and the association of allottees
shall be entitled to claim the possession of the common areas, as per
the declaration given by the promoter Under Sub-clause (C) of Clause
(l) of Sub-section (2) of Section 4.
(4) The allottee shall be entitled to claim the refund of amount paid
along with interest at such rate as may be prescribed and compensation
in the manner as provided under this Act, from the promoter, if the
promoter fails to comply or is unable to give possession of the
apartment, plot or building, as the case may be, in accordance with the
terms of agreement for sale or due to discontinuance of his business as
a developer on account of suspension or revocation of his registration
under the provisions of this Act or the Rules or Regulations made
thereunder.
(5) The allottee shall be entitled to have the necessary documents and
plans, including that of common areas, after handing over the physical
possession of the apartment or plot or building as the case may be, by
the promoter.
(6) Every allottee, who has entered into an agreement for sale to take
an apartment, plot or building as the case may be, Under Section 13,
shall be responsible to make necessary payments in the manner and
within the time as specified in the said agreement for sale and shall pay
at the proper time and place, the share of the registration charges,
municipal taxes, water and electricity charges, maintenance charges,
ground rent, and other charges, if any.
(7) The allottee shall be liable to pay interest, at such rate as may be
prescribed, for any delay in payment towards any amount or charges to
be paid Under Sub-section (6).
(8) The obligations of the allottee Under Sub-section (6) and the
liability towards interest Under Sub-section (7) may be reduced when
mutually agreed to between the promoter and such allottee.
(9) Every allottee of the apartment, plot or building as the case may
be, shall participate towards the formation of an association or society
or cooperative society of the allottees, or a federation of the same.
(10) Every allottee shall take physical possession of the apartment, plot
or building as the case may be, within a period of two months of the
occupancy certificate issued for the said apartment, plot or building, as
the case may be.
(11) Every allottee shall participate towards registration of the
conveyance deed of the apartment, plot or building, as the case may
be, as provided Under Sub-section (1) of Section 17 of this Act.
93. The Act contemplates setting-up of a Real Estate Regulatory Authority, a Central
Advisory Council and the Real Estate Appellate Tribunal. Offences and penalties are
provided for to give teeth to the Act. Section 71 gives the power of adjudication of
compensation. Section 72 provides for the factors to be taken into consideration for
adjudging the quantum of compensation or interest Under Section 71. Section 79 enacts
a bar of jurisdiction of the civil court in regard to any matter in which the Authority, the
Adjudicating Officer or the Appellate Tribunal is empowered by the Act to determine. An
injunction cannot be issued by any court or other Authority in respect of any action
taken or to be taken in pursuance of the power conferred by or under the Act under the
RERA.
9 4 . Section 85 deals with the power to make Regulations. Section 85(2) reads as
follows inter alia:
85(2) In particular, and without prejudice to the generality of the foregoing
power, such Regulations may provide for all or any of the following matters,
namely --
xxx
xxx
xxx
xxx
(c) such other information and documents required under Clause (f) of Sub-
section (1) of Section 11;
(d) display of sanctioned plans, layout plans along with specifications,
approved by the competent authority, for display under Clause (a) of Sub-
section (3) of Section 11;
(e) preparation and maintenance of other details Under Sub-section (6) of
Section 11;
Section 88 of RERA, read as follows:
88. Application of other laws not barred.--The provisions of this Act shall be in
addition to, and not in derogation of, the provisions of any other law for the
time being in force."
It is also important to notice, at once, Section 89 and it reads as follows:
89. Act to have overriding effect -- The provisions of this Act shall have effect,
notwithstanding anything inconsistent therewith contained in any other law for
the time being in force.
9 5 . The only Act, which is repealed is the Maharashtra Housing (Regulation and
Development) Act, 2012.
96. A perusal of Section 88 reveals, on the one hand, that the provisions of the RERA,
are in addition to and not in derogation of the provisions of any other law for the time
being in force. At the same time, Section 89 provides that the RERA will prevail over
any other inconsistent law. The result is that while all cognate laws, which are not
inconsistent with RERA will continue to operate within their own sphere, the provisions,
which are, however, inconsistent with RERA, will not survive after RERA has come into
force.
97. In this regard, we may notice, the Delhi Apartment Ownership Act, 1986. Section 2
deals with the application of the Act and it reads as follows:
2. Application -- The provisions of this Act shall apply to every apartment in a
multi-storeyed building which was constructed mainly for residential or
commercial or such other purposes as may be prescribed, by--
(a) any group housing co-operative society; or
(b) any other person or authority, before or after the commencement of
this Act and on a free hold land, or a lease hold land, if the lease for
such land is for a period of thirty years or more:
Provided that, where a building constructed, whether before or
after the commencement of this Act, on any land contains only
two or three apartments, the owner of such building may, by a
declaration duly executed and registered under the provisions
of the Registration Act, 1908 (16 of 1908), indicate his
intention to make the provisions of this Act applicable to such
building, and on such declaration being made, such owner
shall execute and register a Deed of Apartment in accordance
with the provisions of this Act, as if such owner were the
promoter in relation to such building.
98. Section 3(b) defines the word 'allottee' as follows:
3(b) "allottee", in relation to an apartment, means the person to whom such
apartment has been allotted, sold or otherwise transferred by the promoter;"
99. Section 3(c) defines apartment and it reads as follows:
3(c) "apartment" means a part of any property, intended for any type of
independent use, including one or more rooms or enclosed spaces located on
one or more floors or any part or parts thereof, in a multi-storeyed building to
be used for residence or office or for the practice of any profession, or for the
carrying on of any occupation, trade or business or for such other type of
independent use as may be prescribed, and with a direct exit to a public street,
road or highway, or to a common area leading to such street, road or highway,
and includes any garage or room (whether or not adjacent to the multi-storeyed
building in which such apartment is located) provided by the promoter for use
by the 4 owner of such apartment for parking any vehicle or, as the case may
be, for the residence of any domestic aide employed in such apartment;
100. Section 3(e) defines 'apartment owner' and it reads as follows:
3(d) "apartment number" means the number, letter or combination thereof,
designating an apartment;
101. Section 3(f) defines 'association of apartment owners' as follows:
3(e) "apartment owner" means the person or persons owning an apartment and
an undivided interest in the common areas and facilities appurtenant to such
apartment in the percentage specified in the Deed of Apartment;
102. Section 4, 4(1), (2) and (3), read as follows:
4 . Ownership of apartments.--(1) Every person to whom any apartment is
allotted, sold or otherwise transferred by the promoter, on or after the
commencement of this Act, shall, save as otherwise provided in Section 6, and
subject to the other provisions of this Act, be entitled to the exclusive
ownership and possession of the apartment so allotted, sold or otherwise
transferred to him.
(2) Every person to whom any apartment was allotted, sold or otherwise
transferred by the promoter before the commencement of this Act shall, save as
otherwise provided Under Section 6 and subject to the other provisions of this
Act, be entitled, on and from such commencement, to the exclusive ownership
and possession of the apartment so allotted, sold or otherwise transferred to
him.
(3) Every person who becomes entitled to the exclusive ownership and
possession of an apartment Under Sub-section (1) or Sub-section (2) shall be
entitled to such percentage of undivided interest in the common areas and
facilities as may be specified in the Deed of Apartment and such percentage
shall be computed by taking, as a basis, the value of the apartment in relation
to the value of the property.
xxx xxx xxx
103. Section 5 provides that subject to the provisions of Section 6, the apartment
owner may transfer his apartment and his right is heritable.
104. Section 14 provides for registration for the deed of apartment, which is to be
executed Under Section 13.
105. Section 15 declares that there shall be an association of apartment owners in
relation to the apartment and property pertaining thereto and for the management of
common areas and facilities. Model byelaws are to be framed by the Administrator and
the Association of Apartment Owners can make departure from the model byelaws only
with the prior approval of the Administrator.
1 0 6 . There are similar laws made in the States which relate to the right of the
apartment owners. We will revert back to the specific questions which have been raised
by the Petitioners.
THE CONTENTIONS
107. The contention which is raised is that under the impugned provisos inserted in
Section 7(1) of the Code, an application by an allottee, can be made only if there are
hundred allottees or a number representing one-tenth of the total number of allottees,
whichever is less, with a further rider that the allottees must be part of the same real
estate project. It is contended that the word 'allottee' is to be understood in the sense in
which the word has been defined in the RERA. If that is so, it is contended that the
impugned amendment would be inflicted with the vice of vagueness and it is arbitrary.
108. What is to be meaning of the word 'allottees'? The following questions are posed:
i. Is the total number of the allottees, to be calculated qua the Units promised?
Or
ii. Is it to be based on the number of units constructed or is it to be the number
of units allotted or units where the agreement to sell is entered into?
109. There is an information asymmetry. There is no published data available of status
of allotted units. No builder shares the information. It is impossible for the buyers to
obtain the information. Ten per cent of allotted units, even it is assumed to be qua
letter of allotment, is a dynamic figure and keeps changing. A buyer may calculate ten
per cent of the hundred units allotted by morning and it may become 110 by night
rendering the filing impossible.
110. Further, it is complained that it is not clear as to whether in determining allottees,
in a real estate project, whether it is a tower? the entire colonization? Or a SPV? Ten per
cent of a real estate allottees could mean ten per cent of the allotted units or ten per
cent of the total legal persons, who have bought into the project, particularly, in cases
of multiple ownership of the same property. The provision, in fact, renders group
members prone to corruption by cash settlement by the builder. The coram will be
disrupted, if one or two members are bought of or even legally settled. This will
necessitate fresh filing.
FINDINGS
111. We have referred to the definition of the word allottee and real estate project and
Section 3 of the Act which requires prior registration. We have also referred to the
definition of real estate project. In all these definition clauses, the words 'as the case
may be' is found after the words plot, apartment or building. Thus, the Act is meant to
regulate the dealings in plots, apartments and buildings. A real estate project, in other
words, as defined, is the development of a building or apartments or the development
of land into plots or apartments. The development is contemplated as being towards
selling apartments, plots or buildings. It would also necessarily include common areas.
The expression 'apartment', as defined in RERA, is a very comprehensive one. It takes
in, blocks, chamber, dwelling unit, flat, office, showroom, shop, godown, premises,
suite, tenement, unit or by any other name and which is a separate and self-contained
part of any immovable property. It includes anyone or more rooms or enclosed spaces
located on one or more floors or any part thereof, in a building or on a plot of land. It
may be used or intended to be used for any residential or commercial use such as
residence, office, shop, showroom or godown or for carrying on any business,
occupation, profession, trade or any other type of use, which his ancillary.
112. 'Building' has been defined as including any structure or erection or part of any
structure and intended to be used for residential or commercial purposes, inter alia.
Thus, an allotment under RERA can be in relation to a plot, an apartment or a building.
In other words, a project, would be in relation to plots, apartments or buildings. It
could also be for a composite one for plots and apartments or for plots and buildings.
We have noticed the expansive definition of the word apartment and flats are
comprehended within the definition of the word apartment. We have also noticed in this
regard, the definition of the word apartment, in the Delhi Apartment Ownership Act,
1986. We have also seen that under the Delhi Apartment Ownership Act, allottee has
been defined in relation to an apartment to mean the person to whom such apartment
has been allotted, sold or otherwise transferred by the promoter.
113. For appreciating the meaning of the word 'allottee', for the purpose of the Code,
undoubtedly, it is necessary to travel to Section 2(d) and 2(zn) of RERA for the reason
that in Section 5(8)(f) of the Code, the following Explanation was inserted by Act 26 of
2018 w.e.f. 06.06.2018. This provision has been upheld by this Court in Pioneer
(supra).
5(8)(f) xxx xxx xxx
Explanation.--For the purposes of this Sub-clause,--
(i) any amount raised from an allottee under a real estate project shall
be deemed to be an amount having the commercial effect of a
borrowing; and
(ii) the expressions, "allottee" and "real estate project" shall have the
meanings respectively assigned to them in Clauses (d) and (zn) of
Section 2 of the Real Estate (Regulation and Development) Act, 2016;
1 1 4 . Real estate project may relate to plots, apartments, or buildings or
plots/apartments and plots/buildings. As far as the expression 'allottee' is concerned,
since the Code in the Explanation to Section 5(8)(f), incorporates the definition of the
word 'allottee' in RERA, for the purpose of the provisos in question, we must necessarily
seek light only from the expression 'allottee' defined in Section 2(d) of RERA.
115. If we breakdown Section 2(d), it yields the following component parts:
i. An allottee may be an allottee of a plot or an apartment or a building. A real
estate project may relate to plots or apartments or buildings; or plots/buildings
or plots/apartments.
ii. An allottee, in the case of an apartment, which expression includes flats,
among other structures, would include the following categories of persons. It
would include a person to whom the apartment is allotted. It would also include
a person to whom the apartment is sold, whether as freehold or leasehold.
iii. Thirdly, it would include a person to whom the promoter has transferred the
apartment, otherwise than by way of a sale;
iv. Lastly, it would include persons who have acquired the allotment through
sale, transfer or otherwise, with the caveat that it will not include a person to
whom the apartment is given on rent. Whatever we have mentioned about
apartments, is equally true qua allotment of plots or buildings.
A MISCELLANY OF CONTENTIONS REGARDING ALLOTTEES
116. The definition of the word 'promoter' in RERA may be noticed in this regard. It
includes a person who constructs or causes to be constructed an independent building
or apartments or convert an existing building or a part thereof into apartments for the
purpose of selling or some of the apartments to other persons. In regard to such a
person, it is clear that there is no allotment of any plot as such. It may be another
matter that the contract may contemplate the assignment of the undivided interest in
the land upon which the construction is made to the allottee but the allottee is the
allottee of the building or the apartment as defined in the Act. Coming to Clause (ii) of
Section 2(zk) defining 'promoter', it contemplates a developer who develops land into a
project. The promoter in such a case may also put up construction on any of the plots
for the purpose of sale either with or without structures thereon. Therefore, this
category of promoter and therefore real estate project would be a hybrid project which
involves the development of the land into plots sale of plots alone after development or
sale of the plot with the construction thereon. Coming to Clause (iii) of the definition of
'promoter' it includes any public body or development authority in respect of allottees of
building or apartments constructed by such authority or body on lands owned by them
or placed at their disposal by the Government. There may be such promoters who are
development authorities or public bodies, if they own plots or have plots at their
disposal by the Government which is then, allotted. The allotment must be for the
purpose of selling. The plots and the apartments must be intended for sale. In regard to
Apex Level Co-operative Housing Society or Primary Co-operative Housing Society, they
are treated as promoters in regard to apartments or buildings for its purpose or in
respect of allottees, apartments or buildings. This necessarily mean that in regard to
such societies the allottees could be the members or non-members. Clause V also
includes person who acts as builder, colonizer, contractor, developer, estate developer
or any other name or claiming to be the Power of Attorney of the holder of the land on
which the building, apartment constructed or the plot developed for sale. This must be
further understood in the light of the definition of the real estate project in Section
2(zn). It defines as meaning the various activities. It consists of the following:
1. Development of the building
2. A building which consists of apartments
3. Converting an existing building or a part thereof into apartment
4. The development of land into plots or apartments as the case may be.
117. The aforesaid activities must be for the purpose of sale of all or some of the
apartments, plot or building along with the common areas and other work and rights.
The task of ascertaining who will be an allottee as also the question as to what will be
the total number of allottees and therefore what would constitute one-tenth of total
number of allottees must depend upon the nature of the real estate project in question.
It will depend on what is offered by the promoter under the project. It may be real
estate project which seeks to develop a building and sale of the building. It may be a
project for the construction of apartments with the agreements to convey the undivided
interest of land also. It may be a project which envisages converting an existing
building or a part into an apartment. It may be a project for merely development of land
into plots and sale of the plotted land as such. It may be also that the same person may
also develop either apartments or building to be sold. In this regard we may remember
the explanation in Section 2(zk) (vi) defining the word 'promoter'. The said Section
reads as under:
(zk) "promoter" means,--
(i) xxx xxx xxx
(ii) xxx xxx xxx
(iii) xxx xxx xxx
(iv) xxx xxx xxx
(v) xxx xxx xxx
(vi) such other person who constructs any building or apartment for
sale to the general public.
Explanation.--For the purposes of this clause, where the person who constructs
or converts a building into apartments or develops a plot for sale and the
person who sells apartments or plots are different person, both of them shall be
deemed to be the promoters and shall be jointly liable as such for the functions
and responsibilities specified under this Act or the Rules and Regulations made
thereunder;
118. Therefore, a conspectus of the provisions would show that having regard to the
legislative intention the term 'allottees' as defined in Section 2(d) must be understood
undoubtedly on its own terms predominantly. But at the same time the other provisions
which form part of the Act and therefore the scheme must also be borne in mind. The
Argument that the definition of 'allottee' suffers from over inclusiveness and under
inclusiveness needs to be considered. Under inclusiveness and over inclusiveness are
aspects of the guarantee Under Article 14. Equals must be treated equally. Unequals
must not be treated equally. What constitutes reasonable classification must depend
upon the facts of each case, the context provided by the statute, the existence of
intelligible differentia which has led to the grouping of the persons or things as a class
and the leaving out of those who do not share the intelligible differentia. No doubt it
must bear rational nexus to the objects sought to be achieved.
119. Coming to the definition of the word 'allottee' it appears to be split up into three
categories broadly, they are-plot, apartment and buildings. In the context of the
impugned proviso, it must be remembered that if an applicant is able to garner a
magical figure of 100 allottees, then he can present the application Under Section 7 of
the Code. This is for the reason that the further requirement of one-tenth of total
number of allottees is meant to apply in a situation only if one-tenth of the total number
of allottees is less than 100. This is for the reason that the word 'whichever' has been
used. No doubt in the context of one-tenth of the allottees, the greater the number of
total number of allottees, the greater will be the number of one-tenth. In other words, if
the total number of allottees is less, then, one-tenth of the total number will be less,
and if in such circumstances, it is lesser than hundred, such number of allottees can
make application Under Section 7 under the impugned provisos. Therefore, in
calculating the total number of allottees in one sense is a double-edged sword as the
more is the numerator, the more will be the resultant figure required under the proviso.
120. Be that as it may, as we have noticed the question must be decided with reference
to real nature of the real estate project in which the applicant is an allottee. If it is in
the case of an apartment, then necessarily all persons to whom allotment had been
made would be treated as allottees for calculating the figure mentioned in the impugned
proviso. The word 'allotment' does mean allotment in the sense of documented booking
as is mentioned in Section 11(1)(b) in regard to apartment or plot with which we are
largely concerned. Such detail regarding the quarterly up-to-date list of the number and
the types of apartments are to be uploaded as provided in Section 11. It is this
information incidentally, which is the reservoir of data which the legislature intends that
the allottees can use even though it is not necessarily confined to them. The allottee
would also include a person who acquires the allotment either through sale, transfer or
otherwise. The transferee of the allotment is contemplated. There can be no difficulty in
including such assignee of the allotment as also the allottee for the purpose of
complying with the threshold requirement under the impugned proviso. Thus, all
allottees and all assignees of allotment would qualify both to be considered for the
purpose of calculating the total number of allottees but confined to the particular real
estate project and therefore for arriving at the figure of 100 allottees or one-tenth of the
allottees as the case may be. Then, there is a third category, which is introduced by the
expression 'sold' (whether as 'leasehold' or 'freehold' or otherwise transferred by the
Promoter). Here a question may arise, if the word 'sold' is applied to the expression
'plot', then undoubtedly the transferee would be an allottee. If the sale is to the allottee
in a real estate project which is a hybrid project consisting of development of land into
plots and also development of buildings as is contemplated Under Section 2(zk) then
the transferee of the plot undoubtedly would be an allottee. He may have a complaint
regarding the default by the promoter in the matter of development of the plot under
hybrid project. As far as sale whether 'freehold' or 'leasehold' of an apartment or a
building is concerned, once an apartment or building is sold, it presupposes that the
construction of the building or the apartment is complete ordinarily. No doubt, he may
also have complaints against the promoter which may be addressed under the RERA.
For the purpose of the proviso in question, going by the definition, undoubtedly, such
transferee of an apartment or building, is to be treated as an allottee. Let us take an
example. A Promoter constructs several apartments. An apartment is defined so as to
include 'flat'. It can be residential or commercial. Assume that the Promoter has
constructed and completed construction, five out of the fifteen floors (which constitutes
the project), on the basis of the occupation certificate, as different from the completion
certificate, as the latter certificate is given only on the completion of the project. He
assigns and transfers the apartment to those allottees to whom he allotted the
apartment when he has completed the construction. Such transferees would be allottees
under the RERA. The question, however, may arise from the point of view of the
impugned proviso as to what is the common feature between such an allottee to whom
the constructed apartment is already handed over after sale and the allottee of the
remaining floors where there is no construction or only construction which is
pronouncedly lagging behind the schedule. The question may arise whether banding
together such allottees under the definition Clause make out the case of over inclusive
classification. Are unequals being treated equally?
121. A mere charge of either under inclusiveness or over inclusiveness which is not
difficult to make hardly suffices to persuade the court to strike down a law. There is a
wide latitude allowed in the legislature in these matters. The examination cannot be
extended to find out whether there is mathematical precision or wooden equality
established. The working of the statute may produce further issues, all of it may not be
fully perceived as which may not be wholly foreseen by the law giver. The freedom to
experiment must be conceded to the legislature, particularly, in economic laws. If
problems emerge in the working of law and which require legislative intervention, the
court cannot be oblivious to the power of the legislative to respond by stepping in with
necessary amendment. There is nothing like a perfect law and as with all human
institutions there are bound to be imperfections. What is significant is however for the
court ruling on constitutionality, the law must present a clear departure from
constitutional limits.
122. In the example of an apartment which is sold where the project is not complete,
we bear in mind the following features:
In such cases if there is insolvency, the project would remain incomplete.
Common areas/common facilities would not become available. The feature
which attract a buyer is the whole project which is completed. The apartment
owner may very well refuse to accept delivery as he may insist upon the
completion of the project with all its promised facilities. Section 17 of RERA
contemplates the transfer of title to the common areas to the association of
allottees. Obviously, such a thing would not be possible ordinarily unless the
construction is complete. In other words, unlike an allottee of a different
project under the same promoter the different allottees as contained in the
definition of the word 'allottee' would have room for common complaints. A
realistic and pragmatic approach is not to be eschewed or abandoned. Thus, we
cannot see merit in the contention.
123. We have noticed Section 11(1) (b) of RERA. It contemplates details of booking
qua apartments and plots. This is sufficient to reject the argument that it could be based
on a total number of the units promised. What is required is allotment and not promised
flats as per a brochure. It is also not the total constructed units. This is as what is
relevant under the impugned provisos read with Section 5(8)(f) explanation and Section
2(d) of RERA read with Section 11(1)(b) and the Rules made thereunder is the 'booking'
of apartments or plots. What is allotted or booked may be more than what is
constructed if there is a mismatch at any given point of time. It is the number of units
allotted. Now, the allotment and the agreement to sell are not irreconcilable with each
other and may signify the same.
124. The further contention that 10 percent is dynamic and what is 1/10 in the morning
may fall short by night if more allotment is made, is untenable in law. The provisions of
the Companies Act, 1913 (Section 153-C), Section 399 of the Companies Act, 1956 and
Section 244 of the Companies Act, 2013 contain similar provisions. The mere difficulties
in given cases, to comply with a law can hardly furnish a ground to strike it down. As to
what would constitute the real estate project, it must depend on the terms & conditions
and scope of a particular real estate project in which allottees are a part of. These are
factual matters to be considered in the facts of each case.
THE PROBLEM OF DEFAULT AND LIMITATION
125. It is urged on behalf of the Petitioners that the provisos requiring support of one
hundred persons or one-tenth of the allottees, whichever is lower, is unworkable and
arbitrary having regard to the provisions of the Code. There can only be one default in a
complaint, it is contended. When the required number of allottees may have to be
drawn from allottees who may have entered into agreements with the builder on
different dates, the date of default would be different. This would adversely impinge on
the absolute right which otherwise exist with an allottee to make an application Under
Section 7 of the Code.
1 2 6 . Per contra, the learned Additional Solicitor General would draw attention to
Explanation to Section 7(1). She would further contend that as long as there is a default
which need not be qua the applicant or applicants, an application would be maintainable
and there is no merit in this contention.
127. In this context, it is necessary to recapture Section 4 of the Code. It reads as
follows:
4. (1) This Part shall apply to matters relating to the insolvency and liquidation
of corporate debtors where the minimum amount of the default is one lakh
rupees:
Provided that the Central Government may, by notification, specify the
minimum amount of default of higher value which shall not be more
than one crore rupees.
The amount is now fixed at Rs. 1 crore.
128. It is thereafter that Section 6 declares that where any corporate debtor commits
default, a financial creditor, an operational creditor or a corporate debtor may itself
initiate CIRP in the manner provided in Chapter 2.
129. Section 7 continues to declare that a financial creditor either by itself or jointly by
other creditors or any other central government notified person, file an application
before the Adjudicating Authority, when a default has occurred. It is thereafter that the
following Explanation is present, no doubt, after the impugned provisions, after the
amendment:
7. (1) xxx xxx xxx
Explanation.--For the purposes of this Sub-section, a default includes a default
in respect of a financial debt owed not only to the applicant financial creditor
but to any other financial creditor of the corporate debtor.
130. The Explanation makes it clear that a financial debt, which is owed to any other
financial creditor of the corporate debtor would suffice to make an application on the
basis that the default has occurred. Default has been defined in Section 3(12) of the
Code as follows:
3(12) "default" means non-payment of debt when whole or any part or
instalment of the amount of debt has become due and payable and is not repaid
by the debtor or the corporate debtor, as the case may be;"
131. Interpreting these provisions and the Rules as well, this Court in Innoventive
(supra), held as follows:
2 8 . When it comes to a financial creditor triggering the process, Section 7
becomes relevant. Under the Explanation to Section 7(1), a default is in respect
of a financial debt owed to any financial creditor of the corporate debtor -- it
need not be a debt owed to the applicant financial creditor. Under Section 7(2),
an application is to be made Under Sub-section (1) in such form and manner as
is prescribed, which takes us to the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a
financial creditor in Form 1 accompanied by documents and records required
therein. Form 1 is a detailed form in 5 parts, which requires particulars of the
applicant in Part I, particulars of the corporate debtor in Part II, particulars of
the proposed interim resolution professional in Part III, particulars of the
financial debt in Part IV and documents, records and evidence of default in Part
V Under Rule 4(3), the applicant is to dispatch a copy of the application filed
with the adjudicating authority by registered post or speed post to the
registered office of the corporate debtor. The speed, within which the
adjudicating authority is to ascertain the existence of a default from the records
of the information utility or on the basis of evidence furnished by the financial
creditor, is important. This it must do within 14 days of the receipt of the
application. It is at the stage of Section 7(5), where the adjudicating authority
is to be satisfied that a default has occurred, that the corporate debtor is
entitled to point out that a default has not occurred in the sense that the "debt",
which may also include a disputed claim, is not due. A debt may not be due if it
is not payable in law or in fact. The moment the adjudicating authority is
satisfied that a default has occurred, the application must be admitted unless it
is incomplete, in which case it may give notice to the applicant to rectify the
defect within 7 days of receipt of a notice from the adjudicating authority.
Under Sub-section (7), the adjudicating authority shall then communicate the
order passed to the financial creditor and corporate debtor within 7 days of
admission or rejection of such application, as the case may be.
(Emphasis supplied)
132. It is true that Section 238A (inserted with effect from 06.06.2018) of the Code
provides that the provisions of the Limitation Act shall be applicable as far as may be to
the proceedings or appeals before the Adjudicating Authority and the NCLAT, as the
case may be, inter alia. Interpreting this provision, inter alia, this Court in B.K.
Educational Services Private Limited (supra), has held that Article 137 in Schedule I of
the Limitation Act, 1963, will apply in regard to an application Under Sections 7 and 9
of the Code. This Court held, inter alia, as follows:
42. It is thus clear that since the Limitation Act is applicable to applications
filed Under Sections 7 and 9 of the Code from the inception of the Code, Article
137 of the Limitation Act gets attracted. "The right to sue", therefore, accrues
when a default occurs. If the default has occurred over three years prior to the
date of filing of the application, the application would be barred Under Article
137 of the Limitation Act, save and except in those cases where, in the facts of
the case, Section 5 of the Limitation Act may be applied to condone the delay in
filing such application.
1 3 3 . In fact, the Court, in the said case, in the course of its judgment, gives an
example of a debt which is due since 1990 and which has become barred but which is
sought to be revived through the medium of Section 7 of the Code which law came into
being in 2016. It is to avoid such situations that this Court noted that even if Section
238A was inserted after the original enactment, the Limitation Act, 1963, would, indeed
apply, right from the inception of the Code. It is to be noticed that this Court has
applied Article 137, and also, at the same time, countenanced the applicability of
Section 5 of the Limitation Act, providing for condonation of delay in appropriate cases.
134. It is, therefore, clear that the requirement of the Code in regard to an application
by a financial creditor does not mandate that the financial debt is owed to the applicant
in terms of the Explanation. This is for the reason that apparently that the CIRP and
which, if unsuccessful, is followed by the liquidation procedure is in all a proceeding, in
rem. The Law Giver has envisaged in the Code, an action, merely for setting in motion
the process initially. The litmus test on the anvil of which, the Adjudicating Authority
will scrutinize the matter, is only the existence of the default, as defined in Section 4 of
the Code. As on date, the amount of default is pegged at Rs. 1 crore. Present a financial
debt which has not been paid, the doors are thrown open for the processes under the
Code to flow in and overwhelm the corporate debtor. The further barrier is limitation,
no doubt, as noticed in B.K. Educational Services Private Limited v. Parag Gupta &
Associates MANU/SC/1160/2018 : (2019) 11 SCC 633. As with anything in life, not only
will imperfections stand out and mathematical nicety be flouted, a law may end up
seemingly trampling upon the interests of a few or even many. Since, the Code
undoubtedly bears the brand of an economic measure upon its face, and in true spirit,
being one of the most significant and dynamic economic experiments indulged in by the
Law Giver, not by becoming servile to Parliament, but by way of time hallowed
deference to the sovereign body experimenting in such matters, this Court will lean
heavily in favour of such a law. The complaint of the Petitioners that an increase in the
required strength of applicants, will create legal knots which do not admit of solution,
do not appeal to us and we intend lay bare how the law can indeed be worked, even
with the extra burden which is cast on the persons covered by the provisos.
135. It is indisputable that in order to successfully move an application Under Section 7
that there must be a default which must be in a sum of Rs. 1 crore. It is equally clear
that the amount of Rs. 1 crore need not be owed by the corporate debtor in favour of
the applicant. It must be noted that the Explanation existed even prior to the provisos
being inserted. It is open to a financial creditor, to move an application in the company
of another financial creditor or more than one other financial creditor. In fact, a perusal
of the Rules, which we have already extracted, would indicate that irrespective of the
number of applicants the Court Fee would remain Rs. 25,000/-. This answers the
alleged vagueness about court fees where the provisos are given effect to. Thus, dehors
the impugned provisos in terms of the Explanation in Sub-section 7(1), a financial debt
need not be owed to the applicant and as joint application by more than one applicant
was and is contemplated, the resultant position would be that any number of applicants,
without any amount being due to them, could move an application Under Section 7,
provided that they are financial creditors and there is a default in a sum of Rs. 1 crore
even if the said amount is owed to none of the applicants but to any another financial
creditor. This position has not undergone any change even with the insertion of the
provisos. In other words, even though the provisos require that in the case of a real
estate project, being conducted by a corporate debtor, an application can be filed by
either one hundred allottees or allottees constituting one-tenth of the allottees,
whichever is less, if they are able to establish a default in regard to a financial creditor
and it is not necessary that there must be default qua any of the applicants. We have
taken an extreme example to illustrate how the Code can possibly be worked.
136. In practice, it may be unlikely, however, that persons would come together as
applicants under the Code, if they are real estate allottees, particularly knowing what
the admission of application Under Section 7 entails, and the destiny of an application
which has reached the stage of compulsory winding up Under Section 33. However,
taking a more likely example, viz., of the corporate debtor operating in the real estate
sector and an allottee moving an application upon there being amounts due to him,
prior to the amendment, undoubtedly, a single allottee could set the ball in motion and
all he had to satisfy is default to him or any other financial creditor. The change that is
brought about is only that apart from establishing the factum of default, he must
present the application endorsed by the requisite number introduced by the proviso.
Since, default can be qua any of the applicants, and even a person, who is not an
applicant, and the action is, one which is understood to be in rem, in that, the
procedures, under the Code, would bind the entire set of stakeholders, including the
whole of the allottees, we can see no merit in the contention of the Petitioner based on
the theory of default, rendering the provisions unworkable and arbitrary.
137. In this regard, it is necessary to notice Form 1, in which, an application is to be
maintained Under Section 7 of the Code read with Rule 4 of the Rules. In the said Form,
in Part IV, there are two columns. The first column is total amount of debt granted,
dates of disbursement. Under the second column in Part IV, the applicant must show the
amount claimed to be in default and the date on which the default occurred (the
applicant is required to attach the workings for computation of the amount and days of
default in tabular form). Part V deals with particulars of the financial debt (documents,
records and evidence of default). The applicant is called upon to attach copy of record
of default with information utility, if any. The applicant may attach list of any other
document to prove the existence of the default, as can be seen from Clause 8 of Part V.
138. In this regard, question may arise as to how the application would have to be
filled-up, if there are hundred allottees in a given case to comply with the requirement
of the proviso. In the very first place, we must notice that as far as the workability of
this provision in such a situation is looked at, it cannot be called into question, having
regard to one aspect in particular. Even before the amendment, and what is more also,
after the amendment, a joint application is permissible (though not mandated) in
respect of all classes of financial creditors. This means, even in the case of any
application filed by more than one applicant, if the requirements of the Code are
otherwise fulfilled, there can be cases where the applicants can file a single application
by giving the details which we have adverted to. Secondly, we must bear in mind again,
that the application is contemplated to be an application in rem. One or more financial
creditors activises the Code with reference to the threshold figure of Rs. 1 crore, being
in default. The Authority is alerted. He verifies this aspect, finding that the debt is
established Under Section 7(5), and further that it is not barred by limitation or if he
invokes the power Under Section 5 of the Limitation Act, to condone the delay [as
contemplated in B.K. Educational Services Private Limited (supra)], the curtains are
raised for the Code to be applied since the default in the sum may be owed to any
financial creditor. It suffices that the said sum can be claimed as a sum in default in
terms of the Explanation in Section 7(1). Undoubtedly, the record of default, as
contemplated in the Code, which need not be the record of default with the information
utility alone, has to be furnished. If the default is qua all the applicants, then also, as
long as the statutory requirements regarding the amount, and it not being barred, are
fulfilled, it will be open to the applicants to plead the same. Undoubtedly, if the debt, in
a sum of Rs. 1 crore, happens to be set up, which is barred, then, unless Section 5 of
the Limitation Act is successfully invoked, the applicants would risk rejection of the
application, which cannot be stated to be unfair as it is in accordance with law. What we
are indicating is that in view of the special provision, contained in the Explanation to
Section 7(1), the arguments appear to be farfetched. We must bear in mind that when
we reasonably contemplate, a state of insolvency, while in law, the corporate debtor,
being in default to a single financial creditor in a sum of Rs. 1 crore, is sufficient, it is
highly unlikely that the corporate debtor would not be similarly financially in dire straits
towards the other creditors (allottees). Another aspect, which is raised, is that in the
example of a hundred allottees, if they have agreements, under which, the date of
default is different, how is the application to be drafted and processed? What, if the
debt is barred qua some of the applicants, whereas, it is not so in regard to the other
applicants. Taking a cue from the Explanation to Section 7(1), all that would be
required is, to plead the default, no doubt, in the sum of Rs. 1 crore, which is not
barred as the cause of action. In other words, if a law contemplates that the default in a
sum of Rs. 1 crore can be towards any financial creditor, even if he is not an applicant,
the fact that the debt is barred as against some of the financial creditors, who are
applicants, whereas, the application by some others, or even one who have moved
jointly, fulfill the requirement of default, both in terms of the sum and it not being
barred, the application would still lie.
ALLOTTEES TO BE FROM SAME REAL ESTATE PROJECT: IS IT UNCONSTITUTIONAL?
139. We have referred to the definition of the word 'allotee' in Section 2(d) of the
RERA. In regard to a real estate project, all persons, who are treated as allottees, as per
the definition of allottee would be entitled to be treated as allottees, for the purpose of
Section 5(8)(f) (Explanation) and also, for the purpose of the impugned provisos. All
that is required is that the allottees must relate to same real estate project. In other
words, if a Promoter has a different real estate project, be it in relation to apartments,
in the case an application Under Section 7, those would not be reckoned in computing
one-tenth as well as the total allotments.
140. The rationale behind, confining allottees to the same real estate project, is to
promote the object of the Code. Once the threshold requirement can pass muster when
tested in the anvil of a challenge based on Articles 14, 19 and 21, then, there is both
logic and reason behind the legislative value judgment that the allottees, who must join
the application under the impugned provisos, must be related to the same real estate
project. The connection with the same real estate project is crucial to the determination
of the critical mass, which Legislature has in mind, as a part of its scheme, to
streamline the working of the Code. If it is to embrace the total number of allottees of
all projects, which a Promoter of a real estate project, may be having, in one sense, it
will make the task of the applicant himself, more cumbersome. It becomes a sword,
which will cut both ways. This is for the reason that the complaints, relating to different
projects, may be different. With regard to one project of a Promoter of real estate
project, maybe, in the advanced stage, the allottees in a particular project, may not
have much of a complaint. The complaint, in relation to yet another project, may be
more serious. If the complaint in respect of the latter, attracts the attention of a critical
mass of allottees, and the proposed applicant is part of that project in the said project,
then, it may be easier for the allottees to fulfil the statutory mantra in the impugned
provisos, with the junction of likeminded souls. If, on the other hand, the requirement
was to make a search for allottees of different projects, as would be the case, if the
entirety of the allottees, under different projects, were to be reckoned, the task would
have been much more cumbersome. The requirement of the allottees, being drawn from
the same project, stands to reason and also does not suffer from any constitutional
blemish, as pointed out.
THE POINT OF TIME TO COMPLY WITH THE THRESHHOLD REQUIREMENTS
141. The question, then arises, as to the alleged lack of clarity about the point of time,
at which the requirements of the impugned provisos, are to be met. Is it sufficient, if
the required number of allottees join together and file an application Under Section 7
