SC to hear challenge against insolvency ordinance


It does not allow homebuyers to individually initiate insolvency proceedings against builders in projects

The Supreme Court is scheduled to hear on Monday a challenge against the newly promulgated Insolvency and Bankruptcy Code (Amendment) Ordinance of 2019, which does not allow homebuyers to individually initiate insolvency proceedings against builders in residential projects.

Section 3 of the ordinance prescribes a minimum threshold for initiating insolvency resolution proceedings before the National Company Law Tribunal (NCLT).

The ordinance, which was promulgated on December 28 last year, mandates that NCLT need to take cognisance only if it receives an application for insolvency process jointly filed by 10% or 100 in number of the total allottees/homebuyers, whichever is lesser, from the same real estate project.

The petition filed by a homebuyer, Manish Kumar, represented by senior advocate Aishwarya Bhati and advocates Akash Vajpai and Vaibhav Manu Srivastav, wants the apex court to immediately stay the implementation of the ordinance.

Retrospective effect

The petition pointed out that the ordinance has a retrospective effect. Homebuyers who had filed their own individual applications for insolvency process before the NCLT now have 30 days to find 99 other like-minded allottees from their failed residential project or have their case thrown out of court without even a hearing for no fault of their own.

“So even those cases for final adjudication or those which have been reserved for pronouncement of order by NCLT would be affected by the ordinance. If this ordinance is upheld by the Supreme Court, litigation in NCLT will be almost reduced by 70-80%... Right now NCLT is the best forum,” Mr. Vajpai explained.

A Bench led by Justice Rohinton Nariman is scheduled to hear the case.

‘Class within a class’

The petition said the ordinance creates a “class within a class” and suffers from manifest arbitrariness.

Mr. Kumar said “his right to a home will be affected through Section 3 of the ordinance.”

He said the IBC was passed by Parliament to standardise the laws relating to insolvency and bankruptcy which were hitherto fragmented and unorganised. There, however, was doubts about the status of homebuyers, who were considered the most vulnerable lot in case a real estate project goes under.

Subsequently, Parliament passed the

Insolvency and Bankruptcy Code (Amendment) Act of 2018.

“This effectively said that homebuyers/allottees were also to be treated as “Financial Creditors” as under the Code,” the petition said. The Supreme Court upheld the validity of the Act in 2019.

Now, Mr. Kumar said, the ordinance means to overthrow the 2018 Act and leave homebuyers helpless.

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Printable version | Jan 29, 2020 3:05:58 PM |

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