The Supreme Court on Monday asked the government to respond to a petition challenging the newly promulgated Insolvency and Bankruptcy Code (Amendment) Ordinance of 2019, which retrospectively prohibits individual homebuyers from initiating insolvency proceedings against builders.
A Bench led by Justice Rohinton F. Nariman issued notice to the government and ordered status quo in the case of insolvency applications already filed by homebuyers in the National Company Law Tribunal (NCLT).
The order was based on a petition filed by a homebuyer, Manish Kumar, represented by senior advocate Aishwarya Bhati and advocates Akash Vajpai and Vaibhav Manu Srivastav.
Section 3 of the ordinance prescribes a minimum threshold for initiating insolvency resolution proceedings before the NCLT. It required 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 ordinance, promulgated on December 28 last, gave homebuyers who had moved the NCLT exactly 30 days to find 99 other like-minded allottees from their failed residential project to join their cause or risk their case being thrown out without a hearing. The status quo order from the apex court comes as a relief for these whose applications are pending in the tribunal.
The petition said the ordinance created a “class within a class” and suffered 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 that 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 meant to overthrow the 2018 Act and left homebuyers helpless.