and fulfil the requirements, at the time of presentation? Or, is it necessary that the
application must conform the numerical strength, under the new proviso, even after
filing of the application, and till the date, the application is admitted Under Section
7(5)? There can be no doubt that the requirement of a threshold under the impugned
proviso, in Section 7(1), must be fulfilled as on the date of the filing of the application.
In this regard, we find support from an early judgment of this Court, which was
rendered Under Section 153-C of the Companies Act, 1913. Section 153-C is the
predecessor to Sections 397 and 398 read with Section 399 of the Companies Act,
1956. Its most recent avatar is contained in Sections 241 and 242 of the Companies
Act, 2013 read with Section 244. In fact, Section 399(3) of the Companies Act, 1956,
read as follows:
399(3) Where any members of a company are entitled to make an application in
virtue of Sub-section (1), any one or more of them having obtained the consent
in writing of the rest, may make the application on behalf and for the benefit of
all of them.
142. In the decision of this Court in Rajahmundry Electric Supply Corporation Ltd. v. A.
Nageshwara Rao and Ors. MANU/SC/0008/1955 : AIR 1956 SC 213, the provision in
question, viz., Section 153-C of Companies Act, 1913 dealt with the power of the Court
to Act, when the Company acts in a prejudicial manner or oppresses any part of its
members. It, inter alia, provided that no application could be made by any member, in
the case of a company having a share capital unless the member has obtained consent,
in writing, of not less than one hundred in number of the members of the company or
not less than one-tenth in number of the members, whichever is less. There was also an
alternate requirement, to which, resort could be made in regard to company, not having
share capital. There was another mode of fulfilling the threshold requirement. In the
facts of the said case, the number of the members of the company were 603. Sixty-five
members consented to the application. The problem, however, arose as it was
contended that 13 of the members who had consented, had, subsequent to the
presentation of the application, withdrawn their consent. This Court went on to hold as
follows:
5. xxx xxx xxx
We have no hesitation in rejecting this contention. The validity of a petition
must be judged on the facts as they were at the time of its presentation, and a
petition which was valid when presented cannot, in the absence of a provision
to that effect in the statute, cease to be maintainable by reason of events
subsequent to its presentation. In our opinion, the withdrawal of consent by 13
of the members, even if true, cannot affect either the right of the applicant to
proceed with the application or the jurisdiction of the court to dispose of it on
its own merits.
143. In the matter of presentation of an application Under Section 7, if the threshold
requirement, under the impugned provisos, stands fulfilled, the requirement of the law
must be treated as fulfilled. The contention, relating to the ambiguity and consequent
unworkability and the resultant arbitrariness, is clearly untenable and does not appeal
to us. If an allottee is able to, in other words, satisfy the requirements, as on the date
of the presentation, the requirement of the impugned law is fulfilled.
HOLDINGS BY FAMILY MEMBERS ETC. AND JOINT HOLDINGS OF A UNIT; SINGLE
ALLOTTEE?
144. One of the contentions, which is raised is that in Section 399(2) of the Companies
Act, 1956, it was provided that in applying the threshold test of requisite number of
members, to join in an application Under Sections 397 and 398, where any share or
shares are held by two or more persons, they shall be counted only as one member.
Section 244 of the Companies Act, 2013, corresponds to Section 399 of the Companies
Act, 1956. The Explanation in Section 241(1) contains an identical provision as in
Section 399(2). It is, however, pointed out by the Petitioners that in the matter of an
allotment, being made to more than one person, of an apartment or other real estate
property, it is not laid down as to how the matter is to be dealt with. It is vague. It is
arbitrary. It is true that in the impugned proviso, introduced in Section 7(1), there is no
indication as to how the number of allottees are to be reckoned in the case of more than
one person. It will be of interest to note that in Section 14 of the RERA, the Promoter is
forbidden from making any additions and alterations in the sanctioned plans, layout
plans and specifications, the nature of the fixtures, fittings and amenities, which are
agreed to be undertaken, without the consent of that person. Of course, minor additions
or alterations, in circumstances provided in the proviso, can be carried out.
1 4 5 . Thereafter, Section 14(2)(ii) contemplates that any other alterations in the
sanctioned plans, layout plans and specifications or the common area within the
project, cannot be carried out except with the previous written consent of at least two-
thirds of the allottees, other than the Promoter, who had agreed to take the apartments
in such building. In this context, there is an Explanation. The Explanation purports to
declare that if an allottee has taken more than one apartment or plot in his name or in
the name of his family, it will be treated as a single allotment. In the case of persons,
such as companies or firms or association of individuals, bookings in its name or in the
name of associated entities or related enterprises, are to be treated as a single
allotment.
146. Similarly, Section 15 of RERA interdicts transfer or assignment of his majority
rights and liabilities to a third party, without obtaining the prior written consent of two-
thirds of the allottees and also without the prior written approval of the Authority. A
similar Explanation, as is found in Section 14, which we have already described, is to
be found in Section 15. Such an Explanation is, however, not found in the definition of
'allottee' in Section 2(d) of RERA. The object of the Explanation, both in Sections 14
and 15, is apparent. It is to avoid defeating the object, which would occur, if members
of the same family, monopolises a project or associated and related concerns of a
company, firm or association, corner the allotments. It is also possible that they may be
hand-in-glove with the Promoter, which would result in defeating the rights of the other
allottees, as the figure of two-thirds, would cease to represent the interest of the actual
two-third majority, which is intended by the Legislature, be it in a matter or alterations
or additions in the sanctioned plans or layout plans, etc., or in the matter of the
Promoter getting out of the project in regard to his majority rights, by transfer or
assignment. These Explanations are intended to hold the Promoter responsible to the
sanctioned plans as also to prevent the Promoter from wriggling out of his majority
rights, without a real majority, as would be represented by two-thirds of the separate
allottees, agreeing to the same. We cannot read the Explanations in Sections 14 and 15
into the definition of 'allotee' in Section 2(d), as, in Sections 14 and 15, a perusal of
Explanations, makes it clear that they are enacted for the purpose of Sections 14 and
15, respectively. We would have to take the definition of the 'allottee' from Section
2(d), as it is. Therefore, it does not matter whether a person has one or more
allotments in his name or in the name of his family members. As long as there are
independent allotments made to him or his family members, all of them would qualify
as separate allottees and they would count both in the calculation of the total
allotments, as also in reckoning the figure of hundred allottees or one-tenth of the
allottees, whichever is less.
147. As far as the situation projected about, there being no clarity regarding whether, if
there is a joint allotment of an apartment to more than one person, is it to be taken as
only one allottee or as many allottees as there are joint allottees, it would appear to us,
on a proper understanding of the definition of the word 'allottee' in Section 2(d) and the
object, for which the requirement of hundred allottees or one-tenth has been put, and
also, not being oblivious to Section 399(2) of the Companies Act, 1956, as also the
Explanation in Section 244(1) of the Companies Act, 2013, in the case of a joint
allotment of an apartment, plot or a building to more than one person, the allotment
can only be treated as a single allotment. This for the reason that the object of the
Statute, admittedly, is to ensure that there is a critical mass of persons (allottees), who
agree that the time is ripe to invoke the Code and to submit to the inexorable processes
under the Code, with all its attendant perils. The object of maintaining speed in the
CIRP and also the balancing of interest of all the stakeholders, would be promoted by
the view that as in the case of the Companies Acts, 1956 and 2013, that for the purpose
of complying with the impugned provisos in Section 7(1), while the allottee can be of
any of the categories, fulfilling the description of an allottee in Section 2(d) of RERA, as
interpreted earlier by us joint allottees of a single apartment, will be treated as only one
allottee. Any other view can lead to clear abuse and defeating of the object of the Code.
If, for instance, a single apartment is taken in the name of hundred persons, a single
allottee, who in turn comprise of relatives or family members or friends, can move an
application, even though the position ante would be restored, which means that only
the allottee qua one apartment, plot or building, is before the Authority and it would not
really represent a critical mass of the allottees in the real estate project concerned.
Therefore, we have no hesitation in rejecting the contentions of the Petitioner on having
made the said interpretation.
THE POWER OF WAIVER, BEING DENIED, UNLIKE THE COMPANIES ACTS
148. There is another argument, which is pressed before us as one, which distinguishes
the impugned provisions from those contained in the Companies Act. Section 399(4) of
the Companies Act, 1956, read as follows:
399.(4) The Central Government may, if in its opinion circumstances exist
which make it just and equitable so to do, authorise any member or members
of the company to apply to the Tribunal Under Section 397 or 398,
notwithstanding that the requirements of Clause (a) or Clause (b), as the case
may be, of Sub-section (1) are not fulfilled.
1 4 9 . It is, therefore, contended that the said provision rendered the threshold
requirement in Section 399(1), a fair one. This is for the reason that where it was found
just and equitable by the Central Government, it could authorize any member or
members to apply Under Section 397 or Section 398, even though the numerical
strength of members, as required in Section 399(1), did not come forward to present
the application.
1 5 0 . We are called upon to pronounce on the constitutionality of the law. Having
regard to the salutary object and the distinguishing features, which clearly distinguish
the allottees and also the creditors falling in the first proviso from the other creditors,
both financial and operational, we see no merit in the contention. It is another matter
that we may entertain the belief that it would have been more wise on the part of the
Legislature to have incorporated a safety valve to provide for situations where without
complying with threshold requirement, a single allottee could move the application. In
this regard, we should also bear in mind the scope of an application Under Sections 397
and 398.
1 5 1 . The Central Government, having regard to the scheme of Companies Act, is
intricately interconnected with the management of the companies. It had powers of
investigation into the affairs of the companies Under Section 235 and Section 237. The
purport of Sections 397 and 398 include the conduct of the affairs of the company in
any manner prejudicial to the public interest or also, no doubt, prejudicial to member or
members. In such circumstances, clothing the Central Government with the power to
waive the requirement and permitting the application to be presented by even a single
member, is in sync with the scheme of the Companies Act. The role of the Central
Government is different under the Code. In fact, the Central Government does not have
any role, as such under the Code. It acts only through the designated Authorities under
the Code. The Code is about insolvency resolution and on failure liquidation. The
scheme of the Code is unique and its objects are vividly different from that of the
Companies Act. Consequently, if the Legislature felt that threshold requirement
representing a critical mass of allottees, alone would satisfy the requirement of a valid
institution of an application Under Section 7, it cannot be dubbed as either
discriminatory or arbitrary.
A LOOK AT ORDER I Rule 8 OF THE CODE OF CIVIL PROCEDURE, 1908 (THE CPC) AND
SECTION 12 OF THE CONSUMER PROTECTION ACT, 1986 and the contentions based on
the same.
152. The argument of the Petitioners is that Under Order I Rule 8 of the Code of Civil
Procedure, where there are numerous persons having the same interest in one suit, one
or more such persons can, with the permission of the court, sue or be sued or may
defend such suit on behalf of or for the benefit of all persons so interested, at the
instance of a single person with whom numerous persons share the same interest. The
court, after giving permission, is to give notice of the institution of the suit as provided.
Thereupon, any person, on whose behalf or for whose benefit the suit is instituted or
defended, can apply to the court, to be made a party. Finally, Sub-rule (6) of Order I
Rule 8 declares that the Decree passed in the suit Under Order I Rule 8, shall be binding
on all persons, on whose behalf or for whose benefit, the suit is instituted or defended,
as the case may be. The Explanation in Order I Rule 8 of Code of Civil Procedure, reads
as follows:
Explanation.-- For the purpose of determining whether the persons who sue or
are sued, or defend, have the same interest in one suit, it is not necessary to
establish that such persons have the same cause of action as the persons on
whose behalf, or for whose benefit, they sue or are sued, or defend the suit, as
the case may be.
1 5 3 . This provision is sought to be contrasted with the provisos inserted by the
impugned amendment. It was sought to be contended that the procedure contemplated
in Order I Rule 8, on the one hand, countenances the setting in motion of a civil suit by
a single person, no doubt with the permission of the Court and after a Notice is given,
as provided therein, any of the persons, who have the same interest, can come forward
and seek to be made a party. By the device, embedded in Order I Rule 8, the interest of
all the persons, who are having the same interests, is best safeguarded. Should he wish
to oppose the applicant, he is free to do so. Should he wish to, on the other hand,
support the Plaintiff, it is equally open to him to adopt such a course. At the end of the
proceedings, when the Decree is passed, it shall be binding on all the persons, for
whose benefit or on whose behalf, the suit is laid even by a single person. On the other
hand, for reasons, which are entirely arbitrary, it is pointed out that a most
cumbersome and unachievable threshold requirement is thrust upon a class of the
financial creditors alone, by requiring that should an allottee wish to invoke Section 7 of
the Code, he should muster the support of at least 99 other allottees or one-tenth of the
total number of allottees, whichever is lower. Again, it is emphasized that matters are
made worse by insisting that the allottees must be drawn from the same project. It is,
similarly, submitted that the Consumer Protection Act also has embraced the principle of
Order I Rule 8 of the Code of Civil Procedure, as can be seen from Section 12 of the
Consumer Protection Act. The definition of the word 'complainant', in Section 2(b)(iv) of
the Consumer Protection Act, 1986, includes one or more consumer, where there are
numerous persons having the same interest. Section 12 provides for the manner in
which a complaint is to be made. Section 12(1)(c) reads as follows:
12(1)(c). One or more consumers, where there are numerous consumers having
the same interest, with the permission of the District Forum, on behalf of, or for
the benefit of, all consumers so interested; or
154. The last provision, in a string of provisions, which provide the scheme in regard
to an action modelled on Order 1 Rule 8 of the Code of Civil Procedure, is found in
Section 13(6) of the Consumer Protection Act, 1986. It reads as follows:
13(6) Where the complainant is a consumer referred to in Sub-clause (iv) of
Clause (b) of Sub-section (1) of Section 2, the provisions of Rule 8 of Order I
of the First Schedule to the Code of Civil Procedure, 1908 (5 of 1908) shall
apply subject to the modification that every reference therein to a suit or decree
shall be construed as a reference to a complaint or the order of the District
Forum thereon.
155. Thus, the procedure, Under Order I Rule 8, is squarely made applicable to the
proceedings under the Consumer Protection Act, in a situation, where, there are more
than one consumer, having the same interest. It is true that the words "same interest",
has been understood in the light of the Explanation Under Order 1 Rule 8 of the Code of
Civil Procedure and therefore, it is not necessary that all the numerous persons, within
the meaning of the Consumer Protection Act or in a civil suit, need establish that they
have the same cause of action. What is essential is that they have the same interest.
Interpreting the words "same interest", it is still further true that this Court, in
Chairman, Tamil Nadu Housing Board v. T.N. Ganapathy MANU/SC/0117/1990 : (1990)
1 SCC 608, has held that what is required is only community of interest. This was a
case where a suit was filed by allottees of plots of low-income groups against the
Appellant-Housing Board seeking injunction from demanding and collecting any
additional price and the suit was held maintainable Under Order I Rule 8, even though
separate demand notices were issued to each allottees.
156. In appreciating this argument, it is important to not be oblivious to the scheme of
the Code and to distinguish it from a civil suit laid invoking order I Rule 8 or the
consumer complaint presented by one consumer, sharing the same interest with
numerous others, again invoking Order I Rule 8. It is true that once Order I Rule 8 is
made applicable, a single Plaintiff or a consumer, in a civil suit or a consumer complaint
respectively, can set the ball rolling. All the persons, having the same interest, are free
to join in the proceedings. Irrespective of whether they join or not, a Decree or order,
which is pronounced, will bind all the persons having the same interest. The procedure,
Under Order I Rule 8, if it had been made applicable in regard to an application by the
allottee of a real estate project, would indeed have made it very easy for a single
allottee to invoke Section 7 of the Code and it would also have countenanced the
participation of the other allottees, should they wished to be made parties upon the
publication of the Notice contemplated in Order I Rule 8(2).
157. So far so good. Now, we will examine the other side of the story and that is the
object of the Code and the scheme of the Code. Under the Code, once an application is
moved and is admitted Under Section 7, the stage is set for resolving the insolvency.
The Resolution of the Insolvency may be attained by replacing the existing
management. The Law Giver has contemplated last mile funding. It has, however, fixed
a time limit, as contemplated in Section 12 of the Code, no doubt as explained by this
Court. Once, the application is admitted Under Section 7(5), initially, the Interim
Resolution Profession (IRP) would supplant the very management by virtue of the
suspension of the powers of the management, as contemplated in the Code. The IRP
may or may not continue as the Resolution Professional (RP) but a RP is, undoubtedly,
to be appointed under the scheme of the Code. The management passes into the hands
of the RP. Thereafter, depending upon the receipt of the Resolution Plan and its
acceptability to the Committee of Creditors and finally the approval by the Adjudicating
Authority of the Resolution Plan, which is approved by the Committee of Creditors,
depends the Resolution of the Insolvency. All of this is to be completed within a period
of 330 days again subject to the limit not being 'mandatory' as explained by this Court
in Essar Steel (supra). Should this not happen, the Adjudicating Authority is obliged,
Under Section 33, to pass an Order for winding up of the Corporate Debtor. Section 53
provides for the priority in the matter of payment of the amounts which are collected by
way of liquidation value. The allottees would rank as unsecured creditors. The inevitable
conclusion is that unlike in an ordinary civil suit or in a consumer complaint, the drastic
consequences, as the inexorable liquidation of the corporate debtor, contemplated
under the Code, is the inevitable consequence, of the application reaching the stage of
Section 33 of the Code. Liquidation could take place even earlier Under Section 33(4).
As to whether the procedure contemplated in Order I Rule 8 is suitable, more
appropriate and even more fair, is a matter, entirely in the realm of legislative choice
and policy. Having regard to the scheme of the Code, which we have detailed above,
there cannot be scintilla of doubt that what the Petitioners are seeking to persuade us to
hold, is to make a foray into the forbidden territory of legislative value judgment. This
is all the more so, when the dangers lurking behind full play to Order I Rule 8 being
given appear to be fairly clear. We have, therefore, no hesitation in rejecting this
contention, which no doubt, at first blush, may appear attractive. We only need add that
invalidating a law made by a competent Legislature, on the basis of what the Court may
be induced to conclude, as a better arrangement or a more wise and even fairer system,
is constitutionally impermissible. If, the impugned provisions are otherwise not infirm,
they must pass muster.
158. Are the Amendments violative of the 'Pioneer Judgment' in Pioneer Urban Land
and Infrastructure Ltd. and Anr. v. Union of India and Ors. MANU/SC/1071/2019 :
(2019) 8 SCC 416, certain amendments to the Code were challenged. The challenged
provisions included the Explanation added to Section 5(8)(f).
159. The challenge was made in a batch of Writ Petitions filed by a group of Real Estate
Developers. This Court was invited to adjudicate upon the constitutionality on a wide
range of grounds. It is important to cull out the findings rendered by the Court in the
said decision as much reliance has been placed by the Petitioners on the decision:
i. The Code is a Legislation which deals with economic matters and, therefore,
the Legislature must be given free play in the joints;
ii. The legislative judgment in economic choices must be given a certain degree
of deference by the Courts;
iii. The amendment by which the explanation was inserted in Section 5(8) was
clarificatory in nature and allottees/home buyers were included in the main
provision, i.e., Section 5(8)(f) from the inception of the Code;
iv. The amending Act did not infringe Articles 14, 19(1)(g) read with Article
19(6) or 300A of the Constitution of India;
v. RERA and the Code must be held to co-exist, and in the event of a clash,
RERA must give way to the Code. The Code and RERA operate in completely
different spheres.
vi. Paragraph-30 of the judgment in Pioneer Urban Land and Infrastructure Ltd.
(supra) reads as follows:
3 0 . As a matter of fact, the Code and RERA operate in completely
different spheres. The Code deals with a proceeding in rem in which
the focus is the rehabilitation of the corporate debtor. This is to take
place by replacing the management of the corporate debtor by means
of a resolution plan which must be accepted by 66% of the Committee
of Creditors, which is now put at the helm of affairs, in deciding the
fate of the corporate debtor. Such resolution plan then puts the same
or another management in the saddle, subject to the provisions of the
Code, so that the corporate debtor may be pulled out of the woods and
may continue as a going concern, thus benefitting all stakeholders
involved. It is only as a last resort that winding up of the corporate
debtor is resorted to, so that its assets may be liquidated and paid out
in the manner provided by Section 53 of the Code. On the other hand,
RERA protects the interests of the individual investor in real estate
projects by requiring the promoter to strictly adhere to its provisions.
The object of RERA is to see that real estate projects come to fruition
within the stated period and to see that allottees of such projects are
not left in the lurch and are finally able to realise their dream of a
home, or be paid compensation if such dream is shattered, or at least
get back monies that they had advanced towards the project with
interest. At the same time, recalcitrant allottees are not to be tolerated,
as they must also perform their part of the bargain, namely, to pay
instalments as and when they become due and payable. Given the
different spheres within which these two enactments operate, different
parallel remedies are given to allottees under RERA to see that their
flat/apartment is constructed and delivered to them in time, barring
which compensation for the same and/or refund of amounts paid
together with interest at the very least comes their way. If, however,
the allottee wants that the corporate debtor's management itself be
removed and replaced, so that the corporate debtor can be
rehabilitated, he may prefer a Section 7 application under the Code.
That another parallel remedy is available is recognised by RERA itself in
the proviso to Section 71(1), by which an allottee may continue with an
application already filed before the Consumer Protection Fora, he being
given the choice to withdraw such complaint and file an application
before the adjudicating officer under RERA read with Section 88. In
similar circumstances, this Court in Swaraj Infrastructure (P) Ltd. v.
Kotak Mahindra Bank Ltd. [Swaraj Infrastructure (P) Ltd. v. Kotak
Mahindra Bank Ltd., MANU/SC/0095/2019 : (2019) 3 SCC 620 : (2019)
2 SCC (Civ) 136] has held that the Debts Recovery Tribunal
proceedings under the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 and winding-up proceedings under the
Companies Act, 1956 can carry on in parallel streams (see paras 21 and
22 therein).
[para 30]
vii. It is apposite to advert to paragraph-41 in the nature of the contentions
raised in this case. To quote:
41. It is also important to remember that the Code is not meant to be a
debt recovery mechanism (see para 28 of Swiss Ribbons [Swiss
Ribbons (P) Ltd. v. Union of India, MANU/SC/0079/2019 : (2019) 4
SCC 17]). It is a proceeding in rem which, after being triggered, goes
completely outside the control of the allottee who triggers it. Thus, any
allottee/home buyer who prefers an application Under Section 7 of the
Code takes the risk of his flat/apartment not being completed in the
near future, in the event of there being a breach on the part of the
developer. Under the Code, he may never get a refund of the entire
principal, let alone interest. This is because, the moment a petition is
admitted Under Section 7, the resolution professional must first
advertise for and find a resolution plan by somebody, usually another
developer, which has then to pass muster under the Code i.e. that it
must be approved by at least 66% of the Committee of Creditors and
must further go through challenges before NCLT and NCLAT before the
new management can take over and either complete construction, or
pay out or refund amounts. Depending on the kind of resolution plan
that is approved, such home buyer/allottee may have to wait for a very
long period for the successful completion of the project. He may never
get his full money back together with interest in the event that no
suitable resolution plan is forthcoming, in which case, winding up of
the corporate debtor alone would ensue. On the other hand, if such
allottee were to approach the Real Estate Regulatory Authority under
RERA, it is more than likely that the project would be completed early
by the persons mentioned therein, and/or full amount of refund and
interest together with compensation and penalty, if any, would be
awarded. Thus, given the bona fides of the allottee who moves an
application Under Section 7 of the Code, it is only such allottee who
has completely lost faith in the management of the real estate
developer who would come before NCLT under the Code hoping that
some other developer takes over and completes the project, while
always taking the risk that if no one were to come forward, corporate
death must ensue and the allottee must then stand in line to receive
whatever is given to him in winding up. Given the reasons of the
Insolvency Committee Report, which show that experience of the real
estate sector in this country has not been encouraging, in that huge
amounts are advanced by ordinary people to finance housing projects
which end up in massive delays on the part of the developer or even
worse i.e. failure of the project itself, and given the state of facts which
was existing at the time of the legislation, as adverted to by the
Insolvency Committee Report, it is clear that any alleged discrimination
has to meet the tests laid down in Ram Krishna Dalmia [Ram Krishna
Dalmia v. S.R. Tendolkar, MANU/SC/0024/1958 : 1959 SCR 279 : AIR
1958 SC 538], V.C. Shukla [V.C. Shukla v. State (Delhi Admn.),
MANU/SC/0545/1980 : 1980 Supp SCC 249 : 1980 SCC (Cri) 849],
Shri Ambica Mills Ltd. [State of Gujarat v. Shri Ambica Mills Ltd.,
MANU/SC/0092/1974 : (1974) 4 SCC 656 : 1974 SCC (L & S) 381],
Venkateshwara Theatre [Venkateshwara Theatre v. State of A.P.,
MANU/SC/0306/1993 : (1993) 3 SCC 677] and Mardia Chemicals
[Mardia Chemicals Ltd. v. Union of India, MANU/SC/0323/2004 :
(2004) 4 SCC 311].
[para 41]
viii. On the possibility of the Code being misused by a single allottee, we may
notice the following:
51. One other argument that is made on behalf of the counsel for the
Petitioners is that allottees of flats/apartments who do not want
refunds, but who want their flats/apartments constructed so that they
may occupy and live in their flats/apartments, will be jeopardised, as a
single allottee who does not want the flat/apartments, but wants a
refund of amounts paid for reasons best known to him, can trigger the
Code and upset the construction and handing over of such
flats/apartments to the vast bulk of allottees of a project who may be
genuine buyers who wish to occupy such flats/apartments as roofs over
their heads. Another facet of this argument is that the bulk of such
persons will never be on the Committee of Creditors, as they may not
be persons who trigger the Code at all. These arguments are met by the
fact that all the allottees of the project in question can either join
together under the Explanation to Section 7(1) of the Code, or file their
own individual petitions after the Code gets triggered by a single
allottee, stating that in addition to the construction of their
flat/apartment, they are also entitled to compensation under RERA
and/or under the general law, and would thus be persons who have a
"claim" i.e. a right to remedy for breach of contract which gives rise to
a right to compensation, whether or not such right is reduced to
judgment, and would therefore be persons to whom a liability or
obligation in respect of a "claim" is due. Such persons would,
therefore, have a voice in the Committee of Creditors as to future plans
for completion of the project, and compensation for late delivery of the
flat/apartment. This contention, therefore, also has no legs to stand
upon.
ix. This Court also held that the erstwhile Management is free to offer a
resolution plan in the event of an Application Under Section 7, being admitted
in favour of an allottee, subject, no doubt, to Section 29(A) of the Code, which
may be accepted.
160. It is clear that impugned provisos do not set at nought the ruling of this Court in
Pioneer (supra). In a challenge by real estate developers upholding the provisions in the
manner done including the explanation in Section 5(8)(f) and allaying the apprehension
about abuse by individual allotees cannot detract from the law giver amending the very
law on its understanding of the working of the Code at the instance of certain groups of
applicants and impact it produces on the economy and the frustration of the sublime
goals of the law.
INFORMATION ASYMMETRY
1 6 1 . The contention on behalf of the Petitioner's both in regard to the debenture
holders and security holders as also the allottees is that the provisos are unworkable.
This is for the reason that information relating to allottees in respect of real estate
projects and the debenture holders and security holders in regard to the first proviso is
not available. In regard to shareholders with respect to Section 399 of the Companies
Act, 1956 and Section 244 of the Companies Act 2013, it is pointed out that the
threshold requirements can be fulfilled having regard to the documented information
regarding the shareholding available in law. This is not the position it is pointed out in
regard to the categories covered by provisos one and two. This renders the provisions
manifestly arbitrary.
162. Per contra, the stand of the union is as follows. As far as allottees in a real estate
project is concerned, there is information available under the provisions of Real Estate
Regulation Act. Firstly, it is pointed out that the said act contemplates an association of
allottees. The association plays an important role. The promoter has to take a lead in
the formation of the Association. The allottees are also obliged to take interest in the
formation of the Association. Once the association is formed, the law giver
contemplates naturally that information relating to allotment would become available.
The provisions of the Act, which we have referred to earlier, are emphasised. Secondly,
it is pointed out that Under Section 11 of the Act as also the Rules the promoter is
bound to open a webpage and post information relating to allotments. This is to be
updated. Therefore, there is no merit in the contention. Similar submissions are made in
regard to debenture holders and security holders. It is submitted that information is
available in terms of Section 88 of the Companies Act, 2013. It is open to any of the
security holders or debenture holders to inspect the registers and ascertain about
security holders and debenture holders.
163. As far as allottees are concerned in regard to apartments and plots, Section 11(1)
(b) of the RERA makes it mandatory for the promoter to make available information
regarding the bookings. We have conflated bookings with allotments. We cannot
proceed on the basis of the contention of the Petitioners that the impugned provisos are
unworkable and arbitrary on the basis that the court must take notice of the 'reality'
which is that the promoters do not make available information as required of them. The
burden it is well settled to prove all facts to successfully challenge the statute is always
on the Petitioner. There cannot be a priori reasoning, and there is no burden on the
state. If there is defiance of the law by promoters, the allottees are not helpless. They
can always seek proper redress in the appropriate forum. No doubt, we also would
observe that it becomes the duty of all the authorities to ensure that the promoters will
stringently abide by their duties under the act. Section 11(1)(b) of the RERA speaks
about information being made available regarding bookings which can be understood as
the 'allotments'. The word 'allottee' as defined in Section 2(d) also takes in a person
who subsequently acquires the allotment through sale, transfer or otherwise. In Section
11(1)(b) there is reference to bookings. If the information is to be limited to the
original booking then the information about assignment just mentioned may not be
made available. In this regard we may notice the Haryana Real Estate Regulatory
Authority, Gurugram (Quarterly Progress Report) Regulations 2018. Regulation 4
provides inter alia that the promoter shall upload on the webpage which he has to
create for the project within 15 days from the expiry of each quarter, namely, the list of
number and types of apartments/plots booked. Our attention has also been drawn to the
format for Quarterly Progress Report to be submitted under Haryana Regulations. A
perusal of the report would show that the promoter is obliged to submit the names of
the allottees. Obviously, if there is change in the allotment the changed name should be
reflected in the Report. This must undoubtedly be ensured by the authorities stringently.
We also find merit in the contention of the Union that the Association of allottees has to
be formed under the mandate of the law it is expected to play an important role.
Information will certainly be forthcoming in regard to allotments upon the allottees
becoming members of the Association as required. We cannot ignore the role of the
association in the matter of becoming the transferee of the common areas, being
clothed with the right of first refusal within the meaning of Section 7 of the Act and also
the right to complain otherwise under the Act. This aspect of the association of allottees
is not a matter of mere trifle. The allottees cannot truly possess and enjoy their
properties be it an apartment or building without their having right of common areas.
The promoter is bound Under Section 17 to transfer title to the common areas to the
association. Section 19(9) of RERA makes it a duty on the part of the allottee to
participate towards the formation of the association or cooperative society or the
federation of the same. The possession of the common areas is also to be handed over
to the association of the allottees. The law giver has therefore created a mechanism,
namely, the association of allottees through which the allottees are expected to gather
information about the status of the allotments including the names and addresses of the
allottees. We cannot proceed on the basis in a case which involves a challenge to a
statute that the information to be gathered under the statute will not be available on the
basis that the statute will not be worked as contemplated by the law giver. Hence, we
reject the contentions of the allottees.
164. In regard to the debenture holders and security holders also we would see no
merit in the contentions. There is a statutory mechanism, which is comprised in the
provisions of the Companies act 2013, namely Section (88). Section 88 (1) reads as
follows:
88. Register of members, etc
(1) Every company shall keep and maintain the following registers in
such form and in such manner as may be prescribed, namely:
(a) register of members indicating separately for each class of
equity and preference shares held by each member residing in
or outside India;
(b) register of debenture-holders; and (c) register of any other
security holders.
165. Violation of Section 88 (1) is made punishable Under Section 88 (3).
166. There is no case established that the version of the Union about availability of
information contained in the registers which can be perused is not correct. Again, the
burden is on the Petitioners and they have not discharged their burden.
THE FIRST AND SECOND PROVISOS CLASSIFICATION
DOWN MEMORY LANE: ARTICLE 14 AND REASONABLE CLASSIFICATION
167. Both sides have placed reliance on a large number of decisions in relation to
reasonable classification Under Article 14 of the Constitution. Even in the first decade of
the Republic, this Court has, in a large number of cases, settled the principles in regard
to what constitutes hostile discrimination and what is reasonable classification. Since,
we would be in the region of platitude, if we were to chronicle the principles laid down
in each of those cases, we think it suffices to refer to some of the decisions of this
Court alone.
168. In Ameerunnissa Begum (supra), which involved the challenge to law made by the
Nizam as Raj Pramukh of the former State of Hyderabad, we need notice the following:
1 1 . The nature and scope of the guarantee that is implied in the equal
protection Clause of the Constitution have been explained and discussed in
more than one decision of this Court and do not require repetition. It is well
settled that a legislature which has to deal with diverse problems arising out of
an infinite variety of human relations must, of necessity, have the power of
making special laws to attain particulars objects; and for that purpose it must
have large powers of selection or classification of persons and things upon
which such laws are to operate. Mere differentiation or inequality of treatment
does not per se amount to discrimination within the inhibition of the equal
protection clause. To attract the operation of the Clause it is necessary to show
that the selection or differentiation is unreasonable arbitrary; that it does not
rest on any rational basis having regard to the objects which the legislature has
in view.
169. In Nagpur Improvement Trust (supra), the Petitioner before the High Court alleged
discriminatory proceedings for acquiring his land under the Improvement Trust Act
instead of the Land Acquisition Act. This Court while dismissing the appeal and
affirming the view of the High Court that there was hostile discrimination proceeded to
lay down as follows:
26. It is now well-settled that the State can make a reasonable classification for
the purpose of legislation. It is equally well-settled that the classification in
order to be reasonable must satisfy two tests: (i) the classification must be
founded on intelligible differentia and (ii) the differentia must have a rational
relation with the object sought to be achieved by the legislation in question.
In this connection it must be borne in mind that the object itself should be
lawful. The object itself cannot be discriminatory, for otherwise, for instance, if
the object is to discriminate against one Section of the minority the
discrimination cannot be justified on the ground that there is a reasonable
classification because it has rational relation to the object sought to be
achieved.
xxx xxx xxx xxx
28. It would not be disputed that different principles of compensation cannot
be formulated for lands acquired on the basis that the owner is old or young,
healthy or ill, tall or short, or whether the owner has inherited the property or
built it with his own efforts, or whether the owner is politician or an advocate.
Why is this sort of classification not sustainable? Because the object being to
compulsorily acquire for a public purpose, the object is equally achieved
whether the land belongs to one type of owner or another type.
2 9 . Can classification be made on the basis of the public purpose for the
purpose of compensation for which land is acquired? In other words can the
Legislature lay down different principles of compensation for lands acquired say
for a hospital or a school or a Government building? Can the Legislature say
that for a hospital land will be acquired at 50% of the market value, for a
school at 60% of the value and for a Government building at 70% of the market
value? All three objects are public purposes and as far as the owner is
concerned it does not matter to him whether it is one public purpose or the
other. Article 14 confers an individual right and in order to justify a
classification there should be something which justifies a different treatment to
this individual right. It seems to us that ordinarily a classification based on the
public purpose is not permissible Under Article 14 for the purpose of
determining compensation. The position is different when the owner of the land
himself is the recipient of benefits from an improvement scheme, and the
benefit to him is taken into consideration in fixing compensation. Can
classification be made on the basis of the authority acquiring the land? In other
words can different principles of compensation be laid if the land is acquired for
or by an Improvement Trust or Municipal Corporation or the Government? It
seems to us that the answer is in the negative because as far as the owner is
concerned it does not matter to him whether the land is acquired by one
authority or the other."
170. It is also correct that this decision has come to be relied upon by this Court
recently in Union of India v. Tarsem Singh MANU/SC/1292/2019 : (2019) 9 SCC 304.
171. What is emphasized before us by the Petitioners is the principle that the object
itself cannot be discriminate. It is pointed out that the object in the case of impugned
provisos between different Sections of financial creditors is such discrimination. Further
the corporate debtors are discriminated again in that builders are accorded special
treatment qua other corporate debtors.
1 7 2 . In Triloki Nath Khosa (supra), this Court was called upon to pronounce on
subordinate legislation which according to writ Petitioners denied them the guarantee of
Article 14. This Court held, inter-alia, as follows:
1 8 . This submission is erroneous in its formulation of a legal proposition
governing onus of proof and it is unjustified in the charge that the record
discloses no evidence to show the necessity of the new Rule. There is always a
presumption in favour of the constitutionality of an enactment and the burden
upon him who attacks it to show that there has been a clear transgression of
the constitutional principles. [Ram Krishan Dalmia v. Justice S.R. Tendolkar
MANU/SC/0024/1958 : AIR 1958 SC 538 : 1959 SCR 279, 297(b): 1959 SCJ
147] A Rule cannot be struck down as discriminatory on any a priori reasoning.
"That where a party seeks to impeach the validity of a Rule made by a
competent authority on the ground that the Rules offend Article 14 the burden
is on him to plead and prove the infirmity is too well established to need
elaboration." The burden thus is on the Respondents to set out facts necessary
to sustain the plea of discrimination and to adduce "cogent and convincing
evidence" to prove those facts for "there is a presumption that every factor
which is relevant or material has been taken into account in formulating the
classification". [State of U.P. v. Kartar Singh MANU/SC/0060/1964 : AIR 1964
SC 1135 : (1964) 6 SCR 679, 687 : (1964) 2 SCJ 666.] In G.D. Kelkar v. Chief
Controller of Imports and Exports [MANU/SC/0059/1966 : AIR 1967 SC 839 :
(1967) 2 SCR 29, 34 : (1967) 2 SCJ 182] Subba Rao, C.J., speaking for the
Court has cited three other decisions of the Court in support of the proposition
that "unless the classification is unjust on the face of it, the onus lies upon the
party attacking the classification to show by pleading the necessary material
before the Court that the said classification is unreasonable and violative of
Article 16 of the Constitution".
19. Thus, it is no part of the Appellants' burden to justify the classification or
to establish its constitutionality.
Discrimination is the essence of classification and does violence to the
constitutional guarantee of equality only if it rests on an unreasonable basis.
3 1 . Classification, however, is fraught with the danger that it may produce
artificial inequalities and therefore, the right to classify is hedged in with salient
restraints; or else, the guarantee of equality will be submerged in class
legislation masquerading as laws meant to govern well marked classes
characterized by different and distinct attainments. Classification, therefore,
must be truly founded on substantial differences which distinguish persons
grouped together from those left out of the group and such differential
attributes must bear a just and rational relation to the object sought to be
achieved.
32. Judicial scrutiny can therefore extend only to the consideration whether the
classification rests on a reasonable basis and whether it bears nexus with the
object in view. It cannot extend to embarking upon a nice or mathematical
evaluation of the basis of classification, for were such an inquiry permisible it
would be open to the Courts to substitute their own judgment for that of the
legislature or the Rule-making authority on the need to classify or the
desirability of achieving a particular object.
(Emphasis supplied)
173. Justice Krishna Iyer in his concurring judgment laid down inter-alia as follows:
Mini-classifications based on micro-distinctions are false to our egalitarian faith
and only substantial and straightforward classifications plainly promoting
relevant goals can have constitutional validity. To overdo classification is to
undo equality.
174. The case in Murthy Match Works (supra), involved a challenge to the levy of
Excise duty on match box directed against medium sized manufacturers and it was
impugned as being discriminatory. This Court's conclusions are apposite and are as
follows:
There can be hostile discrimination while maintaining facade of equality.
13. Right at the threshold we must warn ourselves of the limitations of judicial
power in this jurisdiction. Mr. Justice Stone of the Supreme Court of the United
States has delineated these limitations in United States v. Butler
