MANISH KUMAR versus UNION OF INDIA AND ANOTHER
[2021] 14 S.C.R. 895, Supreme Court of India, 2021
Outcome: Dismissed (Dismissed)
Segment: Ratio
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MANISH KUMAR
v.
UNION OF INDIA AND ANOTHER
(Writ Petition (C) No.26 of 2020)
JANUARY 19, 2021
[ROHINTON FALI NARIMAN, NAVIN SINHA AND
K. M. JOSEPH, JJ.]
Insolvency and Bankruptcy Code (Amendment) Act, 2020 –
s.3 –s.3 of the impugned amendment, amended s.7(1) of the
Insolvency and Bankruptcy Code, 2016, incorporating three
provisos to s.7(1) – Under the second proviso, a new threshold was
declared for an allottee to move an application u/s.7 for trigerring
the  insolvency resolution process under the Code – The second
proviso provided that for financial creditors who were allottees
under a real estate project, an application for initiating corporate
insolvency resolution process against the corporate debtor was to
be filed jointly by not less than one hundred of such allottees under
the same real estate project or not less than ten per cent of the total
number of such allottees under the same real estate project,
whichever is less – Challenge to the second proviso to s.7(1) – Held:
Not tenable – 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 rationale
behind, confining allottees to the same real estate project, is to
promote the object of the Code – Once the threshold requirement
can pass muster when tested in the anvil of a challenge based on
Arts. 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 – Allottees under real estate projects are
financial creditors, but they possess certain characteristics, which
set them apart from generality of the financial creditors, such as
numerosity; heterogeneity; and individuality in decision making –
If a single allottee, as a financial creditor, is allowed to move an
application u/s.7, the interests of all the other allottees may be put
in peril – In the circumstances, if the Legislature, taking into
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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 – 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 – 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 – If the Legislature felt that having regard to the consequences
of an application under the Code, when such a large group of
persons, pull at each other, an additional threshold be erected for
exercising the right u/s.7, certainly, it cannot suffer a constitutional
veto at the hands of Court exercising judicial review of legislation
– This is not a case where the right of the allottee is completely
taken away – All that has happened is a half-way house is built
between extreme positions, viz., denying the right altogether to the
allottee to move the
application u/s.7 of the Code and giving an
unbridled license to a single person to hold the real estate project
and all the stakeholders thereunder hostage to a proceeding under
the Code –Insolvency and Bankruptcy Code, 2016 – s.7.
Insolvency and Bankruptcy Code (Amendment) Act, 2020 –
s.3 – s.3 of the impugned amendment, amended s.7(1) of the
Insolvency and Bankruptcy Code, 2016, incorporating three
provisos to s.7(1) – The first proviso provided that for financial
creditors, referred to in clauses (a) and (b) of sub-section (6A) of
s.21, an application for initiating corporate insolvency resolution
process against the corporate debtor shall be filed jointly by not
less than one hundred of such creditors in the same class or not less
than ten per cent of the total number of such creditors in the same
class, whichever is less – Challenge to – Held: The first proviso is
invulnerable – The legislative understanding is clear that in regard
to such creditors bearing the hallmark of large numbers they are
required to be treated differently – If they are not treated differently
it would spell chaos and the objects of the Code would not be fulfilled
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– It is an extension of this basic principle which has led to the
insertion of the impugned proviso – Insisting on a threshold in regard
to these categories of creditors would lead to the halt to
indiscriminate litigation which would result in an uncontrollable
docket explosion as far as the authorities which work the Code are
concerned – The debtor who is apparently stressed is relieved of
the last straw on the camel’s back, as it were, by halting individual
creditors whose views are not shared even by a reasonable number
of its peers rushing in with applications – Again, as in the case of
the allottees, this is not a situation where while treating them as
financial creditors they are totally deprived of the right to apply
under s.7 as part of the legislative scheme – The legislative policy
reflects an attempt at shielding the corporate debtor from what it
considers would be either for frivolous or avoidable applications –
All that the amendment is likely to ensure is that the filing of the
application is preceded by a consensus at least by a minuscule
percentage of similarly placed creditors that the time has come for
undertaking a legal odyssey which is beset with perils for the
applicants themselves apart from others – As far as the percentage
of applicants contemplated under the proviso it is clear that it cannot
be dubbed as an arbitrary or capricious figure – Insolvency and
Bankruptcy Code, 2016 – s.7.
Insolvency and Bankruptcy Code (Amendment)
Act, 2020 –
s.4 – s.4 of the impugned amendment, incorporated an additional
Explanation in s.11 of the Code – While s.11 is about persons not
entitled to make application for initiating corporate insolvency
resolution process, the additional Explanation provided that nothing
in section 11 prevented a corporate debtor from initiating corporate
insolvency resolution process against another corporate debtor –
Held: The provisions of the impugned Explanation clearly amount
to a clarificatory amendment – A clarificatory amendment is
retrospective in nature – The Explanation merely makes the intention
of the Legislature clear beyond the pale of doubt – The argument of
the petitioners that the amendment came into force only on
28.12.2019 and, therefore, in respect to applications filed under
ss.7, 9 or 10, it will not have any bearing, cannot be accepted –
The Explanation, in the facts of these cases, is clearly clarificatory
in nature and it will certainly apply to all pending applications also
– The intention of the Legislature was always to target the corporate
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debtor only insofar as it purported to prohibit application by the
corporate debtor against itself, to prevent abuse of the provisions
of the Code – It could never had been the intention of the Legislature
to create an obstacle in the path of the corporate debtor, in any of
the circumstances contained in s.11, from maximizing its assets by
trying to recover the liabilities due to it from others – Not only does
it go against the basic commonsense view but it would frustrate the
very object of the Code, if a corporate debtor is prevented from
invoking the provisions of the Code either by itself or through his
resolution professional, who at later stage, may, don the mantle of
its liquidator – Insolvency and Bankruptcy Code, 2016 – s.11,
Explanation II.
Insolvency and Bankruptcy Code (Amendment) Act, 2020 –
s.10 –  s.10 of the impugned amendment inserts s.32A in the Code –
It was contended that but for s.32A, the properties which are
acquired could be attached but that is pre-empted by s.32A – The
petitioners contend that immunity granted to the corporate debtors
and its assets acquired from the proceeds of crimes and any criminal
liability arising from the offences of the erstwhile management for
the offences committed prior to initiation of CIRP and approval of
the resolution plan by the adjudicating authority further jeopardizes
the interest of the allottees/creditors – Held: No case whatsoever is
made out to seek
invalidation of s.32A – The boundaries of this
Court’s jurisdiction are clear – The wisdom of the legislation is not
open to judicial review – Having regard to the object of the Code,
the experience of the working of the code, the interests of all
stakeholders including most importantly the imperative need to
attract resolution applicants who would not shy away from offering
reasonable and fair value as part of the resolution plan if the
legislature thought that immunity be granted to the corporate debtor
as also its property, it hardly furnishes a ground for this Court to
interfere – The provision is carefully thought out – It is not as if the
wrongdoers are allowed to get away – They remain liable – The
extinguishment of the criminal liability of the corporate debtor is
apparently important to the new management to make a clean break
with the past and start on a clean slate – The immunity is premised
on various conditions being fulfilled – There must be a resolution
plan – It must be approved – There must be a change in the control
of the corporate debtor – The new management cannot be the
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disguised avatar of the old management – It cannot even be the
related party of the corporate debtor – The new management cannot
be the subject matter of an investigation which has resulted in
material showing abetment or conspiracy for the commission of the
offence and the report or complaint filed thereto – These ingredients
are also insisted upon for claiming exemption of the bar from actions
against the property – Significantly every person who was
associated with the corporate debtor in any manner and who was
directly or indirectly involved in the commission of the offence in
terms of the report submitted continues to be liable to be prosecuted
and punished for the offence committed by the corporate debtor –
The corporate debtor and its property in the context of the scheme
of the code constitute a distinct subject matter justifying the special
treatment accorded to them – Creation of a criminal offence as also
abolishing criminal liability must ordinarily be left to the judgement
of the legislature – Attaining public welfare very often needs delicate
balancing of conflicting interests – As to what priority must be
accorded to which interest must remain a legislative value judgement
and if seemingly the legislature in its pursuit of the greater good
appears to jettison the interests of some it cannot unless it strikingly
ill squares with some constitutional mandate suffer invalidation –
There is no basis at all to impugn the Section on the ground
that it
violates Articles 19, 21 or 300A – Insolvency and Bankruptcy Code,
2016 – s.32A.
Insolvency and Bankruptcy Code (Amendment) Act, 2020 –
s.3 –s.3 of the impugned amendment, amended s.7(1) of the
Insolvency and Bankruptcy Code, 2016 – Amendment by s.3 of the
impugned amendment incorporated three provisos to s.7(1) – The
third proviso provided that where an application for initiating the
corporate insolvency resolution process against a corporate debtor
has been filed by a financial creditor referred to in the first and
second provisos and has not been admitted by the Adjudicating
Authority before the commencement of the Insolvency and
Bankruptcy Code (Amendment) Act, 2020, such application shall
be modified to comply with the requirements of the first or second
proviso within thirty days of the commencement of the said Act,
failing which the application shall be deemed to be withdrawn before
its admission – Held: The third proviso is a one-time affair – It is
intended only to deal with those applications, u/s.7, which were
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filed prior to 28.12.2019, when, by way of the impugned Ordinance,
initially, the threshold requirements came to be introduced by the
first and the second impugned provisos – In other words, the
legislative intention was to ensure that no application u/s.7 could
be filed after 28.12.2019, except upon complying with the
requirements in the first and second provisos – The Legislature did
not stop there – It has clearly intended that the threshold requirement
it imposed, will apply to all those applications, which were filed,
prior to 28.12.2019 as well, subject to the exception that the
applications, so filed, had not been admitted, u/s.7(5) – In other
words, the Legislature intended that in every application, filed under
s.7, by the creditors covered by the first proviso and by the allottees
governed by the second proviso, should also be embraced by the
newly imposed threshold requirement for which, it was intended,
should be complied within 30 days from the date of the Ordinance –
However, this restriction was not to apply to those applications which
stood admitted as on the date of the Ordinance – It is also clear that
the consequence of failure to comply with the threshold requirement,
in regard to applications, which have been filed earlier, was that
they would stand withdrawn – When applications were filed under
the unamended provisions of s.7, at any rate it would transform
into a vested right – The vested right
is to proceed with the action
till its logical and legal conclusion – No doubt, there may not be a
vested right as regard mere procedure and while limitation,
ordinarily, belongs to the domain of procedure, should new law
shorten the existing period of limitation, such a law would not
operate in regard to the right of action which is vested – Every
sovereign Legislature is clothed with competence to make
retrospective laws – It is open to the Legislature, while making
retrospective law, to take away vested rights – If a vested right can
be taken away by a retrospective law, there can be no reason why
the Legislature cannot modify the vested rights – The imposition of
a threshold requirement being a mandatory and irreducible minimum
even, if it is to be achieved as and after the date of the amendment,
constitutes an intrusion into the substantive right of action vested
in the individual creditor – The action of the creditor was not a
completed transaction – As regards his conduct in the past, viz.,
moving u/s.7, it is incomplete but the action was commenced – But
the law (the 3rd proviso) impairs the past action qua the future –
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Imposing the threshold requirement under the 3rd proviso, is not a
mere matter of procedure – It impairs vested rights – Prescribing a
time limit in regard to pending applications, cannot be, per se,
described as arbitrary, as otherwise, it would be an endless and
uncertain procedure – The applications would remain part of the
docket and also become a Damocles Sword overhanging the debtor
and the other stakeholders with deleterious consequences also qua
the objects of the Code – Insolvency and Bankruptcy Code, 2016 –
s.7.
Insolvency and Bankruptcy Code, 2016 – Need of – Held:
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.
Amendment – Clarificatory amendment – Is retrospective in
nature.
Legislation – Plenary Legislation – Challenge to – Grounds
– Discussed.
Legislation – Plenary Legislation – Challenge to – On ground
of malice – Held: While malice may furnish a ground in an
appropriate case to veto administrative action, malice does not
furnish a ground to attack a plenary law.
Dismissing the writ petitions and transferred case, the Court
HELD:1.1. The grounds on which plenary law can be
challenged are well established. A law can be successfully
challenged if contrary to the division of powers, either the
Parliament or
the State Legislature usurps power that does not
fall within its domain thus, rendering it incompetent to make such
law. Secondly, a law made contravening Fundamental Rights
guaranteed under Part III of the Constitution of India would be
visited with unconstitutionality and declared void to the extent
of its contravention. Needless to say, a law within the meaning of
Article 19 of the Constitution would remain valid qua a non-citizen.
Thirdly, apart from Fundamental Rights, the supremacy of the
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Constitution vis-a-vis the ordinary legislation, even when the law
is plenary legislation, is preserved with a view that legislation
must be in conformity with the other provisions of the
Constitution. [Para 47][955-C-F]
1.2. A plenary law if it is found to be manifestly arbitrary it
becomes vulnerable. [Para 50][958-C]
1.3. A law, be it the offspring of a Legislature, it falls foul of
Article 14 if it is found to be vague. [Para 51][958-E]
1.4. It has been urged that the law was created by way of
pandering to the real estate lobby and succumbing to their
pressure or by way of placating their vested interests. Such an
argument is nothing but a thinly disguised attempt at questioning
the law of the Legislature based on malice. While malice may
furnish a ground in an appropriate case to veto administrative
action it is trite that malice does not furnish a ground to attack a
plenary law. [Para 52][958-G; 959-A, B-C]
1.5. A supreme legislature cannot be cribbed, cabined or
confined by the doctrine of promissory estoppel or estoppel. It
acts as a sovereign body. The theory of promissory estoppel, on
the one hand, has witnessed an incredible trajectory of growth
but it is incontestable that it serves as an effective deterrent to
prevent injustice from a Government or its agencies which seek
to resile from a representation made by them, without just cause.
