Minimum number of Homebuyers required to Initiate Insolvency Proceedings against Builder.
In this post we will discuss about the latest judgment of The Supreme Court in which upheld the amendment in Insolvency and Bankruptcy Code (IBC) under which it has been made mandatory that a minimum 100 or 10% of the total home-buyers of a project were needed to initiate insolvency proceedings against a builder.
IBC tweaks valid, says Apex Court, rejects Homebuyers’ Plea
In this report we will learn about the new amendment under IBC and judiciary’s balanced approach towards the issue.
On 19 January 2021, The Apex court upheld the amendment in Insolvency and Bankruptcy Code (IBC) under which it has been made mandatory that a minimum 100 or 10% of the total home-buyers of a project were needed to initiate insolvency proceedings against a builder for not delivering flats or commercial shops on time.
Upheld the validity
A bench of Justices R F Nariman, K M Joseph and Navin Sinha ruled that the amendment in the law is valid & there was no illegality. Although there were a cluster of pleas filed challenging the validity of the amendment. The court dismissed batches of pleas. There were reasonable apprehensions, since homebuyer was brought within the ambit of financial creditors under Insolvency and Bankruptcy Code, insolvency proceedings could be triggered off by even one aggrieved buyer. Thereby it was alleged that the law could be misused because one aggrieved homebuyer may trigger proceeding and in the process the interest of other homebuyer may be eluded. The law thereafter was changed & Sections 3, 4 & ten were amended.
Approving the new law, the Court said, “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.”
The court laid a balanced approach by asking the applicants to obtain the consensus therefore the interested persons were made to be a part of process and the interest of almost every stakeholder is considered.
32A is Constitutional
A bench also upheld the validity of Section 32A of Insolvency and Bankruptcy Code according to which Corporate Debtor shall not be prosecuted for an offence committed prior to commencement of Corporate Insolvency Resolution Process (CIRP) once Resolution Plan has been approved by Adjudicating Authority (AA).
One of the contentions put forward by the petitioners was that it closed the door for individual investors to recover their claims and leaves them with only option of pursuing remedies under criminal law against the erstwhile management. But the court said that the amendment was done to make sure that the new management would make a clean break with the past and take over with a clean slate. The court also held that no case was made out to hold the amendment unconstitutional.
“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 interests of all stakeholders including the imperative need to attract resolution applicants who would not shy away from offering reasonable 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 bench said. “The provision is carefully thought out. It is not as if the wrongdoers are allowed to get away,” it said in its 465-page verdict.
This post is written by Abhishek Pathak
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