[MANU/USSC/0159/1936 : (1936) 297 US 1: Tresolini and Shapiro: American
Constitutional Law, 3rd Edn.] thus:
The power of Courts to declare a statute unconstitutional is subject to
two guiding principles of decision which ought never to be absent from
judicial consciousness. One is that Courts are concerned only with the
power to enact statutes, not with their wisdom. The other is that while
unconstitutional exercise of power by the executive and legislative
branches of the government is subject to judicial restraint, the only
check upon our exercise of power is our own sense of self-restraint for
the removal of unwise laws from the statute books appeal lies not to
the Courts but to the ballot and to the processes of democratic
Government.
1 4 . In short, unconstitutionality and not unwisdom of a legislation is the
narrow area of judicial review. In the present case unconstitutionality is alleged
as springing from lugging together two dissimilar categories of match
manufacturers into one compartment for like treatment.
15. Certain principles which bear upon classification may be mentioned here. It
is true that a State may classify persons and objects for the purpose of
legislation and pass laws for the purpose of obtaining revenue or other objects.
Every differentiation is not a discrimination. But classification can be sustained
only it is founded on pertinent and real differences as distinguished from
irrelevant and artificial ones. The constitutional standard by which the
sufficiency of the differentia which form a valid basis for classification may be
measured, has been repeatedly stated by the Courts. If it rests on a difference
which bears a fair and just relation to the object for which it is proposed, it is
constitutional. To put it differently, the means must have nexus with the ends.
Even so, a large latitude is allowed to the State for classification upon a
reasonable basis and what is reasonable is a question of practical details and a
variety of factors which the Court will be reluctant and perhaps ill-equipped to
investigate. In this imperfect world perfection even in grouping is an ambition
hardly ever accomplished. In this context, we have to remember the
relationship between the legislative and judicial departments of Government in
the determination of the validity of classification. Of course, in the last analysis
Courts possess the power to pronounce on the constitutionality of the acts of
the other branches whether a classification is based upon substantial
differences or is arbitrary, fanciful and consequently illegal. At the same time,
the question of classification is primarily for legislative judgment and ordinarily
does not become a judicial question. A power to classify being extremely broad
and based on diverse considerations of executive pragmatism, the Judicature
cannot rush in where even the Legislature warily treads. All these operational
restraints on judicial power must weigh more emphatically where the subject is
taxation.
18. Another proposition which is equally settled is that merely because there is
room for classification it does not follow that legislation without classification is
always unconstitutional. The Court cannot strike down a law because it has not
made the classification which commends to the Court as proper. Nor can the
legislative power be said to have been unconstitutionally exercised because
within the class a sub-classification was reasonable but has not been made.
(Emphasis supplied)
175. In State of Gujarat and Anr. v. Shree Ambica Mills Ltd. MANU/SC/0092/1974 :
(1974) 4 SCC 656, this Court has laid down certain principles relating to under inclusive
and over inclusive classification. This is, no doubt, apart from holding that a law which
contravenes fundamental rights of the citizens may continue to be valid as regards non-
citizens. As regards classification and the vice of under inclusive and over inclusive
classification we may notice the following statement of the law:
5 4 . A reasonable classification is one which includes all who are similarly
situated and none who are not. The question then is: what does the phrase
"similarly situated" mean? The answer to the question is that we must look
beyond the classification to the purpose of the law. A reasonable classification
is one which includes all persons who are similarly situated with respect to the
purpose of the law. The purpose of a law may be either the elimination of a
public mischief or the achievement of some positive public good.
55. A classification is under-inclusive when all who are included in the class
are tainted with the mischief but there are others also tainted whom the
classification does not include. In other words, a classification is bad as under-
inclusive when a State benefits or burdens persons in a manner that furthers a
legitimate purpose but does not confer the same benefit or place the same
burden on others who are similarly situated. A classification is over-inclusive
when it includes not only those who are similarly situated with respect to the
purpose but others who are not so situated as well. In other words, this type of
classification imposes a burden upon a wider range of individuals than are
included in the class of those attended with mischief at which the law aims.
Herod ordering the death of all male children born on a particular day because
one of them would some day bring about his downfall employed such a
classification.
58. The piecemeal approach to a general problem permitted by under-inclusive
classifications, appears justified when it is considered that legislative dealing
with such problems is usually an experimental matter. It is impossible to tell
how successful a particular approach may be, what dislocations might occur,
what evasions might develop, what new evils might be generated in the
attempt. Administrative expedients must be forged and tested. Legislators,
recognising these factors, may wish to proceed cautiously, and courts must
allow them to do so. [See Joseph Tussman and Jacobusten Brook The Equal
Protection of the Law, 37 California Rev 341]
6 2 . In short, the problem of legislative classification is a perennial one,
admitting of no doctrinaire definition. Evils in the same field may be of different
dimensions and proportions requiring different remedies. Or so the legislature
may think (see Tigner v. Texas) [MANU/USSC/0051/1940 : 310 US 141].
64. Laws regulating economic activity would be viewed differently from laws
which touch and concern freedom of speech and religion, voting, procreation,
rights with respect to criminal procedure, etc. The prominence given to the
equal protection Clause in many modern opinions and decisions in America all
show that the Court feels less constrained to give judicial deference to
legislative judgment in the field of human and civil rights than in that of
economic Regulation and that it is making a vigorous use of the equal
protection Clause to strike down legislative action in the area of fundamental
human rights. [See "Developments Equal Protection", 32 Harv, Law Rev 1065,
1127]
65. The question whether, Under Article 14, a classification is reasonable or
unreasonable must, in the ultimate analysis depend upon the judicial approach
to the problem. The great divide in this area lies in the difference between
emphasising the actualities or the abstractions of legislation. The more
complicated society becomes, the greater the diversity of its problems and the
more does legislation direct itself to the diversities.
6 6 . That the legislation is directed to practical problems, that the economic
mechanism is highly sensitive and complex, that many problems are singular
and contingent that laws are not abstract propositions and do not relate to
abstract units and are not to be measured by abstract symmetry, that exact
wisdom and nice adaption of remedies cannot be required, that judgment is
largely a prophecy based on meagre and uninterpreted experience, should stand
as reminder that in this area the Court does not take the equal protection
requirement in a pedagogic manner [See "General theory of law and state" P-
161].
(Emphasis supplied)
1 7 6 . In the decision of this Court in In Re The Special Courts Bill, 1978
MANU/SC/0039/1978 : (1979) 1 SCC 380, a bench of seven learned judges of this
Court laid down certain propositions. We need only allude to those propositions which
are apposite for deciding the fate of these cases before us:
(1) The first part of Article 14, which was adopted from the Irish Constitution,
is a declaration of equality of the civil rights of all persons within the territories
of India. It enshrines a basic principle of republicanism. The second part, which
is a corollary of the first and is based on the last Clause of the first Section of
the Fourteenth Amendment of the American Constitution, enjoins that equal
protection shall be secured to all such persons in the enjoyment of their rights
and liberties without discrimination of favouritism. It is a pledge of the
protection of equal laws, that is, laws that operate alike on all persons under
like circumstances.
(2) The State, in the exercise of its governmental power, has of necessity to
make laws operating differently on different groups or classes of persons within
its territory to attain particular ends in giving effect to its policies, and it must
possess for that purpose large powers of distinguishing and classifying persons
or things to be subjected to such laws.
(3) The constitutional command to the State to afford equal protection of its
laws sets a goal not attainable by the invention and application of a precise
formula. Therefore, classification need not be constituted by an exact or
scientific exclusion or inclusion of persons or things. The courts should not
insist on delusive exactness or apply doctrinaire tests for determining the
validity of classification in any given case. Classification is justified if it is not
palpably arbitrary.
(4) The principle underlying the guarantee of Article 14 is not that the same
Rules of law should be applicable to all persons within the Indian territory or
that the same remedies should be made available to them irrespective of
differences of circumstances. It only means that all persons similarly
circumstanced shall be treated alike both in privileges conferred and liabilities
imposed. Equal laws would have to be applied to all in the same situation, and
there should be no discrimination between one person and another if as regards
the subject-matter of the legislation their position is substantially the same.
(5) By the process of classification, the State has the power of determining who
should be regarded as a class for purposes of legislation and in relation to a
law enacted on a particular subject. This power, no doubt, in some degree is
likely to produce some inequality; but if a law deals with the liberties of a
number of well defined classes, it is not open to the charge of denial of equal
protection on the ground that it has no application to other persons.
Classification thus means segregation in classes which have a systematic
relation, usually found in common properties and characteristics. It postulates a
rational basis and does not mean herding together of certain persons and
classes arbitrarily.
(6) The law can make and set apart the classes according to the needs and
exigencies of the society and as suggested by experience. It can recognise even
degree of evil, but the classification should never be arbitrary, artificial or
evasive.
(7) The classification must not be arbitrary but must be rational, that is to say,
it must not only be based on some qualities or characteristics which are to be
found in all the persons grouped together and not in others who are left out but
those qualities or characteristics must have a reasonable relation to the object
of the legislation. In order to pass the test, two conditions must be fulfilled,
namely, (1) that the classification must be founded on an intelligible differentia
which distinguishes those that are grouped together from others and (2) that
that differentia must have a rational relation to the object sought to be achieved
by the Act.
(8) The differentia which is the basis of the classification and the object of the
Act are distinct things and what is necessary is that there must be a nexus
between them. In short, while Article 14 forbids class discrimination by
conferring privileges or imposing liabilities upon persons arbitrarily selected out
of a large number of other persons similarly situated in relation to the
privileges sought to be conferred or the liabilities proposed to be imposed, it
does not forbid classification for the purpose of legislation, provided such
classification is not arbitrary in the sense abovementioned.
xxx xxx xxx
(11) Classification necessarily implies the making of a distinction or
discrimination between persons classified and those who are not members of
that class. It is the essence of a classification that upon the class are cast duties
and burdens different from those resting upon the general public. Indeed, the
very idea of classification is that of inequality, so that it goes without saying
that the mere fact of inequality in no manner determines the matter of
constitutionality.
(12) Whether an enactment providing for special procedure for the trial of
certain offences is or is not discriminatory and violative of Article 14 must be
determined in each case as it arises, for, no general Rule applicable to all cases
can safely be laid down. A practical assessment of the operation of the law in
the particular circumstances is necessary.
(13) A Rule of procedure laid down by law comes as much within the purview
of Article 14 as any Rule of substantive law and it is necessary that all litigants,
who are similarly situated, are able to avail themselves of the same procedural
rights for relief and for defence with like protection and without discrimination.
177. In Ajoy Kumar Banerjee and Ors. v. Union of India and Ors. MANU/SC/0263/1984
: (1984) 3 SCC 127, this Court, inter-alia, held, while dealing with the challenge to a
scheme, as amended by employees of Insurance Companies, on the grounds that it
violated the fundamental rights of Article 14, 19 (1)g and 31 of the Constitution. This
Court held inter-alia as follows:
Whether the same results or better results could have been achieved and better
basis of differentiation evolved is within the domain of legislature and must be
left to the wisdom of the legislature.
1 7 8 . In the Constitution Bench decision of this Court in Subramanian Swami v.
Director, CBI and Ors. MANU/SC/0417/2014 : (2014) 8 SCC 682 the issue was the
constitutional validity of Section 6A of the Delhi Special Police Establishment Act, 1946.
Section 6A declared that the CBI shall not conduct any inquiry or investigation into any
offence alleged to have been committed under the Prevention of Corruption Act 1988
except with the previous approval of the Central Government where the allegation was
in relation to employees of the Central government of the level of Joint Secretary and
above and also officers appointed by the Central Government in public sector
corporations controlled by the Central Government. It is dealing with this challenge that
this Court went on to hold after refering to the earlier case law including the judgment
of this Court in the Special Courts case (supra) that it is well settled that the Courts do
not substitute their views as to what the policy is. It held as follows:
49. Where there is challenge to the constitutional validity of a law enacted by
the legislature, the Court must keep in view that there is always a presumption
of constitutionality of an enactment, and a clear transgression of constitutional
principles must be shown. The fundamental nature and importance of the
legislative process needs to be recognised by the Court and due regard and
deference must be accorded to the legislative process. Where the legislation is
sought to be challenged as being unconstitutional and violative of Article 14 of
the Constitution, the Court must remind itself to the principles relating to the
applicability of Article 14 in relation to invalidation of legislation. The two
dimensions of Article 14 in its application to legislation and rendering
legislation invalid are now well recognised and these are: (i) discrimination,
based on an impermissible or invalid classification, and (ii) excessive
delegation of powers; conferment of uncanalised and unguided powers on the
executive, whether in the form of delegated legislation or by way of conferment
of authority to pass administrative orders--if such conferment is without any
guidance, control or checks, it is violative of Article 14 of the Constitution. The
Court also needs to be mindful that a legislation does not become
unconstitutional merely because there is another view or because another
method may be considered to be as good or even more effective, like any issue
of social, or even economic policy. It is well settled that the courts do not
substitute their views on what the policy is.
(Emphasised)
179. It was found that the classification made in Section 6A on the basis of status in
Central Government service is not permissible Under Article 14 of the Constitution. The
Court posed the question as to whether there is sound differentiation between corrupt
public servant based on their status. As noted, the provision was found to be
unconstitutional.
180. In the context of the argument that a sub-class cannot be created within a class,
the following decisions of this Court were relied upon by the Union to contend that it
depends on the availability or absence of a rational basis.
181. In MANU/SC/0022/1959 : 1960 1 SCR 39 : AIR 1959 SC 1124, the Petitioners
challenged the constitutionality of the Sugar Export Promotion Act, 1958 apart from
certain orders passed thereunder. The contention taken by the Petitioners was that since
the declared object of the Act was to earn foreign exchange, compelling only sugar
manufacturers which manufactured by vacuum pan process to export sugar was
discriminatory. They also pointed out that manufactures of commodities other than
sugar were not compelled to export in the same manner and there was further
discrimination. It was while repelling this contention that the Court laid down as
follows:
2 1 . In our opinion, this argument is without substance. The power of
Parliament to make laws in relation to foreign exchange is manifest. Entry No.
36 of the Union List specifically confers jurisdiction on Parliament to legislate in
relation to foreign exchange. That Entry, if interpreted widely, would embrace
within itself not only laws relating to the control of foreign exchange but also to
its acquisition to better the economic stability of the country. The need for
foreign exchange to finance the various development schemes was, very
properly, not disputed. It is, thus, plain that the object of the Act is in the
public interest. If we are to exist as a progressive nation, it is very necessary
that we carve out a place for ourselves in the International market. The
beginning has to be made, and many a time, it is at a great loss. That the
Central Government has selected the sugar industry for an export programme
does not mean that it cannot make a classification of the commodities, bearing
in mind which commodity will have an easy market abroad for the purpose of
earning foreign exchange. During the Suez crisis, sugar was exported in large
quantities from this country, and earned 12.4 crores as foreign exchange. There
is nothing on the record to show that export of other commodities was not also
undertaken, though it was pointed out in arguments that manganese ore was
also exported in a similar manner to earn foreign exchange. It is quite obvious
that the Central Government cannot order the export of all and sundry
manufactured commodities from the country, without being assured of a market
in foreign countries. Necessarily, the Government can only embark upon an
export policy in relation to those products, for which there is an easy and
readily available market abroad. For this reason also, sugar produced by the
vacuum pan process may have been selected, because such sugar is perhaps in
demand abroad and not sugar produced by any other process. It must be
realised that goods manufactured in our country have to stand heavy
competition from goods produced abroad, and even this export can only be
made at great sacrifice, and is made only to earn foreign exchange, which
would not, otherwise, be available.
1 8 2 . In MANU/SC/0479/1975 : 1976 2 SCC 310, this Court was dealing with the
challenge to the judgment of the High Court by which it had upheld the challenge by the
Respondent to a Rule which granted power to the Appellant State to grant further
exemption to the members of scheduled castes and scheduled tribes to pass the
departmental test necessary for being considered for promotion. The learned ASG drew
support from the following statement in the judgment by Justice K.K. Mathew:
83. A classification is reasonable if it includes all persons who are similarly
situated with respect to the purpose of the law. In other words, the
classification must be founded on some reasonable ground which distinguishes
persons who are grouped together and the ground of distinction must have
rational relation to the object sought to be achieved by the Rule or even the
Rules in question. It is a mistake to assume a priori that there can be no
classification within a class, say, the lower division clerks. If there are
intelligible differentia which separates a group within that class from the rest
and that differentia have nexus with the object of classification, I see no
objection to a further classification within the class. It is no doubt a paradox
that though in one sense classification brings about inequality, it is promotive
of equality if its object is to bring those who share a common characteristic
under a class for differential treatment for sufficient and justifiable reasons. In
this view, I have no doubt that the principle laid down in All India Station
Masters and Assistant Station Masters Association v. General Manager, Central
Railway MANU/SC/0192/1959 : [(1960) 2 SCR 311 : AIR 1960 SC 384.]; S.G.
Jaisinghani v. Union of India and State of J & K. v. Triloki Nath Khosa
[MANU/SC/0401/1973 : (1974) 1 SCR 771 : (1974)1 SCC 19 : 1974 SCC (L &
S) 49.] has no application here.
183. In Indira Sawney v. Union of India MANU/SC/0104/1993 : 1992 Supp 3 SCC 217,
this Court held, "This merely sees goes to show that even among backward classes,
there can be sub-classification on a reasonable basis."
1 8 4 . In State of West Bengal and Ors. v. Rash Bihari Sarkar and Ors.
MANU/SC/0440/1993 : (1993) 1 SCC 479, exemption was granted under Bengal
Amusements Act, 1922 as amended in 1981 from Entertainment Tax for theatre groups
which were bonafide and which performed not for monetary gain which tax exemption
was not given to theatre groups which performed for monetary gains. Both were theatre
groups. Noticing however, the distinction between the theatre groups, this Court went
on to hold as follows:
4 . Equality means equality in similar circumstances between same class of
persons for same purpose and objective. It cannot operate amongst unequals.
Only likes can be treated alike. But even amongst likes the legislature or
executive may classify on distinction which are real. A classification amongst
groups performing shows for monetary gains and cultural activities cannot be
said to be arbitrary. May be that both the groups carry out the legislative
objective of promoting social and educational activities and, therefore, they are
likes but the distinction between the two on monetary gains and otherwise is
real and intelligible. So long the classification is reasonable it cannot be struck
down as arbitrary. Likes can be treated differently for good and valid reasons.
The State in treating the group performing theatrical shows for advancement of
social and educational purpose, differently, on basis of profit-making from
those formed exclusively for cultural activities cannot be said to have acted in
violation of Article 14.
1 8 5 . In State of Kerala v. Aravind Ramakant Modawdakar and Ors.
MANU/SC/0468/1999 : 1999 7 SCC 400, reduction in taxes was given to inter-state
stage carriage operators which benefit was not extended to intra-state stage carriage
operators. The Court though noted, that both the inter-state operators and intra-state
operators were, in a generic sense, state carriage operators, there was a distinction
between the two. It is apposite to refer to what this Court laid down in para 10 of the
judgment.
10. The validity of Section 22 of the Act has not been questioned which Section
empowers the State in public interest to grant exemptions in such a manner as
it deems fit to a class of people. Once we hold that the contract carriages
covered by intra-State permits and inter-State permits can form two distinct
and separate classes within the larger class of contract carriages, we find it
difficult to hold that this classification is either unreasonable or it lacks a nexus
to the object or is violative of Article 14.
186. In Sansar Chand Atri v. State of Punjab and Anr. MANU/SC/0242/2002 : (2002) 4
SCC 154, relied upon by the Petitioners, for contending that Article 14 frowns upon
creation of a sub-class within a class, the case turned on its facts. What is significant,
however, is the reasoning. The question, in short, was whether the Appellant was an
ex-serviceman or not, on the basis of the provisions of the Punjab Recruitment of Ex-
Servicemen Rules, 1982, as amended by Notification dated 22.09.1992. The contention
of the Respondent was that since the Appellant was discharged from the army on his
own request, he could not be treated as an ex-serviceman. After considering the Rules,
as amended and on the facts, it was held as follows:
8. ...If the contention raised on behalf of the Service Commission and the State
Government that since the Appellant has been discharged from the army at his
own request, he cannot be treated as an ex-serviceman, is accepted then it will
create a class within a class without rational basis and, therefore, becomes
arbitrary and discriminatory. It will also defeat the purpose for which the
provision for reservation has been made.
187. We have already adverted to the decision of this Court in relation to the taboo,
which is alleged by the Petitioners against creating a class within a class.
188. We are of the view that the principles, which governed the legitimacy of the sub-
class within a class, is based, essentially, on the very principles, which are discernible
in regard to reasonable classification Under Article 14. It is clear that the law does not
interdict the creation of a class within a class absolutely. Should there be a rational
basis for creating a sub-class within a class, then, it is not impermissible. This is the
inevitable result of an analysis of the judgments relied upon by the Petitioner
themselves, viz., Sansar Chand Atri v. State of Punjab and Anr. (supra). The decisions,
which have been relied upon by the Union and which we have adverted to, clearly
indicate that a class within a sub-class, is indeed not antithetical to the guarantee of
equality Under Article 14.
189. Now, let us apply the principles, which are indisputable to the facts before us.
Allottees are, indeed, financial creditors. They do possess certain characteristics,
however, which appear to have appealed to the Legislature as setting them apart from
the generality of financial creditors. These features, which set them apart, have been
clearly indicated in the stand of the Union. They are:
i. Numerosity;
ii. Heterogeneity;
iii. The individuality in decision making.
190. Section 21(6A) and Section 25A, constitutionality of which has been upheld by
this Court in Pioneer (supra), would go to show that the debenture holders and security
holders would be covered by 21(6A)(a). As far as the allottees of a real estate project
are concerned, they would be governed by 21(6A)(b). Both these categories, have a
common feature. The distinguishing hallmark which separates them from the generality
of the financial creditor is numerosity. In fact this aspect has been noticed by this Court
in Swiss Robbins (supra)(para 49). By the sheer numbers of these creditors, they have
come in for special treatment Under Section 21(6A). Another feature, which is to be
noticed in this regard in heterogeneity. Lastly, there is also the aspect of individualized
decision-making. Authorized representatives are contemplated in regard to these
categories of financial creditors Under Section 21(6A). The manner in which these
authorized representatives are to vote is also provided in Section 25A. There is another
aspect also to be noticed. Section 7 always contemplated the possibility of a joint
application. The impugned amendments incorporating the provisos 1 and 2 only builds
upon the edifice erected already by way of Section 21(6A) and 25A based on the
experience of the Legislature as also the Report of the Expert Body. This certainly is a
highly important input which persuades us further that the classification in regard to
these classes of financial creditors does not represent forbidden classification.
191. Section 25A of Code, reads as follows:
25A. Rights and duties of authorised representative of financial creditors.-
(1) The authorised representative Under Sub-section (6) or Sub-section
(6A) of Section 21 or Sub-section (5) of Section 24 shall have the right
to participate and vote in meetings of the committee of creditors on
behalf of the financial creditor he represents in accordance with the
prior voting instructions of such creditors obtained through physical or
electronic means.
(2) It shall be the duty of the authorised representative to circulate the
agenda and minutes of the meeting of the committee of creditors to the
financial creditor he represents.
(3) The authorised representative shall not act against the interest of
the financial creditor he represents and shall always act in accordance
with their prior instructions:
Provided that if the authorised representative represents
several financial creditors, then he shall cast his vote in respect
of each financial creditor in accordance with instructions
received from each financial creditor, to the extent of his
voting share:
Provided further that if any financial creditor does not give
prior instructions through physical or electronic means, the
authorised representative shall abstain from voting on behalf of
such creditor.
(3A) Notwithstanding anything to the contrary contained in Sub-section
(3), the authorised representative Under Sub-section (6A) of Section 21
shall cast his vote on behalf of all the financial creditors he represents
in accordance with the decision taken by a vote of more than fifty per
cent of the voting share of the financial creditors he represents, who
have cast their vote:
Provided that for a vote to be cast in respect of an application
Under Section 12A, the authorised representative shall cast his
vote in accordance with the provisions of Sub-section (3).]
(4) The authorised representative shall file with the committee of
creditors any instructions received by way of physical or electronic
means, from the financial creditor he represents, for voting in
accordance therewith, to ensure that the appropriate voting instructions
of the financial creditor he represents is correctly recorded by the
interim resolution professional or resolution professional, as the case
may be.
Explanation.- For the purposes of this section, the "electronic means"
shall be such as may be specified.]
192. We will expatiate on these aspects. In the case of the allottees of a real estate
project, it is the approach of the Legislature that in a real estate project there would be
large number of allottees. There can be hundreds or even thousands of allottees in a
project. If a single allottee, as a financial creditor, is allowed to move an application
Under Section 7, the interests of all the other allottees may be put in peril. This is for
the reason that as stakeholders in the real estate project, having invested money and
time and looking forward to obtaining possession of the flat or apartment and faced
with the same state of affairs as the allottee, who moves the application Under Section
7 of the Code, the other allottees may have a different take of the whole scenario. Some
of them may approach the Authority under the RERA. Others may, instead, resort to the
Fora under the Consumer Protection Act, though, the remedy of a civil suit is, no doubt,
not ruled out. Ordinarily, the allottee would have the remedies available under RERA or
the Consumer Protection Act, as the more effective option. In such circumstances, if the
Legislature, taking into consideration, the sheer numbers of a group of creditors, viz.,
the allottees of real estate projects, finds this to be an intelligible differentia, which
distinguishes the allottees from the other financial creditors, who are not found to
possess the characteristics of numerosity, then, it is not for this Court to sit in judgment
over the wisdom of such a measure.
193. The enquiry, we realize, must not end with finding that there is an intelligible
differentia, to be found in the numerosity, heterogeneity and individuality in decision-
making of the allottees. The law further requires that the differentia must have bear a
rational nexus with the object of the law.
194. The object of the law is clear. A radical departure was contemplated from the
erstwhile regime, which was essentially contained in The Sick Industrial Companies
(Special Provisions) Act, 1985, and which manifested a deep malaise, which impacted
the economy itself. To put it shortly, the procedures involved under the Act, simply
meant procrastination in matters, where speed and dynamic decisions were the crying
need of the hour. The value of the assets of the Company in distress, was wasted away
both by the inexorable and swift passage of time and tardy rate at which the forums
responded to the problem of financial distress. The Code was an imperative need for the
nation to try and catch up with the rest of the world, be it in the matter of ease of doing
business, elevating the rate of recovery of loans, maximization of the assets of ailing
concerns and also, the balancing the interests of all stakeholders. The Code purports to
achieve the object of maximization of the assets of corporate bodies, inter alia, which
have slipped into insolvency. Present a default, which, no doubt, is not barred by time
(subject to the power of the Authority Under Section 5 of the Limitation Act), the
Insolvency Resolution Process can be triggered. It falls into two stages. In the first
stage or the calm period, every attempt is contemplated to rescue the corporate debtor
from falling into liquidation. No doubt the moratorium Under Section 14 is inevitable.
The most significant feature of the Code is the seemingly inexorable time limit, which is
fixed Under Section 12. On the application being admitted Under Section 7(5), an
Interim Resolution Professional makes his appearance. In him, vests the powers to
manage the affairs of the corporate debtor. He may be replaced by a Resolution
Professional or he may be appointed as a Resolution Professional. The most striking
feature of the Code is the constitution of the Committee of Creditors and the role, which
it plays. In short, the show is run by the Resolution Professional, subject to the control
of the Committee of Creditors. The Resolution of Insolvency is essentially sought
through the instrument of a Resolution Plan to be submitted by a Resolution Applicant.
Various restrictions are cast, in regard to a Resolution Applicant, through the device of
Section 29A of the Code. A Resolution Plan is intended to resuscitate an ailing corporate
debtor and keep it going as a going concern. The importance of rescuing ailing
businesses in the form of infusing new life in such concerns, cannot be understated. Its
significance lies in various directions. There would be various categories of creditors, of
which, the legislative choice appears to show some degree of preference for the
financial creditors, particularly in the form of banks and financial institutions. One of
the chief goals of the Code is to prevent the loss of the value of capital. If the recovery
of the loan is effected at the earliest, it translates into the availability of the recovered
capital for being lent to other entrepreneurs, and this is an aspect, which goes to the
root of the matter. With every passing hour, not unnaturally, depreciation will claim its
victim in the form of diminution of value of the assets. Should insolvency pass into the
stage of liquidation, the loss is not only of the concerned businesses, but it also would
represent a loss for the Nation. This is, undoubtedly, apart from the impairment of the
interests of all stakeholders. The stakeholders would include the financial creditors and
the operational creditors, as well. Employees of the failed business, would take a direct
hit. Therefore, the Code accords the highest importance to speed in the matter of
undergoing the process of insolvency.
195. Section 12 contemplates, in short, a maximum period of 330 days from the date
of the insolvency commencement date, which we have already explained. Though, the
word 'mandatorily' has been struck down by this Court in the decision in Committee of
Creditors of Essar Steel India Limited (supra), this Court has only balanced the interest
of all concerned, by permitting an enlargement of the time, only in those cases, where
the delay occurs not on account of the fault of the players concerned and it is based on
the principle actus curiae neminem gravabit, which means that the act of Court shall
prejudice no man. This Court has not undermined the timeline fixed by the Legislature
and, in fact, it has underlined the importance of conforming to the time limit. Speed,
indeed, continues to be of the essence of the Code.
196. The speed, with which the processes can be conducted and completed, is based
on the volume of the litigation. The Adjudicating Authorities and the Appellate Bodies,
viz., N.C.L.A.T., are authorities under other enactments, as well. They are hard-pressed
for time. The matters, which are covered by the Code, may present convoluted facts.
The issues may bristle with complications, both in points of law and also facts. If, out
of a large body of financial creditors belonging to a sub-group, as for instance allottees
of a real estate project, were to be given the freedom to activise the Code, then, the
possibility of multiple individual actions, is a spectre, which the Legislature, must be
presumed to be aware of. In other words, the Legislature became alive to the peril of
entire object of the Code, being derailed by permitting the individual players crowding
the docket of the Authorities under the Code, and resultantly, reviving the very state of
affairs, which compelled the Legislature to script a new dawn in this area of law.
Instead, having regard to the numerosity, the Legislature has thought it fit to adopt a
balanced approach by not taking the allottee out of the fold of the financial creditors
altogether. The allottee continues to be a financial creditor. All that is envisaged is the
legislative value judgment that a critical mass is indispensable for allottees to be
present before the Code, can be activised. The purport of the critical mass of applicants
would ensure that a reasonable number of persons similarly circumstanced, form the
view that despite the remedies available under the RERA or the Consumer Protection Act
or a civil suit, the invoking of the Code is the only way out, in a particular case. As held
by this Court, in Pioneer (supra), after having analyzed, what awaits an allottee, moving
an application Under Section 7 of the Code, as contrasted with what he could get under
RERA or what we note under the Consumer Protection Act and finding that the Code
would be ordinarily activised by an allottee, when he feels that the solution lies in the
remedy provided under the Code, viz., replacing the management of the real estate
project with a new management, this Court took notice of the fact that should
Insolvency Resolution reach a stage of liquidation, being unsecured creditors, the
allottees would not even get the amount, which he has invested. In fact, after insertion
of the explanation to Section 33(2) at any time after a committee of creditors is
constituted such an eventuality is possible. In short, numerosity of the allottees of a
real estate project, necessitated, in the view of the Legislature, as gleaned from the
provisions, to condition an absolute right, which does have a clear rational nexus with
the object sought to be achieved. We have noticed, one of the objects is the balancing
of the interests of all stakeholders. By imposing a threshold limit of either hundred
allottees or if the number of allottees going by the criteria of one-tenth of the allottees
is, even less than hundred, then, the said number of allottees must agree to invoke the
Code. This is again, based on the intelligible differentia of heterogeneity. By
heterogeneity, is meant, differences between a seemingly homogenous group. All
allottees of a real estate project form a class. All of them have stakes in the prompt and
effective completion of the real estate project. We must proceed on the basis that what
the allottee would legitimately look forward is the completion of the project and the
handing over of the possession of the flat or apartment in due time. The achievement of
this object, which must be attributed reasonably to each and every allottee, as his goal,
may be possible in the views of different allottees differently. As noted, there is a
plurality of remedies, which the law provides. More importantly, the outcome of
activising the Code, is almost like an uncertain wager. The outcome of invoking the
Code by individual allottees would be apart from clogging the dockets of the
Adjudicating Authorities with even more voluminous files leading to greater delay, that
at the instance of such individual allottees, what would be perceived as an avoidable
calamity, is perpetuated. In other words, while a vast majority of allottees may see
reason in either giving time and reposing faith in existing management of real estate
project or successfully invoking the other remedies available to them, an individual
allottee, out of the heterogenous group, would throw the spanner in the works and
bring the entire real estate project itself to a possible doom. Under the newly added
Explanation to Section 33(2), at any time, after the constitution of the Committee of
Creditors, there can be liquidation.
197. The third distinguishing feature, which has been projected by the Union, is the
difference in individuality in decision-making process, attributed to the allottees. This
means that unlike a bank or a financial institution, where the decision-making process
is more institutionalized, an individual allottee, left free to file an application Under
Section 7, would exhibit a high-level of subjectivity. As the learned ASG points out, and
which is also part of the argument, based on both, numerosity and heterogeneity, what
Parliament has instated upon is, the presence of the commendable value of exhibiting
concern for the other allottees, who may think completely differently about the wisdom
of invoking the Code. Here again, this distinguishing feature, which becomes an
intelligible differentia, in the view of the Legislature, and which cannot be shown to be
demonstrably a mere pretense, it bears a rational nexus with the objects of the Code,
which we have already delineated. To recapitulate, the individual allottee, with a high-
level of subjectivity in decision-making, may take a plunge at invoking the Code,
without having a more global view of the consequences, which will follow. Any such
attempt would only be dubbed as frivolous. This attempt by individual allottees would
have the following consequences:
i. It would crowd an already heavy docket;
ii. It would consequently slow down the processes under the Code, even with
respect to matters, which may be more genuine and require greater and more
timely attention;
iii. It will defeat the object of the balancing the interests of all stakeholders. We
must indicate that the aspect about delaying of the processes, when allottees
are pulling at each other, having conflicting views about the appropriateness of
the Code being invoked, is the clear prospect of allottees coming into collision
in the Fora by way of opposing the application, would be an undeniable reality.
This is despite the fact that it could always be argued by the individual allottee
that what the law mandates in Section 4, is only the proving of the fact of
default in a sum of Rs. 1 crore, as thing stand. It is also the argument of the
Petitioners that since what is relevant for the other financial creditors, is
proving the default of Rs. 1 crore, the insistence on a threshold for allottees
alone, makes it discriminatory. Allottees being financial creditors, must be
assumed to know what is in their best interest. What is given through one
hand, cannot be taken away by another, is another allied submission. It is also
contended that there is no empirical evidence of there being misused, after the
judgment of this Court in Pioneer (supra), upholding the rights of the allottees,
including debunking the argument that a lone ranger will end up abusing the
system;
1 9 8 . This aspect, in fact, is countered by the learned ASG, by reeling out facts.
Between 2016, when the Code was enacted and June, 2018, there were 241 applications
by the allottees. In the aftermath of the amendment, i.e., from 06.06.2018, there was a
sudden spurt of applications by allottees (2201 cases in a short span of about eighteen
months). This is again sought to be contrasted by a mere 130 applications, which came
to be filed from 29.12.2019, over a period of eight months till August, 2020. There is
also the case for the Union that an Expert Body, viz., the Committee has recommended
for the threshold. This recommendation was born out of experience of the pitfalls,
which follow, allowing a completely free hand to individual allottees to move the
application. We are not impressed by reference to the discordant notes struck, both by
reason of the nature of jurisdiction we exercise as also the merit we see otherwise in
the rationale behind the law.
199. We see considerable merit in the stand of the Union. This is not a case where
there is no intelligible differentia. The law under scrutiny is an economic measure. As
laid down by this Court, in dealing with the challenge on the anvil of Article 14, the
Court will not adopt a doctrinaire approach. Representatives of the people are expected
to operate on democratic principles. The presumption is that they are conscious of every
fact, which would go to sustain the constitutionality of the law. A law cannot operate in
a vacuum. In the concrete world, when the law is put into motion in practical
experiences, bottlenecks that would flow from its application, are best envisaged by the
Law Givers. Solutions to vexed problems made manifest through experience, would
indeed require a good deal of experimentation, as long as it passes muster in law. It is
no part of a court's function to probe into what it considers to be more wise or a better
way to deal with a problem. In economic matters, the wider latitude given to the Law
Giver is based on sound principle and tested logic over time. In fact, though there is no
rigid separation of powers in India, as it obtains in the United States, there is broadly
separation of powers, which in fact, has been recognized as a basic feature of the
Constitution (see His Holiness Kesavananda Bharti Sripadagalvaru v. State of Kerala and
Anr. MANU/SC/0445/1973 : (1973) 4 SCC 225). In any case, the Court errs in the
judicial veto of legislation, in a manner of speaking, it is usurping the power, which is
earmarked to another organ of the State, viz., the Legislature. The large number of
validating acts would produce undeniable proof of the same.
ALLOTTEES v. OPERATIONAL CREDITORS
2 0 0 . One of the contentions raised by Petitioners is as regards the hostile
discrimination between Petitioner (allottees) and operational creditors. The advantages
which, financial creditor have over operational creditors is referred to.
2 0 1 . In regard to the advantages, which the financial creditors enjoyed over
operational creditors, which constituted also differences between them, the following
are highlighted, apart from the difference in procedure, by which, the operational
creditor could stand ousted, if the corporate debtor could set up a plausible dispute:
i. Firstly, it is pointed out that the financial creditor is on the Committee of
Creditors and manages the affairs of the debtor with the Resolution
Professional; The operational creditors have no such power.
ii. Financial creditors decide who is to be the Resolution Professional;
iii. The financial creditors approve or disapprove the resolution plan.
iv. Almost, all, major decisions require the sanction of financial creditors.
v. Financial debts enjoy priority over third party, operational claims Under
Section 53 in liquidation. It is despite all this, post the impugned amendment, a
large number of financial creditors covered by the provisos are required to
initiate a proceeding. It is palpably arbitrary. The financial creditor in the
