MANISH KUMAR versus UNION OF INDIA AND ANOTHER
[2021] 14 S.C.R. 895, Supreme Court of India, 2021
Outcome: Dismissed (Dismissed)
Segment: Ratio
A
B
C
D
E
F
G
H
985
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;
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
986
SUPREME COURT REPORTS
[2021] 14 S.C.R.
(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
A
B
C
D
E
F
G
H
987
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
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
988
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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, as 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 co-
operative 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
A
B
C
D
E
F
G
H
989
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.
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
990
SUPREME COURT REPORTS
[2021] 14 S.C.R.
(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.
A
B
C
D
E
F
G
H
991
(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:
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
992
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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 subsection 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.”
A
B
C
D
E
F
G
H
993
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
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
994
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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.
94. Section 85 deals with the power to make regulations. Section
85(2) reads as follows inter alia:
A
B
C
D
E
F
G
H
995
“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.”
95. 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.
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
996
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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
A
B
C
D
E
F
G
H
997
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”
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
998
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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.
106. 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
A
B
C
D
E
F
G
H
999
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 any 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. 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
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1000
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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;”
114. 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.
A
B
C
D
E
F
G
H
1001
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 aloneafter 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
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1002
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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
A
B
C
D
E
F
G
H
1003
(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
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1004
SUPREME COURT REPORTS
[2021] 14 S.C.R.
‘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
A
B
C
D
E
F
G
H
1005
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.
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1006
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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.
A
B
C
D
E
F
G
H
1007
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.
126. 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
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1008
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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:
“28. 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
A
B
C
D
E
F
G
H
1009
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.”
133. 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,
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1010
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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 & Associates50. 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
50 (2019) 11 SCC 633
A
B
C
D
E
F
G
H
1011
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.
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1012
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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.
A
B
C
D
E
F
G
H
1013
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 Section7, 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
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1014
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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
A
B
C
D
E
F
G
H
1015
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 others51, 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.”
51 AIR 1956 SC 213
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1016
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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.
145. 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.
A
B
C
D
E
F
G
H
1017
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
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1018
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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.”
A
B
C
D
E
F
G
H
1019
 149. 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.
150. 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.
151. 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
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1020
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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 CPC, 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 CPC, 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.”
153. 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
A
B
C
D
E
F
G
H
1021
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
CPC, 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
CPC, 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 CPC 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. Ganapathy52, has held that what is required is only community of
52 (1990) 1 SCC 608
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1022
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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,
A
B
C
D
E
F
G
H
1023
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 another v. Union of
India and others53, 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:
53 (2019) 8 SCC 416
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1024
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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.
Paragragraph-30 of the judgment in Pioneer Urban Land
and Infrastructure Ltd.(supra) reads as follows:
“30. 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
A
B
C
D
E
F
G
H
1025
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., (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, (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
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1026
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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, 1959 SCR 279 : AIR 1958 SC 538] , V.C. Shukla [V.C.
Shukla v. State (Delhi Admn.), 1980 Supp SCC 249 : 1980 SCC
(Cri) 849] , Shri Ambica Mills Ltd. [State of Gujarat v. Shri
Ambica Mills Ltd., (1974) 4 SCC 656 : 1974 SCC (L&S) 381]
A
B
C
D
E
F
G
H
1027
, Venkateshwara Theatre [Venkateshwara Theatre v. State of
A.P., (1993) 3 SCC 677] and Mardia Chemicals [Mardia
Chemicals Ltd. v. Union of India, (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.
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1028
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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
161. 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.
A
B
C
D
E
F
G
H
1029
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
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1030
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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.
A
B
C
D
E
F
G
H
1031
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:
“11. 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
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1032
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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.
29. 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
A
B
C
D
E
F
G
H
1033
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 vs. Tarsem Singh54.
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.
172. 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:
“18. 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 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 Act. 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
54 (2019) 9 SCC 304
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1034
SUPREME COURT REPORTS
[2021] 14 S.C.R.