[Para 54][959-E-G]
1.6. 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
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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. [Para 121][1005-E-H]
1.7. 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. [Para 124][1006-G-H]
2. The rationale behind, confining allottees to the same real
estate project, is to promote the object of the Code. Once the
threshold 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
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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. [Para 140][1013-H; 1014-A-E]
3. 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. [Para 141][1014-G-H]
4. 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. 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. [Para 143][1016-A-
B]
5. 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. [Para 146][1017-F-G]
6. 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
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description of an allottee in Section 2(d) of RERA, 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. [Para 147][1018-
B-E]
7. 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. [Para 151][1019-D-G]
8. 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 morewise and even fairer system, is
constitutionally impermissible. If, the impugned provisions are
otherwise not infirm, they must pass muster.  [Para 157][1023-E]
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9. The law giver has 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. One 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. [Para 163][1030-C-D]
10. 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. A class
within a sub-class, is indeed not antithetical to the guarantee of
equality under Article 14. [Para 188][1046-G-H; 1047-B]
11. 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; and (iii) The individuality
in decision making. [Para 189][1047-B-D]
12. 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 For a 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
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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. [Para 192][1049-B-E]
13. The enquiry 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. [Para 193][1049-F]
14. 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 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. [Para
194][1049-G-H; 1050-A-C]
15. A Resolution Plan is intended to resuscitate an ailing
corporate debtor and keep it going as a going concern. The
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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 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. [Para
194][1050-F-H; 1051-A-B]
16. 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
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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. 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.
[Para 196][1051-D-H; 1052-A-B]
17. 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. 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 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. [Para 196][1052-D-H; 1053-A-B]
18. 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.
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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. [Para 197][1053-E-G]
19. The law under scrutiny is an economic measure. In
dealing with the challenge on the anvil of Article 14, the Court
will not adopt a doctrinaire approach. 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 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. [Para
199][1054-G-H; 1055-A-B]
20. 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. 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 who has supplied the goods and
services, becomes the creditor and the corporate debtor is one
who has availed such services. Another distinction 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
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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, there is no consideration for the time value of money in
the operational debt. This is not so in the case of an allottee.
[Para 212][1065-F-H; 1066-A-C]
21. 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. The vires of
the impugned provisions must be judged without turning a blind
eye to the distinction between the wisdom and the legislative
value judgment behind the Statute being immune from judicial
scrutiny on the one hand and a hostile discrimination falling foul
of the mandate of equality under Article 14, being fatal to the
Statute. In this case, while it may be true that the allottees are
unsecured creditors and in that regard, they are similar to the
operational creditors and it also may be true that many contracts
under real estate projects, may not involve large sums as the
subject matter of advances by banks and other financial
institutions, the similarity between the two ends there. What is
of greater importance is the distinctions and the most vital point
which sets them apart, in the matter of pronouncing on the vires
of the provisos under Section 7 is the numerosity of the allottees,
and what is more not being homogeneous in what they want in a
particular situation, since the law
has indeed endowed the allottees
with different remedies, having different implications, be it under
the Consumer Protection Act or under RERA. If the Legislature
felt that having regard to the consequences of an application under
the Code, when such a large group of persons, pull at each other,
an additional threshold be erected for exercising the right under
Section 7, certainly, it cannot suffer a constitutional veto at the
hands of Court exercising judicial review of legislation. [Para
213][1066-F; 1067-B-F]
22. This is not a case where the right of the allottee is
completely taken away. All that has happened is a half-way house
is built between extreme positions, viz., denying the right
altogether to the allottee to move the application under
Section 7 of the Code and giving an unbridled license to a single
person to hold the real estate project and all the stakeholders
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thereunder hostage to a proceeding under the Code which must
certainly pass inexorably within a stipulated period of time should
circumstances exists under Section 33 into corporate death with
the unavoidable consequence of all allottees and not merely the
applicant under Section 7 being visited with payment out of the
liquidation value, the amounts which are only due to the unsecured
creditor. The point of distinction, between a financial creditor in
this case, the allottees of a real estate project and the operational
creditors, as contained in Section 7 on the one hand and Sections
8 and 9 are preserved. In other words, the operational creditor
still has to cross the threshold of not being shut off from the
application not being processed in the teeth of the defense allowed
to the corporate debtor in regard to an operational creditor. All
that has happened is the Legislature in its wisdom has found that
the greater good lies in conditioning an absolute right which
existed in favour of an allottee by requirements which would
ensure some certain element of consensus among the allottees.
The requirement is a mere one-tenth of the allottees. This is a
number which goes to policy and lies exclusively within the
wisdom of the Legislature. [Para 214][1067-G-H; 1068-A-D]
23. The first proviso is invulnerable. The impact of the
insertion of sub-section 3A in Section 25A is to be noticed. Section
25A, inter alia, deals with
the exercise of rights and the liabilities
of authorised representative of creditors like debenture holders
and allottees. After the insertion of sub-section 3A in section
25A, the majority of the creditors of a class is permitted to call
the shots. It’s view, in other words, will hold sway. This is subject
to the Code otherwise. The legislative understanding is clear
that in regard to such creditors bearing the hallmark of large
numbers they are required to be treated differently. If they are
not treated differently it would spell chaos and the objects of the
Code would not be fulfilled. It is an extension of this basic
principle which has led to the insertion of the impugned proviso.
Insisting on a threshold in regard to these categories of creditors
would lead to the halt to indiscriminate litigation which would
result in an uncontrollable docket explosion as far as the
authorities which work the Code are concerned. The debtor who
is apparently stressed is relieved of the last straw on the camel’s
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back, as it were, by halting individual creditors whose views are
not shared even by a reasonable number of its peers rushing in
with applications. Again, as in the case of the allottees, this is not
a situation where while treating them as financial creditors they
are totally deprived of the right to apply under Section 7 as part
of the legislative scheme. The legislative policy reflects an attempt
at shielding the corporate debtor from what it considers would
be either for frivolous or avoidable applications. What we mean
by avoidable applications is a decision which would not be taken
by similarly placed creditors keeping in mind the consequences
that would ensue not only in regard to persons falling in the same
category but also the generality of creditors and other
stakeholders. All that the amendment is likely to ensure is that
the filing of the application is preceded by a consensus at least by
a minuscule percentage of similarly placed creditors that the time
has come for undertaking a legal odyssey which is beset with
perils for the applicants themselves apart from others. As far as
the percentage of applicants contemplated under the proviso it
is clear that it cannot be dubbed as an arbitrary or capricious
figure. The legislature is not wanting in similar requirements
under other laws. The provisions of the Companies Act, 2013
and its predecessors contained similar provisions.  Allowing what
is described as ‘lone Ranger’ applications beset with
extremely
serious ramifications which are at cross purposes with the objects
of the code. This is apart from it in particular spelling avoidable
doom for the interest of the creditors falling in the same categories.
The object of speed in deciding CIRP proceedings would also be
achieved by applying the threshold to debenture holders and
security holders. The dividing line between wisdom or policy of
the legislature and limitation placed by the Constitution must
not be overlooked. [Para 220][1071-D-H; 1072-A-E]
24. The intention of the Legislature was always to target
the corporate debtor only insofar as it purported to prohibit
application by the corporate debtor against itself, to prevent abuse
of the provisions of the Code. It could never had been the
intention of the Legislature to create an obstacle in the path of
the corporate debtor, in any of the circumstances contained in
Section 11, from maximizing its assets by trying to recover the
liabilities due to it from others. Not only does it go against the
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basic commonsense view but it would frustrate the very object of
the Code, if a corporate debtor is prevented from invoking the
provisionsof the Code either by itself or through his resolution
professional, who at later stage, may, don the mantle of its
liquidator. The provisions of the impugned Explanation, thus,
clearly amount to a clarificatory amendment. A clarificatory
amendment, it is not even in dispute, is retrospective in nature.
The Explanation merely makes the intention of the Legislature
clear beyond the pale of doubt. The argument of the petitioners
that the amendment came into force only on 28.12.2019 and,
therefore, in respect to applications filed under Sections 7, 9 or
10, it will not have any bearing, cannot be accepted. The
Explanation, in the facts of these cases, is clearly clarificatory in
nature and it will certainly apply to all pending applications also.
[Para 243][1084-E-H; 1085-A]
25. No case whatsoever is made out to seek invalidation of
Section 32A. The boundaries of this Court’s jurisdiction are clear.
The wisdom of the legislation is not open to judicial review. Having
regard to the object of the Code, the experience of the working
of the code, the interests of all stakeholders including most
importantly the imperative need to attract resolution applicants
who would not shy away from offering reasonable and fair value
as part of the resolution plan if the legislature thought that
immunity be granted to the corporate debtor as also its property,
it hardly furnishes a ground for this this Court to interfere. The
provision is carefully thought out. It is not as if the wrongdoers
are allowed to get away. They remain liable. The extinguishment
of the criminal liability of the corporate debtor is apparently
important to the new management to make a clean break with
the past and start on a clean slate. One must also not overlook
the principle that the impugned provision is part of an economic
measure. As far as protection afforded to the property is concerned
there is clearly a rationale behind it. Having regard to the object
of the statute one hardly sees any manifest arbitrariness in the
provision. [Para 257][1098-B-D, F]
27. The immunity is premised on various conditions being
fulfilled. There must be a resolution plan. It must be approved.
There must be a change in the control of the corporate debtor.
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The new management cannot be the disguised avatar of the old
management. It cannot even be the related party of the corporate
debtor. The new management cannot be the subject matter of an
investigation which has resulted in material showing abetment
or conspiracy for the commission of the offence and the report or
complaint filed thereto. These ingredients are also insisted upon
for claiming exemption of the bar from actions against the property.
Significantly every person who was associated with the corporate
debtor in any manner and who was directly or indirectly involved
in the commission of the offence in terms of the report submitted
continues to be liable to be prosecuted and punished for the
offence committed by the corporate debtor. The corporate debtor
and its property in the context of the scheme of the code constitute
a distinct subject matter justifying the special treatment accorded
to them. Creation of a criminal offence as also abolishing criminal
liability must ordinarily be left to the judgement of the legislature.
Erecting a bar against action against the property of the corporate
debtor when viewed in the larger context of the objectives sought
to be achieved at the forefront of which is maximisation of the
value of the assets which again is to be achieved at the earliest
point of time cannot become the subject of judicial veto on the
ground of violation of Article 14. Attaining public welfare very
often needs delicate balancing of
conflicting interests. As to what
priority must be accorded to which interest must remain a
legislative value judgement and if seemingly the legislature in
its pursuit of the greater good appears to jettison the interests of
some it cannot unless it strikingly ill squares with some
constitutional mandate suffer invalidation. There is no basis at
all to impugn the Section on the ground that it violates Articles
19, 21 or 300A. [Paras 258, 259][1098-F-H; 1099-A-E]
28. The third proviso is a one-time affair. It is intended
only to deal with those applications, under Section 7, which were
filed prior to 28.12.2019, when, by way of the impugned
Ordinance, initially, the threshold requirements came to be
introduced by the first and the second impugned provisos. In other
words, the legislative intention was to ensure that no application
under Section 7 could be filed after 28.12.2019, except upon
complying with the requirements in the first and second provisos.
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The Legislature did not stop there. It has clearly intended that
the threshold requirement it imposed, will apply to all those
applications, which were filed, prior to 28.12.2019 as well, subject
to the exception that the applications, so filed, had not been
admitted, under Section 7(5). In other words, the Legislature
intended that in every application, filed under Section 7, by the
creditors covered by the first proviso and by the allottees
governed by the second proviso, should also be embraced by the
newly imposed threshold requirement for which, it was intended,
should be complied within 30 days from the date of the Ordinance.
However, this restriction was not to apply to those applications
which stood admitted as on the date of the Ordinance. It is also
clear that the consequence of failure to comply with the threshold
requirement, in regard to applications, which have been filed
earlier, was that they would stand withdrawn.[Para 261][1100-B-
E]
29. Every sovereign Legislature is clothed with competence
to make retrospective laws. It is open to the Legislature, while
making retrospective law, to take away vested rights. If a vested
right can be taken away by a retrospective law, there can be no
reason why the Legislature cannot modify the vested rights. [Para
333][1145-G-H; 1146-A]
30. The financial creditors covered by the 3rd proviso were
clothed with a statutory right under Section 7. This right was
available to be exercised by an individual creditor, by himself or
jointly with others. The imposition of a threshold requirement
being a mandatory and irreducible minimum even, if it is to be
achieved as and after the date of the amendment, constitutes an
intrusion into the substantive right of action vested in the
individual creditor. The action of the creditor was not a completed
transaction. As regards his conduct in the past, viz., moving under
Section 7, it is incomplete but the action was commenced. But
the law (the 3rd proviso) impairs the past action qua the future.
Imposing the threshold requirement under the 3rd proviso, is not
a mere matter of procedure. It impairs vested rights. It has
conditioned the right instead, in the manner provided in the first
and the second proviso. This Court has already upheld the first
and second proviso, which, in fact, operates only in the future. In
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that sense, the Legislature has purported to equate persons who
had not filed applications with persons like the petitioners who
had filed the applications under the unamended law. [Para
346][1149-F-H; 1150-A-B]
31. The requirement of compliance with the threshold
numerical requirements under the first and second proviso is an
integral and inseparable part of the third proviso. [Para 347][Para
348][1150-E]
32. From the standpoint of public interest, every application
maintained by a single applicant, is perceived as a veritable threat
to the fulfilment of the objectives of the Code. The continuance
of the applications could not, therefore, be in public interest. It
is, as if, the Legislature intended to apply its brakes in the form
of asking the applicants to obtain the consensus of a minimum
number of similar stakeholders, before the applications could be
further processed. [Para 359][1154-D-E]
33. The law in question is an economic measure. This is a
case where the Law Giver has not left anything to speculation or
doubt. [Para 360][1155-B]
34. The Legislature has power to impair and take away
vested rights. The limitation that flows, however, is from both
Article 14 and 19 read with Article 21. It flows from the Doctrine
that the action of the State must be fair and reasonable. The
question, as to validity of the retrospective law, is a matter to be
judged on a consideration of the facts, the period of time, over
which the retrospective law operates,
the impact of the law on
the vested rights, the public interest, the nature of the right,
which is the subject matter of the law and the terms of the law.