category of the allottees are now worse off.
202. As far as the argument relating to violation of Article 14 qua operational creditor
is concerned, we are of the view that there is no merit in the same. Quite apart from the
fact that under the code they are dealt with under different provisions and a different
procedure is entailed thereunder, even the decisions of this Court relied on by the
allottees have treated the financial creditor differently from the operational creditor.
203. In Innoventive Industries Limited v. ICICI Bank and Anr. MANU/SC/1063/2017 :
(2018) 1 SCC 407, this Court elaborately analysed the scheme of the Code and the
distinction between the financial creditors and the operational creditors. This Court
noticed that in the case of application, Under Section 8, by an operational creditor, the
corporate debtor within ten days of the notice, issued Under Section 8 can bring to the
notice of the operational creditor, the existence of the dispute or a record of a
proceeding in a court or before an Arbitrator. This exercise, successfully carried out by
the corporate debtor, will enable it to get out of the purview of the Code. In case of a
financial creditor, if the debt is due, that it is payable unless it is interdicted by some
law or it has not become due, the default, contemplated under the Code, has occurred
and the application, filed by the financial creditor, must be admitted and the matter
proceeded with.
2 0 4 . In Swiss Ribbons (supra) the classification in controversy was between
operational and financial creditor. Apart from dealing with the policy behind the Code
and the reasons which led to it, this Court inter alia held as follows:
42. A perusal of the definition of "financial creditor" and "financial debt" makes
it clear that a financial debt is a debt together with interest, if any, which is
disbursed against the consideration for time value of money. It may further be
money that is borrowed or raised in any of the manners prescribed in Section
5(8) or otherwise, as Section 5(8) is an inclusive definition. On the other hand,
an "operational debt" would include a claim in respect of the provision of goods
or services, including employment, or a debt in respect of payment of dues
arising under any law and payable to the Government or any local authority.
4 3 . A financial creditor may trigger the Code either by itself or jointly with
other financial creditors or such persons as may be notified by the Central
Government when a "default" occurs. The Explanation to Section 7(1) also
makes it clear that the Code may be triggered by such persons in respect of a
default made to any other financial creditor of the corporate debtor, making it
clear that once triggered, the resolution process under the Code is a collective
proceeding in rem which seeks, in the first instance, to rehabilitate the
corporate debtor. Under Section 7(4), the adjudicating authority shall, within
the prescribed period, ascertain the existence of a default on the basis of
evidence furnished by the financial creditor; and Under Section 7(5), the
adjudicating authority has to be satisfied that a default has occurred, when it
may, by order, admit the application, or dismiss the application if such default
has not occurred. On the other hand, Under Sections 8 and 9, an operational
creditor may, on the occurrence of a default, deliver a demand notice which
must then be replied to within the specified period. What is important is that at
this stage, if an application is filed before the adjudicating authority for
initiating the corporate insolvency resolution process, the corporate debtor can
prove that the debt is disputed. When the debt is so disputed, such application
would be rejected.
49. It is obvious that debenture-holders and persons with home loans may be
numerous and, therefore, have been statutorily dealt with by the aforesaid
change made in the Code as well as the Regulations. However, as a general
rule, it is correct to say that financial creditors, which involve banks and
financial institutions, would certainly be smaller in number than operational
creditors of a corporate debtor.
50. According to us, it is clear that most financial creditors, particularly banks
and financial institutions, are secured creditors whereas most operational
creditors are unsecured, payments for goods and services as well as payments
to workers not being secured by mortgaged documents and the like. The
distinction between secured and unsecured creditors is a distinction which has
obtained since the earliest of the Companies Acts both in the United Kingdom
and in this country. Apart from the above, the nature of loan agreements with
financial creditors is different from contracts with operational creditors for
supplying goods and services. Financial creditors generally lend finance on a
term loan or for working capital that enables the corporate debtor to either set
up and/or operate its business. On the other hand, contracts with operational
creditors are relatable to supply of goods and services in the operation of
business. Financial contracts generally involve large sums of money. By way of
contrast, operational contracts have dues whose quantum is generally less. In
the running of a business, operational creditors can be many as opposed to
financial creditors, who lend finance for the set-up or working of business.
Also, financial creditors have specified repayment schedules, and defaults
entitle financial creditors to recall a loan in totality. Contracts with operational
creditors do not have any such stipulations. Also, the forum in which dispute
resolution takes place is completely different. Contracts with operational
creditors can and do have arbitration clauses where dispute resolution is done
privately. Operational debts also tend to be recurring in nature and the
possibility of genuine disputes in case of operational debts is much higher
when compared to financial debts. A simple example will suffice. Goods that
are supplied may be substandard. Services that are provided may be
substandard. Goods may not have been supplied at all. All these qua
operational debts are matters to be proved in arbitration or in the courts of law.
On the other hand, financial debts made to banks and financial institutions are
well documented and defaults made are easily verifiable.
51. Most importantly, financial creditors are, from the very beginning, involved
with assessing the viability of the corporate debtor. They can, and therefore do,
engage in restructuring of the loan as well as reorganisation of the corporate
debtor's business when there is financial stress, which are things operational
creditors do not and cannot do. Thus, preserving the corporate debtor as a
going concern, while ensuring maximum recovery for all creditors being the
objective of the Code, financial creditors are clearly different from operational
creditors and therefore, there is obviously an intelligible differentia between the
two which has a direct relation to the objects sought to be achieved by the
Code.
xxx xxx xxx xxx
119. It will be seen that the reason for differentiating between financial debts,
which are secured, and operational debts, which are unsecured, is in the
relative importance of the two types of debts when it comes to the object
sought to be achieved by the Insolvency Code. We have already seen that
repayment of financial debts infuses capital into the economy inasmuch as
banks and financial institutions are able, with the money that has been paid
back, to further lend such money to other entrepreneurs for their businesses.
This rationale creates an intelligible differentia between financial debts and
operational debts, which are unsecured, which is directly related to the object
sought to be achieved by the Code. In any case, workmen's dues, which are
also unsecured debts, have traditionally been placed above most other debts.
Thus, it can be seen that unsecured debts are of various kinds, and so long as
there is some legitimate interest sought to be protected, having relation to the
object sought to be achieved by the statute in question, Article 14 does not get
infracted. For these reasons, the challenge to Section 53 of the Code must also
fail.
205. It must be remembered that the principles laid down came to be made in the
context of challenge to the provisions of the Code pointing out violation of Article 14
insofar as the classification between operational creditor and financial creditor was
alleged to be contrary to Article 14.
206. In Pioneer (supra) the case and the decision is closer to the facts before us. The
challenge was to the amendments to the Code including the explanation added to
Section 5(8) to the Code. As we have noted the explanation purports to clarify that any
loan raised from an allottee under the real estate project is to be deemed to be an
amount having commercial effect of borrowing. Apart from the said provision, there
were other provisions also called in question. This Court proceeded to find inter alia as
follows:
The amendment by way of insertion of explanation in 5(8)(f) was only
clarificatory of the existing law. The allottees of flats and apartments were
subsumed within the provisions of Section 5(8)(f). In other words, an allottee
was a financial creditor. After a conspectus of the provisions the Code and the
RERA, this Court also held that the RERA and the Code co-exist and in the event
of the confrontation, the Code will hold sway. RERA was thus found to be not a
special statute which will override the general statute namely the Code. Dealing
with the challenge to the amendment to the Code on the ground that there is
violation of Article 14 on the basis that the equals are being treated unequally
and unequals are being treated equally this Court found it unacceptable. This
Court found the amendment to be an economic measure. This Court also
pointed out the perils associated with an allottee pursuing remedy under the
Code in paragraph 41 and thereafter went on to hold as follows:
42. It is impossible to say that classifying real estate developers is not
founded upon an intelligible differentia which distinguishes them from
other operational creditors, nor is it possible to say that such
classification is palpably arbitrary having no rational relation to the
objects of the Code. It was vehemently argued by the learned Counsel
on behalf of the Petitioners that if at all real estate developers were to
be brought within the clutches of the Code, being like operational
debtors, at best they could have been brought in under this rubric and
not as financial debtors. Here again, what is unique to real estate
developers vis-à-vis operational debts, is the fact that, in operational
debts generally, when a person supplies goods and services, such
person is the creditor and the person who has to pay for such goods
and services is the debtor. In the case of real estate developers, the
developer who is the supplier of the flat/apartment is the debtor
inasmuch as the home buyer/allottee funds his own apartment by
paying amounts in advance to the developer for construction of the
building in which his apartment is to be found. Another vital difference
between operational debts and allottees of real estate projects is that
an operational creditor has no interest in or stake in the corporate
debtor, unlike the case of an allottee of a real estate project, who is
vitally concerned with the financial health of the corporate debtor, for
otherwise, the real estate project may not be brought to fruition. Also,
in such event, no compensation, nor refund together with interest,
which is the other option, will be recoverable from the corporate
debtor. One other important distinction is that in an operational debt,
there is no consideration for the time value of money--the
consideration of the debt is the goods or services that are either sold or
availed of from the operational creditor. Payments made in advance for
goods and services are not made to fund manufacture of such goods or
provision of such services. Examples given of advance payments being
made for turnkey projects and capital goods, where customisation and
uniqueness of such goods are important by reason of which advance
payments are made, are wholly inapposite as examples vis-à-vis
advance payments made by allottees. In real estate projects, money is
raised from the allottee, being raised against consideration for the time
value of money. Even the total consideration agreed at a time when the
flat/apartment is non-existent or incomplete, is significantly less than
the price the buyer would have to pay for a ready/complete
flat/apartment, and therefore, he gains the time value of money.
Likewise, the developer who benefits from the amounts disbursed also
gains from the time value of money. The fact that the allottee makes
such payments in instalments which are co-terminus with phases of
completion of the real estate project does not any the less make such
payments as payments involving "exchange" i.e. advances paid only in
order to obtain a flat/apartment. What is predominant, insofar as the
real estate developer is concerned, is the fact that such instalment
payments are used as a means of finance qua the real estate project.
One other vital difference with operational debts is the fact that the
documentary evidence for amounts being due and payable by the real
estate developer is there in the form of the information provided by the
real estate developer compulsorily under RERA. This information, like
the information from information utilities under the Code, makes it easy
for homebuyers/allottees to approach NCLT Under Section 7 of the
Code to trigger the Code on the real estate developer's own information
given on its webpage as to delay in construction, etc. It is these
fundamental differences between the real estate developer and the
supplier of goods and services that the legislature has focused upon
and included real estate developers as financial debtors. This being the
case, it is clear that there cannot be said to be any infraction of equal
protection of the laws.
4 3 . Shri Shyam Divan relying upon Nagpur Improvement Trust v.
Vithal Rao [Nagpur Improvement Trust v. Vithal Rao,
MANU/SC/0518/1972 : (1973) 1 SCC 500] SCC para 26 and
Subramanian swamy v. CBI [Subramanian Swamy v. CBI,
MANU/SC/0417/2014 : (2014) 8 SCC 682 : (2014) 6 SCC (Cri.) 42 :
(2014) 3 SCC (L&S) 36] SCC paras 44, 58 and 68 argued that the
object of the amendment is itself discriminatory in that it seeks to
insert into a "means and includes" definition a category which does not
fit therein, namely, real estate developers who do not, in the classical
sense, borrow monies like banks and financial institutions. According to
him, therefore, the object itself being discriminatory, the inclusion of
real estate developers as financial debtors should be struck down. We
have already pointed out how real estate developers are, in substance,
persons who avail finance from allottees who then fund the real estate
development project. The object of dividing debts into two categories
under the Code, namely, financial and operational debts, is broadly to
sub-divide debts into those in which money is lent and those where
debts are incurred on account of goods being sold or services being
rendered. We have no doubt that real estate developers fall squarely
within the object of the Code as originally enacted insofar as they are
financial debtors and not operational debtors, as has been pointed out
hereinabove. So far as unequals being treated as equals is concerned,
homebuyers/allottees can be assimilated with other individual financial
creditors like debenture holders and fixed-deposit holders, who have
advanced certain amounts to the corporate debtor. For example, fixed-
deposit holders, though financial creditors, would be like real estate
allottees in that they are unsecured creditors. Financial contracts in the
case of these individuals need not involve large sums of money.
Debenture holders and fixed-deposit holders, unlike real estate holders,
are involved in seeing that they recover the amounts that are lent and
are thus not directly involved or interested in assessing the viability of
the corporate debtors. Though not having the expertise or information
to be in a position to evaluate feasibility and viability of resolution
plans, such individuals, by virtue of being financial creditors, have a
right to be on the Committee of Creditors to safeguard their interest.
Also, the question that is to be asked when a debenture holder or
fixed-deposit holder prefers a Section 7 application under the Code will
be asked in the case of allottees of real estate developers--is a debt
due in fact or in law? Thus, allottees, being individual financial
creditors like debenture holders and fixed-deposit holders and
classified as such, show that they are within the larger class of financial
creditors, there being no infraction of Article 14 on this score.
207. Thus, we notice the following aspects:
In Swiss Robbins (supra) on the basis of the challenge involved to the
legislation, this Court noted that a financial creditor can trigger the Code either
by itself or jointly with other financial creditors when a default occurs. The
procedure in regard to operational creditors is however different. At the stage
prior to admission of the application, it is open to the corporate debtor to show
that the debt is disputed in which event the application stands rejected. In
paragraph-49, this Court took the view that the debenture holder and the
persons with home loans may be numerous and therefore have been statutorily
dealt with by the changes made in the Code. But as a general Rule it was found
that financial creditors which involved banks and financial institutions will be
certainly smaller than the operational creditors. Further it was held that most
financial creditors particularly Banks and financial institutions are secured
creditors whereas most operational creditors are unsecured. In para 50 of Swiss
Ribbon this Court distinguished between secured and unsecured creditors and
noted that a divide existed from the earliest of the Companies Acts both in U.K.
and in India. Financial creditors generally lend on a term loan or for working
capital. Operational creditors are creditors on account of supply of goods and
services. The sums involved in the financial contracts are generally large sums
in contrast with amounts involved in operational credit which are generally less.
Repayment schedules are different. Other distinctions are noticed between the
two. It is further found that even more importantly financial creditors are
involved with the assessing of viability of the corporate debtor from the very
beginning. This enables the financial creditor to indulge in restructuring of the
loan. Preserving the corporate debtor as a going concern while securing the
highest recovery for all creditors is the objective of the Code. Financial
creditors were therefore clearly different from operational creditors. There is
obviously an intelligible differentia between the two which has the direct
relation with the object to the object which is to be achieved by the Code. This
Court further noticed in the context of challenge to Section 53 of the Code
which deals with the manner of distribution of assets of corporate debtor in
liquidation proceedings, that there is difference in relative importance between
financial debt which are secured and operational debts which are unsecured.
The distinction was found in the relative importance of two types of debts when
it comes to the objects sought to be achieved. This Court was of the view when
repayment takes place in regard to financial creditors it leads to fresh infusion
of capital into the economy which results in the money being available to be
lent to other businessmen.
208. In Swiss Ribbons (supra), dealing with the challenge to the provisions based on
Article 14 of the Constitution of India, this Court adopted the following reasoning.
Financial creditors were essentially identified as being banks and other financial
institutions. Banks and financial institutions, are generally secured creditors. The
procedure adopted by these institutions, right from the time the loan is applied for, and
it being processed, the largeness of the sums involved, the method of repayment, the
rearrangement of the repayment of the loan, the study conducted, in fact, before the
loan is given the control, which the banks and the financial institutions retain over the
debtor, and finally, the importance of the repayment to such institutions, for the
economic stability and progress of the country, by way of the recovered amounts being
infused a fresh capital for other entrepreneurs, was contrasted with the operational
debtors, who were, in the first place, unsecured creditors, generally. Operational
creditors are creditors to whom the corporate debtor owes money for having availed
goods and services. The features which mark out the banks and financial institution
were found in applicable to the operational creditors.
209. Coming to Pioneer (supra), this Court has recognized that allottees under a real
estate project are unsecured creditors (See paragraph-61, wherein it is so found).
Equally, it is noted in paragraph-43 as follows:
43. for example, fixed deposit holders, though financial creditors, would be like
real estate allottees in that they are unsecured creditors.
2 1 0 . It is further found that financial contracts in the case of these individuals,
(allottees) need not involve large sums of money [See paragraph-43 of Pioneer
(supra)].
211. It could be urged, therefore, that the real foundation on the basis of which, this
Court justified the difference in procedure Under Section 7 on the one hand and
Sections 8 and 9 on the other hand between financial creditors and operational
creditors, is that after conflating financial creditors with banks and financial institutions
and noting them to be secured creditors, lending large sums of money, both of which
features are not present in the case of an allottees under a real estate project as
allottees remain unsecured creditors and also their contract need not involve large sums
of money, they should, therefore, fall to be treated at least like the operational creditors
with whom they bear the greater resemblance. What is complained of is before the
impugned amendments, allottees being treated as part of the larger group of financial
creditors, could invoke the provisions of Section 7 singly and without having to garner
the support of any fellow traveller. The operational debtor could also, likewise, file such
an application without having to search around for kindred souls. After the amendment,
however, the advantageous position which was occupied by the allottee as a financial
creditor, has been extinguished and the allottee is worse off than even an operational
creditor. This is for the reason that a single operational creditor could all by himself,
activise the Code whereas the allottee is left far behind. This amounts to treating the
allottee with discrimination.
212. While it may be true that the allottee is not a secured creditor and he is not in the
position of a bank or the financial institution, the contentions of the Petitioners that
there is hostile discrimination forbidden Article 14 is untenable. There cannot be any
doubt that intrinsically a financial creditor and an operational creditor are distinct. An
operational creditor is one to whom money is due on account of goods or services
supplied to the debtor. The financial creditor on the other hand, is so described, on
account of there being the element of borrowing. This distinction is indisputable. The
other distinctions are articulated with clarity in paragraph-42 of the judgment of this
Court in Pioneer (supra) which we have already adverted to. As noticed by this Court,
what is unique to the real estate developer vis-à-vis operational debts is that the
developer is the debtor as an allottee funds his own apartment by paying amounts in
advance. On the other hand, in case of operational debt, the person who has supplied
the goods and services, becomes the creditor and the corporate debtor is one who has
availed such services. Another distinction noticed is that an operational creditor has no
interest or stake in the corporate debtor. The allottee is, on the other hand, vitally
concerned with the financial health of the corporate debtor. Should financial ruin occur,
the real estate project will come to a nought. Should such an event take place also, the
allottee would not be in a position to either claim or get compensation or even refund
with interest. Thirdly, as again noticed by this Court, there is no consideration for the
time value of money in the operational debt. This is not so in the case of an allottee.
The non-availability of documentary evidence in respect of operational debts as against
information available under the RERA qua real estate developers is yet another feature
which was noticed in Pioneer (supra) dealing with the differences between an
operational debtor and an allottee.
213. The operational debtor, is concerned with the payment of the amount due to it for
the goods and services supplied. When an allottee invests money in a real estate
project, his primary and principal concern is that the project is completed and he gets
possession of the apartment or the flat. The problem really arises as there are many
stakeholders whose interests are affected. It cannot be in dispute that under the law, an
allottee can seek remedies under the RERA. An allottee can also seek remedies under
the Consumer Protection Act or even file a suit. No doubt, Section 71 of the RERA
permits a person who has filed a complaint in respect of matters governed by Sections
12, 14, 18 and 19 of RERA to withdraw the complaint and file the same before the
Adjudicating Officer under RERA. There are large number of cases where allottee seek
refuge either under the RERA or under the Consumer Protection Act. An action under the
Code by way of an application Under Section 7 is an action in rem. The recovery of the
amounts paid is not what is primarily contemplated under the Code. In paragraph-41 of
judgment of this Court in Pioneer (supra), this Court has painted the rather dismal but
realistic picture of the fruits of litigation launched Under Section 7 by an allottee of a
real estate project. This Court has gone on to hold that only such allottee who has
completely lost faith in management would come Under Section 7 in hope that some
other developer will take over and complete the project. At the same time, this Court
noticed that such an adventure would be in the teeth of an impending peril, that should
things do not go as planned, corporate demise follows and the allottee would stand
reduced to receiving whatever little may remain and found on the basis that he is a
mere unsecured creditor in the order of priority prescribed Under Section 53 of the
Code. This Court has painted a more rosy picture for an allottee approaching under the
RERA, as there is a great likelihood, it is noted that the project could be completed or
the full amount of refund together with penalty is awarded. Thus, the vires of the
impugned provisions must be judged without turning a blind eye to the distinction
between the wisdom and the legislative value judgment behind the Statute being
immune from judicial scrutiny on the one hand and a hostile discrimination falling foul
of the mandate of equality Under Article 14, being fatal to the Statute. In this case,
while it may be true that the allottees are unsecured creditors and in that regard, they
are similar to the operational creditors and it also may be true that many contracts
under real estate projects, may not involve large sums as the subject matter of
advances by banks and other financial institutions, the similarity between the two ends
there. What is of greater importance is the distinctions which we have already noted
and the most vital point which sets them apart, in the matter of pronouncing on the
vires of the provisos Under Section 7 is the numerosity of the allottees, and what is
more not being homogeneous in what they want in a particular situation, since the law
has indeed endowed the allottees with different remedies, having different implications,
be it under the Consumer Protection Act or under RERA. If the Legislature felt that
having regard to the consequences of an application under the Code, when such a large
group of persons, pull at each other, an additional threshold be erected for exercising
the right Under Section 7, certainly, it cannot suffer a constitutional veto at the hands of
Court exercising judicial review of legislation. In fact, this Court in Pioneer was invited
to hold that the allottees were more like operational creditors than financial creditors
and many aspects were pointed out and this Court after referring to the differences
pointed out to it in a tabular form in [para 48], rejected the contentions. The rejection
is supported with reference to the findings in Swiss Robbin (supra) which is alluded to
in para 32 of Pioneer (supra).
214. It is to be noted also that it is not a case where the right of the allottee is
completely taken away. All that has happened is a half-way house is built between
extreme positions, viz., denying the right altogether to the allottee to move the
application Under Section 7 of the Code and giving an unbridled license to a single
person to hold the real estate project and all the stakeholders thereunder hostage to a
proceeding under the Code which must certainly pass inexorably within a stipulated
period of time should circumstances exists Under Section 33 into corporate death with
the unavoidable consequence of all allottees and not merely the applicant Under Section
7 being visited with payment out of the liquidation value, the amounts which are only
due to the unsecured creditor.
It must be remembered that, the point of distinction, between a financial creditor in this
case, the allottees of a real estate project and the operational creditors, as contained in
Section 7 on the one hand and Sections 8 and 9 are preserved. In other words, the
operational creditor still has to cross the threshold of not being shut off from the
application not being processed in the teeth of the defense allowed to the corporate
debtor in regard to an operational creditor. All that has happened is the Legislature in
its wisdom has found that the greater good lies in conditioning an absolute right which
existed in favour of an allottee by requirements which would ensure some certain
element of consensus among the allottees. It must be remembered that the requirement
is a mere one-tenth of the allottees. This is a number which goes to policy and lies
exclusively within the wisdom of the Legislature. Hence, we have no hesitation in
repelling the contentions in this regard.
DEBENTURE HOLDERS/SECURITY HOLDERS: THE CHALLENGE TO THE FIRST IMPUGNED
PROVISO
215. Shri Rana Mukherjee, learned Senior Counsel in W.P.(C) No. 579 of 2020 would
submit that the first proviso appears to be clearly the result of a mistake. It is
contended that the target of the legislature was the problem created by individual
allottees invoking Section 7 of IBC. As far as his clients are concerned, they are
debenture holders and other security holders to whom debt is owed by the corporate
debtor. There is no rational basis for imposing a threshold requirement upon the
security holders. Reference is made to the mention of 'class'.
216. Learned Counsel would commend to us the principle of absurdity. It is pointed out
that the principle of absurdity should guide this Court to read down the first proviso to
not apply it in regard to security holders and debenture holders. In this regard our
attention has been drawn to the decision of this Court in Vasant Ganpat Padave (D) by
L.Rs. and Ors. v. Anant Mahadev Sawant (D) through L.Rs.and Ors.
MANU/SC/1285/2019 : (2019) 12 SCALE 579. It is further brought to the notice of the
court that the provision suffers from manifest arbitrariness. Counsel relies upon the
judgment of this Court in Shayara Bano v. Union of India and Ors. MANU/SC/1031/2017
: (2017) 9 SCC 1 decision which witnessed the striking down of the law relating to
triple talak. Per contra, it is the stand of the Union that Section 21(6A)(a) and (b) read
with Section 25A of the Code contemplated certain classes of financial creditors as
falling in a separate class by themselves.
217. It is the stand of the Union that in regard to certain classes of creditors, financial
creditors, i.e., having regard to the large numbers, they were to be treated differently.
It is accordingly that with the insertion of Sub-section (6A) in Section 21 with Clause
(a) dealing with security holders including debenture holders which would cover the
Petitioners that an authorised representative was to be appointed to be on the
committee of creditors.
218. Section 25A provides for the rights and liabilities of the authorised representatives
who include the authorised representatives of debenture holders, security holders and
finally the allottees. As far as allottees are concerned, it is the stand of the Union that
they would fall Under Section 21(6A)(b) whereas the security holders including
debenture holders to whom the corporate debtor owes money would fall Under Section
21(6A)(a). In regard to both these categories, in other words, the feature which stands
out is the large number of the creditors as also the large number of allottees. No doubt,
in the case of allottees there are other distinguishing features as well. The interplay of
the Consumer Protection Act, the provisions of the Real Estate Regulation Act, the
balancing of the interests of the allottees in the sense of the optimal securing of the
stake of the allottees in the continuance of the real estate project itself would only
strengthen the classification further in regard to allottees. However, that is not to say
that in regard to the debentures and security holders they can individually be permitted
to set in motion CIRP. In regard to the question of availability of information with
respect to similarly placed debenture holders or security holders, the contention of the
Union is that Under Section 88 of the Companies Act information is generated regarding
debenture holders and security holders. Anyone can inspect the records of the company
and glean information with which application can be moved under the first proviso to
Section 7(1). In regard to them also it is the case of the Union that the principle of
heterogeneity applies. Equally, it is the case of the Union that the individual creditor in
the said class would make a highly individualised and subjective decision in regard to
whether an application Under Section 7 must be moved and this is sought to be
contrasted with the institutional decision-making which would come into play in regard
to banks and other financial institutions.
219. We are of the view that the first proviso is invulnerable. As pointed out by the
learned Additional Solicitor General with the insertion of Sub-section 6A in Section 21
as also Section 25A, the intention of the legislature is to treat the financial creditors
differently. They are marked by unique features in terms of numerosity and
heterogeneity is clear. Section 21(6A)(a) reads as follows:
(6A) Where a financial debt-
(a) is in the form of securities or deposits and the terms of the financial
debt provide for appointment of a trustee or agent to act as authorised
representative for all the financial creditors, such trustee or agent shall
act on behalf of such financial creditors;
(b) xxx xxx xxx
(c) xxx xxx xxx
Section 25A provides as follows:
25A. Rights and duties of authorised representative of financial creditors.
(1) The authorised representative Under Sub-section (6) or Sub-section (6A) of
Section 21 or Sub-section (5) of Section 24 shall have the right to participate
and vote in meetings of the committee of creditors on behalf of the financial
creditor he represents in accordance with the prior voting instructions of such
creditors obtained through physical or electronic means.
(2) It shall be the duty of the authorised representative to circulate the agenda
and minutes of the meeting of the committee of creditors to the financial
creditor he represents.
(3) The authorised representative shall not act against the interest of the
financial creditor he represents and shall always act in accordance with their
prior instructions:
Provided that if the authorised representative represents several
financial creditors, then he shall cast his vote in respect of each
financial creditor in accordance with instructions received from each
financial creditor, to the extent of his voting share:
Provided further that if any financial creditor does not give prior
instructions through physical or electronic means, the authorised
representative shall abstain from voting on behalf of such creditor.
(3A) Notwithstanding anything to the contrary contained in Sub-section (3), the
authorised representative Under Sub-section (6A) of Section 21 shall cast his
vote on behalf of all the financial creditors he represents in accordance with the
decision taken by a vote of more than fifty per cent of the voting share of the
financial creditors he represents, who have cast their vote:
Provided that for a vote to be cast in respect of an application Under
Section 12A, the authorised representative shall cast his vote in
accordance with the provisions of Sub-section (3).
220. These provisions were unsuccessfully challenged before this Court as evident from
the decision in the Pioneer (supra). As pointed out on behalf of the Union, in the said
case the challenge was mounted by the promoters of real estate projects. These
provisions have been accepted by creditors like the Petitioners covered by Sub-section
6A. The impact of the insertion of Sub-section 3A in Section 25A is to be noticed. As
already seen Section 25A, inter alia, deals with the exercise of rights and the liabilities
of authorised representative of creditors like debenture holders and allottees. After the
insertion of Sub-section 3A in Section 25A, the majority of the creditors of a class is
permitted to call the shots. It's view, in other words, will hold sway. This is subject to
the Code otherwise. The legislative understanding is clear that in regard to such
creditors bearing the hallmark of large numbers they are required to be treated
differently. If they are not treated differently it would spell chaos and the objects of the
Code would not be fulfilled. It is an extension of this basic principle which has led to
the insertion of the impugned proviso. Insisting on a threshold in regard to these
categories of creditors would lead to the halt to indiscriminate litigation which would
result in an uncontrollable docket explosion as far as the authorities which work the
Code are concerned. The debtor who is apparently stressed is relieved of the last straw
on the camel's back, as it were, by halting individual creditors whose views are not
shared even by a reasonable number of its peers rushing in with applications. Again, as
in the case of the allottees, this is not a situation where while treating them as financial
creditors they are totally deprived of the right to apply Under Section 7 as part of the
legislative scheme. The legislative policy reflects an attempt at shielding the corporate
debtor from what it considers would be either for frivolous or avoidable applications.
What we mean by avoidable applications is a decision which would not be taken by
similarly placed creditors keeping in mind the consequences that would ensue not only
in regard to persons falling in the same category but also the generality of creditors and
other stakeholders. All that the amendment is likely to ensure is that the filing of the
application is preceded by a consensus at least by a minuscule percentage of similarly
placed creditors that the time has come for undertaking a legal odyssey which is beset
with perils for the applicants themselves apart from others. As far as the percentage of
applicants contemplated under the proviso it is clear that it cannot be dubbed as an
arbitrary or capricious figure. The legislature is not wanting in similar requirements
under other laws. The provisions of the Companies Act, 2013 and its predecessors
contained similar provisions. Allowing what is described as 'lone Ranger' applications
beset with extremely serious ramifications which are at cross purposes with the objects
of the code. This is apart from it in particular spelling avoidable doom for the interest of
th e creditors falling in the same categories. The object of speed in deciding CIRP
proceedings would also be achieved by applying the threshold to debenture holders and
security holders. The dividing line between wisdom or policy of the legislature and
limitation placed by the Constitution must not be overlooked.
2 2 1 . The contention based on the applicability of the Absurdity Doctrine on the
Principle that the result which, 'all mankind without speculation would unite in rejecting'
can have no application to the provision. The Code and object of the Code and the
unique features which set apart the creditors involved in this case from the generality of
the creditors, the challenge being to an economic measure and the consequential
latitude that is owed to the legislature renders the Principle of Absurdity wholly
inapposite.
222. There is no scope also having regard to their identification in paragraph-49 of
Pioneer (supra) with reference to their numerosity. They cannot be heard to complain
about their inclusion within the terms of the 1st proviso. Also Section 21(6A)(a) read
with Section 25(A) puts the matter beyond the pale of doubt.
223. There is no basis for the Petitioners to draw any support from the decision of this
Court in MANU/SC/1285/2019 : 2019(12) SCALE 579. The facts in the said case
presented a clear situation which invited the application of the Principle.
THE CHALLENGE TO EXPLANATION-II TO SECTION 11 OF THE CODE.
2 2 4 . The Petitioner, in Writ Petition No. 267 of 2020, challenges the aforesaid
Explanation.
225. As already noticed, the Amendment Act, 2020 received the assent of the President
of India on 13.03.2020 and it is deemed to have come into force on the 28.12.2019 (be
it remembered that the Ordinance, inserting the same Explanation, had been brought
into force on 28.12.2019).
226. The case of the Petitioner, in brief, is as follows:
Respondent No. 3 is a subsidiary company of the Petitioner. Respondent No. 2
is also a corporate body. There were certain transactions between Respondent
Nos. 2 and 3. Alleging default by Respondent No. 3, Respondent No. 2 had filed
an Application Under Section 9 (the application to be filed by an operational
creditor) against Respondent No. 3. Respondent No. 2 had filed the application
Under Section 9 of the Code on 24.08.2018. It is the further case of the
Petitioner that Respondent No. 2, on the other hand, was itself undergoing a
CIRP and the CIRP Application had been admitted against the Second
Respondent on 12.09.2017. It is pointed out that the Respondent No. 3 has
taken a contention that Respondent No. 2 was disentitled to file an application
Under Section 11(a) of the Code as Respondent No. 2 was itself facing a CIRP.
It is further contended that during the pendency of the proceeding against the
second Respondent, the Adjudicating Authority has passed an Order on
19.11.2018 to liquidate Respondent No. 2 Under Section 34 of the Code. This
development invites the wrath of Section 11(d) as well. However, the
Adjudicating Authority had, on 24.08.2019, erroneously admitted the
Application filed by Respondent No. 2 under the Code. An Appeal was carried
by the Petitioner against the same, which is pending. It is while so, that the
Ordinance came to be promulgated on 28.12.2019 adding Explanation-II to
Section 11 vis-à-vis followed by passing of the impugned, amending Act on
similar lines.
227. The contention of the Petitioner can be summed-up as follows:
An Explanation cannot modify the main provision to which it is an Explanation.
Section 11(a) and Section 11(b) unequivocally bar a Corporate Debtor from
filing a CIRP Application qua another Corporate Debtor Under Section 7 and
Section 9 of the Code. Support is sought to be drawn from the exposition of the
law qua an explanation laid down in S. Sundaram Pillai and Ors. v. R.
Pattabiraman and Ors. MANU/SC/0387/1985 : (1985) 1 SCC 591 and Sonia
Bhatia v. State of U.P. and Ors. MANU/SC/0363/1981 : (1981) 2 SCC 585. It is
complained that the label of an Explanation has been used to substantially
amend, which is an arbitrary and irrational exercise of power.
228. It was pointed out that the word 'includes' in Explanation-I to Section 11 would
indicate that an Application for CIRP is barred not only against itself but also against
any other Corporate Debtor when the applicant-Corporate Debtor is found placed in
circumstances expressed in Section 11. It is further contended that the impugned
Amendment, effectively repeals Sections 11(a) and 11(d). If the purport of the
Explanation, which is impugned, is that the intention of the law was to only bar an
Application for CIRP by a Corporate Debtor against itself, then, it will be unworkable
and practically impossible. Explanation-II is manifestly arbitrary. Support is sought to
be drawn from Shayara Bano (supra). It was further contended that the amendment
cannot be used retrospectively and take away the vested right. In fact, it is contended
that a clarificatory amendment is prospective but Explanation II is in reality a
substantive provision. Attempt is made to lay store by the judgment of this Court in
Virtual Soft Systems Ltd. v. Commissioner of Income Tax, Delhi-I MANU/SC/0879/2007
: (2007) 9 SCC 665, wherein this Court was dealing with Section 271 of the Income-Tax
Act, 1961, in which, an Explanation was added. The Section in question, was a penal
provision.
229. It was further contended that the law has been settled by National Company Law
Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) that a
Corporate Debtor, covered by Section 11(a) and 11(d), cannot file application for CIPR
against another Corporate Debtor. The impugned amendment cannot be used
retrospectively in cases instituted before 28.12.2019, which is the day on which the
impugned amendment came into force. It is submitted that the amendment is violative
of Article 14 and the relevant law.
230. Respondent No. 2, in its submissions, contends as follows:
Respondent No. 3 owes Respondent No. 2, more than a sum of Rs. 26 crores,
which is 20 per cent of the liquidation value of Respondent No. 2. It is further
contended that the notes on Clause explains the purpose of the provision. The
amendment is defended as reasonable and not arbitrary. It is pointed out that it
will be contrary to the object of the Code if the debt due to the Corporate
Debtor cannot be secured. The duties of the Resolution Professional under the
Code to protect and preserve the assets of the Corporate Debtor are pointed
out. An order of the Appellate Adjudicating Authority in support of Respondent
No. 2 is also pointed out. Explanation-II, it is pointed out, only clarifies what
was always the correct position.
231. Learned Additional Solicitor General, appearing on behalf of the Union of India
would also support the amendment. Reference is made to the Report dated February,
2020 of the Insolvency Law Committee, which, inter alia, reads as follows:
6. ELIGIBILITY OF A CORPORATE DEBTOR TO INITIATE CIRP AGAINST OTHER
PERSONS
6.1. Under Section 11(a) and (d) of the Code, corporate debtors "undergoing a
corporate insolvency resolution process" and "in respect of whom a liquidation
order has been made" are not permitted to file an application to initiate CIRP. It
was brought to the Committee that this has created confusion over whether a
corporate debtor which is undergoing CIRP or liquidation process, may file an
application to initiate CIRP against other corporate persons who are its debtors.
6.2. The Committee noted that different Adjudicating Authorities had taken
different approaches regarding the right of a resolution professional to initiate
CIRP against other corporate debtors. On the one hand, the right of the
resolution professional to initiate CIRP against other corporate debtors was
upheld by relying on the statutory duty of the resolution professional to recover
outstanding dues of the corporate debtor Under Section 25(2)(b). On the other
hand, the resolution professional had been prevented from doing so, on the
basis of a literal interpretation of Section 11(a). While the Appellate Authority
had dismissed the appeals filed against some of these orders without endorsing
either of these approaches, in Abhay N. Manudhane v. Gupta Coal India Pvt.
Ltd., it had taken the latter approach and denied the liquidator the right to file
an application to initiate CIRP against other corporate debtors (in the context of
Section 11(d)).
6.3. However, according to the Notes on Clauses to Section 11, the Section was
enacted to prevent "repeated recourse to the corporate insolvency resolution
process in order to delay repayment of debts due or to keep assets out of the
reach of creditors" and to "ensure finality of the liquidation order" by
preventing a corporate debtor to initiate CIRP after a liquidation order is
passed. Thus, it is clear that Section 11 aims at preventing a corporate debtor
from abusing the statutory process under Chapter II of Part II of the Code by