Singh AIR 1964 SC 1135 : (1964) 6 SCR 679, 687 : (1964) 2 SCJ
666.] In G.D. Kelkar v. Chief Controller of Imports and
Exports [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.
31. 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 judgement laid down
inter-alia as follows:
A
B
C
D
E
F
G
H
1035
“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 façade 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 [(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.”
14. 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
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1036
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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 Another v. Shree Ambica Mills
Ltd.55, 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
55 (1974) 4 SCC 656
A
B
C
D
E
F
G
H
1037
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:
“54. 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]
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1038
SUPREME COURT REPORTS
[2021] 14 S.C.R.
62. 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).
[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.
66. 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)
176.  In the decision of this Court in In Re The Special Courts Bill,
197856, a bench of seven learned judges of this Court laid down certain
56 (1979) 1 SCC 380
A
B
C
D
E
F
G
H
1039
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.
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1040
SUPREME COURT REPORTS
[2021] 14 S.C.R.
(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
A
B
C
D
E
F
G
H
1041
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.57, 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.”
178. In the Constitution Bench decision of this Court in
Subramanian Swami vs. Director, CBI and ors.58 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
57 1984) 3 SCC 127
58 (2014) 8 SCC 682
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1042
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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.
A
B
C
D
E
F
G
H
1043
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 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:
“21. 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
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1044
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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.
182. In 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 judgement 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 [(1960) 2 SCR
311 : AIR 1960 SC 384.] ; S.G. Jaisinghani v. Union of
India and State of J&K. v. Triloki Nath Khosa [(1974) 1 SCR 771
A
B
C
D
E
F
G
H
1045
: (1974) 1 SCC 19 : 1974 SCC (L&S) 49.] has no application
here.”
183. In Indira Sawney v. Union of India59, this Court held, “This
merely sees goes to show that even among backward classes, there can
be sub-classification on a reasonable basis.”
184.  In State of West Bengal and ors. v. Rash Bihari Sarkar
and ors.60, 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.”
185. In State of Kerala v. Aravind Ramakant Modawdakar
and ors.61, 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
59 1992 Supp 3 SCC 217
60 (1993) 1 SCC 479
61 1999 7 SCC 400
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1046
SUPREME COURT REPORTS
[2021] 14 S.C.R.
operators, there was a distinction between the two. It is apposite to
refer to what this Court laid down in para 10 of the judgement.
“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 another62, 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
62 (2002) 4 SCC 154
A
B
C
D
E
F
G
H
1047
the inevitable result of an analysis of the judgments relied upon by the
petitioner themselves, viz., Sansar Chand Atri v. State of Punjab and
another (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.
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1048
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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
A
B
C
D
E
F
G
H
1049
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
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1050
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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
B
C
D
E
F
G
H
1051
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 nemiem 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.
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1052
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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
A
B
C
D
E
F
G
H
1053
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
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1054
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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;
198. 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
A
B
C
D
E
F
G
H
1055
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 another63). 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 VS. OPERATIONAL CREDITORS
200. 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.
201. 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.
63 (1973) 4 SCC 225
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1056
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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 another64,
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.
204. 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
64 (2018) 1 SCC 407
A
B
C
D
E
F
G
H
1057
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.
43. 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
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1058
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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
A
B
C
D
E
F
G
H
1059
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
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1060
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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
A
B
C
D
E
F
G
H
1061
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.
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1062
SUPREME COURT REPORTS
[2021] 14 S.C.R.
43. Shri Shyam Divan relying upon Nagpur Improvement
Trust v. Vithal Rao [Nagpur Improvement Trust v. Vithal Rao,
(1973) 1 SCC 500] SCC para 26 and Subramanian swamy v.
CBI [Subramanian Swamy v. CBI, (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
A
B
C
D
E
F
G
H
1063
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
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1064
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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 re-arrangement 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.”
A
B
C
D
E
F
G
H
1065
 210. 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-a-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
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
A
B
C
D
E
F
G
H
1066
SUPREME COURT REPORTS
[2021] 14 S.C.R.
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