[Para 361][1155-D-F]
35. The nature of the right involved in this case, is the
right of the financial creditors to move an application under
Section 7. Though, Section 7 confers a right upon the financial
creditor to file the application, the proceedings are one in rem.
The Legislature was faced with the situation, where it felt that
the requirement, as to maintainability of the application under
Section 7, must, in regard to pending applications, be modified in
the manner done. There is a determining principle, namely, the
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perception from experience about how the entire object of the
Code would stand jeopardised if applications already filed could
go on even when a fair and reasonable number of kindred souls
are not available to support it. Once there is a principle, it cannot
be capricious, excessive or disproportionate unless the time
given under the proviso is manifestly arbitrary. A vested right
under a statute can be taken away by a retrospective law. A right
given under a statute can be taken away by another statute. There
was considerable public interest behind such a law. The sheer
numbers, in which applications proliferated, combined with the
results it could produce, cannot be brushed aside as an irrational
or capricious aspect to have been guided by in making the law.
Being an economic measure, the wider latitude available to the
Law Giver, cannot be lost sight of. [Para 362][1155-F-H; 1156-A-
C]
36. As regards the compelled withdrawal under the third
proviso of the pending applications is concerned, once the
Legislature intended that the pending applications must be made
compliant with the threshold requirement, consequences for not
doing so had to be provided. Otherwise, it would have created
complete uncertainty and the applicant would have been dealt
with in a manifestly arbitrary manner. Providing for the
consequence of withdrawal before admission does not have the
consequence of preventing the fresh filing, even in
regard to the
same default, after complying, no doubt, with the requirement of
the first or the second proviso, cannot be dubbed as arbitrary. No
doubt, there is lack of clarity in this regard in the provision but
on an understanding of the law, as expounded, the provision was
capable of being understood in the manner done. [Para 365][1156-
G-H; 1157-A-B]
37. In regard to the first and the second provisos, they have
only prospective operation. The creditors covered by these
provisos, are not subjected to any time limit (except, no doubt,
the bar under Article 137 of the Limitation Act), in the matter of
garnering the requisite support. However, prescribing a time limit
in regard to pending applications, cannot be, per se, described as
arbitrary, as otherwise, it would be an endless and uncertain
procedure. The applications would remain part of the docket and
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also become a Damocles Sword overhanging the debtor and the
other stakeholders with deleterious consequences also qua the
objects of the Code. The period could have been more fair to the
petitioners by being longer but that is where one must bear in
mind, the limits of jurisdiction. Where would the Court draw the
line? It is difficult to hold that within the time limit of 30 days it is
impossible to comply with the requirements. [Para 366 and
369][1157-B-D; 1158-C]
38. The impugned amendments are upheld, subject to
directions issued under Article 142 of the Constitution of India.
[Para 372][1159-D]
The State of Gujarat and Others v. Shri Ambica Mills
Ltd., Ahmedabad and Others (1974) 4 SCC 656 : [1974]
3 SCR 760; State of West-Bengal v. Anwar Ali AIR 1952
SC 75 : [1952] SCR 284; E.P. Royappa v. State of Tamil
Nadu and Another (1974) 4 SCC 3 : [1974] 2 SCR 348;
Shayara Bano v. Union of India (2017) 9 SCC 1 :
[2017] 9 SCR 797; Navtej Singh Johar and Others v.
Union of India and Others (2018) 10 SCC 1 : [2018] 7
SCR 379; Joseph Shine v. Union of India (2019) 3 SCC
39 : [2018] 11 SCR 765; Justice K.S. Puttuswamy and
Others v. Union of India and Others (2017) 10 SCC 1
: [2017] 10 SCR 569; Hindustan Construction
Company Ltd. and Others v. Union of India and Others
AIR 2020 SC 122; Shreya Singhal v. Union of India
(2015) 5 SCC 1 : [2015] 5 SCR 963; K. Nagaraj and
Others v. State of Andhra Pradesh and Another (1985)
1 SCC 523 : [1985] 2 SCR 579; State of Himachal
Pradesh v. Narain Singh (2009) 13 SCC 165 : [2009]
[10] SCR 821 – relied on.
Pioneer Urban Land and Infrastructure Ltd. and
another v. Union of India and Others (2019) 8 SCC
416 : [2019] 10 SCR 381; Chitra Sharma and Others
v. Union of India and Others (2018) 18 SCC 575 :
[2018] 12 SCR 1044; Motilal Padampat Sugar Mills
Co. Ltd. v. State of U.P. (1979) 2 SCC 409 :  [1979] 2
SCR  641; Nagpur Investment Trust and Others v. Vithal
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
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Rao and Others (1973) 1 SCC 500 : [1973] 3 SCR 39;
B.K. Educational Services (P) Ltd. v. Parag Gupta &
Associates (2019) 11 SCC 633 : [2018] 12 SCR 794;
Swiss Ribbon Pvt. Ltd. & Ors. v. Union of India & Ors.
(2019) 4 SCC 17 : [2019] 3 SCR 535; Garikapati
Veeraya v. N. Subbiah Choudhry AIR 1957 SC 540 :
[1957] SCR 488; Thirumalai Chemicals Limited v. Union
of India and Others (2011) 6 SCC 739 : [2011] 4
SCR 838; Delhi Metro Rail Corporation Ltd. v. Tarun
Pal Singh and Others (2018) 14 SCC 161 : [2017] 14
SCR 202; State of Karnataka and Others v. The
Karnataka Pawn Brokers Association and Others
(2018) 6 SCC 363 : [2018] 10 SCR 409; Vasant Ganpat
Padvave (D) by LRs & Ors. v. Anant Mahadev Sawant
(D) Through LRs. & Ors. 2019 (12) SCALE 572;
Ameerunnissa Begum and Others v. Mahboob Begum
and others [1953] SCR 404; State of Jammu and
Kashmir v. Triloki Nath Khosa and Others (1974) 1 SCC
19 : [1974] 1 SCR 771; Murthy Match Works and
others v. Assistant Collector of Central Excise and
Another (1974) 4 SCC 428 : [1974] 3 SCR 121; Ajoy
Kumar Banerjee and Others v. Union of India and
Others (1984) 3 SCC 127 : [1984] 3 SCR 252; Ashutosh
Gupta v. State of Rajasthan and Others (2002) 4 SCC
34 : [2002] 2 SCR 649; Indra Sawhney and Others v.
Union of India and Others (1992) 3 Suppl. SCC 217 :
[1992] 2 Suppl. SCR 454; Lord Krishna Sugar Mills
Limited and Another v. Union of India and Another
[1960] 1 SCR 39; State of Kerala and
Another v. N.M.
Thomas and Others (1976) 2 SCC 310 : [1976] 1
SCR 906; State of West Bengal and Another v. Rash
Behari Sarkar and Another (1993) 1 SCC 479 : [1992]
3 Suppl. SCR 351; State of Kerala v. Aravind Ramakant
Modawdakar and Others (1999) 7 SCC 400; Sansar
Chand Atri v. State of Punjab and Another (2002) 4
SCC 154 : [2002] 2 SCR 881; Union of India and
others v. Godfrey Philips India Ltd. (1985) 4 SCC 369
: [1985] 3 Suppl. SCR 123; K. Nagaraj and Others v.
State of A.P. and Another (1985) 1 SCC 523 : [1985]
A
B
C
D
E
F
G
H
921
2 SCR 579; State of Himachal Pradesh v. Narain Singh
(2009) 13 SCC 165 : [2009] 10 SCR 821; Gujarat Agro
Industries Co. Ltd. v. Municipal Corporation of the City
of Ahmedabad and Others (1999) 4 SCC 468 : [1999]
2 SCR 895; Howrah Municipal Corporation and
Others v. Ganges Rope Co. Ltd. and Others (2004) 1
SCC 663 : [2003] 6 Suppl. SCR 1212; Arcelormittal
India Private Limited v. Satish Kumar Gupta and Others
(2019) 2 SCC 1 : [2018] 12 SCR 362; Swiss Ribbons
Private Limited and another v. Union of India and
Others (2019) 4 SCC 17 : [2019] 3 SCR 535; Karnail
Kaur and Others v. State of Punjab and Others (2015)
3 SCC 206; Committee of Creditors of Essar Steel India
Limited Through Authorised Signatory v. Satish Kumar
Gupta and Others (2019) SCCONLINE SC 1478; M.S.
Shivananda v. Karnataka State Road Transport
Corporation and Others (1980) 1 SCC 149 : [1980]
1 SCR 684 ; Lalji Raja and Sons v. Hansraj Nathuram
(1971) 1 SCC 721 :  [1971] 3 SCR 815; Kanaya Ram
and Others v. Rajender Kumar and Others (1985) 1
SCC 436 ; J.P. Srivastava & Sons (P) Ltd. and Others
v. Gwalior Sugar Co. Ltd. and Others (2005) 1 SCC
172 : [2004] 5 Suppl. SCR 648; Anjum Hussain and
Others v. Intellicity Business Park Private Limited and
Others (2019) 6 SCC 519 : [2019] 7 SCR 1036; Union
of India and Others v. Godfrey Philips India Ltd. (1985)
4 SCC 369 : [1985] 3 Suppl. SCR 123; B.K.
Educational Services Private Limited v. Parag Gupta
& Associates (2019) 11 SCC 633 : [2018] 12 SCR 794;
Rajahmundry Electric Supply Corporation Ltd. v.
A. Nageshwara Rao and Others AIR 1956 SC 213 :
[1955] SCR 1066; Chairman, Tamil Nadu Housing
Board v. T. N. Ganapathy (1990) 1 SCC 608 : [1990] 1
SCR 272; Pioneer Urban Land and Infrastructure Ltd.
and Another v. Union of India and Others (2019) 8
SCC 416 : [2019] 10 SCR 381; Union of India v. Tarsem
Singh (2019) 9 SCC 304; State of Gujarat and Another
v. Shree Ambica Mills Ltd. (1974) 4 SCC 656 : [1974] 3
SCR 760; In Re The Special Courts Bill, 1978 (1979) 1
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
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SUPREME COURT REPORTS
[2021] 14 S.C.R.
SCC 380 : [1979] 2 SCR 476; Ajoy Kumar Banerjee
and Ors. v. Union of India and Ors. (1984) 3 SCC 127
: [1984] 3 SCR 252; Subramanian Swami v. Director,
CBI and Ors. (2014) 8 SCC 682 : [2014] 6 SCR 873;
Indira Sawney v. Union of India (1992) 3 Suppl. SCC
217 : [1992] 2 Suppl. SCR 454; State of West Bengal
and Ors. v. Rash Bihari Sarkar and Ors. (1993) 1 SCC
479 : [1992] 3 Suppl. SCR 351; State of Kerala v.
Aravind Ramakant Modawdakar and Ors. (1999) 7
SCC 400; Sansar Chand Atri v. State of Punjab and
Another (2002) 4 SCC 154 : [2002] 2 SCR 881; His
Holiness Kesavananda Bharti Sripadagalvaru v. State
of Kerala and Another (1973) 4 SCC 225 : [1973]
0 Suppl. SCR 1; Innoventive Industries Limited v. ICICI
Bank and Another (2018) 1 SCC 407 : [2017] 8
SCR 33; Vasant Ganpat Padave (D) by LRs. and Ors.
v. Anant Mahadev Sawant (D) through LRs. and Ors.
(2019) 12 SCALE 579; Shayara Bano v. Union of India
and Others (2017) 9 SCC 1 : [2017] 9 SCR 797;
S. Sundaram Pillai and others v. R. Pattabiraman and
Others (1985) 1 SCC 591 : [1985] 2 SCR 643; Sonia
Bhatia v. State of U.P. and Others (1981) 2 SCC 585 :
[1981] 3 SCR 239; Virtual Soft Systems Ltd. v.
Commissioner of Income Tax, Delhi-I (2007) 9 SCC 665
: [2007] 2 SCR 289; Hiralal Rattanlal and Ors. v. State
of U.P. and another (1973) 1 SCC 216 : [1973] 2
SCR 502; Hitendra Vishnu Thakur and Others v. State
of Maharashtra and Others (1994) 4 SCC 602 : [1994]
1 Suppl. SCR 360;
Ambalal Sarabhai Enterprises Ltd.
v. Amrit Lal & Co. and Another (2001) 8 SCC 397 :
[2001] 2 Suppl. SCR 195; B.K. Educational Services
Private Ltd. v. Parag Gupta and Associates (2019) 11
SCC 633 : [2018] 12 SCR 794; Lalji Raja and Sons v.
Hansraj Nathuram (1971) 1 SCC 721 :  [1971] 3 SCR 
815; Isha Valimohamed v. Haji Gulam Mohamad & Haji
Dada Trust (1974) 2 SCC 484 : [1975] 1 SCR 720;
Bombay Stock Exchange v. V.S. Kandalgaonkar (2015)
2 SCC 1 : [2014] 14 SCR 409; New India Assurance
Co. Ltd. v. Shanti Misra (1975) 2 SCC 840 : [1976]
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C
D
E
F
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2 SCR 266; Vinod Gurudas Raikar v. National
Insurance Co. Ltd. & Ors. (1991) 4 SCC 333 : [1991]
3 SCR 912; Union of India v. Harnam Singh (1993) 2
SCC 162 : [1993] 1 SCR 862; V. Dhanapal Chettiar v.