repeatedly initiating CIRP against itself or by initiating CIRP even after a
liquidation order is passed against it. The Committee discussed that if Section
11 were instead, interpreted to prevent the resolution professional or the
liquidator of a corporate debtor from initiating CIRP against other defaulting
entities, it would cause serious detriment to the ability of a corporate debtor to
recover its dues from its debtors.
ANALYSIS
232. Before we address the argument with regard to the provisions of the Code, it is
necessary to cull-out the principles applicable in regard to the function of an
Explanation. A bench of three learned Judges, in an off-quoted judgment in S.
Sundaram Pillai (supra) came to elaborately examine the scope of an Explanation.
Incidentally, the Court had to deal with an Explanation which was appended to a
proviso and, therefore, its judgment also deals with the principles applicable in regard
to a proviso. On a conspectus of various decisions, this Court made a survey of the
earlier case law. We may refer to paragraphs-49, 50, 52 and, finally, its conclusions in
paragraph-53 as follows:
49. The principles laid down by the aforesaid authors are fully supported by
various authorities of this Court. To quote only a few, in Burmah Shell Oil
Storage and Distributing Co. of India Ltd. v. CTO MANU/SC/0272/1960 :
[(1961) 1 SCR 902 : AIR 1961 SC 315 : (1960) 11 STC 764] a Constitution
Bench decision, Hidayatullah, J. speaking for the Court, observed thus:
Now, the Explanation must be interpreted according to its own tenor,
and it is meant to explain Clause (1)(fl) of the Article and not vice
versa. It is an error to explain the Explanation with the aid of the
Article, because this reverses their roles.
50. In Bihta Cooperative Development Cane Marketing Union Ltd. v. Bank of
Bihar MANU/SC/0260/1966 : [(1967) 1 SCR 848 : AIR 1967 SC 389 : 37 Com
Cas 98] this Court observed thus:
The Explanation must be read so as to harmonise with and clear up any
ambiguity in the main section. It should not be so construed as to
widen the ambit of the section.
52. In Dattatraya Govind Mahajan v. State of Maharashtra MANU/SC/0381/1977
: [(1977) 2 SCR 790 : (1977) 2 SCC 548 : AIR 1977 SC 915] Bhagwati, J.
observed thus: (SCC p. 563, para 9)
It is true that the orthodox function of an Explanation is to explain the
meaning and effect of the main provision to which it is an Explanation
and to clear up any doubt or ambiguity in it.... Therefore, even though
the provision in question has been called an Explanation, we must
construe it according to its plain language and not on any a priori
considerations.
53. Thus, from a conspectus of the authorities referred to above, it is manifest
that the object of an Explanation to a statutory provision is--
(a) to explain the meaning and intendment of the Act itself,
(b) where there is any obscurity or vagueness in the main enactment,
to clarify the same so as to make it consistent with the dominant object
which it seems to subserve,
(c) to provide an additional support to the dominant object of the Act
in order to make it meaningful and purposeful,
(d) an Explanation cannot in any way interfere with or change the
enactment or any part thereof but where some gap is left which is
relevant for the purpose of the Explanation, in order to suppress the
mischief and advance the object of the Act it can help or assist the
Court in interpreting the true purport and intendment of the enactment,
and
(e) it cannot, however, take away a statutory right with which any
person under a statute has been clothed or set at naught the working of
an Act by becoming an hindrance in the interpretation of the same.
2 3 3 . It is important to actually understand the scope of an Explanation. We have
already noticed the summary of the conclusions of this Court in S. Sundaram Pillai
(supra) at paragraph-53. It may give the impression that an Explanation, in those
circumstances, does not widen the boundaries of the main provision to which it is an
Explanation. However, it is apposite that we hearken back to what this Court said on an
earlier occasion. In a judgment rendered by four learned Judges in Hiralal Rattanlal and
Ors. v. State of U.P. and Anr. MANU/SC/0553/1972 : (1973) 1 SCC 216 this Court had,
while considering the scope of an Explanation in a Taxing Statute, viz., the United
Provinces Sales Tax Act, 1948, had this to say:
22. It was next urged that on a true construction of Explanation II to Section 3-
D, no charge can be said to have been created on the purchases of split or
processed pulses. It was firstly contended that an Explanation cannot extend
the scope of the main section, it can only explain that section. In construing a
statutory provision, the first and the foremost Rule of construction is the
literary construction. All that we have to see at the very outset is what does that
provision say? If the provision is unambiguous and if from that provision, the
legislative intent is clear, we need not call into aid the other Rules of
construction of statutes. The other Rules of construction of statutes are called
into aid only when the legislative intention is not clear. Ordinarily a proviso to a
Section is intended to take out a part of the main Section for special treatment.
It is not expected to enlarge the scope of the main section. But cases have
arisen in which this Court has held that despite the fact that a provision is
called proviso, it is really a separate provision and the so-called proviso has
substantially altered the main section. In CIT v. Bipinchandra Maganlal & Co.
Ltd., Bombay MANU/SC/0161/1960 : [AIR 1961 SC 1040 : (1961) 2 SCR 493 :
(1961) 41 ITR 290] this Court held that by the fiction in Section 10(2)(vii)
second proviso read with Section 2(6-C) of the Indian Income Tax Act, 1922
what is really not income is, for the purpose of computation of assessable
income, made taxable income.
25. On the basis of the language of the Explanation this Court held that it did
not widen the scope of Clause (c). But from what has been said in the case, it
is clear that if on a true reading of an Explanation it appears that it has widened
the scope of the main section, effect be given to legislative intent
notwithstanding the fact that the Legislature named that provision as an
Explanation. In all these matters the courts have to find out the true intention
of the Legislature.
(Emphasis supplied)
234. Even though, in a later decision in S. Sundaram Pillai (supra), this Court had
adverted to this judgment when it came to culling out the propositions, the aspect about
an Explanation, widening the scope of a provision, has not been expressly spelt out. It
must be remembered that the Legislature speaks through the medium of the words it
uses. The nomenclature, it gives to the device, cannot control the express language,
which it employs. If, in effect, in a particular case, an Explanation does widen the terms
of the main provision, it would become the duty of the Court to give effect to the will of
the Legislature.
235. In fact, with respect to the decision in S. Sundaram Pillai (supra), it may be
necessary to dissect the provisions which fell for consideration. The Court, in the said
case, was dealing with the law relating to restrictions on eviction of the tenant
prevailing in Tamil Nadu. The substantive provision conferred a right on the landlord to
evict a tenant, should he wilfully fail to pay the rent. There was a proviso, however,
which empowered the Court to grant time to the tenant subject to the limit of 30 days,
should it be found that the non-payment of the rent was not wilful. It was to this
proviso that an Explanation was added. The Explanation, in turn, provided that if the
landlord gave a notice to the tenant to pay the rent and rent remained unpaid for a
period of two months, it would be construed as a case of wilful default. The arguments,
which were addressed before this Court, included the contention that even if a notice
was given within the meaning of the Explanation, it would not control the duty of the
Court to find out whether there was wilful default. It was, while the Court dealt with
these arguments, inter alia, that the Court proceeded to lay down two propositions.
Firstly, in a case where no notice was given by the landlord, within the meaning of the
Explanation, it was for the Court to find out, on the facts and circumstances, as to
whether there was wilful default. The second proposition, which was laid down was,
even if a notice was given under the Explanation and there was default in payment, it
would be treated as a case of wilful default unless the tenant was able to establish that
he was prevented from making payment on account of circumstances which prevented
him from doing so. We may also notice a still later judgment of this Court in Sonia
Bhatia (supra). In the said case, the question fell for consideration under the law
relating to land reforms. Sub-section (6) of Section 5 of the U.P. Imposition of Ceiling
on Land Holdings Act, 1960 provided that the transfer made by a person, after a certain
date, was to be ignored. There was a proviso, which, however, excepted certain
transfers. One of the conditions to be met before a case could fall within the proviso
was that the transfer must have been made for valuable consideration. To the said
proviso, there was again an Explanation I followed by Explanation II. It reads as
follows:
Explanation I.--For the purposes of this Sub-section, the expression "transfer of
land made after the twenty-fourth day of January, 1971", includes--
(a) a declaration of a person as a co-tenure-holder made after the
twenty-fourth day of January, 1971 in a suit or proceeding irrespective
of whether such suit or proceeding was pending on or was instituted
after the twenty-fourth day of January, 1971;
(b) any admission, acknowledgement, relinquishment or declaration in
favour of a person to the like effect, made in any other deed or
instrument or in any other manner.
Explanation II: The burden of proving that a case falls within Clause
(b) of the proviso shall rest with the party claiming its benefits.
236. The transfer in the said case was a gift which attracted the wrath of the main
provision which meant that the transfer had to be ignored, and the land, which was the
subject matter of the gift, had to be included in the ceiling account of the donor. This
Court appreciated the scope of the legislation to be just that and rejected the argument
based on the terms of the Explanation and held as follows:
24. In Bihta Co-operative Development Cane Marketing Union Ltd. v. Bank of
Bihar [MANU/SC/0260/1966 : AIR 1967 SC 389 : (1967) 1 SCR 848 : 37 Com
Cas 98] this Court was called upon to consider the Explanation to Section 48(1)
of the Bihar and Orissa Cooperative Societies Act, 1935. Therein this Court
observed:
The question then arises whether the first Explanation to the Section
widens the scope of Sub-section (1) of Section 48 so as to include
claims by registered societies, against non-members even if the same
are not covered by Clause (c).
237. We have made a brief survey of some of the case law by way of expounding the
true province of an Explanation.
238. Coming to the facts of the instant case, it is necessary to analyse the limbs of
Section 11. Sections 7, 9 and 10, read with Section 5, provide for the procedure to be
adopted by the Adjudicating Authority in dealing with applications for initiating CIRP by
the financial creditor, operational creditor and corporate debtor. It is after that Section
11 makes its appearance in the Code. It purports to declare that an application for
initiating CIRP cannot be made by categories expressly detailed in Section 11. Section
11(a) vetoes an application by a corporate debtor, which is itself undergoing a CIRP. An
argument sought to be addressed by the Petitioner is that the purport of the said
provision is that it prohibits not only a corporate debtor, which is undergoing a CIRP,
from initiating a CIRP against itself, which, but for the fact, it is undergoing a CIRP,
would be maintainable Under Section 10 of the Code, but it also proscribes an
application by a corporate debtor for initiating a CIRP against another corporate debtor.
It appears to be clear to us, and this will be corroborated by the further provisions as
well, that the real intention of the Legislature was that the prohibition was only against
the corporate debtor, which is already faced with the CIRP filed by either a financial
creditor or operational creditor, jumping into the fray with an application Under Section
10. This appears to be clear from the reports which have been placed before us.
2 3 9 . Coming to Section 11(b), it again disables a corporate debtor which has
completed CIRP twelve months preceding the date of the making of the application from
invoking the Code. It may be demystified as follows:
On the strength of the application made Under Sections 7, 9 or 10, CIRP is
initiated and it is completed at a certain point of time. This Section is aimed at
preventing a further application not eternally but for a period of twelve months
after the expiry of the insolvency resolution process. Quite apart from the fact
that even the Petitioners do not lay store by Section 11(b) and their case is
premised on Section 11(a) and 11(d), the importance of Section 11(b) is that it
sheds light regarding the intention of the Legislature to be that the corporate
debtor cannot initiate CIRP against itself under any of the limbs of Section 11,
in the circumstances detailed therein. Section 11(c) again disentitles corporate
debtor, apart from a financial creditor who has violated any terms of a
resolution plan, which was approved twelve months before the making of the
application. In other words, after the Adjudicating Authority approves a
resolution plan Under Section 31 of the Code, should a corporate debtor, inter
alia, transgress upon any of the terms of the resolution plan and it still ventures
to again approach the Adjudicating Authority with an application Under Section
10 and attempt to restart the process all over again within a period of twelve
months from the date of approval, this is declared impermissible Under Section
11(c).
240. Finally, coming to Section 11(d), it disentitles the making of an application to
initiate CIRP by a corporate debtor in respect of whom a liquidation order has been
made. We have already noticed the scheme of the Code. The Legislature intends to have
a two-stages approach to the problem of insolvency as regards the corporate debtor. On
the basis of an application by the eligible person, a CIRP is initiated. If it is admitted, a
Committee of Creditors is constituted before the curtains are wrung down on the
insolvency resolution process by the inexorable passage of time, which is fixed Under
Section 12. If a resolution plan finds approval at the hands of the Committee of
Creditors and also the Adjudicating Authority, liquidation is staved off. Should there be
no resolution plan within the time limit or the resolution plan is not approved, the
curtains rise for the process of liquidation process to be played out in terms of the
Code. The first act of the drama consists of the order of liquidation to be passed Under
Section 33 of the Code. It is this order which is referred to in Section 11(d). There is
also an order of liquidation permissible earlier, Under Section 33(4). No doubt after the
introduction of the explanation to Section 33(2), an order of liquidation may be passed
in terms thereof. Once, this order is passed, the Legislature intended that a corporate
debtor, in regard to whom the CIRP was initiated and which has culminated in the order
of liquidation being passed after no resolution of the insolvency took place, cannot
again initiate a fresh CIRP, putting under the carpet, as it were, a whole process in the
recent past. In fact, to use the words "recent past" may not be correct for unlike Section
11(b) and 11(c), in a case, where there is an order for liquidation Under Section 33,
then, an application Under Section 10, would not be maintainable. The person
disentitled Under Section 11(d) would be the corporate debtor and the disentitlement is
qua itself.
241. Now, let us turn to the first Explanation. The Explanation declares that for the
purpose of Section 11, a corporate debtor includes a corporate applicant in respect of
such corporate debtor. There is an argument raised on behalf of the Petitioners which
surrounds the word "included". The contention appears to be that before the insertion of
Explanation II, which is challenged before us, Under Section 11, not only was an
application for initiating CIRP by a corporate debtor against itself prohibited in the
circumstances referred to in Section 11 but it also contemplated that the CIRP could not
be filed by the corporate debtor in circumstances covered by Section 11 against another
corporate debtor. Otherwise, there was no meaning in using the word "includes". In
order to appreciate this argument, it is necessary to set out the definition of the word
"corporate applicant" in the Code.
6(5) "corporate applicant" means--
(a) corporate debtor; or
(b) a member or partner of the corporate debtor who is authorised to
make an application for the corporate insolvency resolution process
under the constitutional document of the corporate debtor; or
(c) an individual who is in charge of managing the operations and
resources of the corporate debtor; or
(d) a person who has the control and supervision over the financial
affairs of the corporate debtor;
242. It is to be noticed that Under Section 10 of the Code, a corporate debtor can file
an application for CIRP, when there is a default by itself. The persons, who can make
application Under Section 10, are those who are alluded to as in the definition of the
word "corporate applicant". In other words, an application by the corporate debtor for
initiating a CIRP, when there is a default by the corporate debtor, can be made not only
by the corporate debtor but also any of the other three categories falling in Clauses (b),
(c) and (d) of the provision which defines the word "corporate applicant". It is to
ensure that there was clarity regarding the question as to whether, while in Section 11,
there is a prohibition against the corporate debtor in various circumstances and it is
disabled from moving an application Under Section 10 against itself, there is no
reference to the other persons who are covered by the definition of the word "corporate
applicant". It is hence that Explanation I was inserted. In other words, it was to ensure
that in the circumstances contemplated in Section 11, an application Under Section 10
could not be made by any of the categories of persons mentioned in the definition of
the word "corporate applicant".
243. Now, let us consider finally the impugned Explanation. The impugned Explanation
came to be inserted by the impugned amendment. Apparently, interpreting Section 11,
there appears to have been some cleavage of opinion. This is apparent from the case
set up on behalf of the Petitioners and the case set up on behalf of the Union of India.
The intention of the Legislature was always to target the corporate debtor only insofar
as it purported to prohibit application by the corporate debtor against itself, to prevent
abuse of the provisions of the Code. It could never had been the intention of the
Legislature to create an obstacle in the path of the corporate debtor, in any of the
circumstances contained in Section 11, from maximizing its assets by trying to recover
the liabilities due to it from others. Not only does it go against the basic common sense
view but it would frustrate the very object of the Code, if a corporate debtor is
prevented from invoking the provisions of the Code either by itself or through his
resolution professional, who at later stage, may, don the mantle of its liquidator. The
provisions of the impugned Explanation, thus, clearly amount to a clarificatory
amendment. A clarificatory amendment, it is not even in dispute, is retrospective in
nature. The Explanation merely makes the intention of the Legislature clear beyond the
pale of doubt. The argument of the Petitioners that the amendment came into force only
on 28.12.2019 and, therefore, in respect to applications filed Under Sections 7, 9 or 10,
it will not have any bearing, cannot be accepted. The Explanation, in the facts of these
cases, is clearly clarificatory in nature and it will certainly apply to all pending
applications also.
244. We may notice that these are petitions filed Under Article 32 of the Constitution of
India, essentially, complaining of violation of Fundamental Right Under Article 14 of the
Constitution insofar as the challenge to the Explanation is concerned, a strained effort is
made to describe this amendment as manifestly arbitrary. To build up this argument, an
attempt is made to contend that an Explanation cannot widen the provisions or whittle
down its scope. We are afraid, that this venture of attempting to persuade us to hold
that an Explanation would be trespassing the limits of its province, should it widen the
scope of the main provisions, itself has no legs to stand on, as explained earlier. We are
unable to understand how it could be described as being arbitrary for the Legislature to
clarify its intention through the device of an Explanation. The further attempt to
persuade us to overturn the provision on the score that the Explanation attempts to
achieve the result of a repeal of Sections 11(a) and 11(d), is totally meritless. We are
clear in our mind that on a proper understanding of Sections 11(a) and 11(d), it does
nothing of the kind. Sections 11(a) and 11(d) remain intact in the manner we have
propounded.
245. We must record our understanding of the efforts of the Petitioner in the light of
the application which is pending and the appeal also which is preferred by the Petitioner
in NCLAT. We are really concerned and can be called upon only to pronounce on the
vires of the Statute on the score that it is unconstitutional on any ground known to law.
The only ground which is urged before us is the violation of Article 14. This ground
does not merit acceptance. The challenge is repelled.
IS SECTION 32A UNCONSTITUTIONAL?
2 4 6 . Section 32A is challenged by allottees in Writ Petition No. 75 of 2020. The
Petitioners in Writ Petition No. 27 of 2020 and Writ Petition No. 579 of 2020, who are
creditors (money lenders) also challenge Section 32A.
247. The Petitioners contend that immunity granted to the corporate debtors and its
assets acquired from the proceeds of crimes and any criminal liability arising from the
offences of the erstwhile management for the offences committed prior to initiation of
CIRP and approval of the resolution plan by the adjudicating authority further
jeopardizes the interest of the allottees/creditors. It will cause huge losses which is
sought to be prevented under the provisions of the Prevention of Money Laundering Act,
2002.
248. Section 32A is arbitrary, ultra vires and violative of Article 300A and Articles 14,
19 and 21.
249. The stand of the Union, on the other hand, is as follows:
Section 32A provides immunity to the corporate debtor and its property when
there is approval of the resolution plan resulting in the change of management
of control of corporate debtor. This is subject to the successful resolution
applicant being not involved in the commission of the offence. Statutory basis
has now given Under Section 32A to the law laid down by this Court in the
decision of Committee of Creditors of Essar Steel(supra). This Court took the
view therein that successful resolution applicant cannot be faced with
undecided claim after its resolution plan has been accepted. The object is to
ensure that a successful resolution applicant starts of on a fresh slate. The
relevant extracts of the Statement of Objects and Reasons relied upon by the
Union of India are as follows:
STATEMENT OF OBJECTS AND REASONS
xxx
2. A need was felt to give the highest priority in repayment to last mile
funding to corporate debtors to prevent insolvency, in case the
company goes into corporate insolvency resolution process or
liquidation, to prevent potential abuse of the Code by certain classes of
financial creditors, to provide immunity against prosecution of the
corporate debtor and action against the property of the corporate
debtor and the successful resolution applicant subject to fulfilment of
certain conditions, and in order to fill the critical gaps in the corporate
insolvency 69 framework, it has become necessary to amend certain
provisions of the Insolvency and Bankruptcy Code, 2016.
3 . The Insolvency and Bankruptcy Code (Second Amendment) Bill,
2019, inter alia, provides for the following, namely:
xxx
(vii) to insert a new Section 32A so as to provide that the
liability of a corporate debtor for an offence committed prior to
the commencement of the corporate insolvency resolution
process shall cease under certain circumstances.
250. Reliance is also placed on the report of the Insolvency Law Committee. Relevant
extracts which have been relied on are as follows:
PREFACE
v. Liability of corporate debtor for offences committed prior to initiation of
CIRP-in order to address the issue of liability that fall upon the resolution
applicant for offences committed prior to commencement of CIRP, it has been
recommended that a new Section should be inserted which provides that when
the corporate debtor is successfully resolved, it should not be held liable for
any offence committed prior to the commencement of the CIRP, unless the
successful resolution applicant was also involved in the commission of the
offence, or was a related party, promoter or other person in management and
control of the corporate debtor at the time of or any time following the
commission of the offence. Notwithstanding this, those persons who were
responsible to the corporate debtor for the conduct of its business at the time
of the commission of such offence, should continue to be liable for such an
offence, vicariously or 70 otherwise. The newly inserted Section as mentioned
above shall also include protection of property from enforcement action when
taken by successful resolution applicant. Also, it was recommended that
cooperation and assistance to authorities investigating the offences committed
prior to commencement of CIRP shall be continued by any person who is
required to provide such assistance under the applicable law.
xxx
Chapter 1: Recommendations regarding the Corporate Insolvency Resolution
Process
xxx
17. LIABILITY OF CORPORATE DEBTOR FOR OFFENCES COMMITTED PRIOR TO
INITIATION OF CIRP*
17.1. Section 17 of the Code provides that on commencement of the CIRP, the
powers of management of the corporate debtor vest with the interim resolution
professional. Further, the powers of the Board of Directors or partners of the
corporate debtor stand suspended, and are to be exercised by the interim
resolution professional. Thereafter, Section 29A, read with Section 35(1)(f),
places restrictions on related parties of the corporate debtor from proposing a
resolution plan and purchasing the property of the corporate debtor in the CIRP
and liquidation process, respectively. Thus, in most cases, the provisions of the
Code effectuate a change in control of the corporate debtor that results in a
clean break of the corporate debtor from its erstwhile management. However,
the legal form of the corporate debtor continues in the CIRP, and may be
preserved in the resolution plan. Additionally, while the property of the
corporate debtor may also change hands upon resolution or liquidation, such
property also continues to exist, either as property of the corporate debtor, or
in the hands of the purchaser.
17.2. However, even after commencement of CIRP or after its successful
resolution or liquidation, the corporate debtor, along with its property, would
be susceptible to investigations or proceedings related to criminal offences
committed by it prior to the commencement of a CIRP, leading to the imposition
of certain liabilities and restrictions on the corporate debtor and its 71
properties even after they were lawfully acquired by a resolution applicant or a
successful bidder, respectively.
Liability where a Resolution Plan has been Approved
17.3. It was brought to the Committee that this had created apprehension
amongst potential resolution applicants, who did not want to take on the
liability for any offences committed prior to commencement of CIRP. In one
case, JSW Steel had specifically sought certain reliefs and concessions, within
an annexure to the resolution plan it had submitted for approval of the
Adjudicating Authority. Without relief from imposition of the such liability, the
Committee noted that in the long run, potential resolution applicants could be
disincentivised from proposing a resolution plan. The Committee was also
concerned that resolution plans could be priced lower on an average, even
where the corporate debtor did not commit any offence and was not subject to
investigation, due to adverse selection by resolution applicants who might be
apprehensive that they might be held liable for offences that they have not been
able to detect due to information asymmetry. Thus, the threat of liability falling
on bona fide persons who acquire the legal entity, could substantially lower the
chances of its successful takeover by potential resolution applicants.
17.4. This could have substantially hampered the Code's goal of value
maximisation, and lowered recoveries to creditors, including financial
institutions who take recourse to the Code for resolution of the NPAs on their
balance sheet. At the same time, the Committee was also conscious that
authorities are duty bound to penalize the commission of any offence,
especially in cases involving substantial public interest. Thus, two competing
concerns need to be balanced.
17.5. The Committee noted that the proceedings under the Code, which are
designed to ensure maximization of value, generally require transfer of the
corporate debtor to bona fide persons. In fact, Section 29A casts a wide net
that disallows any undesirable person, related party or defaulting entity from
acquiring a corporate debtor. Further, the Code provides for an open process, in
which transfers either require approval of the Adjudicating Authority, or can be
challenged before it. Thus, the CIRP typically culminates in a change of control
to 72 resolution applicants who are unrelated to the old management of the
corporate debtor and step in to resolve the insolvency of the corporate debtor
following the approval of a resolution plan by the Adjudicating Authority.
17.6. Given this, the Committee felt that a distinction must be drawn between
the corporate debtor which may have committed offences under the control of
its previous management, prior to the CIRP, and the corporate debtor that is
resolved, and taken over by an unconnected resolution applicant. While the
corporate debtor's actions prior to the commencement of the CIRP must be
investigated and penalised, the liability must be affixed only upon those who
were responsible for the corporate debtor's actions in this period. However, the
new management of the corporate debtor, which has nothing to do with such
past offences, should not be penalised for the actions of the erstwhile
management of the corporate debtor, unless they themselves were involved in
the commission of the offence, or were related parties, promoters or other
persons in management and control of the corporate debtor at the time of or
any time following the commission of the offence, and could acquire the
corporate debtor, notwithstanding the prohibition Under Section 29A.
17.7. Thus, the Committee agreed that a new Section should be inserted to
provide that where the corporate debtor is successfully resolved, it should not
be held liable for any offence committed prior to the commencement of the
CIRP, unless the successful resolution applicant was also involved in the
commission of the offence, or was a related party, promoter or other person in
management and control of the corporate debtor at the time of or any time
following the commission of the offence. 17.8. Notwithstanding this, those
persons who were responsible to the corporate debtor for the conduct of its
business at the time of the commission of such offence, should continue to be
liable for such an offence, vicariously or otherwise, regardless of the fact that
the corporate debtor's liability has ceased.
Actions against the Property of the Corporate Debtor
17.9. The Committee also noted that in furtherance of a criminal investigation
and prosecution, the property of a company, which continues to exist after the
resolution or liquidation of a corporate debtor, may have been liable to be
attached, seized or confiscated. For instance, the property of a corporate debtor
may have been at risk of attachment, seizure or confiscation where there was
any suspicion that such property was derived out of proceeds of crime in an
offence of money laundering. It was felt that taking actions against such
property, after it is acquired by a resolution applicant, or a bidder in
liquidation, could be contrary to the interest of value maximisation of the
corporate debtor's assets, by substantially reducing the chances of finding a
willing resolution applicant or bidder in liquidation, or lowering the price of
bids, as discussed above.
17.10. Thus, the Committee agreed that the property of a corporate debtor,
when taken over by a successful resolution applicant, or when sold to a bona
fide bidder in liquidation under the Code, should be protected from such
enforcement action, and the new Section discussed in paragraph 17.7 should
provide for the same. Here too, the Committee agreed that the protection given
to the corporate debtor's assets should in no way prevent the relevant
investigating authorities from taking action against the property of persons in
the erstwhile management of the corporate debtor, that may have been involved
in the commission of such criminal offence.
17.11. By way of abundant caution, the Committee also recognised and agreed
that in all such cases where the resolution plan is approved, or where the
assets of the corporate debtor are sold under liquidation, such approved
resolution plan or liquidation sale of the assets of the corporate debtor's assets
would have to result in a change in control of the corporate debtor to a person
who was not a related party of the corporate debtor at the time of commission
of the offence, and was not involved in the commission of such criminal offence
along with the corporate debtor.
Cooperation in Investigation
17.12. While the Committee felt that the corporate debtor and bona fide
purchasers of the corporate debtor or its property should not be held liable for
offences committed prior to the commencement of insolvency, the Committee
agreed that the corporate debtor and any person who may be required to
provide assistance under the applicable law should continue to provide
assistance and cooperation to the authorities investigating an offence
committed prior to the commencement of the CIRP. Consequently, the
Committee recommended the new Section should provide for such continued
cooperation and assistance.
The Additional Solicitor General also places reliance on the Sixth Report of the Standing
Committee of Lok Sabha made in March, 2020. The relevant portion according to the
learned ASG are as follows:
3.8 "The stakeholders on the above Clause furnished the following suggestion:
Though the Bill gives immunity to the corporate debtor (company as a
legal entity) from prior offences, the individuals responsible for
committing such offences on behalf of the debtor will still be held
liable. The question is whether the debtor should be absolved of all
kinds of prior offences with such a blanket immunity.
3.9 The Secretary, Ministry of Corporate Affairs during the sitting held on 15th
January, 2020 remarked:
If the bidder, who is coming and participating under the court
supervised competitive process, does not get security and is not
indemnified, there may be a problem.
3 .1 0 Further, the Ministry furnished the following comment on the above
suggestion:
...this provision would only apply where the CIRP culminates in a
change in control to a 75 completely unconnected resolution applicant.
As such, a resolution applicant has nothing to do with the commission
of any pre-CIRP offence whatsoever, and the corporate debtor is now
fundamentally not the same entity as the one that committed the crime.
3.11 The Committee are in agreement with the intent of this amendment to
safeguard the position of the Resolution Applicant(s) by ring-fencing them from
prosecution and liabilities under offences committed by erstwhile promoters
etc. The Committee understand the need for treating the company or the
Corporate Debtor as a cleansed entity for cases which result in change in the
management or control of the corporate debtor to a person who was not a
promoter or in the management control of the corporate debtor or related party
of such person, or to a person against whom there are material evidence and
pending complaint or report by the investigating authority filed in relation to
the criminal offence. The Committee agree that this provision is essential to
provide the Resolution Applicant(s) a fair chance to revive the unit which
otherwise would directly go into liquidation, which may not be as beneficial to
the economy. The Committee believe that this ring-fencing is essential to
achieve revival or resolution without imposing additional liabilities on the
Resolution Applicant, arising from malafide acts of the previous promoter or
management.
251. Apart from the fact that it is intended to give a clean break to the successful
resolution applicant, it is pointed out that it is hedged in with ample safeguards to avoid
any exploitation. The same are as follows:
106. Section 32A was inserted to give a clean break to successful resolution
applicants from the erstwhile management by shielding them and immunizing
them from prosecution and liabilities for offences that may have been
committed prior to the commencement of the CIRP. Further, ample safeguards
have been incorporated in the said provision to prevent any exploitation,
namely:
i. The immunity is attracted only when a resolution plan is approved by
the Adjudicating Authority Under Section 31 and the resolution plan
results in the change in management or control of the corporate debtor.
ii. The immunity is granted only to the corporate debtor and its
property, where such property is covered under the resolution plan
approved by the Adjudicating Authority Under Section 31, from any
liability or prosecution with regard to offences committed prior to the
commencement of the corporate insolvency resolution process.
iii. Any person who was a promoter or in the management or control of
the corporate debtor or a related party or was in any manner incharge
of, or responsible to the corporate debtor for the conduct of its
business and who was directly or indirectly involved in the commission
of such offence shall continue to be liable to be prosecuted and
punished for such an offence committed by the corporate debtor
notwithstanding that the corporate debtor's liability has ceased.
iv. Section 32A does not bar an action against the property of any
person other than the corporate debtor against whom such an action
may be taken under such law as may be applicable.
v. Notwithstanding the immunity given Under Section 32A, the
corporate debtor and any person, who may be required to provide
assistance under such law as may be applicable to such corporate
debtor or person, shall extend all assistance and co-operation to any
authority investigating an offence committed prior to the
commencement of the corporate insolvency resolution process.
252. Section 32A has been divided into three parts consisting of Sub-sections (1) to
(3). Under Sub-section (1), notwithstanding anything contained, either in the Code or in
any other law, liability of a corporate debtor, for an offence committed prior to the
commencement of the CIRP, shall cease. Further, the corporate debtor shall not be
liable to be prosecuted for such an offence. Both, these immunities are subject to the
following conditions:
i. A Resolution Plan, in regard to the corporate debtor, must be approved by the
Adjudicating Authority Under Section 31 of the Code;
ii. The Resolution Plan, so approved, must result in the change in the
management or control of the corporate debtor;
iii. The change in the management or control, under the approved Resolution
Plan, must not be in favour of a person, who was a promoter, or in the
management and control of the corporate debtor, or in favour of a related party
of the corporate debtor;
iv. The change in the management or control of the corporate debtor must not
be in favour of a person, with regard to whom the relevant Investigating
Authority has material which leads it to entertain the reason to believe that he
had abetted or conspired for the commission of the offence and has submitted
or filed a Report before the relevant Authority or the Court. This last limb may
require a little more demystification. The person, who comes to acquire the
management and control of the corporate person, must not be a person who
has abetted or conspired for the commission of the offence committed by the
corporate debtor prior to the commencement of the CIRP. Therefore, abetting or
conspiracy by the person, who acquires management and control of the
corporate debtor, under a Resolution Plan, which is approved Under Section 31
of the Code and the filing of the report, would remove the protective umbrella
or immunity erected by Section 32A in regard to an offence committed by the
corporate debtor before the commencement of the CIRP. To make it even more
clear, if either of the conditions, namely abetting or conspiring followed by the
report, which have been mentioned as aforesaid, are present, then, the liability
of the corporate debtor, for an offence committed prior to the commencement
of the CIRP, will remain unaffected.;
2 5 3 . The first proviso in Sub-section (1) declares that if there is approval of a
Resolution Plan Under Section 31 and a prosecution has been instituted during the CIRP
against the corporate debtor, the corporate debtor will stand discharged. This is,
however, subject to the condition that the requirements in Sub-section (1), which have
been elaborated by us, have been fulfilled. In other words, if under the approved
Resolution plan, there is a change in the management and control of the corporate
debtor, to a person, who is not a promoter, or in the management and control of the
corporate debtor, or a related party of the corporate debtor, or the person who acquires
control or management of the corporate debtor, has neither abetted nor conspired in the
commission of the offence, then, the prosecution, if it is instituted after the
commencement of the CIRP and during its pendency, will stand discharged against the
corporate debtor. Under the second proviso to Sub-section (1), however, the designated
partner in respect of the liability partnership or the Officer in default, as defined Under
Section 2(60) of the Companies Act, 2013, or every person, who was, in any manner,
in-charge or responsible to the corporate debtor for the conduct of its business, will
continue to be liable to be prosecuted and punished for the offence committed by the
corporate debtor. This is despite the extinguishment of the criminal liability of the
corporate debtor Under Sub-section (1). Still further, every person, who was associated
with the corporate debtor in any manner, and, who was directly or indirectly involved in
the commission of such offence, in terms of the Report submitted and Report filed by
the Investigating Authority, will continue to be liable to be prosecuted and punished for
the offence committed by the corporate debtor. Thus, the combined reading of the
various limbs of Sub-section (1) would show that while, on the one hand, the corporate
debtor is freed from the liability for any offence committed before the commencement
of the CIRP, the statutory immunity from the consequences of the commission of the
offence by the corporate debtor is not available and the criminal liability will continue to
haunt the persons, who were in in-charge of the assets of the corporate debtor, or who
were responsible for the conduct of its business or those who were associated with the
corporate debtor in any manner, and who were directly or indirectly involved in the
commission of the offence, and they will continue to be liable.
254. Coming to Sub-section (2) of Section 32A, it declares a bar against taking any
action against property of the corporate debtor. This bar also contemplates the
connection between the offence committed by the corporate debtor before the
commencement of the CIRP and the property of the corporate debtor. This bar is
conditional to the property being covered under the Resolution Plan. The further
requirement is that a Resolution Plan must be approved by the Adjudicating Authority
and, finally, the approved plan, must result in a change in control of the corporate
debtor not to a person, who is already identified and described in Sub-section (1). In
other words, the requirements for invoking the bar against proceeding against the
property of the corporate debtor in relation to an offence committed before the
commencement of the CIRP, are as follows:
(i) There must be Resolution Plan, which is approved by the Adjudication
Authority Under Section 31 of the Code;
(ii) The approved Resolution Plan must result in the change in control of the
corporate debtor to a person, who was not-(a) a promoter; (b) in the
management or control of the corporate debtor or (c) a related party of the
corporate debtor; (d) a person with regard to whom the investigating authority,
had, on the basis of the material, reason to believe that he has abetted or
conspired for the commission of the offence and has submitted a Report or a
complaint. If all these aforesaid conditions are fulfilled then the Law Giver has
provided that no action can be taken against the property of the corporate
debtor in connection with the offence;
The Explanation to Sub-section (2) has clarified that the words "an action
against the property of the corporate debtor in relation to an offence", would
include the attachment, seizure, retention or confiscation of such property
under the law applicable to the corporate debtor. Since the word "include" is
used Under Sub-clause (i) of the Explanation, the word "action" against the
property of the corporate debtor is intended to have the widest possible
amplitude. There is a clear nexus with the object of the Code. The other part of
the clarification, under the Explanation, is found in the second Sub-clause of
the Explanation (ii). Under the second limb of the Explanation, the Law Giver
has clearly articulated the point that as far as the property of any person, other
than the corporate debtor or any person who had acquired the property of the
corporate debtor through the CIRP or liquidation process under the Code and
who otherwise fulfil the requirement Under Section 32A, action can be taken
against the property of such other person. Thus, reading Sub-section (1) and
Sub-section (2) together, two results emerge-(i) subject to the requirements
embedded in Sub-section (1), the liability of the corporate, debtor for the
offence committed under the CIRP, will cease; (ii) The property of the corporate
debtor is protected from any legal action again subject to the safeguards, which
we have indicated. The bar against action against the property, is available, not
only to the corporate debtor but also to any person who acquires property of
the corporate debtor under the CIRP or the liquidation process. The bar against
action against the property of the corporate debtor is also available in the case
of a person subject to the same limitation as prescribed in Sub-section (1) and
also in Sub-section (2), if he has purchased the property of the corporate
debtor in the proceedings for the liquidation of the corporate debtor.
255. The last segment of Section 32A makes it obligatory on the part of the corporate
debtor or any person, to whom immunity is provided Under Section 32A, to provide all
assistance to the Investigating Officer qua any offence committed prior to the
commencement of the CIRP.
2 5 6 . The contentions of the Petitioners appear to be that this provision is
constitutionally anathema as it confers an undeserved immunity for the property which
would be acquired with the proceeds of a crime. The provisions of the Prevention of
Money-Laundering Act, 2002 (for short, the PMLA) are pressed before us. Itis
contended that the prohibition against proceeding against the property, affects the
interest of stakeholders like the Petitioners who may be allottees or other creditors. In
short, it appears to be their contention that the provisions cannot stand the scrutiny of
the Court when tested on the anvil of Article 14 of the Constitution of India. The
provision is projected as being manifestly arbitrary. To screen valuable properties from
being proceeded against, result in the gravest prejudice to the home buyers and other
creditors. The stand of the Union of India is clear. The provision is born out of
experience. The Code was enacted in the year 2016. In the course of its working, the
experience it has produced, is that, resolution applicants are reticent in putting up a
Resolution Plan, and even if it is forthcoming, it is not fair to the interest of the
