Updated: January 20, 2021 6:00:50 am
The Supreme Court on Tuesday upheld the Constitutional validity of the amendments to the Insolvency and Bankruptcy Code, 2016, which, among others, mandated that to trigger an insolvency proceeding against a defaulting builder in respect of a real estate project, the application must be filed by a minimum of 100 allottees or 10 percent of the allottees, whichever was lesser.
A Bench of Justices R F Nariman, Navin Sinha and K M Joseph upheld the Constitutional validity of Sections 3, 4 and 10 introduced by the Insolvency and Bankruptcy Code (Amendment) Act, 2020. Writing for the Bench, Justice Joseph noted: “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 authorities which work the Code are concerned … The legislative policy reflects an attempt at shielding corporate debtor from what it considers would be either for frivolous or avoidable applications”.
The court added that “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 Bench also turned down arguments against the changes requiring that the allottees, making such an application, must be drawn from the same project.
The court also said “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”.
In the case of a joint allotment, it can only be treated as a single allotment, the Bench added.
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