Yesodai Ammal (1979) 4 SCC 214 : [1980] 1 SCR 334;
D. C. Bhatia v. Union of India (1995) 1 SCC 104 :
[1994] 4 Suppl. SCR 539; Mst. Bibi Sayeeda & Ors. v.
State of Bihar and Others (1996) 9 SCC 516 : AIR
1996 SC 1936 : [1996] 1 Suppl. SCR 799; M.S.
Shivananda v. Karnataka SRTC (1980) 1 SCC 149 :
[1980] 1 SCR 684; Rameshwar and Others v. Jot Ram
and Another (1976) 1 SCC 194 :  [1976] 1 SCR 847;
Bansidhar v. State of Rajasthan (1989) 2 SCC 557 :
[1989] 2 SCR 152; Mohinder Kumar and Others v. State
of Haryana and Another (1985) 4 SCC 221 : [1985]
2 Suppl. SCR 859; D. C. Bhatia and Others v. Union
of India and Another (1995) 1 SCC 104 : [1994] 4
Suppl. SCR 539; Howrah Municipal Corporation and
Others v. Ganges Rope Co. Ltd. and Others (2004) 1
SCC 663 : [2003] 6 Suppl. SCR 1212; Arcelormittal
India Private Limited v. Satish Kumar Gupta & Others
(2019) 2 SCC 1 : [2018] 12 SCR 362; B.K. Educational
Services Private Limited v. Parag Gupta and Associates
(2019) 11 SCC 633 : [2018] 12 SCR 794; M.P. Steel
Corporation v. Commissioner of Central Excise (2015)
7 SCC 58; Mardia Chemicals Ltd. and Others v. Union
of India and Others (2004) 4 SCC 311 : [2004]
3 SCR 982; P.D. Aggrawal & Others v. State of U.P
and Others (1987) 3 SCC 622 : [1987] 3 SCR 427;
Darshan Singh v. Ram
Pal Singh and Ors. (1992) 1
Suppl. SCC 191 :  [1990] 3 Suppl. SCR 212; K.S.
Paripoornan v. State of Kerala (1994) 5 SCC 593 :
[1994] 3 Suppl. SCR  405; State Bank’s Staff Union
(Madras Circle) v. Union of India and Others AIR 2005
SC 3446 : (2005) 7 SCC 584 : [2005] 3 Suppl.
SCR 200; Delhi Transport Corpn. v. D.T.C. Mazdoor
Congress (1991) 1 Suppl. SCC 600 : [1990] 1 Suppl.
SCR 142 and Vijay v. State of Maharashtra (2006) 6
SCC 289 :  [2006] 4 Suppl. SCR 81 – referred to.
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
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SUPREME COURT REPORTS
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Gopeshur Pal v. Jiban Chandra Chandra and Others
AIR 1914 Calcutta 806 – referred to.
West v. Gwynne (1910) WLR 976; In Re: Pulborough
Parish School Board Election, Bourke v. Nutt (1894) 1
QB 725; Abbott and Minister of Lands (1895) AC 425;
Hamilton Gell v. White (1922) 2 K.B. 422; Odgen
Industries Pty. Ltd. v. Haider Doreen Lucas 3 WLR 75/
(1969) (1) All England Reports 121; Director of Public
Works and Another v. Ho Po Sang and Others [1961] 3
WLR 39 and L’Office Cherifien Des Phosphates and
another And Yamashita-Shinnihon Steamship Co. Ltd.
(1994) 1 All ER 20 – referred to.
Case Law Reference
[2019] 10 SCR 381
referred to
Para 14
[2018] 12 SCR 1044
referred to
Para 20
[1979] 2 SCR 641
referred to
Para 20
[1973] 3 SCR 39
referred to
Para 20
[2018] 12 SCR 794
referred to
Para 23
[2019] 3 SCR 535
referred to
Para 23
[1957] SCR 488
referred to
Para 25
[2011] 4 SCR 838
referred to
Para 25
[2017] 14 SCR 202
referred to
Para 25
[2018] 10 SCR 409
referred to
Para 26
2019 (12) SCALE 572
referred to
Para 29
[1953] SCR 404
referred to
Para 31
[1974] 1 SCR 771
referred to
Para 31
[1974] 3 SCR 121
referred to
Para 31
[1984] 3 SCR 252
referred to
Para 31
[2002] 2 SCR 649
referred to
Para 31
[1992] 2 Suppl. SCR 454
referred to
Para 36
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[1960] 1 SCR 39
referred to
Para 36
[1976] 1 SCR 906
referred to
Para 36
[1992] 3 Suppl. SCR 351
referred to
Para 36
(1999) 7 SCC 400
referred to
Para 36
[2002] 2 SCR 881
referred to
Para 37
[1985] 3 Suppl. SCR 123
referred to
Para 38
[1985] 2 SCR 579
referred to
Para 38
[2009] 10 SCR 821
referred to
Para 38
[1999] 2 SCR 895
referred to
Para 39
[2003] 6 Suppl. SCR 1212
referred to
Para 39
[2018] 12 SCR 362
referred to
Para 39
[2019] 3 SCR 535
referred to
Para 39
(2015) 3 SCC 206
referred to
Para 39
[1980] 1 SCR 684
referred to
Para 40
[1971] 3 SCR 815
referred to
Para 40
(1985) 1 SCC 436
referred to
Para 40
[2004] 5 Suppl. SCR 648 
referred to
Para 42
[2019] 7 SCR 1036
referred to
Para 42
[1974] 3 SCR 760
relied on
Para 47
[1952] SCR 284
relied on
Para 48
[1974] 2 SCR 348
relied on
Para 49
[2017] 9 SCR 797
relied on
Para 49
[2018] 7 SCR 379
relied on
Para 50
[2018] 11 SCR 765
relied on
Para 50
[2017] 10 SCR 569
relied on
Para 50
AIR 2020 SC 122
relied on
Para 50
[2015] 5 SCR 963
relied on
Para 51
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[2021] 14 S.C.R.
[1985] 2 SCR 579
relied on
Para 52
[2009] 10 SCR 821
relied on
Para 52
[1985] 3 Suppl. SCR 123
referred to
Para 54
[2018] 12 SCR 794
referred to
Para 134
[1955] SCR 1066
referred to
Para 142
[1990] 1 SCR 272
referred to
Para 155
[2019] 10 SCR 381
referred to
Para 158
(2019) 9 SCC 304
referred to
Para 170
[1974] 3 SCR 760
referred to
Para 175
[1979] 2 SCR 476
referred to
Para 176
[1984] 3 SCR 252
referred to
Para 177
[2014] 6 SCR 873
referred to
Para 178
[1992] 2 Suppl. SCR 454
referred to
Para 183
[1992] 3 Suppl. SCR 351
referred to
Para 184
(1999) 7 SCC 400
referred to
Para 185
[2002] 2 SCR 881
referred to
Para 186
[1973] 0 Suppl. SCR 1
referred to
Para 199
[2017] 8 SCR 33
referred to
Para 203
(2019) 12 SCALE 579
referred to
Para 216
[2017] 9 SCR 797
referred to
Para 216
[1985] 2 SCR 643
referred to
Para 227
[1981] 3 SCR 239
referred to
Para 227
[2007] 2 SCR 289
referred to
Para 228
[1973] 2 SCR 502
referred to
Para 233
[1994] 1 Suppl. SCR 360
referred to
Para 262
[2001] 2 Suppl. SCR 195
referred to
Para 262
[2018] 12 SCR 794
referred to
Para 262
[1971] 3 SCR 815
referred to
Para 272
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[1975] 1 SCR 720
referred to
Para 281
[2014] 14 SCR 409
referred to
Para 287
[1976] 2 SCR 266
referred to
Para 288
[1991] 3 SCR 912
referred to
Para 291
[1993] 1 SCR 862
referred to
Para 291
[1980] 1 SCR 334
referred to
Para 292
[1994] 4 Suppl. SCR 539
referred to
Para 293
[1996] 1 Suppl. SCR 799
referred to
Para 294
[1980] 1 SCR 684
referred to
Para 296
[1976] 1 SCR 847
referred to
Para 297
[1989] 2 SCR 152
referred to
Para 298
[1985] 2 Suppl. SCR 859
referred to
Para 302
[1994] 4 Suppl. SCR 539
referred to
Para 302
[2003] 6 Suppl. SCR 1212
referred to
Para 303
[2018] 12 SCR 362
referred to
Para 304
[2018] 12 SCR 794
referred to
Para 308
(2015) 7 SCC 58
referred to
Para 308
[2004] 3 SCR 982
referred to
Para 312
[1987] 3 SCR 427
referred to
Para 317
[1990] 3 Suppl. SCR 212
referred to
Para 319
[1994] 3 Suppl. SCR 405
referred to
Para 322
[2005] 3 Suppl. SCR 200
referred to
Para 323
[1990] 1 Suppl. SCR 142
referred to
Para 326
[2006] 4 Suppl. SCR 81
referred to
Para 328
CIVIL ORIGINAL JURISDICTION: Writ Petition (Civil) No.
26 of 2020.
Under Article 32 of The Constitution of India
With
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
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[2021] 14 S.C.R.
Writ Petition (C) No. 53, 28, 47, 27, 73, 328, 210, 191, 164, 163,
166, 173, 182, 176, 177, 257, 341, 267, 333, 337, 388, 402, 390, 393, 783,
579, 806, 714, 642, 805, 19, 33, 75, 165, 850, 374, 229, 228, 209 Of 2020
And Transferred Case (c) No. 228/2020
Ms. Madhavi Diwan, ASG, Tushar Mehta, SG, Sajan Poovayya,
Rana Mukherjee, Neeraj Kishan Kaul, Sr. Advs., Krishnamohan K.
Menon, Chaitanyashil Priyadarshi, Ms. Dania Nayyar, Ms. Parul
Sachdeva, Akash Vajpayee, Vaibhav Manu Srivastava, Bhanu Pant, Namit
Saxena, Piyush Singh, Aditya Parolia, Akshay Srivastava, Nithin
Chandran, Rajesh Kumar, Gaurav Goel, Srijan Sinha, Himanshu Chaubey,
Ashwarya Sinha, Santosh Kumar, Ayushmaan Vatsyayana, Ms. Hemlata
Rawat, Deepak Anand, Mareesh Pravir Sahay, Ms. Tasheem Ahmadi,
Sudhir Kumar Gupta, Manish Gupta, Shikhil Suri, Shiv Kumar Suri, Ms.
Madhu Suri, Ms. Shilpa Saini, Ms. Nikita Thapar, Ms. Vinishma Kaul,
Ms. Priyanjali Singh, Ms. Rashi Bansal, Dinesh Chandra Pandey, Dhruv
Gupta, Harshil Gupta, Arjun Singh Bhati, Annam D. N. Rao, Annam
Venkatesh, Rahul Mishra, Sidharth Joshi, Gopal Singh Chauhan, Saurabh
Trivedi, Mahesh Agarwal, Himanshu Satija, Raheel Patel, Ajitesh Soni,
Rohan Talwar, Ramchandra Madan, Akash Lamba, E. C. Agrawala,
Ms. Shivali, Nilotpal Shyam, Ms. Bharti Tyagi, Rajesh Goyal, Sumit
Gehlawat, Tervender Singh, Abhishek Bharadwaj, Pai Amit, Ms. Pankhuri
Bhardwaj, Rakesh Taneja, Parshuram A.L., Kumar Vaibhav, Ankit
Agrawal, Rahat Bansal, A.D.N. Rao, Annam Venkatesh,
Chandrashekhar A. Chakalabbi, Shivanshu Kumar, Shiv Kumar Pandey,
Awanish Kumar, Anshul Rai for M/s Dharmaprabhas Law Associates,
Mayank Pandey, Ms. Misha Rohatgi Mohta, Johnson Subba, Ms. Purti
Marwaha Gupta, Dr. Anindita Pujari, Arvind Kumar Gupta, Ms. Henna
George, Ms. Twisha Issar, Ms. Deval Singh, Om Narayan, Pallav Mongia,
Kanu Agarwal, Ms. Sunita Sharma, Rajeev Ranjan, Ms. Sansriti Pathak,
Arvind Kumar Sharma, Ms. Charu Ambwani, Hirendranath, Santanam
Swaminadhan, Ms. Prakruti Golechha, Ms. Abhilasha Shrawat,
Mrs. Aarthi Rajan, Amar Gupta, Divyam Agarwal, Daksh Ahluwalia,
Ms. Pallavi Kumar, Adhiraj Gupta, Pratibhanu Singh, Shikhar Maniar,
Ms. Raksha Aggarwal, Keshav Mohan, R.K. Awasthi, Prashant Kumar,
Piyush Vats, Ms. Ritu Arora, Santosh Kumar - I, Rajesh P., Karan
Rajpurohit, Krishna Dev Jagarlamudi, Vikram Hegde, Rahul Kumar, Advs.
for the appearing parties.
Respondent-in-person
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The Judgment of the Court was delivered by
K. M. JOSEPH, J.
1. The petitioners have approached this Court under Article 32 of
the Constitution of India. They call in question Sections 3, 4 and 10 of
the Insolvency and Bankruptcy Code (Amendment) Act 2020 (hereinafter
referred to as ‘the impugned amendments’, for short). Section 3 of the
impugned amendment, amends Section 7(1) of the Insolvency and
Bankruptcy Code, 2016 (hereinafter referred to as ‘the Code’, for short).
Section 4 of the impugned amendment, incorporates an additional
Explanation in Section 11 of the Code. Section 10 of the impugned
amendment inserts Section 32A in the Code.
2. Section 7(1) of the Code before the amendment read as follows:
“7. Initiation of corporate insolvency resolution process by financial
creditor:
(1) A financial creditor either by itself or jointly with other financial
creditors, or any other person on behalf of the financial creditor,
as may be notified by the Central Government, may file an
application for initiating corporate insolvency resolution process
against a corporate debtor before the Adjudicating Authority
when a default has occurred.”