corporate debtor and the other stake holders.
257. We are of the clear view that no case whatsoever is made out to seek invalidation
of Section 32A. The boundaries of this Court's jurisdiction are clear. The wisdom of the
legislation is not open to judicial review. Having regard to the object of the Code, the
experience of the working of the code, the interests of all stakeholders including most
importantly the imperative need to attract resolution applicants who would not shy away
from offering reasonable and fair value as part of the resolution plan if the legislature
thought that immunity be granted to the corporate debtor as also its property, it hardly
furnishes a ground for this Court to interfere. The provision is carefully thought out. It
is not as if the wrongdoers are allowed to get away. They remain liable. The
extinguishment of the criminal liability of the corporate debtor is apparently important
to the new management to make a clean break with the past and start on a clean slate.
We must also not overlook the principle that the impugned provision is part of an
economic measure. The reverence courts justifiably hold such laws in cannot but be
applicable in the instant case as well. The provision deals with reference to offences
committed prior to the commencement of the CIRP. With the admission of the
application the management of the corporate debtor passes into the hands of the
Interim Resolution Professional and thereafter into the hands of the Resolution
Professional subject undoubtedly to the control by the Committee of Creditors. As far as
protection afforded to the property is concerned there is clearly a rationale behind it.
Having regard to the object of the statute we hardly see any manifest arbitrariness in
the provision.
258. It must be remembered that the immunity is premised on various conditions being
fulfilled. There must be a resolution plan. It must be approved. There must be a change
in the control of the corporate debtor. The new management cannot be the disguised
avatar of the old management. It cannot even be the related party of the corporate
debtor. The new management cannot be the subject matter of an investigation which
has resulted in material showing abetment or conspiracy for the commission of the
offence and the report or complaint filed thereto. These ingredients are also insisted
upon for claiming exemption of the bar from actions against the property. Significantly
every person who was associated with the corporate debtor in any manner and who was
directly or indirectly involved in the commission of the offence in terms of the report
submitted continues to be liable to be prosecuted and punished for the offence
committed by the corporate debtor. The corporate debtor and its property in the context
of the scheme of the code constitute a distinct subject matter justifying the special
treatment accorded to them. Creation of a criminal offence as also abolishing criminal
liability must ordinarily be left to the judgment of the legislature. Erecting a bar against
action against the property of the corporate debtor when viewed in the larger context of
the objectives sought to be achieved at the forefront of which is maximisation of the
value of the assets which again is to be achieved at the earliest point of time cannot
become the subject of judicial veto on the ground of violation of Article 14. We would
be remiss if we did not remind ourselves that attaining public welfare very often needs
delicate balancing of conflicting interests. As to what priority must be accorded to which
interest must remain a legislative value judgment and if seemingly the legislature in its
pursuit of the greater good appears to jettison the interests of some it cannot unless it
strikingly ill squares with some constitutional mandate suffer invalidation.
259. There is no basis at all to impugn the Section on the ground that it violates
Articles 19, 21 or 300A.
VESTED RIGHT; RETROSPECTIVITY; THE 3rd PROVISO IN SECTION 7
260. We will recapitulate the third proviso, at this juncture.
7(1) xxx xxx xxx
Explanation xxx xxx
xxx xxx xxx xxx
Provided also that where an application for initiating the corporate insolvency
resolution process against a corporate debtor has been filed by a financial
creditor referred to in the first and second provisos and has not been admitted
by the Adjudicating Authority before the commencement of the Insolvency and
Bankruptcy Code (Amendment) Act, 2020, such application shall be modified to
comply with the requirements of the first or second proviso within thirty days of
the commencement of the said Act, failing which the application shall be
deemed to be withdrawn before its admission.
261. A perusal of the same, makes it clear that the third proviso is a one-time affair. It
is intended only to deal with those applications, Under Section 7, which were filed prior
to 28.12.2019, when, by way of the impugned Ordinance, initially, the threshold
requirements came to be introduced by the first and the second impugned provisos. In
other words, the legislative intention was to ensure that no application Under Section 7
could be filed after 28.12.2019, except upon complying with the requirements in the
first and second provisos. The Legislature did not stop there. It has clearly intended that
the threshold requirement it imposed, will apply to all those applications, which were
filed, prior to 28.12.2019 as well, subject to the exception that the applications, so
filed, had not been admitted, Under Section 7(5). In other words, the Legislature
intended that in every application, filed Under Section 7, by the creditors covered by the
first proviso and by the allottees governed by the second proviso, should also be
embraced by the newly imposed threshold requirement for which, it was intended,
should be complied within 30 days from the date of the Ordinance. However, this
restriction was not to apply to those applications which stood admitted as on the date of
the Ordinance. It is also clear that the consequence of failure to comply with the
threshold requirement, in regard to applications, which have been filed earlier, was that
they would stand withdrawn.
262. In this regard, several contentions are raised. It is pointed out by the learned
Counsel for the Petitioners, apart from the plea of discrimination, which is alleged
against the first and second provisos, that the third proviso, makes a clear incursion
into a vested right. The impugned third proviso is afflicted with the vice of manifest
arbitrariness. It is contended that the Petitioners, who had moved an application under
the erstwhile regime, were legally entitled to make such an application, whether it is by
a single allottee or jointly. This was a substantive right. Availing such substantive right,
under a Statute, when the application stood instituted, they had the right to continue
with the proceeding unimpaired and unhindered by the new threshold requirement,
which cannot be made applicable in their cases. It is contended that when there is a
repeal of a Statute, the existing rights are saved. In this case, there was an existing
right with the Petitioners to institute the application Under Section 7 and, therefore, this
right cannot be imperilled by enacting the amendment. It is pointed out that the
statutory time limit to decide an application, was fourteen days. This Court, in Pioneer
(supra), also stressed the importance of disposing matters, within the period, even
though, it may have laid down that the period is not inflexibly mandatory and that it is
directory. In the case of the Petitioners, the applications were pending for more than a
year. Classifying the applications under the same head, is arbitrary and irrational. The
Petitioners have spent substantial sums towards court fee, legal and other expenses, in
addition to considerable time. There is no provision to ameliorate their losses.
Withdrawals and fresh filing would derail the insolvency process. Our attention is draw
to the judgment of this Court in Hitendra Vishnu Thakur and Ors. v. State of
Maharashtra and Ors. MANU/SC/0526/1994 : (1994) 4 SCC 602, wherein this Court laid
down that Statute, which affects substantive right, is presumed to be prospective,
unless made retrospective expressly or by necessary intendment. Every litigant has a
vested right in substantive matters but no such right exists in procedural law. The law
relating to right of action and right of appeal, even though remedial, is substantive in
nature. A procedural Statute should not, generally speaking, be applied retrospectively,
where the result would be to create new disabilities or obligations or to impose new
duties in respect of accomplished transactions. Reliance is placed similarly on the
judgment of this Court in Ambalal Sarabhai Enterprises Ltd. v. Amrit Lal & Co. and Anr.
MANU/SC/0488/2001 : (2001) 8 SCC 397. The period of 30 days is far too short and
that too, under an amendment, which is itself impossible to comply with. In this regard,
also judgment of this Court in B.K. Educational Services Private Ltd. v. Parag Gupta and
Associates MANU/SC/1160/2018 : (2019) 11 SCC 633 : 2018 1 IBJ (JP) 649 SC, is
referred to. The proviso cannot be applied retrospectively. The proviso is penal,
arbitrary, unjust and unfair. Reliance is placed on In Re: Pulborough Parish School
Board Election, Bourke v. Nutt (1894) 1 QB 725.
263. Per contra, the stand of the Respondents in this regard, is as follows:
The third proviso does not affect any rights of the creditors in question. By
merely filing an application Under Section 7, no absolute right is created. In
this regard, reliance is placed on judgments of this Court in
MANU/SC/1073/2003 : (2004) 1 SCC 663, MANU/SC/1123/2018 : (2019) 2
SCC 1, MANU/SC/0079/2019 : (2019) 4 SCC 17, MANU/SC/0061/2015 : (2015)
3 SCC 206, MANU/SC/1577/2019. It is further contended that the mere right to
take advantage of a statue is not a vested right. And in this regard out attention
is drawn to following Judgments-(1961) Vol. 2 All Eng. 721,
MANU/SC/0371/1979 : (1980) 1 SCC 149; Lalji Raja and Sons (supra),
MANU/SC/0235/1984 : (1985) 1 SCC 436. The impugned third proviso is
intended to protect the collective interest of others in a class of creditors.
Before admission of an application, there is no vested right. Therefore, it does
not have retrospective application, in a manner that impairs vested right. This
requirement would ensure that there is no needless multiplicity and no single
allottee would be able to achieve admission and its consequences without
having a certain minimum number of compatriots on board. Even vested right
can be taken away by the Legislature [(MANU/SC/0008/1957 : 1957 SCR 488].
264. The first question, which we would have to answer, is whether the right under the
unamended Section 7 was a vested right of the financial creditors or allottees covered
by the provisos 1 and 2, respectively. This brings us squarely to the question as to what
constitutes a vested right. Learned ASG contends that there is no vested right till the
application is admitted. It is also contended that the right was only one to take
advantage of a Statute. In Salmond on Jurisprudence, the following characteristics have
been found indispensable to constitute a right:
41. The characteristics of a legal right
Every legal right has the five following characteristics:
(1) It is vested in a person who may be distinguished as the owner of
the right, the subject of it, the person entitled, or the person of
inherence.
(2) It avails against a person, upon whom lies the correlative duty. He
may be distinguished as the person bound, or as the subject of the
duty, or as the person of incidence.
(3) It obliges the person bound to an act or omission in favour of the
person entitled. This may be termed the content of the right.
(4) The act or omission relates to something (in the widest sense of
that word), which may be termed the object or subject-matter of the
right.
(5) Every legal right has a title, that is to say, certain facts or event by
reason of which the right has become vested in its owner.
265. Legal rights are, in a wider sense, of four distinct kinds. They are rights, liberties,
powers and immunities. Duty is the correlative of a right, while, no rights correspond to
liberties. Liabilities have a nexus with the power exercised by another person, with
regard to whom, the liability exists in another party. When somebody has an immunity
against another, it disables the latter, and thus, it constitutes a disability for him.
Salmond notes further that the term right is often used in the wide sense to include
liberty by which it is meant to have one left free to do as he pleases.
266. We may notice the following discussion relating to powers and liabilities:
2 . Powers and liabilities. Yet another class of legal rights consists of those
which are termed powers. Examples of such are the following: the right to
make a will, or to alienate property; the power of sale vested in a mortgagee; a
landlord's right of reentry; the right to marry one's deceased wife's sister; the
power to sue and to prosecute; the right to rescind a contract for fraud; a
power of appointment; a power of appointment; the right of issuing execution
on a judgment; the various powers vested in judges and other officials for the
due fulfilment of their functions. All these are legal rights-they are legally
recognized interests-they are advantages conferred by the law-but they are
rights of a different species from the two classes which we have already
considered. ...... My right to make a will corresponds to no duty in any one
else. A mortgagee's power of sale is not the correlative of any duty imposed
upon the mortgagor;
xxx xxx xxx xxx
A power may be defined as ability conferred upon a person by law to alter, by
his own will directed to that end, the rights, duties, liabilities or other legal
relations, either of himself or of other persons. ...
(Emphasis supplied)
267. It may be asked whether a right of action is a right or a power. Is there a duty
with anyone in the case of a right to an action? We need not probe this further as a
power is also a right in the wider sense. The right to sue and right to appeal has been
so recognized as we will notice.
268. As far as the distinct kind of legal rights are concerned, in the classification made
by Salmond1 which counts nine distinct legal classifications of legal rights, we notice
the following discussion of classification between vested and contingent rights. To
quote:
Vested and contingent rights. A right vests when all the facts have occurred
which must by law occur in order for the person in question to have the right. A
right is contingent when some but not all of the vestive facts, as they are
termed, have occurred. A grant of land to A in fee simple will give a vested
right of ownership. A grant to A for life and then to B in fee simple if he
survives A, gives B a contingent right. It is contingent because some of the
vestive facts have not yet taken place, and indeed may neve do so: B may not
survive A if he does, his formerly contingent right now becomes vested. A
contingent right then is a right that is incomplete.
A contingent right is different, however from a mere hope of spes. If A leaves B
a legacy in his will, B has no right to this during A's lifetime. He has no more
than a hope that he will obtain a legacy; he certainly does not have an
incomplete right, since it is open to A at any time to alter his will.
269. In Garikapati Veeraya (supra), the suit was filed on 22.04.1949. The High Court
decreed the suit in an appeal by the Plaintiff on 04.03.1955. The Petitioner before this
Court contended that since the valuation of the suit was more than Rs. 10,000, in terms
of the Clause 39 of the Letters Patent, 1865, an appeal was maintainable before the
Supreme Court. No doubt this involved the argument that the appeal in fact lay to the
Federal Court as all appeals would lie to the Federal Court in view of the abolition of the
Privy Council in 1949. Since, the Federal Court was replaced by Supreme Court, the
appeal lay before this Court.
270. After consideration of the case law we notice the following principles which have
been laid down by this Court.
23(i) That the legal pursuit of a remedy, suit, appeal and second appeal are
really but steps in a series of proceedings all connected by an intrinsic unity
and are to be regarded as one legal proceeding.
(ii) The right of appeal is not a mere matter of procedure but is a substantive
right.
(iii) The institution of the suit carries with it the implication that all rights of
appeal then in force are preserved to the parties thereto till the rest of the
career of the suit.
(iv) The right of appeal is a vested right and such a right to enter the superior
court accrues to the litigant and exists as on and from the date the lis
commences and although it may be actually exercised when the adverse
judgment is pronounced such right is to be governed by the law prevailing at
the date of the institution of the suit or proceeding and not by the law that
prevails at the date of its decision or at the date of the filing of the appeal.
(v) This vested right of appeal can be taken away only by a subsequent
enactment, if it so provides expressly or by necessary intendment and not
otherwise.
(Emphasis supplied)
271. It is clear that the institution of a suit leads to the inference that the right of
appeal is preserved. There is a vested right of appeal. The vested right of appeal
accrues to the litigant and exists from the day of the institution of the lis (suit).
Therefore, while the remedy of an appeal may be provided under the statute that right
becomes a vested right only from the point of time that the suit is filed either by the
Appellant or the opposite party. All of this undoubtedly is subject to a subsequent
enactment not interfering with the right of an appeal.
272. In Lalji Raja and Sons v. Hansraj Nathuram MANU/SC/0008/1971 : (1971) 1 SCC
721, this Court inter alia held as follows:
16. That a provision to preserve the right accrued under a repealed Act "was
not intended to preserve the abstract rights conferred by the repealed Act.... It
only applies to specific rights given to an individual upon happening of one or
the other of the events specified in statute see"--Lord Atkin's observations in
Hamilton Cell v. White. [(1922) 2 KB 422] The mere right, existing at the date
of repealing statute, to take advantage of provisions of the statute repealed is
not a "right accrued" within the meaning of the usual saving clause--see Abbot
v. Minister for Lands [(1895) AC 425] and G. Ogden Industries Pvt. Ltd. v.
Lucas [MANU/UKPC/0007/1968 : (1969) 1 All ER 121].
273. It is apposite to notice the context in which the said observations were made.
There was an ex parte decree passed by a Court in West-Bengal in 1949. It was
transferred to a Court (Morena) in Old Madhya Bharat State. The Execution Petition was
dismissed on the ground that it was an ex parte Decree by a foreign court. This Court
noted that Sections 38 and 39 of the Code of Civil Procedure did not apply on the day in
question, and therefore, the transfer orders was without jurisdiction. On 1st April, 1951
the Code of Civil Procedure was extended to former state of Madhya Bharat. The decree
holders sought a fresh transfer of the decree to the very same court as earlier namely
Morena which had become part of State of Madhya Pradesh to which Code of Civil
Procedure applied. The High Court upheld the contention of the judgment debtor that
the decree could not be executed as being of the foreign court. This Court reversed the
High Court judgment. The argument which was raised, was based on Section 20 of the
Code of Civil Procedure (Amendment) Act, 1951, by which the Code was extended to
Madhya Bharat. There was a repeal of the law that prevailed in the State when the
amendment to the Code of Civil Procedure in 1951 was made applicable. There was,
however, also a proviso which saved rights privileges, obligations and liabilities
acquired, accrued or incurred. The contention therefore of the judgment debtor was that
the judgment debtor's right to resist was preserved under the saving clause. It was
found by this Court that the provisions of Code of Civil Procedure enforced in Madhya
Bharat did not confer the right claimed by the judgment debtor. All that happened as a
result of the extension of the Code to the whole of India in 1951, was that the decrees
which could have been executed in the British India could now be executed in the whole
of India. It is, therefore, in the context of a repeal and as to whether right to take
advantage of the repealed law constituted a right accrued under the usual saving Clause
that the observations made in paragraph 16 are to be understood.
274. This Court made reference to a few decisions (paragraph-16) including Abbott and
Minister of Lands (1895) AC 425. We think, it is appropriate that we advert to the issues
which were involved in the said cases.
275. In Abbott (supra), the Privy Council had to deal with the following factual matrix,
in short:
The Appellant effected a conditional purchase Under Section 22 of the Crown
Lands Alienation Act, 1861, adjoining the land which he had acquired in fee
simple. He made certain applications, seeking to make further additional
conditional purchases of certain adjoining lands as also seeking a lease. The
questions which arose for the opinion of the court were three in number.
Firstly, the question arose whether the conditional purchase which the Appellant
had made, constituted him the holder of an original conditional purchase, Under
Section 42 of the Act of 1884. Still further, the question fell for decision as to
whether Section 22 of the Crown Lands Act of 1884 reserved the right for the
Appellant the right to purchase additional conditional purchases of adjoining
crown lands, which were allowed to the full area of 648 acres allowed by the
repealed Act. Thirdly, the question arose, as to whether supposing him to be
entitled to the additional conditional purchase, was he entitled to the
conditional lease which he had applied for? Section 22 of the 1861 Act was
repealed and in the later Act, there was no corresponding provision to Section
22 but there was a saving proviso which enabled the Appellant, according to
him, to make an additional conditional purchase, as if Section 22 remained in
force. The saving Clause saved all the accrued rights and liabilities. Noticing the
change in the condition of residence, which had been earlier imposed, being
done away with, the Court went on to hold as follows:
It has been very common in the case of repealing statues to save all
rights accrued. If it were held that the effect of this was to leave it
open to any one who could have taken advantage of them, the result
would be very far-reaching.
It may be, as Windeyer J. observes, that the power to take advantage
of an enactment may without impropriety be termed a "right". But the
question is whether it is a "right accrued" within the meaning of the
enactment which has to be construed.
Their Lordships think not, and they are confirmed in this opinion by the
fact that the words relied on are found in conjunction with the words
"obligations incurred or imposed". They think that the mere right
(assuming it to be properly so called existing in the members of the
community or any class of them to take advantage of an enactment,
without any act done by an individual towards availing himself of that
right, cannot properly be deemed a "right accrued" within the meaning
of the enactment.
276. In Hamilton Gell v. White (1922) 2 K.B. 422, upon a quit notice given by the
landlord, the tenant sought to avail the benefit of Section 11 of the Agricultural
Holdings Act, 1914 by successfully complying with one out of the two conditions for
seeking the compensation. Before the tenant could comply with the further condition,
which was that he should move the action within two months, after quitting the holding,
Section 11 was repealed. He subsequently made his claim within three months, as
limited by the repealed Section. The matter went to an Arbitrator. The Arbitrator stated
a special case. He raised two questions. Firstly, whether the tenant was entitled to claim
compensation under the repealing Act of 1920 and, secondly, whether he could claim
under the repealed Act notwithstanding the repeal. The first question was answered
against the tenant, with which, the Court of Appeal agreed. As regards the second
question, the Court was of the view that the tenant was entitled to succeed. The
following is the reasoning, in short:
SCRUTTON L.J. ... But it is not suggested by the Appellant that his right to
compensation was acquired by his giving notice of intention to claim it, what
gave him the right was the fact of the landlord having given a notice to quit in
view of a sale. The conditions imposed by Section 11 were conditions, not of
the acquisition of the right, but of its enforcement. Section 38 says that repeal
of an Act shall not (c) "affect any right .... acquired .... under any enactment so
repealed," or (e) "affect any investigation, legal proceeding, or remedy in
respect of any such right." As soon as the tenant had given notice of his
intention to claim compensation Under Section 11 he was entitled to have that
claim investigated by an arbitrator. In the course of that arbitration he would no
doubt have to prove that that right in fact existed, that is to say that the notice
to quit was given in view of a sale, and he would also have to prove the
measure of his loss. But he was entitled to have that investigation, which had
been begun, continue, for Section 38 expressly provides that the investigation
shall not be affected by the repeal. I should like to add that the arbitrator would
be well advised to make his award complete. If he had continued his
investigation and said: If it is found that the tenant had a right I assess the
compensation at so much under the Act of 1908 and so much under the Act of
1920 we should have been able to give our final judgment.
(Emphasis supplied)
277. The decision thus turned on the point of time at which the right arose.
278. Atkin L J., as he then was, agreed that the Appeal should be allowed and went on
to hold as follows:
ATKIN L.J. .... It is obvious that that provision was not intended to preserve the
abstract rights conferred by the repealed Act, such for instance as the right of
compensation for disturbance conferred upon tenants generally under the Act of
1908, for if it were the repealing Act would be altogether inoperative. It only
applies to the specific rights given to an individual upon the happening of one
or other of the events specified in the statute. Here the necessary event has
happened, because the landlord has, in view of a sale of the property, given the
tenant notice to quit. Under those circumstances the tenant has "acquired a
right," which would "accrue" when he has quitted his holding, to receive
compensation. ...
279. In Odgen Industries Pty. Ltd. v. Haider Doreen Lucas MANU/UKPC/0007/1968 : 3
WLR 75 : (1969) (1) All England Reports 121, the following facts in a case which
originated in Australia may be noticed. An employee of the Appellant died on 7th July,
1965. His death was materially contributed by injuries, which, in turn, arose out of and
in the course of his employment with the Appellants. The employee was hospitalized in
March, 1965 for treatment and he again came to be hospitalized in 19th June, 1965 and,
thereafter, he died on 07.07.1965. He left behind him the Respondent, his widow and
two children under the age of 16, who were wholly dependent on the employee's
earnings. The amount of compensation for the dependents would have been calculated
under the Workers Compensation Act, 1958. The Act, however, was amended by the
Workers Compensation (Amendment) Act, 1965. The Amendment Act, came into force
for 01.07.1965. The Amendment Act increased the benefits payable to the dependents.
The High Court of Australia dismissed the appeal of the employer and affirmed the
award of the Workman's compensation board paying the increased compensation under
the Amending Act. The Privy Council was called upon to decide two questions. Firstly,
the question was whether, as the Amendment Act came into operation after the original
injury to the employee, his dependents were entitled to the increased rates prescribed
by the amending Act. Secondly, did the deceased, after the 30.06.1965, suffer a further
injury or aggravation, which gave him new title for the purpose of the Amendment Act.
The Court, went on to hold as inter-alia follows:
Under the Act of 1958 the widow did not have to prove that she was in fact
dependent upon the earnings of her husband though under the Amendment Act
she has to do so. Nevertheless, it is quite clear as a matter of law that no single
person can say under either Act the moment before the death "I shall be a
dependant at the death if I so long live." First, it must be established that the
death was caused or contributed to by the accident, secondly that the widow
will be the deceased's widow at the date of death and not dead or married to
some other man, and the children must show that they are under sixteen. None
of these things can be ascertained (let alone proved) until after the moment of
death of the worker.
In their Lordships' opinion in Section 7(2)(c) the rights, privileges and
obligations acquired or accrued on the one side and the liabilities incurred on
the other side referred to in that paragraph are mutual and correlative.
.. . The object and intent of the Interpretation Act is to preserve rights and
privileges acquired or accrued on the one side and the corresponding obligation
or liability incurred by the person bound to observe or perform those rights or
privileges on the other side; so that when a subsequent Act repeals or amends
those rights, privileges and liabilities for the future that would not affect the
preexisting mutual rights and liabilities of the parties. .... But in the view that
their Lordships take there is for the purposes of the Interpretation Act no right
in the dependants and no correlative liability upon the worker's employers until
the moment of death. Therefore apart altogether from authority their Lordships
are of opinion that the Acts Interpretation Act has no application and the rights
of the dependants and the corresponding liability of the employer must be
tested and ascertained at the date of the death; at that time there was an
obligation upon the employer under and by virtue of the Act of 1958 as
amended by the Amendment Act to compensate the dependants in accordance
with its provisions. That was the ground of decision of the majority of the High
Court in their very careful judgments with which their Lordships agree. ...
(Emphasis supplied)
280. It will be, at once, noticed that the saving Clause in the repealing Act, was not the
basis for the judgment rendered in favour of the employee. The compensation was
ordered based on the law prevalent at the time of death.
281. Now, it is necessary to refer to the judgment of this Court in Isha Valimohamed v.
Haji Gulam Mohamad & Haji Dada Trust MANU/SC/0387/1974 : (1974) 2 SCC 484. The
facts in the said case are to be noticed in some detail for it may have bearing on the
questions to be answered by us. The Respondent landlord purported to terminate the
tenancy in relation to a building by a notice dated 12.02.1964 on the ground inter alia
of subletting. It must be noticed that at the time the subletting took place the building
was covered by Saurashtra Rent Control Act, 1951. The said Act provided that the
landlord shall be entitled to recover possession in the case of subletting by the tenant.
It is while this Act was in force that the tenant sublet the premises. However, the
Saurashtra Act came to be repealed by the Bombay Rents, Hotels and Lodging Houses
Rates Control Act, 1947 on 31.12.1963. Section 51 of the Bombay Act, inter alia,
contained the saving Clause that the repeal would not affect any right, privilege,
obligation, liability accrued or incurred under any law so repealed. The notice,
terminating tenancy was issued on 12.02.1964 after the repeal of the 'Saurashtra Act'.
The High court took the view that the landlord had an accrued right under saving Clause
of the Bombay Act. The suit was brought after the repeal.
282. This Court adopted the following reasoning:
If the notice under the Transfer of Property was necessary to determine the
tenancy on the ground of subletting, then the High Court would not be correct
that the Respondent landlord had an accrued right before issue of notice.
Thereafter, the Court went on to consider 'Hamilton' (supra) and 'Abbott'
(supra) inter alia.
Thereafter, the Court went on to consider the argument as to whether the
landlord had a privilege under the saving clause.
Thereafter, what is relevant is that this Court went on to find that the High
Court was not right in proceeding on the basis of that notice was necessary
under Transfer of Property Act to terminate on the ground that the Appellant
had sublet the premises.
283. It is apposite to notice the reasoning in paragraph-16:
16. Under the Transfer of Property Act, mere sub-letting, by a tenant, unless
the contract of tenancy so provides, is no ground for terminating the tenancy.
Under that Act a landlord cannot terminate a tenancy on the ground that the
tenant had sub-let the premises unless the contract of tenancy prohibits him
from doing so. The Respondent-landlord therefore could not have issued a
notice under any of the provisions of the Transfer of Property Act to determine
the tenancy, as the contract of tenancy did not prohibit sub-letting by the
tenant. To put it, differently, under the Transfer of Property Act, it is only if the
contract of tenancy prohibits sub-letting by tenant that a landlord can forfeit the
tenancy on the ground that the tenant has sub-let the premises and recover
possession of the same after issuing a notice. Section 111 of the Transfer of
Property Act provides that a lease may be determined by forfeiture if the tenant
commits breach of any of the conditions of the contract of tenancy which entails
a forfeiture of the tenancy. If sub-letting is not prohibited under the contract of
tenancy, sub-letting would not be a breach of any condition in the contract of
tenancy which would enable the landlord to forfeit the tenancy on that score by
issuing a notice. If that be so, there was no question of the Respondent
landlord terminating the tenancy under the Transfer of Property Act on the
ground that the tenant had sub-let the premises. It is only Under Section
13(1)(e) of the Saurashtra Act that a landlord was entitled to recover
possession of the property on the basis that the tenant had sub-let the
premises; and, that is because, Section 15 of that Act unconditionally
prohibited a tenant from sub-letting. The Saurashtra Act nowhere insists that
the landlord should issue a notice and terminate the tenancy before instituting a
suit for recovery of possession Under Section 13(1)(e) on the ground that the
tenant had sub-let the premises. The position, therefore, was that the landlord
was entitled to recover possession of the premises Under Section 13(1) of the
Saurashtra Act on the ground that the tenant sublet the premises. It would
follow that a right accrued to the landlord to recover possession Under Section
13(1) of the Saurashtra Act when the tenant sub-let the premises during the
currency of that Act and the right survived the repeal of that Act under proviso
(2) to Section 51 of the Bombay Act and, therefore, the suit for recovery of
possession of the premises Under Section 13(1) read with Clause (e) of the
Saurashtra Act after the repeal of that Act on the basis of the sub-letting during
the currency of the Saurashtra Act was maintainable. In this view, we think that
the judgment of the High Court must be upheld and we do so.
284. Thus, what is relevant, this Court went on to find under the Saurashtra Act, there
was no requirement of any notice to terminate the tenancy. It was found that the
landlord was entitled to recover the possession under the said Act, if there was
subletting. In other words, the Court went on to hold that a right accrued to the
landlord under the Saurashtra Act upon the Appellant subletting the premises. It was
during the pendency of the Saurashtra Act. This right survived the repeal of the
Saurashtra Act and thus the suit under the Saurashtra Act was maintainable.
285. Apparently, the Court drew support from the principle in Hamilton (supra). We
have already noticed the facts of Hamilton (supra). The question in short would appear
to be as to when the right comes into existence? If, the right comes into existence then
the remedy can be pursued by the party entitled.
286. This again would necessarily depend upon the terms of the repealing enactments
as also the terms of the saving clause. In the absence of a saving clause, no doubt a
party can also fall back on the Section 6 of the General Clauses Act, 1897. This is again
subject to what is held about the scope of a saving Clause in MANU/SC/0057/1989 :
(1989) 2 SCC 557 as will be noticed later on.
2 8 7 . What is further significant to be noticed is that the decision involved a case
where, though styled as a suit, the proceeding under the Saurashtra Act was a
proceeding under a Statute and the right was one created by the statute and what gave
the right to the landlord was an act of subletting. The said right was what was not
wiped out by the repeal. As already noticed the suit itself was filed after the repeal. The
discussion on the distinction between a privilege and an accrued right in the said
decision has been relied upon recently in a judgment by one of us (Justice R.F.
Nariman) in Bombay Stock Exchange v. V.S. Kandalgaonkar MANU/SC/0876/2014 :
(2015) 2 SCC 1.
288. In New India Assurance Co. Ltd. v. Shanti Misra MANU/SC/0547/1975 : (1975) 2
SCC 840, the husband of the first Respondent died as a result of a motor accident. The
suit could be brought Under Article 82 of the Limitation Act 1963 within two years of
the accident. On 18.03.1867, the Government of Uttar Pradesh constituted the claim
Tribunal Under Section 110 of the Motor Vehicle Act. The application of the Respondents
before the Tribunal was objected to by the Appellant insurer. While deciding in favour
of the Respondents and holding that the application was maintainable before the
Tribunal, this Court, inter-alia, held as follows:
... If action, before Civil Court was alive where no suit had been filed "In such
cases the vested right of action was not meant to be extinguished. The remedy
of either application Under Section 110A or a civil suit must be available; surely
not both.
289. Thereafter, it was held, inter-alia, as follows:
5 . On the plain language of Sections 110-A and 110-F there should be no
difficulty in taking the view that the change in law was merely a change of
forum i.e. a change of adjectival or procedural law and not of substantive law.
It is a well-established proposition that such a change of law operates
retrospectively and the person has to go to the new forum even if his cause of
action or right of action accrued prior to the change of forum. He will have a
vested right of action but not a vested right of forum. If by express words the
new forum is made available only to causes of action arising after the creation
of the forum, then the retrospective operation of the law is taken away.
Otherwise the general Rule is to make it retrospective. The expressions "arising
out of an accident" occurring in Sub-section (1) and "over the area in which the
accident occurred", mentioned in Sub-section (2) clearly show that the change
of forum was meant to be operative retrospectively irrespective of the fact as to
when the accident occurred. To that extent there was no difficulty in giving the
answer in a simple way.
(Emphasis supplied)
290. We may also notice that in regard to the question as to whether a new law of
Limitation could extinguish vested right of action, it was held, inter-alia, as follows:
7 . (2) Even though by and large the law of limitation has been held to be a
procedural law, there are exceptions to this principle. Generally the law of
limitation which is in vogue on the date of the commencement of the action
governs it. But there are certain exceptions to this principle. The new law of
limitation providing a longer period cannot revive a dead remedy. Nor can it
suddenly extinguish a vested right of action by providing for a shorter period of
limitation.
It is important to notice paragraph-9:
9. In Gopeshwar Pal v. Jiban Chandra Chandra [MANU/WB/0117/1914 : ILR 51
Cal 1125] Jenkins, C.J. delivering the judgment on behalf of the majority of the
Full Bench said at p. 1141:
Here the Plaintiff at the time when the amending Act was passed had a
vested right of suit, and we see nothing in the Act as amended that
demands the construction that the Plaintiff was thereby deprived of a
right of suit vested in him at the date of the passing of the amending
Act. It is not (in our opinion) even a fair reading of Section 184 and the
third Schedule of the Bengal Tenancy Act, as amended, to hold that it
was intended to impose an impossible condition under pain of the
forfeiture of a vested right, and we can only construe the amendment
as not applying to cases where its provisions cannot be obeyed.
The majority of the Full Bench of the Madras High Court in Rajah Sahib
Meharban-i-Doston Sri Raja Row V.K.M. Surya Row Bahadur, Sirdar,
Rajahmundry Sircar and Rajah of Pittapur v. G. Venkata Subba Row
[MANU/TN/0132/1915 : ILR 34 Mad 645] has taken the same view following
the Full Bench decision in Gopeshwar Pal case at p. 650. Amendment of the law
of limitation could not destroy the Plaintiff's right of action which was in
existence when the Act came into force. We are conscious of the distinction
which was sought to be made in the application of these principles. It was said
that the right could not be destroyed but recourse to suit would be available
under the old law of limitation. We, however, think that giving retrospective
effect to the change of law in relation to the forum, in the context of the object
of the change, is imperative. That being so the principles aforesaid for
overcoming the bar of limitation will be applicable."
291. This judgment has been followed in Vinod Gurudas Raikar v. National Insurance
Co. Ltd. and Ors. MANU/SC/0475/1991 : (1991) 4 SCC 333 and also in Union of India
v. Harnam Singh MANU/SC/0216/1993 : (1993) 2 SCC 162 and recently also by this
Court in B.K. Educational Services (supra).
292. In V. Dhanapal Chettiar v. Yesodai Ammal MANU/SC/0505/1979 : (1979) 4 SCC
214, a Bench of seven learned Judges while taking the view that a notice to quit Under
Section 106 of the TP Act 1882 was not necessary for an Eviction Petition under any of
the State Rent Acts observed in regard to Isha Valimohamed (supra) that the view taken
in the said case that the landlord could not have issued notice to determine the tenancy
on the ground of subletting under any of the provisions of Transfer of Property Act was
not correct as a notice issued Under Section 111(h) does not require any ground to be
made out for termination of the tenancy. It was further held that the view taken in Isha
Valimohamed (supra), in this regard, would be taken only Under Section 111(g).
293. In D.C. Bhatia v. Union of India MANU/SC/0516/1995 : (1995) 1 SCC 104, the
Delhi Rent Control Act came to be amended with effect from 01.12.1988, by which
amendment, the Act was not to apply to any premises, the monthly rent of which
exceeded Rs. 3500/-. Dealing with the tenants' contention that he had a vested right
this Court took the view that if the tenant is sought to be evicted before the
amendment, they could have taken advantage of the provisions of the Act to resist such
eviction. But this was nothing more than the right to take advantage of the law and the
tenant had statutory protection only as long as the law remains in force. We may only
notice paragraph-53. It read as under:
53. The provisions of a repealed statute cannot be relied upon after it has been
repealed. But, what has been acquired under the Repealed Act cannot be
disturbed. But, if any new or further step is needed to be taken under the Act,
that cannot be taken even after the Act is repealed.
(Emphasis supplied)
294. In Mst. Bibi Sayeeda and Ors. v. State of Bihar and Ors. MANU/SC/0481/1996 :
(1996) 9 SCC 516 : AIR 1996 SC 1936, the Court was to dealing with the meaning of
the word 'Bazar' in the Bihar Land Reforms Act, 1950 (Bihar Act 30 of 1950). In the
course, of the said judgment the Court went on to hold that the right of the proprietor
of a State to hold a 'Mela' on its own land is a right in the estate being appurtenant to
the ownership of his land. In the context, of property rights undoubtedly the Court went
on to make the following observations:
17. The word 'vested' is defined in Black's Law Dictionary (6th Edn.) at p. 1563
as:
Vested; fixed; accrued; settled; absolute; complete. Having the
character or given the rights of absolute ownership; not contingent; not
subject to be defeated by a condition precedent.
Rights are 'vested' when right to enjoyment, present or prospective, has
become property of some particular person or persons as present interest; mere
expectancy of future benefits, or contingent interest in property founded on
anticipated continuance of existing laws, does not constitute vested rights.
In Webster's Comprehensive Dictionary, (International Edn.) at p. 1397 'vested'
is defined as:
[L]aw held by a tenure subject to no contingency; complete;
established by law as a permanent right; vested interests.
295. Though this is a case which dealt with vested right qua property there is indeed
authority for the proposition that the concept of vested right is not confined to a
property right. In this regard we may profitably refer to the special bench of judgment
of High Court of Calcutta reported in Gopeshur Pal v. Jiban Chandra Chandra and Ors.
MANU/WB/0117/1914 : AIR 1914 Calcutta 806, referred to by this Court in
MANU/SC/0547/1975 : AIR 1976 SC 237 (supra) when it was, inter alia, held:
3 . "On the contrary, the essential conditions of the two cases are so distinct
that in our opinion it cannot be said that the earlier decision is, in relation to
the circumstances of this case, affected by the judgment of the Privy Council. It
is an established axiom of construction that though procedure may be regulated
by the Act for the time being in force, still, the intention to take away a vested
right without compensation or any saving, is not to be imputed to the
Legislature, unless it be expressed in unequivocal terms [cf. The Commissioner
of Public Works v. Logan [L.R. 1903 A.C. 355]. That this view is not limited to
those cases where rights of property in the limited sense are involved, is shown
by the Colonial Sugar Refining Co. v. Irving [L.R. 1905 A.C. 369], where it was
held that an Act ought not to be so construed as to deprive a suitor of an
appeal in a pending action, which belonged to him as of right at the date of the
passing of the Act. Equally is a right of suit a vested right, and in Jackson v.
Woolley [8 Ell. and Bl. 784 (1859)], the Court of Exchequer Chamber declined,
in the absence of something putting the matter beyond doubt, to put on an Act
a construction that would deprive any person of a right of action vested in him
at the time of the passing of the Act.
4 . William, J. said: "It would require words of no ordinary strength in the
statute to induce us to say that it takes away such a vested right.
296. In M.S. Shivananda v. Karnataka SRTC MANU/SC/0371/1979 : (1980) 1 SCC 149,
under an ordinance, employees of the erstwhile State Carriage Operators were to be
absorbed by State Road Transport corporation subject to certain conditions. The ratio
was provided. The ordinance was replaced by an Act. The ratio, however, stood altered.
This affected the chances of absorption of the workers. This led to writ petitions. The
question which fell to be decided with reference to the effect of repeal and what
constituted a right. The court held inter-alia as follows:
15. The distinction between what is, and what is not a right preserved by the
provisions of Section 6 of the General clauses Act is often one of great
fineness. What is unaffected by the repeal of a statute is a right acquired or
accrued under it and not a mere "hope or expectation of", or liberty to apply
for, acquiring a right. In Director of Public Works v. Ho Po Sang
[MANU/UKPC/0007/1961 : (1961) 2 All ER 721, 731 (PC)] Lord Morris speaking
for the Privy Council, observed:
It may be, therefore, that under some repealed enactment, a right has
been given but that, in respect of it, some investigation or legal
proceeding is necessary. The right is then unaffected and preserved. It
will be preserved even if a process of quantification is necessary. But
there is a manifest distinction between an investigation in respect of a
right and an investigation which is to decide whether some right should
be or should not be given. On a repeal, the former is preserved by the
Interpretation Act. The latter is not.
(emphasis supplied)
It must be mentioned that the object of Section 31(2)(i) is to preserve only the
things done and action taken under the repealed Ordinance, and not the rights
and privileges acquired and accrued on the one side, and the corresponding
obligation or liability incurred on the other side, so that if no right acquired
under the repealed Ordinance was preserved, there is no question of any