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.
The amendment to the same by Section 3 of the impugned
amendment incorporates 3 provisos to Section
7(1), which reads as under:
“Provided that for the financial creditors, referred to in clauses
(a) and (b) of sub-section (6A) of section 21, an application for
initiating corporate insolvency resolution process against the
corporate debtor shall be filed jointly by not less than one hundred
of such creditors in the same class or not less than ten per cent.
of the total number of such creditors in the same class, whichever
is less:
Provided further that for financial creditors who are allottees under
a real estate project, an application for initiating corporate
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insolvency resolution process against the corporate debtor shall
be filed jointly by not less than one hundred of such allottees under
the same real estate project or not less than ten per cent. of the
total number of such allottees under the same real estate project,
whichever is less:
Provided also that where an application for initiating the corporate
insolvency resolution process against a corporate debtor has been
filed by a financial creditor referred to in the first and second
provisos and has not been admitted by the Adjudicating Authority
before the commencement of the Insolvency and Bankruptcy Code
(Amendment) Act, 2020, such application shall be modified to
comply with the requirements of the first or second proviso within
thirty days of the commencement of the said Act, failing which
the application shall be deemed to be withdrawn before its
admission.”
3. Section 11 before the amendment read as follows:
“11. Persons not entitled to make application. - The following
persons shall not be entitled to make an application to initiate
corporate insolvency resolution process under this Chapter,
namely:-
(a) a corporate debtor undergoing a corporate insolvency resolution
process; or
(b) a corporate debtor having completed corporate insolvency
resolution process twelve months preceding the date of making
of the application; or
(c) a corporate debtor or a financial creditor who has violated any
of the terms of
resolution plan which was approved twelve months
before the date of making of an application under this Chapter; or
(d) a corporate debtor in respect of whom a liquidation order has
been made. Explanation 1 [I]. - For the purposes of this section, a
corporate debtor includes a corporate applicant in respect of such
corporate debtor.”
The explanation which was inserted through the impugned
amendment reads as follows:
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“Explanation II.- For the purposes of this section, it is hereby
clarified that nothing in this section shall prevent a corporate debtor
referred to in clauses (a) to (d) from initiating corporate insolvency
resolution process against another corporate debtor.”
4. Section 32A inserted through the impugned amendment reads
as follows:
“32A. (1) Notwithstanding anything to the contrary contained in
this Code or any other law for the time being in force, the liability
of a corporate debtor for an offence committed prior to the
commencement of the corporate insolvency resolution process
shall cease, and the corporate debtor shall not be prosecuted for
such an offence from the date the resolution plan has been
approved by the Adjudicating Authority under section 31, if the
resolution plan results in the change in the management or control
of the corporate debtor to a person who was not—
(a) a promoter or in the management or control of the corporate
debtor or a related party of such a person; or
(b) a person with regard to whom the relevant investigating
authority has, on the basis of material in its possession, reason to
believe that he had abetted or conspired for the commission of
the offence, and has submitted or filed a report or a complaint to
the relevant statutory authority or Court:
Provided that if a prosecution had been instituted during the
corporate insolvency resolution process against such corporate
debtor, it shall stand discharged from the date
of approval of the
resolution plan subject to requirements of this sub-section having
been fulfilled:
Provided further that every person who was a “designated partner”
as defined in clause (j) of section 2 of the Limited Liability
Partnership Act, 2008, or an “officer who is in default”, as defined
in clause (60) of section 2 of the Companies Act, 2013, or was in
any manner incharge of, or responsible to the corporate debtor
for the conduct of its business or associated with the corporate
debtor in any manner and who was directly or indirectly involved
in the commission of such offence as per the report submitted or
complaint filed by the investigating authority, shall continue to be
liable to be prosecuted and punished for such an offence committed
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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[2021] 14 S.C.R.
by the corporate debtor notwithstanding that the corporate debtor’s
liability has ceased under this sub-section.
(2) No action shall be taken against the property of the corporate
debtor in relation to an offence committed prior to the
commencement of the corporate insolvency resolution process of
the corporate debtor, where such property is covered under a
resolution plan approved by the Adjudicating Authority under
section 31, which results in the change in control of the corporate
debtor to a person, or sale of liquidation assets under the provisions
of Chapter III of Part II of this Code to a person, who was not—
(i) a promoter or in the management or control of the corporate
debtor or a related party of such a person; or
(ii) a person with regard to whom the relevant investigating authority
has, on the basis of material in its possession reason to believe
that he had abetted or conspired for the commission of the offence,
and has submitted or filed a report or a complaint to the relevant
statutory authority or Court.
Explanation.—For the purposes of this sub-section, it is hereby
clarified that,—
(i)
an action against the property of the corporate debtor in
relation to an offence shall include the attachment, seizure,
retention or confiscation of such property under such law as
may be applicable to the corporate debtor;
(ii)
nothing in this sub-section shall be construed to bar an action
against the property of
any person, other than the corporate
debtor or a person who has acquired such property through
corporate insolvency resolution process or liquidation process
under this Code and fulfils the requirements specified in this
section, against whom such an action may be taken under
such law as may be applicable.
(3) Subject to the provisions contained in sub-sections (1) and
(2), and notwithstanding the immunity given in this section,
the corporate debtor and any person who may be required to
provide assistance under such law as may be applicable to
such corporate debtor or person, shall extend all assistance
and co-operation to any authority investigating an offence
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committed prior to the commencement of the corporate
insolvency resolution process.”
WHO ARE THE PETITIONERS?
5. More than the lion’s share of the petitioners are allottees under
real estate projects and hereinafter referred to as allotees. They have
trained the constitutional gun at the impugned provisos.
6. Under the second proviso, a new threshold has been declared
for an allottee to move an application under Section 7 for triggering the
insolvency resolution process under the Code. The threshold is the
requirement that there should be at least 100 allottees to support the
application or 10 per cent of the total allottees whichever is less. Moreover,
they should belong to the same project. Almost all (except in two petitions),
the petitioners also had under the erstwhile regime which permitted even
a single allottee to move an application under Section 7 filed petitions
singly or with less than the number required under the proviso and they
are visited with the provisions of the third proviso as per which such of
those applications under section 7 which had not been admitted would
stand withdrawn within 30 days, if the newly declared threshold of 100
allottees or 10 per cent of the allottee whichever is lower was not garnered
by the applicant/applicants.
7. In some of the petitions, the petitioners are money lenders, that
is, they have stepped in to provide finance for the real estate projects.
They are also visited with the requirement which is
imposed upon them
under the first impugned proviso which is on similar lines as those
comprised in the second proviso.
8. Then, there is, no doubt, Section 32A, which stands impugned
by the creditors and allottees.
THE CODE
9. The Code was enacted in the year 2016. It is one of the most
important economic measures contemplated by the State to prevent
insolvency, to provide last mile funding to revive ailing businesses,
maximise value of assets of the entrepreneurs, balance the interest of all
the stakeholders and even to alter the order of priority of payment of
Government dues. The Code is divided into five parts. The first part is
shortest portion. Part II deals with what we are concerned with in these
cases and it purports to deal with insolvency resolution and liquidation
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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for corporate persons.  ‘Corporate person’ has been defined in Section
3(7) as follows:
“3(7). “corporate person” means a company as defined in clause
(20) of section 2 of the Companies Act, 2013, a limited liability
partnership, as defined in clause (n) of sub-section (1) of section
2 of the Limited Liability Partnership Act, 2008, or any other person
incorporated with limited liability under any law for the time being
in force but shall not include any financial service provider.”
10. Section 3(8) defines ‘corporate debtor’ which provides that a
corporate debtor means a person who owes a debt to any person.
11. We may notice that Chapter II of Part II which consists of
Sections 6 to 32 deal with the corporate insolvency resolution process.
Chapter III deals with ordinary liquidation process in regard to corporate
person. Chapter IV of Part II consisting of four sections deal with fast-
track insolvency resolution process. Chapter V which consists of Section
59 only deals with voluntary liquidation of corporate person. Chapter VI
deals with miscellaneous aspects. Chapter VII Part II deals with Penalties.
12. Part III deals with insolvency resolution and bankruptcy code
for individuals and partnership firms. It may be noticed at once that
partnership firms with limited liability as defined in the Limited Liability
Partnership Act, 2008 fall within the definition of the word ‘Corporate
person’ and insolvency and
liquidation process in regard to the same is
found in Part II of the Code. It is in regard to Insolvency resolution and
bankruptcy for the other partnership firms which one has to look to the
provisions of Part III. Part III begins with Section 78 and ends with
Section 187. The further provisions relate to the regulation of insolvency
professional agencies and information utilities. They are all key
instrumentalities for the effective working of the Code. Equally, it may
be apposite to bear in mind Section 238A. It reads as follows:
“238A. Limitation - The provisions of the Limitation Act, 1963
(36 of 1963) shall, as far as may be, apply to the proceedings or
appeals before the Adjudicating Authority, the National Company
Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt
Recovery Appellate Tribunal, as the case may be.”
13. Shri Krishna Mohan Menon, learned counsel for the petitioners
(allottees) in some of the petitions has addressed the following submissions
before us:
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The impugned amendment clearly falls foul of the mandate
of Articles 14, 19 (1)(g), 21 and 300A of the Constitution. The
amendment by virtue of section 3 of the Amendment Act
introducing the second proviso in Section 7(1) of the Code makes
a hostile discrimination between financial creditors, the category,
to which the petitioners belong and the other financial creditors.
Secondly, it is contended that the amendment imposing a threshold
restriction is afflicted with the vice of palpable and hostile
discrimination qua operational creditors. The purported protection
sought to be accorded to the real estate developer, cannot form
the premise for inflicting violation of constitutionally protected
freedom under Article 19(1)(g) just as much as it also constitutes
an insupportable invasion of the grand mandate of equality. Next,
he would submit that there are inherent leakages in the impugned
provisions which would make it unworkable. Thereafter, learned
counsel would submit that the impugned amendment is also bad in
law for the reason that it is manifestly arbitrary. Yet another
argument addressed by Shri Krishna Mohan Menon, learned
counsel is that the amendment has the legally pernicious effect of
creating a class within a class, a result, which is frowned upon by
the law.
14. Learned counsel would expatiate and submit that under the
Code, the law provides for a period of 14 days for the Adjudicating
Authority to decide whether an application under Section 7
should be
admitted. Section 12 declares an inflexible time limit for the insolvency
resolution process to be terminated. The whole purport of the provisions
of the Code and the manner in which it is structured is geared to achieve
a laudable object. The Code aims at improving the ranking of India in the
matter of ease of doing business. It is an economic measure which is
intended to transform India into a country which would attract capital
and investment. The Code has indeed resulted in a transformation of
attitudes of the key players, in that it has come to be perceived as a law
not merely on paper but one with teeth to it. He would point out that this
Court in its decision in the Pioneer’s Case Pioneer Urban Land and
Infrastructure Ltd. and another v. Union of India and others1 has
elaborately dealt with the apprehension that allowing the home buyers
like the petitioners who finance the builder’s activities to invoke the CIRP
process will lead to misuse of the provisions and allayed the unfounded
1 (2019) 8 SCC 416
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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fears. Yet the legislature has ventured to place unjustifiable clogs on the
right of one category of financial creditors alone which is impermissible.
The spectre of a speculative investor running riot and playing havoc has
been adequately addressed by this Court. There is no worthwhile data
of misuse by home buyers. He points out the judgments passed by NCLAT
where the financial creditors, who are home buyers, approach the Tribunal
and the cases reflect gross and inordinate delay of nearly five years
justifying the approach made by the home buyers under the Code. In
other words, there were genuine cases where the debtor had become
insolvent and hence the home buyer had complete justification in knocking
at the doors of the competent Tribunal under the Code. He took us
through the reports of the Parliamentary Committee and complained
that no reasons are discernible to justify the amendments. Equally, he
commended for our acceptance the observations in the dissent notes
and contended that they fortify the submissions.
15. In regard to the comparison sought to be made, with similar
requirements in Sections 397, 398 read with 399 of the Companies Act,
1956 and Section 241 and 244 of the Companies Act, 2013, he would
submit that there are significant distinctions.
16. Firstly, he would submit that in the case of shareholders
approaching the Tribunal under the Companies Act, they would be armed
with the details regarding
shareholding which are always available having
regard to the scheme of the Companies Act. On the other hand, he
points that in regard to home buyers who have sunk their hard-earned
money in real estate projects there is no system under which they could
obtain data or information regarding the persons similarly circumstanced
and whose co-operation and support is necessary under the impugned
amendment to activise the Code.
17. Secondly, he would submit that having regard to the explanation
in Section 244 of the companies Act, 2013, it brings about clarity in
regard to the situation where there is a joint holding. The absence of any
such similar provision in Section 7 of the Code is emphasised in an attempt
at persuading the court to overturn the law. He would further point out
the practical difficulties in the working of the amended law. He submits
that the date of default of various home buyers may be different.
Therefore, to forge a common complaint impelling a group of home buyers
to come together is impracticable and not workable’. He would submit
that legislature cannot be permitted to take away through one hand what
it has given by the other.
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18. Learned Counsel would further contended that as far as the
third proviso is concerned while accepting the position that the 14 days
period for disposal of the matter under the Code has been understood to
be directory and not mandatory, at the same time, it cannot be the law
that a case should grace the docket endlessly and never witness an end
and the retrospectivity which it reflects clearly renders it arbitrary.
19. Shri Shikhil Suri, learned Counsel for the petitioner in Writ
Petition (Civil) No. 191 of 2020 would submit that the impugned
amendment is arbitrary being in the teeth of the principles laid down in
Pioneer (supra). The object of the law would stand defeated he contends.