liability being enforced.
1 6 . Further, it is significant to notice that the saving Clause that we are
considering in Section 31(2)(i) of the Act, saved things done while the
Ordinance was in force; it does not purport to preserve a right acquired under
the repealed Ordinance. It is unlike the usual saving clauses which preserve
unaffected by the repeal, not only things done under the repealed enactment
but also the rights acquired thereunder. It is also clear that even Section 6 of
the General clauses Act, the applicability of which is excluded, is not intended
to preserve the abstract rights conferred by the repealed Ordinance. It only
applies to specific rights given to an individual upon the happening of one or
other of the events specified in the statute.
297. In Kanaya Ram (supra) the predecessor in interest of the Appellants had applied
for purchase of the tenancy right under the Punjab Security of Land Tenures Act 1953.
During the pendency of the proceedings before the Assistant Collector, certain persons
were impleaded as Respondents on the basis that they were the legal heirs of the
landlord. Thereafter, their names were struck off as unnecessary. On the same day, the
application of the predecessor in interest of the Appellants was allowed. Thereafter,
there was certain oral sales by the original land owner. The contention which apparently
was taken by the legal heirs of landlord upon his death was that the original landlord
died during the pendency of the proceedings, and there was change in the status of the
land owners against whom the application Under Section 18(1) of the Act was made as
on that date as his legal heirs became small land owners. The Financial Commissioner
before whom the matter reached, however, was of the view that the application made
by the Appellants predecessor being competent on the date it was filed, the rights of the
parties had to be adjudicated on that basis. The learned Single Judge of the High Court
took the view, however, that the changed situation brought about by the death of the
big land owner had to be taken into account in determining the right of the tenant.
Respondents 3 to 14 who were the legal heirs of the landlord instituted a suit against
the transferees from the landlord on the basis that they were mere benamidars of the
land owner and no title passed to them as the alleged sales were not effected by
registered instruments Under Section 54 which had been extended by the Government
of Punjab with effect from 1st April 1955 to the State. The suit came to be decreed.
They sought impleadment before the High Court on the ground that the Collector had in
determining the surplus area of the land of the land owners held that the sales in favour
of Respondents 1 and 2 were benami. The Collector found that on the death of the
original land owners, Respondents 3 to 14 became small land owners. The Division
Bench took the view that no oral sale could be made, and therefore, the transfers made
in favour of Respondents 1 and 2 did not pass any title. This Court, apart from noticing
the fact that as the special leave had been refused against the main judgment the
appeal was no longer tenable it, held that the original land owner was not impleaded by
the predecessor in interest of the Appellants in his application even though Respondents
3 to 14 were impleaded and they were subsequently deleted on Appellant's objection
that they were not necessary parties. This Court went on to distinguish the judgment in
Rameshwar and Ors. v. Jot Ram and Anr. MANU/SC/0512/1975 : (1976) 1 SCC 194 as it
was a case where the tenants after making the requisite application had made the
necessary deposit of the first instalment of the purchase price. It was in such
circumstances noted that the tenants had acquired a vested right to purchase the land
and the case had gone beyond the stage of mere application Under Section 18(1). This
Court noted that the observation of the Court that the rights of the parties are
determined "by the facts as they exist on the date of the action" must be held in the
context in which they were made. What is relevant is the following statement is the
judgment in Kanaya Ram (supra):
1 0 . ......In the present case, Harditta Ram, the predecessor-in-title of the
Appellants, when he made the application for purchase Under Section 18(1) of
the Act, had a mere "hope or expectation of, or liberty to apply for, acquiring a
right" and not a "right acquired or accrued" Under Section 18(1). It has been
held ever since the leading case of Abbott v. Minister for Lands [1895 AC 425 :
64 L JPC 167 that a mere right to take advantage of the provisions of an Act is
not an accrued right. Abbott case [1895 AC 425 : 64 L JPC 167 : 72 LT 402
(PC)] has been followed by this Court in a number of decisions. In such a
situation, the Court is bound to take into consideration the subsequent events
and mould the relief accordingly. The decision in Rameshwar case
[MANU/SC/0512/1975 : (1976) 1 SCC 194 : AIR 1976 SC 49 : (1976) 1 SCR
847] clearly turned on the legal fiction contained in Section 18(4)(b) of the Act
and the death of the large landholder Teja during the pendency of the appeal
before the Financial Commissioner on which inheritance opened and his legal
heirs became small landholders, could not impair the vested rights acquired by
the tenants by virtue of the order passed by the Prescribed Authority and the
deposit by them of the first instalment of the purchase price as required Under
Section 18(4)(a).
(Emphasis supplied)
298. While on the ambit of the saving Clause we may notice Bansidhar v. State of
Rajasthan MANU/SC/0057/1989 : (1989) 2 SCC 557 while dealing with the fact of
saving Clause in a repealing statute the court held as follows:
28. A saving provision in a repealing statute is not exhaustive of the rights and
obligations so saved or the rights that survive the repeal. It is observed by this
Court in IT Commissioner v. Shah Sadiq & Sons [MANU/SC/0351/1987 : (1987)
3 SCC 516 : 1987 SCC (Tax) 270 : AIR 1987 SC 1217, 1221]: (SCC p. 524,
para 15)
... In other words whatever rights are expressly saved by the 'savings'
provision stand saved. But, that does not mean that rights which are
not saved by the 'savings' provision are extinguished or stand ipso
facto terminated by the mere fact that a new statute repealing the old
statute is enacted. Rights which have accrued are saved unless they are
taken away expressly. This is the principle behind Section 6(c), General
Clauses Act, 1897....
We agree with the High Court that the scheme of the 1973 Act does not
manifest an intention contrary to, and inconsistent with, the saving of the
repealed provisions of Section 5(6-A) and Chapter III-B of "1955 Act" so far as
pending cases are concerned and that the rights accrued and liabilities incurred
under the old law are not effaced. Appellant's contention (a) is, in our opinion,
insubstantial.
Re Contention (b)"
299. Petitioners also rely on the judgment of this Court Hitendra Vishnu Thakur (supra)
and Ambalal Sarabhai Enterprises Ltd. (supra).
3 0 0 . In Hitendra Vishnu Thakur (supra), the case arose under the Terrorist and
Disruptive Activities (Prevention) Act, 1987 (TADA Act). Section 20(4) of TADA Act,
made Section 167 of the Code of Criminal Procedure applicable with certain
modifications. Clause (b) provided for a longer period, as the period for which remand
could be ordered. By an amendment, w.e.f. 22.05.1993, the period was reduced.
Thereafter, however, another clause, viz., Clause (bb) was added, which contained a
proviso. The proviso mandated that if it was not possible to complete the investigation
within a period of 180 days on the Report of the Public Prosecutor, indicating the
progress of the investigation and the specific reasons for detention beyond 180 days,
the designated court should extend the period upto one year. It was in the context of
this provision that this Court, after noting that the amendment was retrospective and
apply to pending cases, in which, the investigation was not complete on the date of the
Amending Act and the challan had not been filed in the Court, the Court culled-out the
following principles:
26. xxx xxx xxx xxx
(i) A statute which affects substantive rights is presumed to be
prospective in operation unless made retrospective, either expressly or
by necessary intendment, whereas a statute which merely affects
procedure, unless such a construction is textually impossible, is
presumed to be retrospective in its application, should not be given an
extended meaning and should be strictly confined to its clearly defined
limits.
(ii) Law relating to forum and limitation is procedural in nature,
whereas law relating to right of action and right of appeal even though
remedial is substantive in nature.
(iii) Every litigant has a vested right in substantive law but no such
right exists in procedural law.
(iv) A procedural statute should not generally speaking be applied
retrospectively where the result would be to create new disabilities or
obligations or to impose new duties in respect of transactions already
accomplished.
(v) A statute which not only changes the procedure but also creates
new rights and liabilities shall be construed to be prospective in
operation, unless otherwise provided, either expressly or by necessary
implication.
301. Thereafter, the Court also went on to hold, however, that both the amendment
Clauses (b) and (bb) would apply retrospectively to all pending cases. Thus, it was
found that the Amending Act was retrospective and both the clauses would apply to
cases which were pending investigation on the date when the amendment came into
force and where challan had not been filed till then.
302. In Ambalal Sarabhai Enterprises Ltd. (supra), by an amendment to the Delhi Rent
Control Act, while a petition for eviction by the Respondent landlord was pending on the
ground of subletting, exclusion of the jurisdiction of the Rent Controller with respect of
tenancies fetching monthly rent exceeding Rs. 3,500/- was brought into force. The
question arose, inter alia, as to whether the ground of illegal subletting was a vested
right. It also fell for decision as to whether there was merit in the contention of the
Appellant tenant that after the amendment, the civil court alone had jurisdiction. It was
the contention of the tenant that he had no vested right and the amendment was not
retrospective in operation, and therefore, the civil court alone would have jurisdiction.
The landlord contended that in view of Section 6 of the General Clauses Act, 1897, the
pending proceedings before the Rent Controller should at any rate continue even if his
contention based on vested right was repelled. This Court went on to hold that the
tenant had no vested right by relying on the judgment of this Court in Mohinder Kumar
and Ors. v. State of Haryana and Anr. MANU/SC/0037/1985 : (1985) 4 SCC 221 and
also in D.C. Bhatia and Ors. v. Union of India and Anr. MANU/SC/0516/1995 : (1995) 1
SCC 104 (the latter of which decisions is relied upon by the Respondent-Union for the
proposition that a right to take advantage of an enactment, would not create a vested
right). Thereafter, this Court went on to hold that the landlord also did not have a
vested right for seeking on the ground of eviction Under Section 14 of the Delhi Rent
Control Act. It was found that Section 14 was only a protective right for a tenant and
the various clauses which constituted a proviso to the protection from eviction by a
landlord could not be construed as a vested right in favour of the landlord. Having so
held, this Court went on to consider the effect of a repeal of Section 6 of the General
Clauses Act. Therein, this Court went on to hold that the Respondent-landlord had a
right to continue the proceedings before the Rent Control Board Under Section 6 of the
General Clauses Act. It would be an accrued right in terms of Section 6. We need only
notice paragraphs-26, 35 and 36 of Ambalal Sarabhai Enterprises Ltd. (supra):
26. As a general rule, in view of Section 6, the repeal of a statute, which is not
retrospective in operation, does not prima facie affect the pending proceedings
which may be continued as if the repealed enactment were still in force. In
other words, such repeal does not affect the pending cases which would
continue to be concluded as if the enactment has not been repealed. In fact
when a lis commences, all rights and obligations of the parties get crystallised
on that date. The mandate of Section 6 of the General Clauses Act is simply to
leave the pending proceedings unaffected which commenced under the
unrepealed provisions unless contrary intention is expressed. We find Clause
(c) of Section 6, refers the words "any right, privilege, obligation ... acquired or
accrued" under the repealed statute would not be affected by the repealing
statute. We may hasten to clarify here, mere existence of a right not being
"acquired" or "accrued" on the date of the repeal would not get protection of
Section 6 of the General Clauses Act.
xxx xxx xxx xxx
35. In cases where Section 6 is not applicable, the courts have to scrutinise
and find whether a person under a repealed statute had any vested right. In
case he had, then pending proceedings would be saved. However, in cases
where Section 6 is applicable, it is not merely a vested right but all those
covered under various clauses from (a) to (e) of Section 6. We have already
clarified that right and privilege under it is limited to that which is "acquired"
and "accrued". In such cases pending proceedings is to be continued as if the
statute has not been repealed.
3 6 . In view of the aforesaid legal principle emerging, we come to the
conclusion that since proceeding for the eviction of the tenant was pending
when the repealing Act came into operation, Section 6 of the General Clauses
Act would be applicable in the present case, as it is the landlord's accrued right
in terms of Section 6. Clause (c) of Section 6 refers to "any right" which may
not be limited as a vested right but is limited to be an accrued right. The words
"any right accrued" in Section 6(c) are wide enough to include the landlord's
right to evict a tenant in case proceeding was pending when repeal came in.
Thus a pending proceeding before the Rent Controller for the eviction of a
tenant on the date when the repealing Act came into force would not be
affected by the repealing statute and will be continued and concluded in
accordance with the law as existed under the repealed statute.
303. In Howrah Municipal Corporation and Ors. v. Ganges Rope Co. Ltd. and Ors.
MANU/SC/1073/2003 : (2004) 1 SCC 663 the first Respondent company had applied for
sanction for construction of its complex of seven floors. By order dated 23.12.1993 the
High Court directed sanction to be accorded for the plan up to the 4th floor provided
other requirements are complied with. It was also observed that the company would be
at liberty to seek further sanction if it was permissible. Sanction was given and
construction completed as regards the four floors. Relying on the High Court order,
sanction was sought for the remaining floors. The High Court passed an order
expressing the expectation that the order would be passed within a period of four weeks
relying upon the earlier order. There was correspondence between the parties. While the
matter was so pending, the building Rules were amended restricting the height of
buildings, inter alia. The height being restricted, the application for sanction of
additional three floors was rejected. The High Court took the view that the unamended
Rules and Regulations on the date of submission of the application seeking sanction for
further construction would govern the matter. This Court on a conspectus of the Rules
found that the Rules did not contemplate 'deemed sanction' or 'deemed refusal', and
therefore, without express sanction there could not be construction. The contention
however, was that the order of the High court fixing a period to decide its pending
application be treated as creating vested right in favour of the Respondent. This Court
held as follows:
37. The argument advanced on the basis of so-called creation of vested right
for obtaining sanction on the basis of the Building Rules (unamended) as they
were on the date of submission of the application and the order of the High
Court fixing a period for decision of the same, is misconceived. The word "vest"
is normally used where an immediate fixed right in present or future enjoyment
in respect of a property is created. With the long usage the said word "vest" has
also acquired a meaning as "an absolute or indefeasible right" [see K.J. Aiyer's
Judicial Dictionary (A Complete Law Lexicon), 13th Edn.]. The context in which
the Respondent Company claims a vested right for sanction and which has been
accepted by the Division Bench of the High Court, is not a right in relation to
"ownership or possession of any property" for which the expression "vest" is
generally used. What we can understand from the claim of a "vested right" set
up by the Respondent Company is that on the basis of the Building Rules, as
applicable to their case on the date of making an application for sanction and
the fixed period allotted by the Court for its consideration, it had a "legitimate"
or "settled expectation" to obtain the sanction. In our considered opinion, such
"settled expectation", if any, did not create any vested right to obtain sanction.
True it is, that the Respondent Company which can have no control over the
manner of processing of application for sanction by the Corporation cannot be
blamed for delay but during pendency of its application for sanction, if the
State Government, in exercise of its rule-making power, amended the Building
Rules and imposed restrictions on the heights of buildings on G.T. Road and
other wards, such "settled expectation" has been rendered impossible of
fulfilment due to change in law. The claim based on the alleged "vested right"
or "settled expectation" cannot be set up against statutory provisions which
were brought into force by the State Government by amending the Building
Rules and not by the Corporation against whom such "vested right" or "settled
expectation" is being sought to be enforced. The "vested right" or "settled
expectation" has been nullified not only by the Corporation but also by the
State by amending the Building Rules. Besides this, such a "settled expectation"
or the so-called "vested right" cannot be countenanced against public interest
and convenience which are sought to be served by amendment of the Building
Rules and the resolution of the Corporation issued thereupon.
3 0 4 . In Arcelormittal India Private Limited v. Satish Kumar Gupta and Ors.
MANU/SC/1123/2018 : (2019) 2 SCC 1, a judgment rendered by one of us (R.F.
Nariman, J.), this Court dealt with the very Code with which we are concerned. It
concerned the scope of Section 29A of the Code declaring ineligibility of certain
categories of persons to be resolution applicants. In this context, this Court inter alia,
while dealing with the scope of the Code as also the principle of piercing of corporate
veil, and after an exhaustive survey of the Code and reiterating the principle that it is
settled law that a statute is designed to be workable, a question was posed whether a
resolution plan being turned down under Section 30(2) could be challenged. Answering
this question, the Court held as follows:
79. Given the timeline referred to above, and given the fact that a resolution
applicant has no vested right that his resolution plan be considered, it is clear
that no challenge can be preferred to the adjudicating authority at this stage. A
writ petition Under Article 226 filed before a High Court would also be turned
down on the ground that no right, much less a fundamental right, is affected at
this stage. This is also made clear by the first proviso to Section 30(4),
whereby a Resolution Professional may only invite fresh resolution plans if no
other resolution plan has passed muster.
xxx xxx xxx xxx
8 2 . Take the next stage Under Section 30. A Resolution Professional has
presented a resolution plan to the Committee of Creditors for its approval, but
the Committee of Creditors does not approve such plan after considering its
feasibility and viability, as the requisite vote of not less than 66% of the voting
share of the financial creditors is not obtained. As has been mentioned
hereinabove, the first proviso to Section 30(4) furnishes the answer, which is
that all that can happen at this stage is to require the Resolution Professional to
invite a fresh resolution plan within the time-limits specified where no other
resolution plan is available with him. It is clear that at this stage again no
application before the adjudicating authority could be entertained as there is no
vested right or fundamental right in the resolution applicant to have its
resolution plan approved, and as no adjudication has yet taken place.
305. In Swiss Ribbons (supra), while dealing with constitutional validity of Section 29A
of the Code declaring certain persons not to be eligible as resolution applicants, after
referring to the decision in Arcelormittal India Private Ltd. (supra), this Court held as
follows:
97. It is settled law that a statute is not retrospective merely because it affects
existing rights; nor is it retrospective merely because a part of the requisites for
its action is drawn from a time antecedent to its passing [see State Bank's Staff
Union (Madras Circle) v. Union of India [State Bank's Staff Union (Madras
Circle) v. Union of India, MANU/SC/0564/2005 : (2005) 7 SCC 584 : 2005 SCC
(L&S) 994] (at para 21)]. In ArcelorMittal [ArcelorMittal (India) (P) Ltd. v.
Satish Kumar Gupta, MANU/SC/1123/2018 : (2019) 2 SCC 1], this Court has
observed that a resolution applicant has no vested right for consideration or
approval of its resolution plan as follows: (SCC p. 87, para 82)
82. Take the next stage Under Section 30. A Resolution Professional
has presented a resolution plan to the Committee of Creditors for its
approval, but the Committee of Creditors does not approve such plan
after considering its feasibility and viability, as the requisite vote of not
less than 66% of the voting share of the financial creditors is not
obtained. As has been mentioned hereinabove, the first proviso to
Section 30(4) furnishes the answer, which is that all that can happen at
this stage is to require the Resolution Professional to invite a fresh
resolution plan within the time-limits specified where no other
resolution plan is available with him. It is clear that at this stage again
no application before the adjudicating authority could be entertained as
there is no vested right or fundamental right in the resolution applicant
to have its resolution plan approved, and as no adjudication has yet
taken place.
9 8 . This being the case, it is clear that no vested right is taken away by
application of Section 29-A. However, Shri Viswanathan pointed out the
judgments in Ritesh Agarwal v. SEBI [Ritesh Agarwal v. SEBI,
MANU/SC/7687/2008 : (2008) 8 SCC 205] (at para 25), K.S. Paripoornan v.
State of Kerala [K.S. Paripoornan v. State of Kerala, MANU/SC/0200/1995 :
(1994) 5 SCC 593] (at paras 60-66), Darshan Singh v. Ram Pal Singh [Darshan
Singh v. Ram Pal Singh, MANU/SC/0378/1991 : 1992 Supp (1) SCC 191] (at
para 35), Pyare Lal Sharma v. Jammu & Kashmir Industries Ltd. [Pyare Lal
Sharma v. Jammu & Kashmir Industries Ltd., MANU/SC/0428/1989 : (1989) 3
SCC 448 : 1989 SCC (L&S) 484] (at para 21), P.D. Aggarwal v. State of U.P.
[P.D. Aggarwal v. State of U.P., MANU/SC/0671/1987 : (1987) 3 SCC 622 :
1987 SCC (L&S) 310] (at para 18), and Govind Das v. CIT [Govind Das v. CIT,
MANU/SC/0248/1975 : (1976) 1 SCC 906 : 1976 SCC (Tax) 133] (at paras 6
and 11), to argue that if a Section operates on an antecedent set of facts, but
affects a vested right, it can be held to be retrospective, and unless the
legislature clearly intends such retrospectivity, the Section should not be
construed as such. Each of these judgments deals with different situations in
which penal and other enactments interfere with vested rights, as a result of
which, they were held to be prospective in nature. However, in our judgment in
ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta,
MANU/SC/1123/2018 : (2019) 2 SCC 1], we have already held that resolution
applicants have no vested right to be considered as such in the resolution
process. Shri Mukul Rohatgi, however, argued that this judgment is
distinguishable as no question of constitutional validity arose in this case, and
no issue as to the vested right of a promoter fell for consideration. We are of
the view that the observations made in ArcelorMittal [ArcelorMittal (India) (P)
Ltd. v. Satish Kumar Gupta, MANU/SC/1123/2018 : (2019) 2 SCC 1] directly
arose on the facts of the case in order to oust the Ruias as promoters from the
pale of consideration of their resolution plan, in which context, this Court held
that they had no vested right to be considered as resolution applicants.
Accordingly, we follow the aforesaid judgment. Since a resolution applicant
who applies Under Section 29-A(c) has no vested right to apply for being
considered as a resolution applicant, this point is of no avail.
306. We may observe that the decisions of this Court in Arcelormittal India Pvt. Ltd.
(supra) and Swiss Robbins (supra) are inappropriate to the context of the cases before
us. We may also notice the decision of the Court of Appeal in West v. Gwynne (1910)
WLR 976. The Plaintiff in the said case who was the landlord of the property wrote to
the Defendant, his tenant for his consent for the proposed underlease. The Defendant
insisted however on receiving for himself one half of the surplus rental as a condition
for the consent. The suit filed by the Plaintiff was for a declaration that the Defendant
could not impose such a condition and that he could give the underlease without any
further consent of the Defendant. In the year 1892 (after the lease), Section 3 of the
Conveyancing Act 1892 was enacted. The question which arose was whether it would
apply to existing leases as well as and was of general application or it should be
confined to leases after the commencement of the Act. The said Section provided that in
all leases containing a covenant against assigning or under letting without license or
consent such covenant should unless the lease contain an express provision to the
contrary be deemed subject to the proviso that no fine shall be payable for or in respect
of such license or consent. The court took the view that the words of the Section was
clear. In fact, we may profitably notice the words of Joyce, J. whose judgment was the
subject matter of the appeal "the Section with which we have to deal with in this case is
quite plain to everyone but a lawyer". The court of appeal took the view that the
provision was a general enactment based on ground of public policy, Cozens Hardy M.R.
while agreeing with the general proposition that a statute is presumed not to have
retrospective operation unless a contrary intention appears by express words or by
necessary implication held as follows:
Retrospective operation is an inaccurate term. Almost every statute affects right
which would have been existed but for the statute.
307. Buckley, L.J. went on to hold as follows:
...To my mind the word "retrospective" is inappropriate, and the question is not
whether the Section is retrospective. Retrospective operation is one matter.
Interference with existing rights is another. If an Act provides that as at a past
date the law shall be taken to have been that which it was not, that Act I
understand to be retrospective. That is not this case. The question here is
whether a certain provision as to the contents of leases is addressed to the case
of all leases or only of some, namely, leases executed after the passing of the
Act. The question is as to the ambit and scope of the Act, and not as to the date
as from which the new law, as enacted by the Act, is to be taken to have been
the law.
3 0 8 . Reliance has been placed on the judgment of this Court in B.K. Educational
Services Private Limited v. Parag Gupta and Associates MANU/SC/1160/2018 : (2019)
11 SCC 633 which was rendered by one of us (R.F. Nariman, J.). By an amendment to
the Code with effect from 6.6.2018 Section 238A was inserted by which the Limitation
Act, 1963, was made applicable to the proceedings and appeals before the authorities
including the appellate tribunal. The question which fell for decision was whether the
Limitation Act 1963 would also apply in respect of application Under Section 7 inter alia
on and from the commencement of the Code on 1.12.2016 till the date of the
amendment that is 6.6.2018. In answering this question, this Court went on to hold that
the CIRP can only be initiated either by a financial or operational creditor in relation to
debts which have not become time barred. In the course of its judgment, this Court
referred to the earlier judgment of this Court including the recent judgment of this Court
in M.P. Steel Corporation v. Commissioner of Central Excise MANU/SC/0484/2015 :
(2015) 7 SCC 58. In the said decision, this Court has relied upon the earlier judgment
reported in Smt. Shanti Misra (supra) wherein it was laid down inter alia as follows:
(2) Even though by and large the law of limitation has been held to be a
procedural law, there are exceptions to this principle. Generally, the law of
limitation which is in vogue on the date of the commencement of the action
governs it. But there are certain exceptions to this principle. The new law of
limitation providing a longer period cannot revive a dead remedy. Nor can it
suddenly extinguish vested right of action by providing for a shorter period of
limitation.
309. This Court also held that the application filed in 2016 or 2017 cannot suddenly
revive a debt which is no longer due as it is time barred. Apparently, the Petitioners are
seeking to lay store by the principle that a new law cannot extinguish a vested right of
action even if it be pertaining to the period of limitation.
310. A right of appeal is a vested right, as noticed. However, it becomes vested not
because the right is created under the Statute alone. It becomes vested, as noticed by
this Court in Garikapati Veeraya (supra), from the date of institution of the suit. What
about a right to sue? In the case of a right to file a civil suit, equally there is a vested
right to file a suit but the question would be as to when does it arise. From the line of
argument pursued on behalf of the Union that in the case of the right to take advantage
of an existing Statute, there is no accrued right, which means also that there is no
vested right, should we proceed on the basis that the concept of a vested right qua a
civil suit, can be recognized only after the civil suit is filed, at a time when there is no
law, ousting or barring a civil suit and a law is passed, during the pendency of a civil
suit, which again does not expressly bar the suits, which had already been filed? Since
we are in the regions of vested rights, and every right must have a title to the right, and
since every civil suit is based on a cause of action, could it not be said that the right to
sue becomes vested from the point of time when the cause of action arises? Since, for
every civil suit, there is a period of limitation prescribed, could it not be said that since
a period of limitation has been prescribed for instituting a suit, the right to sue becomes
vested from the first day when the period of limitation starts to run?
311. Order VII Rule 11 of the Code of Civil Procedure contemplates rejection of a
plaint, if it does not disclose a cause of action. The cause of action in a suit, will consist
of the facts, which, if not traversed by the Defendant, will entitle the Plaintiff to a
Decree. The Schedule to the Limitation Act, 1963, consisting of three columns. The third
column, provides for the time, from which, the period begins to run for different suits.
Article 19 provides for money payable for money lent. The period of three years,
prescribed as period of limitation, begins to run from the point of time, when the loan is
made. This means that, at any point of time, after the loan is made, but within three
years, ordinarily, a civil suit is to be filed. In the example, we have given, if a suit is
filed towards the end of the three-year period, would it be said that the right to sue was
not available from the first day, when the period of limitation began to run? We will
take another example. Article 73 provides for a period of one year for a suit for
compensation for false imprisonment. The time, from which the period begins to run, is
when the imprisonment ends. Can it not be said that the prisoner, upon his
incarceration coming to an end, is clothed with a vested right to sue? We would think,
that he is given a right, which is vested in him, when the imprisonment ends. In fact, it
is the illegal imprisonment which is really creates the vested right but the period of
limitation begins on sound policy only after his release. Article 113 of the Limitation
Act, provides for suits for which there is no period provided in the schedule. The period
of 03 years provided begins to run when the right to sue accrues. If the right to sue
'accrued' within the meaning of Article 113, can it still be said, that for the purpose of
deciding, the effect of a law purporting to impact the right, there is no vested right or
accrued right till the suit is filed? We will give another example and that is Article 30,
which gives a right to sue on the bond subject to a condition. The period of limitation is
three years. The time begins to run when the condition is broken. The right to sue
clearly could be said to arise, immediately upon the condition being broken. We may, in
this context also, notice that one of the five characteristics for a legal right to exist, is
that every legal right has a title. It is further stated, in Salmond on Jurisprudence that
every legal right has a title, which are apparently the facts or events by reason of which
the right has become vested in its owner. Now, it must be noticed also, at this stage
that the Limitation Act, in fact, contemplates the time, within which the suit must be
brought, beginning necessarily on the supposition, that at least, on the very first day of
the period of time, from which a Plaintiff can sue, the right is already vested in him.
This would reinforce us in our view that a vested right to sue could be said to accrue,
and it would always precede the institution of the suit. At any rate, it could be said to
exist from the very first day, on which the time begins to run, under the Limitation Act.
Thus, a vested right to sue could be tested with reference not to the date on which the
suit is filed as would be the case where a question arises, whether a right of appeal
exists.
312. However, we must consider whether a right of suit is conferred by a statute. In
this regard, we may notice the decision of this Court in Mardia Chemicals Ltd. and Ors.
v. Union of India and Ors. MANU/SC/0323/2004 : (2004) 4 SCC 311. Therein the
validity of certain provisions of the SARFAESI Act 2002, was questioned. Of relevance to
us, in these cases is the discussion of this Court relating to the vires of Section 17(2).
The said provision contemplated a pre-deposit of 75 per cent of the amount by the
applicant Under Section 17 before the Tribunal. This Court found the condition of pre-
deposit arbitrary and unreasonable. In this context, this Court also noted the distinction
between a civil suit and an appeal and it was found that an application maintained
Under Section 17 was in the nature of a suit, it is apposite that we notice the following:
59. We may like to observe that proceedings Under Section 17 of the Act, in
fact, are not appellate proceedings. It seems to be a misnomer. In fact it is the
initial action which is brought before a forum as prescribed under the Act,
raising grievance against the action or measures taken by one of the parties to
the contract. It is the stage of initial proceeding like filing a suit in civil court.
As a matter of fact proceedings Under Section 17 of the Act are in lieu of a civil
suit which remedy is ordinarily available but for the bar Under Section 34 of the
Act in the present case. We may refer to a decision of this Court in Ganga Bai v.
Vijay Kumar [MANU/SC/0020/1974 : (1974) 2 SCC 393] where in respect of
original and appellate proceedings a distinction has been drawn as follows:
(SCC p. 397, para 15)
There is a basic distinction between the right of suit and the right of
appeal. There is an inherent right in every person to bring a suit of civil
nature and unless the suit is barred by statute one may, at one's peril,
bring a suit of one's choice. It is no answer to a suit, howsoever
frivolous to claim, that the law confers no such right to sue. A suit for
its maintainability requires no authority of law and it is enough that no
statute bars the suit. But the position in regard to appeals is quite the
opposite. The right of appeal inheres in no one and therefore an appeal
for its maintainability must have the clear authority of law. That
explains why the right of appeal is described as a creature of statute.
6 0 . The requirement of pre-deposit of any amount at the first instance of
proceedings is not to be found in any of the decisions cited on behalf of the
Respondent. All these cases relate to appeals. The amount of deposit of 75% of
the demand, at the initial proceeding itself sounds unreasonable and
oppressive, more particularly when the secured assets/the management thereof
along with the right to transfer such interest has been taken over by the
secured creditor or in some cases property is also sold. Requirement of deposit
of such a heavy amount on the basis of a one-sided claim alone, cannot be said
to be a reasonable condition at the first instance itself before start of
adjudication of the dispute. Merely giving power to the Tribunal to waive or
reduce the amount, does not cure the inherent infirmity leaning one-sidedly in
favour of the party, who, so far has alone been the party to decide the amount
and the fact of default and classifying the dues as NPAs without
participation/association of the borrower in the process. Such an onerous and
oppressive condition should not be left operative in expectation of reasonable
exercise of discretion by the authority concerned. Placed in a situation as
indicated above, where it may not be possible for the borrower to raise any
amount to make the deposit, his secured assets having already been taken
possession of or sold, such a rider to approach the Tribunal at the first instance
of proceedings, captioned as appeal, renders the remedy illusory and nugatory.
xxx xxx xxx xxx
6 4 . The condition of pre-deposit in the present case is bad rendering the
remedy illusory on the grounds that: (i) it is imposed while approaching the
adjudicating authority of the first instance, not in appeal, (ii) there is no
determination of the amount due as yet, (iii) the secured assets or their
management with transferable interest is already taken over and under control
of the secured creditor, (iv) no special reason for double security in respect of
an amount yet to be determined and settled, (v) 75% of the amount claimed by
no means would be a meagre amount, and (vi) it will leave the borrower in a
position where it would not be possible for him to raise any funds to make
deposit of 75% of the undetermined demand. Such conditions are not alone
onerous and oppressive but also unreasonable and arbitrary. Therefore, in our
view, Sub-section (2) of Section 17 of the Act is unreasonable, arbitrary and
violative of Article 14 of the Constitution.
(Emphasis supplied)
313. Thus, a right to sue is not created by the statute. It is an inherent right unless is
barred by some law. Therefore, the principle that a right to take advantage of a statute
not being an accrued right may not apply. We may also use this occasion to repel the
argument based on Mardia Chemicals (supra) that the application Under Section 7 is
akin to a civil suit. The context of the application Under Section 17 of SARFAESI Act is
completely different from that of the code. The application Under Section 17 of the
SARFAESI was found to be in lieu of a suit. The allottee has other remedies unlike the
applicant Under Section 17. All the assets of the debtor are taken over. The situation
cannot be compared. No doubt, the argument of the learned ASG is based on the right
Under Section 7 of the Code being a mere right to take advantage of a statute. In Abbott
(supra), in the context of a saving enactment, the Court observed that a mere right
assuming it to exist in the members of the public or any class, then, to take advantage
of an enactment, without any act done by the individual, towards availing himself of
that right, could not be treated as an accrued right under the enactment. Therefore, the
stand appears to be that the right Under Section 7 is a mere right to take advantage of
an enactment. It is the further case of the Union, apparently that, only upon an
application being filed and what is more, it is admitted Under Section 7(5), that a
vested right would accrue.
314. We do not think that the principles which have been laid down, may apply in the
case of a vested right of action. We take the view that a Plaintiff has a vested right,
depending on whether there is a cause of action and a period of limitation, which has
begun to run, which necessarily involves, the existence of a vested right. In the case of
an application Under Section 7 of the Code, we may notice that it is a valuable right, no
doubt, statutory in nature. It cannot be the law that a Statute cannot create vested
rights. Should the ingredients which the Legislature contemplate exist in favour of a
person as an action in law, it can also be described as a vested right. The application,
Under Section 7, is an application, which attracts the period of limitation, which has
already been noticed. It commences from the time when the right to sue accrues. In
every case, where the period of limitation began to run, in respect of debt prior to the
Code coming into being, the right to sue would have arisen earlier. In this regard we
may refer to Isha Valimohamed (supra).
315. In regard to the effect of this finding on the challenge to the first and the second
provisos in Section 7, we must immediately observe that the impugned first and second
provisos have only prospective operation. We have already found that the provisos first
and second are valid. They can survive, even if the third proviso is struck down. The
third proviso is on the other hand dependant on the first and second provisos and
cannot survive their invalidation. The vested right cannot exist merely by reason of
Section 7. It must depend upon the vestitive facts which would create the right in
conjunction with Section 7. We need not probe the matter further in those cases where
only the first and second provisos can be questioned. This is so in two writ petitions,
W.P. No. 228 of 2020 and W.P. No. 850 of 2020, where, though there are no
applications filed Under Section 7 before the amendment, the third proviso is also
challenged, which cannot be countenanced.
316. There is, in our view, a right which is vested in the cases where, the Petitioners
have filed application, fulfilling the requirements under unamended Section 7 of the
Code. The very act of filing the application, even satisfies the apparent test propounded
by the Additional Solicitor General, that the right Under Section 7 is only one to take
advantage of the statute and unless advantage is actually availed it does not create an
accrued right. When applications were filed under the unamended provisions of Section
7, at any rate it would transform into a vested right. The vested right is to proceed with
the action till its logical and legal conclusion. We are unable to accept the stand of the
learned ASG, that a vested right to emerge still require an order Under Section 7(5) of
the Code. It is no doubt a stage, when the authority finds there is default and takes the
matter forward including appointing to begin with the IRP and ordering a moratorium.
In this regard, it is to be noted that in the scheme of the Code, what takes place before
admission, is that the applicant tries to establish the debt and default. This is akin to
the stage of a trial in a suit. No doubt, this happens only if the application is free from
defects. But this is a far cry from saying that a vested right of action did not inhere even
on the version of the ASG upon the act of the creditor invoking the Code.
317. In P.D. Aggrawal and Ors. v. State of U.P. and Ors. MANU/SC/0671/1987 : (1987)
3 SCC 622, the Court was dealing with a challenge to statutory rules, inter alia, by
which temporary Assistant Engineers who were working continuously since the date of
their appointment in the cadre of Assistant Engineer were deprived of their services
from the date of substantial appointment to the temporary post for the purpose of
seniority. This Court in the context of Rules and the impact it had held as follows:
1 8 . It has been held by this Court in E.P. Royappa v. State of Tamil Nadu
[MANU/SC/0380/1973 : AIR 1974 SC 555, 583 : (1974) 4 SCC 3 : 1974 SCC
(L&S) 165], Maneka Gandhi v. Union of India [MANU/SC/0133/1978 : AIR 1978
SC 597, 624 : (1978) 1 SCC 248] that there should not be arbitrariness in State
action and the State action must ensure fairness and equality of treatment. It is
open to judicial review whether any Rule or provision of any Act has violated
the principles of equality and non-arbitrariness and thereby invaded the rights
of citizens guaranteed Under Articles 14 and 16 of the Constitution....
It was also after noting the facts stated as follows:
..Thus the 1969 and 1971 amendments in effect take away from the officers
appointed to the temporary posts in the cadre through Public Service
Commission i.e. after selection by Public Service Commission, the substantive
character of their appointment. These amendments are not only
disadvantageous to the future recruits against temporary vacancies but they
were made applicable retrospectively from March 1, 1962 even to existing
officers recruited against temporary vacancies through Public Service
Commission. As has been stated hereinbefore that the Government has power
to make retrospective amendments to the Rules but if the Rules purport to take
away the vested rights and are arbitrary and not reasonable then such
retrospective amendments are subject to judicial scrutiny if they have infringed
Articles 14 and 16 of the Constitution.
318. We may notice two aspects. Firstly, it was a challenge to a statutory rule. The
Court went on to observe that it could be the overturned if it is arbitrary. We have
already taken note that in regard to the challenge to a law made by the legislature
Under Article 14 that what is required is that a law must be manifestly arbitrary. The
said concept has been explained in Shayara Bano (supra) (paragraph-101).
319. In Darshan Singh v. Ram Pal Singh and Ors. MANU/SC/0378/1991 : 1992 (Suppl)
1 SCC 191, the Appellants challenged certain alienations as being contrary to custom
under the State law of the year 1920. The matter was at the appellate stage in suits
filed by the Appellants.
320. In 1973, the law was amended. On the basis of same, the High Court dismissed
the suit on the basis of that, after the amending Act came into force there could not be
a challenge to the transfer. The contentions of the Appellants was that the amending Act
could not be read as retrospective. The original enactment permitted challenging the
transfer on the ground that the transfer was contrary to custom. It was this right which
was sought to be subjected to certain conditions.
321. We may notice that this case did not involve a challenge to the amendment. In the
course of the judgment, the Court took the view what was taken away was the basic
right to 'contest', the transfer irrespective of whether it was in a suit or appeal. The
Court concluded that by the amending Act the custom was done away with.
322. In K.S. Paripoornan v. State of Kerala MANU/SC/0200/1995 : (1994) 5 SCC 593,
the Constitution Bench had to consider whether Section 23(I-A) and introduced by the
amending Act 1984 was retrospective. In the majority judgment by S.C. Agrawal, J., we
notice the following:
64. A statute dealing with substantive rights differs from a statute which relates
to procedure or evidence or is declaratory in nature inasmuch as while a statute
dealing with substantive rights is prima facie prospective unless it is expressly
or by necessary implication made to have retrospective effect, a statute
concerned mainly with matters of procedure or evidence or which is declaratory
in nature has to be construed as retrospective unless there is a clear indication
that such was not the intention of the legislature. A statute is regarded
retrospective if it operates on cases or facts coming into existence before its
commencement in the sense that it affects, even if for the future only, the
character or consequences of transactions previously entered into or of other
past conduct. By virtue of the presumption against retrospective applicability of
laws dealing with substantive rights transactions are neither invalidated by
reason of their failure to comply with formal requirements subsequently
imposed, nor open to attack under powers of avoidance subsequently