The Ordinance would not only deprive the petitioner of her right under
Section 7 but it also violates Article 14 of the Constitution of India. The
threshold limit is unreasonable and arbitrary. It is excessive and irrational.
It is not in public interest. He also points out that there exists adequate
shield against a single allottee misusing the Code. The threshold is thrust
upon only on the home buyer and is not applicable across the board for
other financial creditors. It is discriminatory. There is no rationale. It
treats equals unequally and unequals as equals. There is no intelligible
differentia. The law does not permit classes among financial creditors.
There is breach of the guarantee of equal protection of law. The threshold
in Section 4, namely, default of
Rupees One crore is the one which
applies to all creditors. It is inexplicable as to how only in regard to home
buyers, a different threshold should be insisted upon. The remedy of the
home buyer is defeated. The Ordinance was brought in haste without
proper discussion and debate. The amendment takes away the vested
right of the home buyers. There is no intelligible differentia bearing a
nexus with the object and purpose of the Act. He also emphasised the
practical difficulties involved in arranging the necessary numerical strength
under the impugned provision.
20. Shri Piyush Singh, learned counsel for the petitioners would
submit that once the right is conferred to make an application, then it
cannot come conditioned with threshold limit as is provided in the impugned
provisos.  Secondly, he would point out that there is manifest arbitrariness.
That apart, he would also contend that there is hostile discrimination qua
other corporate debtor. The builder who is a corporate debtor, in other
words, is given a more favourable treatment than other corporate debtors
which is afflicted with the vice of hostile discrimination. He also
complained of both under and over inclusiveness in the impugned
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[K. M. JOSEPH, J.]
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provisions. Next, learned counsel submits that the very object is
discriminatory. Drawing our attention to both Chitra Sharma and others
v. Union of India and others2 and Pioneer (supra), he would highlight
that having regard to the background in which the rights of the home
buyer was recognised as being one of that of a financial creditor, the
amendment is clearly impermissible. He would also submit that having
regard to the stand taken by the Government in the case before this
Court, in particular, Pioneer (supra), the principles of promissory estoppel
will apply and prevent enactment of the impugned provisions. He would
expatiate and submit that the conditions which have been imposed render
the remedy illusory. He drew our attention to Order 1 Rule 8 of the
Code of Civil Procedure and also took us to the explanation therein. He
would submit that the proviso is not on similar lines as Order 1 Rule 8.
This is for the reason that under the procedure under Order 1 Rule 8, the
numerical stipulation in the impugned Provisos is not insisted upon. Once
persons having same interest institute a civil suit, after following the
procedure all persons having the same interest become involved and
what is more would be bound by the decision.  Section 12 of the Consumer
Protection Act which also captures and embodies the principle of Order
1 Rule 8 ensures the protection of class interest and also protect class
interest without
putting stiff barriers as threshold limits as done by the
impugned amendment. He pointed out that the real estate owners do not
take any loan from financial institutions. They raise capital exclusively
from the allottees virtually. In such circumstances, to put this threshold
limit is clearly impermissible. He drew our attention to the judgment of
the Court in Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P3.,
to buttress his submission regarding availability of principles of promissory
estoppel. There is manifest arbitrariness in the provisions. He complained
that the RERA has not been constituted in all the States. He also made
an attempt at pointing out the perception that the amendment is to confer
an unmerited advantage on the builder. This he purported to do by drawing
our attention to an article in a newspaper. He essentially projected this
argument as a thinly disguised argument of malice against the law giver.
He also sought to draw support from the judgment of this Court in
Nagpur Investment Trust and others v. Vithal Rao and others4. He
reiterated the principle of hostile discrimination. He drew our attention
2 (2018) 18 SCC 575
3 (1979) 2 SCC 409
4 (1973) 1 SCC 500
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to the definition of the word ‘allottee’ in RERA. It is here that he
complained of the provision being under inclusive and over inclusive.
The legislature, he points out should have waited and at best could have
acted if there is impeachable and empirical evidence warranting such a
drastic incursion into the vested right of the home buyer. He also highlights
that in law there can only be one default. A home buyer who before the
amendment could by himself set the law into motion, is now left at the
mercy of similarly circumstanced persons which itself is rendered
impossible by the absence of an information generating mechanism which
is accessible.  He would also point out that the dates of the agreements
of different home buyers would be different. Depending on the dates of
the agreements being different, it is incontrovertible, he points out that
the date of default would be different. He would pose the question as to
how in such circumstances the law could insist upon a home buyer
assembling together other homebuyers and that too one hundred in number
or one-tenth of the total number of allottees. Allottees are spread all
over the world. It is inconceivable as to how the provision can be worked
in a reasonable and fair manner.
21. Shri Rahul Rathore, learned Counsel for the petitioners in some
of the writ petition would apart adopting the contentions, contend that
insolvency has been predicated project wise. He would submit that under
the impugned
amendment, the allottees are to be culled out from among
a particular project. In other words, the requirement under the provision
is that the applicants must be 100 allottees or one-tenth of the allottees
of a particular real estate project. He would point out that a corporate
body may be having different projects. If that be so, there is no rationale
in insisting that the said corporate body has become insolvent, qua the
particular project in which the applicants are interested. Insolvency, in
other words, would be a financial malaise, which afflicts the corporate
body as a whole, qua all its projects. If the allottees can be drawn from
other projects undertaken by the company then maybe it may have
rendered the provisions more reasonable appears to be the argument of
the petitioner. But this is not so. The provisions are irrational. The home
buyer is a person who invests his life time savings. He is in a weak
position already. Instead of conferring protection on him, the homebuyer
is being saddled with more oppressive and burdensome conditions. There
is no platform for the exchange and availability of information with details
regarding the allottees. The Limitation Act applies as held by this Court.
He would also appear to rely on the theory of a single default. The
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[K. M. JOSEPH, J.]
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conditions are impossible to fulfil. The home buyer is being shut out at
the very threshold.
22. Shri Dinesh C. Pandey, learned Counsel would also contend
that Section 6 of the General Clauses Act would protect all the pending
applications.
23. Shri Dhruv Gupta, learned Counsel appearing in W.P. (C)
No.177 of 2020 complained against retrospectivity spelt out by the
impugned provisions. The right which was a vested right was substantive
in nature. The law could only be prospective. He draws our attention to
the judgment of this Court in B.K. Educational Services (P) Ltd. v.
Parag Gupta & Associates5. He also lays store by the principles laid
down by this Court in Swiss Ribbon Pvt. Ltd. & Ors. v. Union of India
& Ors.6  and also in The Pioneer (supra).
24. Ms. Purti Marwaha Gupta, learned counsel in W.P.(C) No.
75 of 2020 adopted the contentions of Shri Krishna Mohan Menon.
Learned counsel would make submissions qua section 32A which is yet
another provision which is challenged. She drew our attention to Section
2(u) and 20 of the Prevention of Money Laundering Act, 2002. She
would submit but for Section 32A, the properties which are acquired
could be attached but that is pre-empted by Section 32A. The civil
remedies open are taken away in regard to acts of crime. Section 14 of
the Act which deals with Moratorium is referred to in this regard.
25. Shri A.D.N. Rao, learned Counsel would submit that a
substantive right
cannot be taken away by a procedural requirement.
The home buyers have been conferred the substantive right to invoke
the code by moving an application under Section 7. This right cannot be
taken away by providing for a procedure and what is more which is
impossible to attain. He drew our attention to the decision of this Court
in Garikapati Veeraya v. N. Subbiah Choudhry7. He would submit
that the law as on the date of initiation should prevail and it cannot be
taken away by the amendment which is made subsequently. Apparently,
the learned counsel is making his submission qua the 3rd proviso inserted
in Section 7(1) of the Code.  He seeks to drawn support from judgment
of this court in Thirumalai Chemicals Limited v. Union of India and
5 (2019) 11 SCC 633
6 (2019) 4 SCC 17
7 AIR 1957 SC 540 / 1957 SCR 488
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others8. He also contends that a proviso cannot override the main
provision. In this regard, he relied upon the judgment of this court in
Delhi Metro Rail Corporation Ltd. v. Tarun Pal Singh and others9.
He would in fact point out with reference to facts that the orders were
reserved in the application under Section 7 in November, 2019. The
proviso came to be inserted on 28th December 2019. Resultantly, when
the order came to be pronounced regarding admission of the application
under Section 7, the authorities stood overtaken by the amendment. All
of this is for no fault of the litigant who at the time when the application
was moved was governed by a different regime which did not contain
the harsh and arbitrary provisions. He would also point out practical
difficulty in finding out other allottees.
26. Smt. Tasleem Ahmadi, learned Counsel would submit that an
amendment as impugned in this case has the effect of setting at nought
the directions and decision of this court. She would complain that an
amendment has been engrafted without removing the premise on which
Pioneer was decided. She drew our attention to the judgment of this
Court in State of Karnataka and others v. The Karnataka Pawn
Brokers Association and others10 (paragraphs-16, 20, 23 and 24).
27. Shri Aditya Parolia, learned Counsel would submit that while
the legislature has the freedom to experiment the power does not exist
beyond certain limits. It cannot create provisions which are
arbitrary.
Unequals are treated equally. The objections of the home buyers were
not discussed. The draft was not discussed. In this regard he points to
the dissent of Shri TK Rangarajan. There is no intelligible differentia to
distinguish the home buyers from the other creditors. The class action
under the Consumer Protection Act is denied under the code. Even a
decree holder under the aegis of RERA is denied relief. He also points
out the lack of information required to properly work the statute.  Allottees
are spread across the globe. The real estate investor siphons off major
amounts. The default is in rem.
28. Shri Pallav Mongia, learned Counsel would point out that home
buyers would continue to be financial creditors. The proviso cannot take
away the said right. Unequals are being made equal. Information regarding
allottees is not available. He refers to the report of the Parliamentary
8 (2011) 6 SCC 739
9 (2018) 14 SCC 161
10 (2018) 6 SCC 363
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Committee. He also complains about the absence of undisputed
documents. As regards information relating to allottees he would make
the point that the Code itself does not provide for a mechanism for a
home buyer to glean information. He is being called upon to collect
information with reference to another enactment namely RERA. This
should be treated as fatal to the constitutionality of the impugned
amendments. He would further submit that the provision is bad for it
being vague. The argument of vagueness is addressed with reference to
the following:
1. The date of default.
2. The court fee payable when there is more than one applicant.
3. The threshold amount of default stipulated under section 4
namely Rs. One crore at present.
4. He also would complain against the retrospectivity involved.
29. Shri Rana Mukherjee, learned Senior Counsel appears in writ
petition where first proviso is called in question, he represents the cause
of money lenders. He drew our attention to paragraph-43 of the Pioneer
(supra). He pointed out that the requirement that the applicants must be
of the same class and there must be 100 of them rendered the provisions
unachievable. He drew our attention to Sections 244 and 245 of the
Companies Act, 2013. He pointed out that the threshold under the said
Act could be relaxed whereas under the code the law giver has inflicted
the requirement as an inflexible mandate. He also complained of there
being no information qua the requirement of 10 percent. He drew our
attention to Rule 8A. He would submit that actually Parliament had in
mind the home buyer. The insertion of the 1st proviso betrays a mistaken
roping in of the category of creditors represented by his clients. He
sought to draw considerable support from the judgment of this Court in
Vasant Ganpat Padvave (D) by LRs & Ors. v. Anant Mahadev Sawant
(D) Through LRs. & Ors.11 of his compilation. He commended for our
acceptance the principle that the law must be considered having regard
to consequences it produces. He requested that the court may bear in
mind the requirement that the law in its application must produce fair
results.
11 2019 (12) SCALE 572
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30. Per contra, the stand of the Union, as projected through Smt.
Madhavi Divan, learned ASG, and through the Written Submissions
submitted, can be summed-up as follows:
The impugned amendments are perfectly valid. The
amendments are part of an economic measure. There was a
Report of an Expert Committee. The Expert Committee
recommended imposing a threshold amendment in respect of
certain classes of financial creditors. It is modelled on the
Companies Act. There are other statutory examples of such
threshold requirements. The impugned provisions conform to the
principle of reasonable classification. Intelligible differentia
distinguishes the allottees and debenture holders and security
holders covered by the provisos from the other financial creditors.
The amendments were necessitated from experience. There is a
rational nexus between the differentia and the objects. The
amendment, as far as the impugned provisos are concerned, are
essentially an extension of Sections 21(6A) and Section 25A of
the Code, under which, the debenture holders and security holders,
on the one hand, and allottees, on the other, are treated differently.
The provisions are not manifestly arbitrary, they are, indeed,
workable. Having regard to the Explanation in Section 7(1), the
default qua any financial creditor, even if, he is not an applicant,
can be made use of by other allottees or debenture holders and
security holders.
31. It is pointed out further that the constitutional
validity of Sections
21(6A) and 25A of the Code, was upheld by this Court in Pioneer (supra).
In this regard, attention is also drawn to the observations of this Court in
paragraph-43 of Pioneer (supra). On the strength of the said
observations, it is contended that this court has recognized that allottees/
home buyers are not a homogenous group. This Court also recognized, it
is pointed out, that the deposit-holders and security-holders form a sub-
class/class of financial creditors, who are treated a little differently, on
account of the sheer number of such creditors coupled with the
heterogeneity within the group that may cause difficulties in the decision-
making process. The provisions were introduced for ironing out the
logistical/procedural complications that may arise on account of the
peculiar nature of these groups. The provisions impugned in the present
litigation merely supplement Sections 21(6A) and Section 25A of the
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Code. The rationale in the said judgment should be applied in this case
also. It is further pointed out that the challenge in Pioneer (supra) was
mounted by the developers and the home buyers accepted the provisions,
as being necessary to iron out the creases. The ASG drew support from
judgments of this Court which are as follows:
i.
Ameerunnissa Begum and others v. Mahboob Begum and
others12;
ii.
State of Jammu and Kashmir v. Triloki Nath Khosa and
others13;
iii.
Murthy Match Works and others v. Assistant Collector
of Central Excise and another14;
iv.
Ajoy Kumar Banerjee and others v. Union of India and
others15;
v.
Ashutosh Gupta v. State of Rajasthan and others16;
32. It is contended that there is a rational nexus with the objects
of the Code insofar as the impugned provisos are concerned and the
classification is permissible under Article 14 of the Constitution. She
drew our attention to the Statements of Objects and Reasons appended
to the amendment Bill to the Code, 2019, which introduced sub-Section
3A in Section 25A. It reads as follows:
“[…]
2. The Preamble to the Code lays down the objects of the
Code to include “the insolvency resolution” in a time bound manner
for maximisation of value of assets in order to balance the interests
of all the stakeholders. Concerns have been raised that in some
cases extensive litigation is causing undue delays, which may
hamper the value maximisation. There is a need to
ensure that all
creditors are treated fairly, without unduly burdening the
Adjudicating Authority whose role is to ensure that the resolution
plan complies with the provisions of the Code. Various stakeholders
have suggested that if the creditors were treated on an equal
12 (1953) SCR 404
13 (1974) 1 SCC 19
14 (1974) 4 SCC 428
15 (1984) 3 SCC 127
16 (2002) 4 SCC 34
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footing, when they have different preinsolvency entitlements, it
would adversely impact the cost and availability of credit. Further,
views have also been obtained so as to bring clarity on the voting
pattern of financial creditors represented by the authorised
representative.
[…]
(d) to insert sub-section (3A) in section 25A of the Code to provide
that an authorised representative under sub-section (6A) of section
21 will cast the vote for all 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, in order to facilitate decision making in
the committee of creditors, especially when financial creditors
are large and heterogeneous group;”
33. Thus, the Statement of Objects and Reasons recognizes the
heterogeneity within the class and the need to streamline, smoothen and
facilitate the process so as to avoid unnecessary delay. There is also a
concern about extensive litigation causing delays and hampering the
maximization of value, it is pointed out. Multiple applications by members
of this large class of financial creditors, in such a class, would also add
to the burden of the Adjudicating Authority, choke-up its docket and
delay the process. This would be counterproductive to the object of the
Code which seeks to ensure time-bound Resolution Process for the
maximization of total value of assets. Reference is made
to the Report
of the Insolvency Law Committee, dated February, 2020, which
recommended the insertion of a minimum number of financial creditors
in a class. It reads as follows:
“ii. Application for Initiation of CIRP by Class of Creditors- As
CIRP can be initiated by a single financial creditor, such as a
homebuyer or a deposit holder, that belongs to a certain class of
creditors following a minor dispute, it might exert undue pressure
on the corporate debtor and might jeopardize the interests of the
other creditors in the class who are not in favor of such initiation.
It is being recommended that there should be a requirement for a
minimum threshold number of certain financial creditors in a class
for initiation of the CIRP. So, an amendment to section 7(1) to
provide that for a class of creditors falling within clause (a) or (b)
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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of Section 21(6A), the CIRP may only be initiated by at least a
hundred such creditors or 10 percent of the total number of such
creditors in a class.
4. APPLICATION FOR INITIATION OF CIRP BY
CLASSES OF CREDITORS
4.1. Section 7 of the Code allows a financial creditor to initiate a
CIRP against a corporate debtor upon the occurrence of default,
either by itself, or jointly with other financial creditors.
4.2. It was brought to the Committee that for classes of financial
creditors referred to in sub-clauses (a) and (b) of Section 21(6A)
of the Code - such as deposit holders, bondholders and homebuyers
- there was a concern that the CIRP can be initiated by only one
or few such financial creditors following minor disputes. This may
exert undue pressure on the corporate debtor, and has the potential
to jeopardise the interests of the other creditors in the class who
are not in favour of the initiation of CIRP. This may also impose
additional burden upon the Adjudicating Authority to hear
objections to heavily disputed applications. The Committee noted
that this may be antithetical to the value of a time-bound resolution
process, as the already over-burdened Adjudicating Authorities
are unable to list and admit all such cases filed before them.
4.3. The Committee discussed that classes of creditors such as
homebuyers and deposit holders have every right as financial
creditors to initiate CIRP against a corporate debtor
that has
defaulted in the repayment of its dues. However, it was
acknowledged that initiation of CIRP by classes of similarly
situated creditors should be done in a manner that represents their
collective interests. It was felt that a CIRP should be initiated
only where there is enough number of such creditors in a class
forming a critical mass that indicates that there is in fact largescale
agreement that the issues against a corporate entity need to be
resolved by way of a CIRP under the Code. This may well be a
more streamlined way of allowing a well-defined class of creditors
to agree upon initiating what is a collective process of resolution
under the Code.
4.4. In this regard, and specific to the interests of homebuyers,
the Committee also noted that in cases where a homebuyer cannot
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file an application for initiation of CIRP for having failed to reach
the aforesaid critical mass, she would still have access to alternative
fora under the RERA and under consumer protection laws. For
instance, as recognised by the Supreme Court in the case of
Pioneer Urban Land and Infrastructure Limited and Ors. v Union
of India, the remedies under the Code and under the RERA
operate in completely different spheres. The Code deals with
proceedings in rem, under which homebuyers may want the
corporate debtor’s management to be removed and replaced so
that the corporate debtor can be rehabilitated. On the other hand,
the RERA protects the interests of the individual investor in real
estate projects by ensuring that homebuyers are not left in the
lurch, and get either compensation or delivery of their homes.
Thus, if there is a failure to reach a critical mass for initiation of
CIRP, it may indicate that in such cases another remedy may be
more suitable.
4.5. Accordingly, it was agreed that there should be a requirement
to have the support of a threshold number of financial creditors in
a class for initiation of CIRP.
4.6. In this regard, the Committee considered if a cue may be
taken from the requirements for filing of class actions suits as
provided under the Companies Act, 2013. Class action suits may
inter alia be filed by a hundred members or depositors or by at
least 5 per cent of the total number of members or depositors of
the company.14 Similar
to this requirement, and keeping with the
extant situation of classes of creditors under the Code, it was
suggested that Section 7 of the Code could be amended in respect
of such classes of creditors to allow initiation by a collective number
of at least a hundred such creditors or at least ten percent of the
total number of such creditors forming part of the same class.
Thus, the Committee agreed that Section 7(1) of the Code may
be amended to provide that for classes of creditors falling within
clauses (a) and (b) of Section 21(6A), the CIRP may only be
initiated by at least a hundred such creditors, or ten percent of the
total number of such creditors in a class.
4.7. The Committee also noted that the collective number of
homebuyers that form the threshold amount for initiation of a CIRP,
should belong to the same real estate project. This would allow
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homebuyers that have commonality of interests, i.e. allottees under
the same real estate project, to come together to take action for
initiating CIRP against a real estate developer. Thus, in such cases,
the CIRP may be initiated by at least a hundred such allottees or
ten percent of the total number of such allottees belonging to the
same real estate project.
4.8. However, to ensure that there is no prejudice to the interests
of any such creditor in a class whose application has already been
filed but not admitted by the Adjudicating Authority, the Committee
agreed that a certain grace period may be provided within which
such creditor in a class may modify and file its application in
accordance with the above-stated threshold requirements.
However, if the creditor is unable to fulfil the threshold requirements
to file such modified application within the grace period provided,
the application filed by such creditor would be deemed withdrawn.”
(Emphasis supplied)
34. In the Statement of Objects and Reasons to the Second
Amendment Bill, 2019, promulgated as an Ordinance, and thereafter, as
the impugned Act, it was, inter alia, stated that it was necessitated to
prevent potential abuse of the Code by certain classes of financial
creditors, inter alia. This was necessary to prevent the derailing of the
time-bound CIRP, which was designed to secure the maximization of
value of the assets. The provision only supplements
the protection under
Sections 65 and 75 of the Code. The intelligible differentia is projected
as follows:
i.
Numerosity;
ii. Heterogeneity;
iii. Lack of special expertise and individuality in decision making.
It is sought to be contrasted with institutional decision-making
which is associated with banks and financial institutions;
iv. Typicality in determination of default. In other words, in the
case of banks and financial institutions, records of public utilities,
would show a default. In the case of allottees, records must be
accessed through data publicly available under RERA;
35. The object and rationale of the impugned provisions are stated
to be as follows:
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i.
Preventing multiple individual applications, which has the effect
of not only crowding the docket of the Adjudicating Authority
and further holding up a process in which time is of the
essence;
ii.
Safeguarding the interest of hundreds or even thousands of
allottees who may oppose the application of a single home-
buyer;
iii. Balancing the interest of members of the same sub-Class as
also other financial creditors and other operational creditors.
The availability of remedies to the members of the sub-class
under RERA, in the case of allottees;
iv. Lastly, the process becomes smoother and cost-effective.
Unnecessary financial bleeding of the corporate debtor who
is already in difficulty, is avoided.
36. Time is of the essence of the Code. Proceedings are in the
nature of proceedings in rem. It impacts the rights of creditors, including
similarly placed creditors. It is therefore, reasonable and logical to place
the threshold. The minimum threshold is a minimum requirement. The
threshold is kept low and reasonable. This Court has upheld
subclassification provided there is a rational basis. She drew support
from the following decisions;
i.
Indra Sawhney and others v. Union of India and others17;
ii.
Lord Krishna Sugar Mills Limited and another v. Union
of India and another18;
iii. State of Kerala and another v. N.M. Thomas and others19;
iv. State of West Bengal and another v. Rash Behari Sarkar
and another20;
v.
State of Kerala v. Aravind Ramakant
Modawdakar and
others21.
17 1992 Supp.(3) SCC 217
18 (1960) 1 SCR 39
19 (1976) 2 SCC 310
20 (1993) 1 SCC 479
21 (1999) 7 SCC 400
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
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37. She sought to distinguish the judgment of this Court in Sansar
Chand Atri v. State of Punjab and another22, which was relied on by
the petitioners on the basis that this Court in the said case, only frowned
upon creating a class within a class without rational basis. In this case,
there was a rational basis for creating a sub-class. Differential treatment
is also contemplated under UNCITRAL Legislative Guide and the
Guidelines.
38. There is no basis in the contention that the amendments go
against the law laid down in Pioneer (supra). The question involved in
the said case was not whether there can be a different treatment to the
real estate allottees for the purpose of initiating CIRP. Secondly, it is
pointed out that the Legislature is free to make laws to deal with problems
that manifest with experience. The numerical threshold was felt necessary
with experience and recommendations of an Expert Committee. There
has been a manifold increase of claim petitions filed by single or handful
of allottees resulting in an already overburdened Adjudicating Authorities
being flooded with such petitions. The amendment is consistent with the
Pioneer (supra) judgment. The uniqueness of the allottees as a class of
financial creditors, has been recognized in Pioneer (supra). The fact
that they constituted a distinct and separate class of financial creditors
meriting distinct treatment, has been approved in Pioneer (supra).
The
minimum threshold requirement is a procedural requirement. There is
no deviation from Pioneer (supra) in a manner which is irreconcilable
with it. The legislation, being an economic measure, free play in the
joints, must be accorded to the Legislature. The impugned amendment
is reasonable, minimal and proportionate. The data gathered by the
respondent discloses that between June, 2016 and 5th June, 2018, there
were 253 cases filed by allottees in the N.C.L.T.. However, between 6th
June, 2018 and 28th December, 2019, as many as 2201 cases were filed
by the allottees. Thereafter, pursuant to the Ordinance between
December 29th, 2019 and August 26th, 2020, there is a sharp fall, as,
nearly in eight months, only 130 cases were filed. It is pointed out that
the argument, based on estoppel and malice against the Legislature, is
untenable. There can be no estoppel against the Legislature and the
decision of this Court in Union of India and others v. Godfrey Philips
India Ltd.23, is relied on. The concept of transferred malice is alien in
the field of legislation. In this regard, reference is placed on decisions of
22 (2002) 4 SCC 154
23 (1985) 4 SCC 369
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this Court in K. Nagaraj and others v. State of A.P. and another24
and State of Himachal Pradesh v. Narain Singh25.
39. The right to file an application under Section 7 is a statutory
right and it can be conditioned. Reliance is placed on judgment of this
Court in Gujarat Agro Industries Co. Ltd. v. Municipal Corporation
of the City of Ahmedabad and others26. There is no inherent or absolute
right to file an application under Section 7 of the Code. The Legislature
is well within its power to impose conditions for the exercise of such
statutory rights. It is further contended that the third proviso inserted in
Section 7(1) does not affect any vested right of the creditors who have
already filed applications for initiating CIRP. A vested right has been the
subject matter of several decisions. In this regard reliance is placed on
the following judgments:
i.
Howrah Municipal Corporation and others v. Ganges
Rope Co. Ltd. and others27;
ii.
Arcelormittal India Private Limited v. Satish Kumar Gupta
and others28;
iii.
Swiss Ribbons Private Limited and another v. Union of
India and others29;
iv.
Karnail Kaur and others v. State of Punjab and others30;
v.
Committee of Creditors of Essar Steel India Limited
Through Authorised Signatory v. Satish Kumar Gupta and
Others31.
40. Mere right to take advantage of a statute is not a vested right.
In this regard, the following case law is relied upon:
i.
Director of Public Works and another v. Ho Po Sang
and Others32;
24
(1985) 1 SCC 523
25 (2009) 13 SCC 165
26 (1999) 4 SCC 468
27 (2004) 1 SCC 663
28 (2019) 2 SCC 1
29 (2019) 4 SCC 17
30 (2015) 3 SCC 206
31 (2019) SCCONLINE SC 1478
32 [1961]3 WLR 39
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
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ii.
M.S. Shivananda v. Karnataka State Road Transport
Corporation and others33;
iii.
Lalji Raja and Sons v. Hansraj Nathuram34;
iv.