conferred. They are also not rendered valid by subsequent relaxations of the
law, whether relating to form or to substance. Similarly, provisions in which a
contrary intention does not appear neither impose new liabilities in respect of
events taking place before their commencement, nor relieve persons from
liabilities then existing, and the view that existing obligations were not intended
to be affected has been taken in varying degrees even of provisions expressly
prohibiting proceedings. (See: Halsbury's Laws of England, 4th Edn. Vol. 44,
paras 921, 922, 925 and 926).
(Emphasis supplied)
3 2 3 . In State Bank's Staff Union (Madras Circle) v. Union of India and Ors.
MANU/SC/0564/2005 : AIR 2005 SC 3446 : (2005) 7 SCC 584, an award was passed by
the Industrial Tribunal, which was impugned before the High Court. When the matter
was so pending, the State Bank of India Act came to be amended. The contention of the
Appellants was that the amendment was intended to nullify the decision of the High
Court, which was repelled. The Court also considered the power of the sovereign
Legislature to make retrospective legislation. The Court held as follows:
2 1 . Every sovereign legislature possesses the right to make retrospective
legislation. The power to make laws includes the power to give it retrospective
effect. Craies on Statute Law (7th Edn.) at p. 387 defines retrospective statutes
in the following words:
A statute is to be deemed to be retrospective, which takes away or
impairs any vested right acquired under existing laws, or creates a new
obligation, or imposes a new duty, or attaches a new disability in
respect to transactions or considerations already past."
22. Judicial Dictionary (13th Edn.) by K.J. Aiyar, Butterworth, p. 857, states
that the word "retrospective" when used with reference to an enactment may
mean (i) affecting an existing contract; or (ii) reopening up of past, closed and
completed transaction; or (iii) affecting accrued rights and remedies; or (iv)
affecting procedure. Words and Phrases, Permanent Edn., Vol. 37-A, pp. 224-
25, defines a "retrospective or retroactive law" as one which takes away or
impairs vested or accrued rights acquired under existing laws. A retroactive law
takes away or impairs vested rights acquired under existing laws, or creates a
new obligation, imposes a new duty, or attaches a new disability, in respect to
transactions or considerations already past.
2 3 . In Advanced Law Lexicon by P. Ramanath Aiyar (3rd Edn., 2005) the
expressions "retroactive" and "retrospective" have been defined as follows at p.
4124, Vol. 4:
Retroactive.--Acting backward; affecting what is past.
(Of a statute, ruling, etc.) extending in scope or effect to matters that
have occurred in the past.--Also termed retrospective. (Black's Law
Dictionary, 7th Edn., 1999)
'"Retroactivity" is a term often used by lawyers but rarely defined. On
analysis it soon becomes apparent, moreover, that it is used to cover at
least two distinct concepts. The first, which may be called true
retroactivity", consists in the application of a new Rule of law to an act
or transaction which was completed before the Rule was promulgated.
The second concept, which will be referred to as "quasi-retroactivity",
occurs when a new Rule of law is applied to an act or transaction in the
process of completion.... The foundation of these concepts is the
distinction between completed and pending transactions....' T.C.
Hartley, Foundations of European Community Law, p. 129 (1981).
Retrospective.--Looking back; contemplating what is past.
Having operation from a past time.
'Retrospective' is somewhat ambiguous and that good deal of confusion
has been caused by the fact that it is used in more senses than one. In
general, however, the courts regard as retrospective any statute which
operates on cases or facts coming into existence before its
commencement in the sense that it affects, even if for the future only,
the character or consequences of transactions previously entered into
or of other past conduct. Thus, a statute is not retrospective merely
because it affects existing rights; nor is it retrospective merely because
a part of the requisite for its action is drawn from a time antecedent to
its passing." (Vol. 44, Halsbury's Laws of England, 4th Edn., p. 570,
para 921.)
xxx xxx xxx xxx
25. In Harvard Law Review, Vol. 73, p. 692 it was observed that:
It is necessary that the legislature should be able to cure inadvertent
defects in statutes or their administration by making what has been
aptly called 'small repairs'. Moreover, the individual who claims that a
vested right has arisen from the defect is seeking a windfall since had
the legislature's or administrator's action had the effect it was intended
to and could have had, no such right would have arisen. Thus the
interest in the retroactive curing of such a defect in the administration
of the Government outweighs the individual's interest in benefiting
from the defect.
26. The above passage was quoted with approval by the Constitution Bench of
this Court in the case of Asstt. Commr. of Urban Land Tax v. Buckingham and
Carnatic Co. Ltd. [MANU/SC/0068/1969 : (1969) 2 SCC 55] In considering the
question as to whether the legislative power to amend a provision with
retrospective operation has been reasonably exercised or not, various factors
have to be considered. It was observed in the case of Stott v. Stott Realty Co.
[284 NW 635] as noted in Words and Phrases, Permanent Edn., Vol. 37-A, p.
2250 that:
The constitutional prohibition of the passage of 'retroactive laws' refers
only to retroactive laws that injuriously affect some substantial or
vested right, and does not refer to those remedies adopted by a
legislative body for the purpose of providing a Rule to secure for its
citizens the enjoyment of some natural right, equitable and just in
itself, but which they were not able to enforce on account of defects in
the law or its omission to provide the relief necessary to secure such
right.
27. Craies on Statute Law (7th Edn.) at p. 396 observes that:
If a statute is passed for the purpose of protecting the public against
some evil or abuse, it may be allowed to operate retrospectively,
although by such operation it will deprive some person or persons of a
vested right.
(Emphasis supplied)
324. The Court also repelled the argument that vested rights cannot be taken away by
the Legislature by way of retrospective legislation. In paragraph-35, the Court held as
follows:
31. Learned Counsel for the Appellant submitted that vested rights cannot be
taken away by the legislature by way of retrospective legislation. The plea is
without substance. Whenever any amendment is brought in force
retrospectively or any provision of the Act is deleted retrospectively, in this
process rights of some are bound to be affected one way or the other. In every
case the exercise by the legislature by introducing a new provision or deleting
an existing provision with retrospective effect per se does not amount to
violation of Article 14 of the Constitution. The legislature can change, as
observed by this Court in Cauvery Water Disputes Tribunal, Re
[MANU/SC/0097/1992 : 1993 Supp (1) SCC 96(2)] the basis on which a
decision is given by the Court and thus change the law in general, which will
affect a class of persons and events at large. It cannot, however, set aside an
individual decision inter partes and affect their rights and liabilities alone. Such
an act on the part of the legislature amounts to exercising the judicial power by
the State and to function as an appellate court or tribunal, which is against the
concept of separation of powers.
(Emphasis supplied)
SECTION 6 OF GENERAL CLAUSES ACT, 1897
325. In this regard, no support can be drawn from Section 6 of the General Clauses
Act, 1897. Section 6 makes it clear that the rights or privileges which may be asserted
are subject to the law not being couched contrary to such rights/privileges. In this case
it is precisely because the 3rd proviso covers the applications filed prior to the
amendment which had not been admitted, that the Petitioners have challenged the
provision.
READING DOWN
3 2 6 . Further, the appeal to invoke the principle of reading down the proviso is
untenable. In his judgment for the majority Sawant, J. in Delhi Transport Corpn. v.
D.T.C. Mazdoor Congress MANU/SC/0031/1991 : (1991) Suppl. (1) SCC 600 held as
follows:
255. It is thus clear that the doctrine of reading down or of recasting the
statute can be applied in limited situations. It is essentially used, firstly, for
saving a statute from being struck down on account of its unconstitutionality. It
is an extension of the principle that when two interpretations are possible--one
rendering it constitutional and the other making it unconstitutional, the former
should be preferred. The unconstitutionality may spring from either the
incompetence of the legislature to enact the statute or from its violation of any
of the provisions of the Constitution. The second situation which summons its
aid is where the provisions of the statute are vague and ambiguous and it is
possible to gather the intentions of the legislature from the object of the
statute, the context in which the provision occurs and the purpose for which it
is made. However, when the provision is cast in a definite and unambiguous
language and its intention is clear, it is not permissible either to mend or bend
it even if such recasting is in accord with good reason and conscience. In such
circumstances, it is not possible for the court to remake the statute. Its only
duty is to strike it down and leave it to the legislature if it so desires, to amend
it. What is further, if the remaking of the statute by the courts is to lead to its
distortion that course is to be scrupulously avoided. One of the situations
further where the doctrine can never be called into play is where the statute
requires extensive additions and deletions. Not only it is no part of the court's
duty to undertake such exercise, but it is beyond its jurisdiction to do so.
327. Now, the terms of the proviso are clear. It does not admit of more than one
interpretation at least in terms of the matter covered by it. The only area left is the
impact of the withdrawal which is to happen.
328. We may also notice the judgment of this Court in Vijay v. State of Maharashtra
MANU/SC/3273/2006 : (2006) 6 SCC 289. The Appellant was elected as a member of
the Panchayat in 2000 and elected as the Sarpanch. He was further elected as Councillor
of the Zila Parishad. An amendment was made with effect from 8.8.2003. Under the
marginal note Disqualifications, Section 14, inter alia, disentitled a person from
continuing as a Panchayat Member if he was elected a Councillor of the Zila Parishad.
This Court found that it was a disqualifying law intended to have retrospective effect.
We may notice para 12 which reads as follows:
12. The Appellant was elected in terms of the provisions of a statute. The right
to be elected was created by a statute and, thus, can be taken away by a
statute. It is now well settled that when a literal reading of the provision giving
retrospective effect does not produce absurdity or anomaly, the same would not
be construed to be only prospective. The negation is not a rigid Rule and varies
with the intention and purport of the legislature, but to apply it in such a case
is a doctrine of fairness. When a law is enacted for the benefit of the
community as a whole, even in the absence of a provision, the statute may be
held to be retrospective in nature. The Appellant does not and cannot question
the competence of the legislature in this behalf.
The case did not involve a challenge to the law. What is significant is the statement that
the right created by a Statute, can be taken away by a statute.
3 2 9 . We find that qua the financial creditors covered by the third proviso, having
invoked, at any rate unamended Section 7, they had a vested right.
330. They had undoubtedly a vested right to have their actions carried to its logical and
legal end. No doubt, the question of admission of the application arises Under Section
7(5) of the Code. It is open to the Adjudication Authority to reject the application but
that does not mean that the applicants had no vested right of action. The possibility of a
plaint being rejected Under Order VII Rule 11 or an appeal being dismissed Under Order
XLI Rule 11 without notice being issued to the Respondent or the fact that the suit can
be dismissed at later stages, cannot detract from the right of the Plaintiff or the
Appellant, being a substantive right. The same principle should suffice to reject the
contention, based on admission Under Section 7(5) alone, giving rise to the vested right
in regard to an applicant Under Section 7 of the Code.
331. A vested right is not limited to property rights. A right of action should conditions
otherwise exist, can also be a vested right. Such a right can be created by a Statute and
even on a repeal of such a Statute, should conditions otherwise exist, giving a right
under the repealed Statute, the right would remain an accrued right [See Isha
Valimohamed (supra)].
332. No doubt, there may not be a vested right as regard mere procedure and while
limitation, ordinarily, belongs to the domain of procedure, should new law shorten the
existing period of limitation, such a law would not operate in regard to the right of
action which is vested [See Shanti Misra (supra)]. A party may not have a vested right
of Forum as distinct from the vested right of action [See Shanti Misra (supra)].
3 3 3 . Every sovereign Legislature is clothed with competence to make retrospective
laws. It is open to the Legislature, while making retrospective law, to take away vested
rights. If a vested right can be taken away by a retrospective law, there can be no
reason why the Legislature cannot modify the vested rights [See State Bank's Staff
Union (Madras Circle) (supra)].
334. In an action, where the law is not challenged, the Court would ordinarily proceed
as follows. It will presume that a law, which affects substantive rights, are meant to
have prospective operation only. In the same way, as regards procedural laws or the
laws relating to a mere matter of procedure or of Forum, they carry retrospective
impact.
335. A Statute is not retrospective merely because it affects existing rights. This is,
however, in regard to the future operation of law qua the existing rights. If the existing
right is modified or take away and it is to have operation only from the date of new law,
it would obviously have only prospective operation and it would not be a retrospective
law.
336. Declaratory, clarificatory or curative Statutes are allowed to hold sway in the past.
The very nature of the said laws involve the aspect of public interest which requires
sovereign Legislature to remove defects, clarify aspects which create doubt. The
declaratory law again has the effect of the legislative intention being made clear. It may
not be apposite in the case of these Statutes to paint them with the taint of
retrospectivity.
337. What then is retrospectivity? It is ordinarily the new law being applied to cases or
facts, which came into existence prior to the enacting of the law. A retrospective law, in
other words, either supplants an existing law or creates a new one and the Legislature
contemplates that the new law would apply in respect of a completed transaction. It
may amount to reopening, in other words, what is accomplished under the earlier law,
if there was one, or creating a new law, which applies to a past transaction.
338. "A Statute is to be deemed to be retrospective, which takes away or impairs any
vested right acquired under any existing laws or creates a new obligation or imposes a
new duty or attaches a new disability in respect to transactions or considerations
already passed". [See Craies on State Law, 7th Edition, Page-387].
339. In Halsbury's Laws of England, 4th Edition, Page-570, paragraph-921, it is, inter
alia, stated as follows-"In general, however, court regarded as retrospective, any
Statute, which operates on cases or facts, coming into existence, before its
commencement, in the sense that it affects even if for the future only, the character or
consequences of transactions, previously entered into or of other past conduct".
340. When a Statute made by the sovereign Legislature is found to have retrospective
operation and the challenge is made Under Article 14 of the Constitution, (i) the Court
must consider whether the law, in its retrospectivity, manifests forbidden classification.
(ii) Whether the law, in its retrospectivity, produces manifests arbitrariness, (iii) if a law
is alleged to be violative of Article 19(1)(g), firstly, the Court, in an action by a citizen,
would, in the first place, find whether the right claimed, falls, within the ambit of Article
19(1)(g). The Court will further enquire as to whether such a law is made, inter alia, by
way of placing reasonable restrictions by looking into the public interest. In the case of
law, which is found to be not unfair, it would also not fall foul of Article 21.
341. Where the law is challenged on the ground that it is violative of Fundamental
Rights Under Article 14, necessarily the Court must enquire whether it is a capricious,
irrational, disproportionate, excessive and, finally, without any determining principle.
[see Shayara Bano case (supra)] The right of a citizen, or for that matter, any person
Under Article 14, is a right which is personal to him.
342. The golden thread which runs through the grounds making up the Doctrine of
Manifest arbitrariness Injustice, undoubtedly, consists of total absence of public
interest, of which the sovereign Legislature as the supreme law giver, is the undoubted
custodian. Though made in the context of the power of the Court in England, in regard
to taking into consideration the concept of fairness, while deciding upon the issue of
retrospectivity, we would think the following passage in the Principles of Statutory
Interpretation by Justice G.P. Singh, made relying upon the judgment of the House of
Lords in L'Office Cherifien Des Phosphates and Anr. And Yamashita-Shinnihon
Steamship Co. Ltd. MANU/UKHL/0046/1993 : (1994) 1 AllER 20, would furnish a safe
and fairly comprehensive guide, even in the matter of determining the constitutionality
of a retrospective law. Hence, we refer to the same and would approve of the same.
... It was observed that the question of fairness will have to be answered in
respect of a particular statute by taking into account various factors viz., value
of the rights which the statute affects; extent to which that value is diminished
or extinguished by the suggested retrospective effect of the statute; unfairness
of adversely affecting the rights; clarity of the language used by Parliament and
the circumstances in which the legislation was created. "All these factors must
be weighed together to provide a direct answer to the question whether the
consequences of reading the statue with the suggested degree of retrospectivity
is so unfair that the words used by Parliament cannot have been intended to
mean what they might appear to say.
(Emphasis supplied)
343. Having laid down the principles, we shall now apply the same to the facts of the
present cases before us. As far as the nature of the right in question is concerned,
which would include the value of the rights, it is a right of action. The right of action is,
undoubtedly, a vested right. The role of the applicant essentially fades out after the
admission of the application is made Under Section 7(5). The scheme of the Code has
been unraveled by us. The right, which is given, is a right in rem. It is not a mere
personal right, in the sense that it is right in rem. The applicant is not even required to
plead the default qua him as the default to any financial creditor, in the requisite sum,
provided it is not barred Under Article 137, suffices. The consequences of the
application would be that it may land the applicant and also all the stakeholders, in
liquidation of the corporate debtor.
344. As far as, the manner, in which, the value of the right is affected or if we may use
the word 'impaired', it is another most significant aspect, to be borne in mind. The
manner, in which, a particular Statute carrying retrospective effect, will impair, the
rights will depend on the facts of each case. We have, for instance, noticed the clear
unfairness, which, the Rule in question carried qua a set of employees in regard to their
vested right, in P.D. Aggrawal (supra). The vested right, in fact, consisted of the right
to have certain period reckoned for the purpose of seniority. As far as the clarity of the
language used, there does not appear to be any ambiguity, and what Parliament
intended is, completely free from doubt. The only area where any ambiguity can be said
to exist-is the effect of the application being treated as withdrawn. The further aspect,
which is to be borne in mind, is the circumstances in which the legislation is created. It
is here that the mischief Rule and the aspect of public interest looms large. At the end
of the day, the tussle is between the individual right versus the public interest. Now,
public interest is a concept, which is capable of embracing, within its scope, the interest
of different Sections of the public. This would include the Sections of the public to
which the applicant himself belongs. Public interest would, undoubtedly, also
encompass, the economy of the country, which can be understood in terms of all the
objects, for which the Code was enacted. They would include the speed with which the
Code is worked. It would include, also, safeguarding the interests of all the
stakeholders. This may necessarily include the corporate debtor as a stakeholder, being
protected from applications, which are perceived as frivolous or not representing a
critical mass.
345. We have noticed the statistics which has been made available by the Union. On
the eve of the ordinance on the 27.12.2019, it would appear that 2201 applications,
came to be moved, during a period of nearly eighteen months as in comparison to 253
applications during the preceding period representing a nearly 10-fold increase.
346. Now, the third proviso, thus, indeed, does not say that as on the date of filing of
the applications, the law was what is contained in the first and the second provisos. In
that sense, it could be said that it was not retrospective. We have found that when
invoking the unamended Section 7 applications stood moved, they evinced creation of
vested rights to continue with the proceeding. The applications were, no doubt, at the
stage, prior to the admission Under Section 7(5). It is at this stage that through the
device of the third proviso, the Parliament has applied the principle of first and second
proviso of threshold requirement, in respect of pending applications, which is made to
appear as it would have operation in the future. Now here we must address an
argument of the 3rd proviso going to mere procedure. The financial creditors covered
by the 3rd proviso were clothed with a statutory right Under Section 7. This right was
available to be exercised by an individual creditor, by himself or jointly with others. The
imposition of a threshold requirement being a mandatory and irreducible minimum
even, if it is to be achieved as and after the date of the amendment, constitutes an
intrusion into the substantive right of action vested in the individual creditor. The action
of the creditor was not a completed transaction. As regards his conduct in the past, viz.,
moving Under Section 7, it is incomplete but the action was commenced. But the law
(the 3rd proviso) impairs the past action qua the future. We would find as follows.
Imposing the threshold requirement under the 3rd proviso, is not a mere matter of
procedure. It impairs vested rights. It has conditioned the right instead, in the manner
provided in the first and the second proviso. We have already upheld the first and
second proviso, which, in fact, operates only in the future. In that sense, the Legislature
has purported to equate persons who had not filed applications with persons like the
Petitioners who had filed the applications under the unamended law.
347. At this point, we must notice one argument, which is that, the Law Giver has
discriminated between applicants Under Section 7, which were pending at different
stages. We may notice, in this regard, however, that all the applicants share the
common characteristic of being applicants in applications which were not admitted. In
fact, most of the applications would appear to have been filed in the year 2019.
Enquiring further into the different stages in these applications, would go against the
principle that the Court does not look to mathematical nicety or perfection in the law.
The Court also bears in mind, the principle that the law is an economic measure.
CLARITY REGARDING 'WITHDRAWAL' UNDER THE THIRD PROVISO
348. One of the aspects to be considered is the clarity of a retrospective law. The
requirement of compliance with the threshold numerical requirements under the first
and second proviso is an integral and inseparable part of the third proviso. Let us have
a look at the consequences that follow if the numerical strength cannot be cobbled up
by the applicant. The proviso declares that in such an eventuality the application will be
treated as withdrawn before admission. Rule 8, as noticed by us, provides for power
with the Tribunal to allow withdrawal before admission. Does it mean that an applicant
can file a fresh application after gathering together the requisite numbers? What is the
impact of withdrawal under provisions under the general law? What is the impact of the
law relating to the Limitation Act in respect of the application which has been
withdrawn?
349. In the context of a Civil suit, Order XXIII deals with withdrawal and adjustment of
suit. Order XXIII(1)(4b) prohibits a fresh suit in respect of the same subject matter
(cause of action), if a suit is withdrawn without permission of the Court Under Order
XXIII(1)(3).
350. In the facts of the case before us the third proviso does not indicate as to whether
a fresh application after complying with the requirement of the ingredients of the first
and second proviso is maintainable. It does not also indicate what would be the
position even if such application is maintainable by the same applicant, with regard to
the periods spent in the context of ruling of this Court that the Limitation Act applies
and the relevant Article is Article 137 and therefore, any application filed beyond the
period of three years from the date of the default is barred.
351. The other way of looking at these issues is that Order XXIII(1) applies only in the
case of a civil suit. In regard to the application Under Article 137 which is what an
application Under Section 7 of the Code is, it could it be said that Order XXIII(1) is
inapplicable. Secondly, could it not be said that it is not a case of a voluntary
withdrawal by the applicant and the withdrawal of the application is declared by the
Legislature, and therefore, Order XXIII(1) would not apply.
352. Section 14 of the Limitation Act, 1963 reads as follows:
14. Exclusion of time of proceeding bona fide in court without jurisdiction.--
(1) In computing the period of limitation for any suit the time during
which the Plaintiff has been prosecuting with due diligence another civil
proceeding, whether in a court of first instance or of appeal or revision,
against the Defendant shall be excluded, where the proceeding relates
to the same matter in issue and is prosecuted in good faith in a court
which, from defect of jurisdiction or other cause of a like nature, is
unable to entertain it.
(2) In computing the period of limitation for any application, the time
during which the applicant has been prosecuting with due diligence
another civil proceeding, whether in a court of first instance or of
appeal or revision, against the same party for the same relief shall be
excluded, where such proceeding is prosecuted in good faith in a court
which, from defect of jurisdiction or other cause of a like nature, is
unable to entertain it.
(3) Notwithstanding anything contained in Rule 2 of Order XXIII of the
Code of Civil Procedure, 1908 (5 of 1908), the provisions of Sub-
section (1) shall apply in relation to a fresh suit instituted on
permission granted by the court Under Rule 1 of that Order where such
permission is granted on the ground that the first suit must fail by
reason of a defect in the jurisdiction of the court or other cause of a
like nature.
Explanation.--For the purposes of this section,--
(a) in excluding the time during which a former civil
proceeding was pending, the day on which that proceeding was
instituted and the day on which it ended shall both be counted;
(b) a Plaintiff or an applicant resisting an appeal shall be
deemed to be prosecuting a proceeding;
(c) misjoinder of parties or of causes of action shall be deemed
to be a cause of a like nature with defect of jurisdiction.
353. A perusal of 14(1) shows that it is intended to exclude time in regard to a civil
suit. Section 14(2) covers cases relating to the applications for which period of
limitation is fixed. It contemplates that if such applicant comes to Court late with a time
barred application but is able to show that he has been prosecuting with due diligence
another civil proceeding, for the same relief, the period, when he was so prosecuting
the other proceeding, can be excluded where the proceeding was prosecuted in good
faith in a Court which from defect of jurisdiction or other cause of like nature is unable
to entertain it. It will be noticed that Sub-section (3) of Section 14 deals only with the
case falling Under Sub-section (1). In other words, it relates to civil suits. It enables a
Plaintiff in a subsequent suit to exclude the period which was consumed in prosecuting
an earlier civil suit which latter suit stood withdrawn with permission granted by the
Court. Therefore, in regard to applications, including applications Under Article 137, it
appears, the Law Giver has not contemplated expressly excluding the time spent in
pursuing another proceeding which stood withdrawn.
354. In regard to power of withdrawal as already noticed Rule 8 of the Insolvency and
Bankruptcy (Application of Adjudicating Authority Rule), 2016 reads as follows:
Rule (8) withdrawal of application the adjudicating authority may permit
withdrawal of the application may not Rule 4, 6, 7 as the case may be on a
request made by the applicant before its admission."
355. The application made Under Rule 4 is the application Under Section 7 by the
financial creditor. However, Rule 8 is silent as to any similar prohibition as is contained
in Order XXIII(1)4(b). Unless the principle of Order XXIII Rule 1 which is based on
public policy, is applied, a fresh application, compliant with the first two provisos in
Section 7, may not be barred. In this regard, since under the Explanation in Section
7(1), default occurs when default qua any financial creditor is made out, the cause of
action can become different, in which case, even the principle of Order XXIII Rule 1,
may not apply.
356. In this regard, since withdrawal is ordained by the third proviso, it would not be a
withdrawal Under Rule 8 on request. Secondly, even for the principle based on public
policy to apply to a withdrawal Under Rule 8, there must be a request and withdrawal.
We do not pronounce on the effect of the same, viz., withdrawal on request. Suffice it
to conclude and hold that the withdrawal under the third proviso would not bar a fresh
application by the same party after complying with the provision of the first or second
proviso as the case may be on the same default.
357. As far as Limitation is concerned, however, on the terms of Section 14, since
14(1) read with 14(3), contemplates withdrawal of a suit with permission Under Order
XXIII Rule 1(4)(b) to enable exclusion of the period spent in a suit which is withdrawn
and Section 14(2) is what applies to applications including one under, Article 137, the
period spent in the application when it is withdrawn under the 3rd proviso cannot be
excluded Under Section 14(3) of the Limitation Act. However, it may be open to point
out that application is not being entertained within the meaning of Section 14(2) on
account of the law that mandates its withdrawal on account of the non-compliance of
conditions for maintaining the application it would be. However, we need not pronounce
on it, as we feel that having regard to the Explanation in Section 7, it will always be
open to the applicant to set up a different default to any financial creditor and move
afresh. This unique feature of the Code is highly relevant in determining the validity of
the Amendment. The application Under Section 7 is not meant to be a recovery
mechanism. The Code, as is clear from its title, deals with insolvency resolution, to
begin with. If there is insolvency, the application, with reference to any of the large
number of creditors, suffices.
358. Thus, withdrawal under the third proviso would not be bar a fresh application
even on the same cause of action. It can, at any rate, be condoned Under Section 5 of
the Limitation Act. It is here we would also exercise our power Under Article 142 to
direct that if fresh applications are filed by the Petitioners after complying with the first
and second proviso, then on applications being filed Under Section 5, of the Limitation
Act, in regard to the period of pendency of applications, the authority shall condone the
delay. As far as the period after the withdrawal under the proviso, in view of the power
again Under Section 5 of the Limitation Act, certainly we see no reason as to why the
periods spent cannot be explained in terms of B.K. Educational Services (P) Ltd.
(supra). In the above manner, we would interpret the implications of withdrawal.
359. We would consider the aspect of public interest, which can be gathered from the
conditions obtaining, when the impugned amendment was made. Under the existing
law, Section 7 of the Code permitted filing of applications by single applicants. It has
been realised by the Legislature that there is dire need to condition the absolute right in
respect of certain classes of financial creditors. We have already upheld the
classification enacted in the first and the second provisos. From the standpoint of public
interest, every application maintained by a single applicant, is perceived as a veritable
threat to the fulfilment of the objectives of the Code. The continuance of the
applications could not, therefore, be in public interest. It is, as if, the Legislature
intended to apply its brakes in the form of asking the applicants to obtain the consensus
of a minimum number of similar stakeholders, before the applications could be further
processed.
3 6 0 . Let us consider the impugned proviso with a different wording. What, if the
proviso provided for a longer period of time to comply with the requirement under the
first and second provisos.? In such a scenario, once the numerical strength, contained
in the first and second provisos, in regard to the persons covered by the same, has
been found to be valid by us, the blemish that would remain is, no doubt, the
Legislature is interfering with the vested right, in the manner done under the provisos
read together. That a vested right can be the subject matter of retrospective law, cannot
be doubted. Since, the law made, under the Constitution, must pass muster, Under
Articles 14, 19, 21 and 300A of the Constitution, the issue really boils down to, whether
or not, it is manifestly arbitrary. The further question would arise, Under Article 19, as
to whether, the law would amount to a reasonable restriction of the Right Under Article
19(1)(g). The Doctrine of Fairness, indeed, has been present in the mind of the courts,
whenever a law, described as retrospective, comes up for interpretation with or without
a challenge to the law. In the context of a challenge, on the ground of manifest
arbitrariness, the test to be applied has been articulated as to whether it is capricious,
irrational, does not disclose any principle, betrays absence of proportionality or whether
it is excessive. We must also not lose sight of the fact that the law in question is an
economic measure. This is a case where the Law Giver has not left anything to
speculation or doubt. We have already indicated about the effect of the proviso
mandating the compulsory withdrawal of the application. We are of the view that this is
a case, where the law, in question, is retrospective, in that, contrary to the requirement
in the law, at the time, when the application was filed, a new requirement is placed,
even though, it is sought to be done by superimposing this condition, not at the time,
when the application was filed, which really is the relevant time to determine the
question of maintainability of the application, with reference to what the law provided in
regard to who can move the application but at the stage of the new law.
361. However, we cannot also lose sight of the fact that the Legislature has power to
impair and take away vested rights. The limitation that flows, however, is from both
Article 14 and 19 read with Article 21. It flows from the Doctrine that the action of the
State must be fair and reasonable. The question, as to validity of the retrospective law,
is a matter to be judged on a consideration of the facts, the period of time, over which
the retrospective law operates, the impact of the law on the vested rights, the public
interest, the nature of the right, which is the subject matter of the law and the terms of
the law.
362. The nature of the right involved in this case, is the right of the financial creditors
to move an application Under Section 7. Though, Section 7 confers a right upon the
financial creditor to file the application, the proceedings are one in rem. We have
already dealt with the scope of the Code and the consequences it can produce on the
stakeholders and also the real estate project. The Legislature was faced with the
situation, where it felt that the requirement, as to maintainability of the application
Under Section 7, must, in regard to pending applications, be modified in the manner
done. There is a determining principle, namely, the perception from experience about
how the entire object of the Code would stand jeopardised if applications already filed
could go on even when a fair and reasonable number of kindred souls are not available
to support it. Once there is a principle, it cannot be capricious, excessive or
disproportionate unless we find the time given under the proviso is manifestly arbitrary.
A vested right under a statute can be taken away by a retrospective law. A right given
under a statute can be taken away by another statute. We cannot ignore the fact that
there was considerable public interest behind such a law. The sheer numbers, in which
applications proliferated, combined with the results it could produce, cannot be brushed
aside as an irrational or capricious aspect to have been guided by in making the law.
Being an economic measure, the wider latitude available to the Law Giver, cannot be
lost sight of.
363. The issue, which, however remains, is the period of 30 days made available. Is it
reasonable to expect that a single applicant could, under the aegis of the laws' collect
information, and furthermore, gather the support of fellow travellers, also inclined to
support the applicant, as required? The third proviso does not provide for the applicant
applying before the Tribunal and seeking extension of the period. It could be also
argued that by granting such extensions, no harm is caused to the stakeholders, insofar
as, all this is done before the admission of the application, with which alone, the
consequences, including the appointment of the Interim Resolution Professional and the
passing of an Order of Moratorium, would arise. But here again we would be foraying
into areas of legislative value judgment and be proceeding on the basis of what would
be a fairer law.
364. We have to take the law, therefore, as it is and deal with it on the touchstone of,
whether the law is manifestly arbitrary. We have already, no doubt, found that by virtue
of the statutory mechanism, there appears to be an information grid available under the
law. Undoubtedly, we would have felt more reassured, if the period had been longer
than it is. The law came as a bolt from the blue as it were.
3 6 5 . As regards the compelled withdrawal under the third proviso of the pending
applications is concerned, we hold as follows. Once the Legislature intended that the
pending applications must be made compliant with the threshold requirement,
consequences for not doing so had to be provided. Otherwise, it would have created
complete uncertainty and the applicant would have been dealt with in a manifestly
arbitrary manner. Providing for the consequence of withdrawal before admission, which
we have explained, does not have the consequence of preventing the fresh filing, even
in regard to the same default, after complying, no doubt, with the requirement of the
first or the second proviso, cannot be dubbed as arbitrary. No doubt, there is lack of
clarity in this regard in the provision but on an understanding of the law, as we have
expounded, the provision was capable of being understood in the manner done.
3 6 6 . In regard to the first and the second provisos, they have only prospective
operation. The creditors covered by these provisos, are not subjected to any time limit
(except, no doubt, the bar Under Article 137 of the Limitation Act), in the matter of
garnering the requisite support. However, prescribing a time limit in regard to pending
applications, cannot be, per se, described as arbitrary, as otherwise, it would be an
endless and uncertain procedure. The applications would remain part of the docket and
also become a Damocles Sword overhanging the debtor and the other stakeholders with
deleterious consequences also qua the objects of the Code.
367. Finally, the actual time provided. Is it manifestly unfair? Would not six weeks, two
months or even more lengthier periods, be more fair? Undoubtedly, it would be, from
the point of view of the applicants. Another way to approach the problem is, was it
impossible for the creditor/creditors to seek information, get into touch with the other
creditors and persuade them to join him/them. As far as court fees is concerned, there
is no extra liability as the amount remains the same, viz., Rs. 25,000/-, irrespective of
the number of applicants. If the condition in the third proviso was impossible to comply
with, then, it would also be manifestly arbitrary. As far as availability of information is
concerned, be it the mechanism of an Association of Allottees contemplated under the
RERA or the requirement under the said Act to post details of the allotment, at least, in
law, the Legislature was not making a capricious command. So also, is the case with
the creditors covered by the first proviso, having regard to the clear requirement of
Section 88 of the Companies Act, 2013. There are registers, which can be perused and
information gathered.
368. Another aspect of the matter is, if there is insolvency and it affects creditors,
ordinarily, self-interest would guide them into following the best course available to
them. We have also seen the presence of plural remedies. No doubt, calculation of one-
tenth in a case, may, undoubtedly, require the quantification of total number of
creditors. This would be necessary, no doubt, only if hundred creditors cannot be found
to support the application.
369. We have noted the consequences of the deemed withdrawal, the nature of the
right, the Explanation to Section 7, the objects of the Code, the factual matrix reflecting
a ten-fold increase in the applications, the pressure on the dockets of the bodies, which
are charged with the imperative duty to deal with matters with the highest speed, the
impact on similar stakeholders in the category and the sheer largeness of the class of
creditors. The period could have been more fair to the Petitioners by being longer but
that is where we must bear in mind, the limits of our jurisdiction. Where would the
Court draw the line? We find it difficult to hold that within the time limit of 30 days it is
impossible to comply with the requirements.
370. We have dealt with the aspect relating to the impact of the statutory withdrawal of
the application. Secondly, we must also bear in mind that the Code was enacted in the
year 2016. The period of the retrospective operation, would appear to be, spread over
for a period of two years and for the most part, it relates to a period of one year. We
have already found that the withdrawal under the third proviso, will not stand in the
way of the applicant, invoking the same default and filing the application and even the
principle of Order XXIII Rule 1 of the Code of Civil Procedure will not apply and will not
bar such application. As far as limitation is concerned, we have explained as to what is
to be the impact. The nature of the vested right and the impact of the law, the public
interest, the sublime objects, which would be fulfilled, would, in the facts of this case,
constrain us from interfering, even though, this Court may have a different view about
the period of time, which is allowed to the applicant.
371. Lastly, there remains a question of court fees. As far as court fees is concerned, it
is true that in the circumstances of the case, there is compelled withdrawal of the
applications. The other side of the picture is, even, according to the Petitioners, the
applications engaged the Adjudicating Authority and time was spent on the applications.
In the circumstances of these cases, we would resort to our power Under Article 142 of
the Constitution to order as follows. We would direct that in case applications are
moved by the applicants, who are Petitioner before us, in regard to the very same
corporate debtor, in the same real estate project, as far as allottees are concerned, the
applicants shall be exempted from the requirement of paying court fee. This would
obviously be a one-time affair. We, however, further make it clear that exemption from
paying court fee, in the case of joint applicants, will be limited only to once, to a single
application in future, in relation to the same subject matter, as per the application. To
make it clear, in a case where there are more than one applicants in the pending
application in respect of real estate project, if they combine in future application, they
would stand exempted. Secondly, in case, any of the applicants, if they were to move
jointly with the requisite number under the second proviso, the exemption will be
limited only to once. Meaning thereby, if exemption has been availed of by any one out
of the joint applicants, in conjunction with others, then, the other joint applicants
cannot claim exemption. If there are any applicants, falling under the first proviso, and
who are among the Petitioners, in regard to the same corporate debtor, they would also
be entitled to the exemption from payment of the court fee.
RELIEF
372. We uphold the impugned amendments. However, this is subject to the following
directions, which we issue Under Article 142 of the Constitution of India:
i. 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, in the manner, which we have detailed in the paragraph just herein
before.
ii. 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.
iii. We make it clear that the time limit of two months is fixed only for
conferring the benefits of exemption from court fees and 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 thereafter.
373. The Writ Petitions and the Transferred Case will stand dismissed subject to the
aforesaid directions and the observations contained in the Judgment, and we only make
it clear that the benefits of the directions, Under Article 142, will be available also to the
Petitioners in the Transferred Case.
374. The intervention application (I.A. No. 67473 of 2020 in WP (C) No. 26 of 2020) is
filed by allottees who have filed application Under Section 7 on 20.9.2019. I.A. No.
32863 of 2020 in WP(C) No. 53 of 2020 is filed by the allottee for impleadment. He has
filed application Under Section 7 of the Code on 19.12.2019. I.A. No. 32869 of 2020
WP(C) No. 53 of 2020 is filed by the allottees who have filed the same for impleadment.
They have filed application Under Section 7 on 17.9.2019. I.A. No. 15425 of 2018 in WP
(C) No. 26 of 2020 is filed by a corporate debtor for impleadment. All the above IAs are
disposed of in terms of the judgment as aforesaid. We however make it clear that the
directions we have issued Under Article 142 regarding court fees and about condonation
of delay will apply to the applicants who are allottees.
1 See "Salmond on Jurisprudence, 12th Edition, P.J. Fitzgerald"

© Manupatra Information Solutions Pvt. Ltd.

Manish Kumar Vs Union of India UOI and Ors 1901202SC20212001211057171COM635343

Uploaded by

Copyright:

Available Formats

Manish Kumar Vs Union of India UOI and Ors 1901202SC20212001211057171COM635343

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Manish Kumar Vs Union of India UOI and Ors 1901202SC20212001211057171COM635343

Uploaded by

Copyright:

Available Formats

MANU/SC/0029/2021

Equivalent Citation: [2021]225C ompC as1(SC ), (2021)5SC C 1

IN THE SUPREME COURT OF INDIA

1 See "Salmond on Jurisprudence, 12th Edition, P.J. Fitzgerald"

You might also like