Kanaya Ram and others v. Rajender Kumar and others35;
41. The third proviso is enacted to protect the collective interests
of others in a class of creditors. Before admission of the application for
insolvency, no vested right accrues in favour of the allottee. The
amendment, therefore, cannot be said to have retrospective application
in a manner that impairs vested rights. Prior to admission, there is no
vested right. Insistence on compliance with the new provisos cannot be
regarded as having retrospective operation taking away vested rights. It
is done to avoid needless multiplicity and to ensure that no single allottee
would be able to achieve admission and its consequences, without having
a threshold of his compatriots on board.
42. Placing reliance on judgment of this Court, in Garikapati
Veeraya(supra), it is contended that even a vested right can be taken
away by the Legislature, if a subsequent enactment so expressly provides
or if it so by necessary implication. A minimum threshold requirement is
a common feature of class action litigation. There are several legislations
which provide for a minimum threshold in order to initiate class action.
Section 245 of the Companies Act, 2013 and 241 of the said Act are
relied upon. Sections 397 and 398 of the Companies Act, 1956, read
with
Section 399, contemplated a minimum threshold requirement for
seeking relief under Sections 397 and 398. Reference is placed on the
Bhabha Committee Report (Company Law Committee) in 1952. So also,
is support, sought to be drawn from the judgment of this Court in J.P.
Srivastava & Sons (P) Ltd. and others v. Gwalior Sugar Co. Ltd.
and others36. Under the Consumer Protection Act, this Court, rendered
the judgment in Anjum Hussain and others v. Intellicity Business Park
Private Limited and others37. A minimum threshold adds, authenticity
and weightage to the claim in a class action, proving it to be a common
grievance and not a mere obstruction in the work of the opposite party.
Reference is made to Rule 23 of Federal Rules of Civil Procedure in the
33 (1980) 1 SCC 149
34 (1971) 1 SCC 721
35 (1985) 1 SCC 436
36 (2005) 1 SCC 172
37 (2019) 6 SCC 519
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United States, which provide for class action suits. The said Rules
contemplate numerosity, commonality, typicality and adequacy of
representation. It is pointed out that joint filing was not only not alien to
Section 7 but it was interwoven into its very DNA. Even as originally
enacted, Section 7 contemplated joint filing by financial creditors.
Uniqueness of the Code lies in the fact that the financial creditors may
file an application based on a default that occurred in respect of the
third-party financial creditor, who may choose not to file an application
itself. At the triggering stage, an application under Section 7 partakes
the character of an application in rem proceeding rather than in personam
one. The impugned amendment merely extends the same rationale.
43. It is further pointed out that Debenture Trustees are defined
in Section 2(bb)of the Securities and Exchange Board of India Debenture
Trustees Regulations, 1993, as a Trustee of a trust deed for securing any
issue of debentures of a body corporate. Debenture is a long-term bond
issued by a company or an unsecured loan that a company issues without
a pledge of assets, as for example, interest bearing bond. Debenture
Trustees are registered under Chapter 2 of the said Regulations. The
Regulations provide for responsibilities and duties of Debenture Trustees.
In the case of a debenture-holder and other security-holder, there is a
Debenture Trustee to protect their interest from the inception
under SEBI.
44. As far as absence of information, so far as debenture holders
are concerned, necessary information regarding them is available in the
public domain, under Section 88(1)(b) and Section 88(1)(c) of the
Companies Act, 2013, which obliges every company to maintain a register
of its debenture holders and security holders. A penalty for non-
compliance is contemplated under Section 88(5). Section 95 of the
Companies Act, 2013 provides that registers, required to be maintained
by the Company under Section 88, shall be kept in the registered office.
Without payment of fees, the register is open to inspection by any member,
debenture holder or other security holder. Extracts and copies of such
registered can be obtained. Reference is also made to Rule 4 of the
Companies (Management and Administration) Rules, 2014, which
contemplates a separate register in Form - FMG-II for debenture holders.
It contains all details of the debenture holder, including the e-mail id,
address, etc.. Thus, there is a reservoir of information available for
complying with the requirement under the first proviso.
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
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45. As regards the allottees are concerned, the submission, is as
follows:
Reference is made to Section 19 of RERA. Thereunder,
Section 19(9) obliges every allottee of a real estate project to
participate towards the Association of Allottees. Section 11 (4)(e)
of RERA also obliges the Promoter to enable the formation of
such an Association. RERA compels the constitution of such an
Association, prior to the allotment. This is for the reason that an
Association plays an important role during the development of the
project. It is pointed out that under Section 8 of RERA, upon
lapse of or revocation of the registration, the Authority is obliged
to take such action, as it may deem fit, including the carrying out
of the remaining development works. The Association of allottees
have been given the right of first refusal for carrying out the
remaining development works. Section 11(4) contemplates the
obligations to be discharged by the Promoter towards the
Association. Reference is also made to Section 4(2)(c) of RERA.
Under Section 17 of the RERA, the Promoter is to execute a
registered conveyance in regard to the undivided proportionate
title in the common areas to the Association of the allottees.
Physical possession of the common areas is to be handed over to
the Association of the Allottees. Under Section 31 of RERA, the
Association can file complaint with the Authority. Apart from this,
it is also pointed out that
under Section 11(1)(b), the Promoter is
bound to create a webpage on the website of the RERA Authority
and enter thereon the quarterly up-to-date list of the number and
the types of the plots/apartments as may be booked.
46. Shri Sajan Poovayya, learned senior Counsel who appears on
behalf of respondent no. 4 in Writ Petition No. 191 of 2020, which is a
builder, also supported the Union. The second proviso, he contends is a
logical and legitimate method to strike a fair balance between all
stakeholders. It makes the Code workable. The object of the Amendment
Act is to prevent the use of the Code for an extraneous purpose and not
to shield and protect an errant real estate developer. He has referred to
the facts pertaining to his client by way of an example of the misuse
which has happened under the earlier regime.
He drew support from paragraph-41 of the judgment in Pioneer
(supra). Second proviso is an independent provision to made the Code
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workable. He drew our attention to paragraph-43 of this court in 1985 1
SCC 591. As regards the information, he also pointed out Section 11 of
RERA, pointing to the information which is available in public domain.
Illustratively, he drew our attention to the Haryana Real Estate Regulatory
Authority, (Gurugram, Quarterly Progress Report Regulations), 2018,
under which the format provides various details which include the names
of the allottees and the date of booking, inter alia. He also points out
that there is no unfair discrimination.
CHALLENGE 
TO 
PLENARY 
LEGISLATION;
GROUNDS
47. The grounds on which plenary law can be challenged are well
established. In the first two decades decisions of this Court unerringly
point to three grounds which render legislation vulnerable. A law can be
successfully challenged if contrary to the division of powers, either the
Parliament or the State Legislature usurps power that does not fall within
its domain thus, rendering it incompetent to make such law. Secondly, a
law made contravening Fundamental Rights guaranteed under Part III
of the Constitution of India would be visited with unconstitutionality and
declared void to the extent of its contravention. Needless to say, a law
within the meaning of Article 19 of the Constitution would remain valid
qua a non-citizen (see in this regard The State of Gujarat and others v.
Shri Ambica Mills Ltd., Ahmedabad and Others38). Thirdly, apart from
Fundamental Rights, the
supremacy of the Constitution vis-a-vis the
ordinary legislation, even when the law is plenary legislation, is preserved
with a view that legislation must be in conformity with the other provisions
of the Constitution.
48. While on breaches of the Fundamental Right, furnishing a
plank of attack against plenary law, it is necessary to notice a challenge
to law under Article 14, was essentially confined to the law, being class
legislation.  In other words, a law, if it manifested reasonable classification
for treating different persons or things differently, the law would pass
muster.  Interestingly, even while the theory of reasonable classification
had come to be proclaimed in the first year of the Republic, and what is
more followed in State of West-Bengal v. Anwar Ali39, the following
doubts were expressed by Justice Vivian Bose:
38 (1974) 4 SCC 656
39 AIR 1952 SC 75
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“82. I can conceive of cases where there is the utmost good faith
and where the classification is scientific and rational and yet which
would offend this law. Let us take an imaginary cases in which a
State legislature considers that all accused persons whose skull
measurements are below a certain standard, or who cannot pass
a given series of intelligence tests, shall be tried summarily
whatever the offence on the ground that the less complicated the
trial the fairer it is to their sub-standard of intelligence. Here is
classification. It is scientific and systematic. The intention and
motive are good. There is no question of favouritism, and yet I
can hardly believe that such a law would be allowed to stand. But
what would be the true basis of the decision? Surely simply this
that the judges would not consider that fair and proper. However
much the real ground of decision may be hidden behind a screen
of words like ‘reasonable’, ‘substantial’, ‘rational’ and ‘arbitrary’
the fact would remain that judges are substituting their own
judgment of what is right and proper and reasonable and just for
that of the legislature; and up to a point that, I think, is inevitable
when a judge is called upon to crystallise a vague generality like
article 14 into a concrete concept. Even in England, where
Parliament is supreme, that is inevitable, for, as Dicey tells us in
his Law of the Constitution:
“Parliament is the supreme
legislator, but from, the moment
Parliament has uttered its will as law-giver, that will becomes
subject to the interpretation put upon it by the judges of the land,
and the judges, who are influenced by the feelings of magistrates
no less than by the general spirit of the common law, are disposed
to construe statutory exceptions to common law principles in a
mode which would not commend itself either to a body of officials,
or the Houses of Parliament, if the Houses were called upon to
interpret their own enactments.”
But the following caveat by the learned Judge is worth noticing:
“83. This, however, does not mean that judges are to
determine what is for the good of the people and substitute their
individual and personal opinions for that of the government of the
day, or that they may usurp the functions of the legislature. That
is not their province and though there must always be a narrow
margin within which judges, who are human, will always be
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influenced by subjective factors, their training and their tradition
makes the main body of their decisions speak with the same voice
and reach impersonal results whatever their personal predilections
or their individual backgrounds. It is the function of the legislature
alone, headed by the government of the day, to determine what is,
and what is not, good and proper for the people of the land and
they must be given the widest latitude to exercise their functions
within the ambit of their powers, else all progress us barred. But,
because of the Constitution, there are limits beyond which they
cannot go and even though it falls to the lot of judges to determine
where those limits, lie, the basis of their decision cannot be whether
the Court thinks the law is for the benefit of the people of not.
Cases of this type must be decided solely on the basis whether
the Constitution forbids it.”
(Emphasis supplied)
49. The seed of this idea had a muted growth. It was in the decision
of this Court in E.P. Royappa v. State of Tamil Nadu and Another40
that this Court laid bare a new dimension in the majestic provisions of
Article 14. This Court took the view that arbitrariness and fairness are
sworn enemies. The guarantee of Article 14 is not confined in other
words to it being a prohibition against equals being discriminated against
or unequals being treated alike. State action must be fair and not arbitrary
if it is to be pass muster in a court of law. It is
essentially following the
dicta laid down as aforesaid that this Court in the case of Shayara
Bano v. Union of India41, wherein one of us (Justice Rohinton F.
Nariman), speaking for the majority, held as follows:
“101. It will be noticed that a Constitution Bench of this Court
in Indian Express Newspapers (Bombay) (P) Ltd. v. Union of
India [Indian Express Newspapers (Bombay) (P) Ltd. v. Union
of India, (1985) 1 SCC 641 : 1985 SCC (Tax) 121] stated that it
was settled law that subordinate legislation can be challenged on
any of the grounds available for challenge against plenary
legislation. This being the case, there is no rational distinction
between the two types of legislation when it comes to this ground
of challenge under Article 14. The test of manifest arbitrariness,
therefore, as laid down in the aforesaid judgments would apply to
40 (1974) 4 SCC 3
41 (2017) 9 SCC 1
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invalidate legislation as well as subordinate legislation under Article
14. Manifest arbitrariness, therefore, must be something done by
the legislature capriciously, irrationally and/or without adequate
determining principle. Also, when something is done which is
excessive and disproportionate, such legislation would be manifestly
arbitrary. We are, therefore, of the view that arbitrariness in the
sense of manifest arbitrariness as pointed out by us above would
apply to negate legislation as well under Article 14.”
(Emphasis supplied)
 50. This view, namely, that be it a plenary law if it is found to be
manifestly arbitrary it become vulnerable has been followed in the
following decisions, among other judgments:
(1) Navtej Singh Johar and Others v. Union of India and
Others42;
(2) Joseph Shine v. Union of India43;
(3) Justice K.S. Puttuswamy and Others v. Union of India
and Others44.
(4) Hindustan Construction Company Ltd. and Others v. Union
of India and Others45.
51. Yet another ground recognised by this Court is that a law, be it
the offspring of a Legislature, it falls foul of Article 14 if it is found to be
vague – (see in this regard Shreya Singhal v. Union of India46). It
must be elaborated and we must remember that the case involved
overturning Section 66A of the Information Technology Act which
purported to create a criminal offence, the ingredients of which were
found to be vague.
52. While, on the basis,
furnished under law, for impugning the
plenary legislation, we may notice two grounds, which have been urged
before us by some of the petitioners. It has been urged that the law was
created by way of pandering to the real estate lobby and succumbing to
their pressure or by way of placating their vested interests. Such an
42 (2018) 10 SCC 1
43 (2019) 3 SCC 39
44 (2017) 10 SCC 1
45 AIR 2020 SC 122
46 (2015) 5 SCC 1
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argument is nothing but a thinly disguised attempt at questioning the law
of the Legislature based on malice. A law is made by a body of elected
representatives of the people. When they act in their legislative capacity,
what is being rolled out is ordinary law. Should the same legislators sit to
amend the Constitution, they would be acting as members of the
Constituent Assembly. Whether it is ordinary legislation or an amendment
to the Constitution, the activity is one of making the law.  While malice
may furnish a ground in an appropriate case to veto administrative action
it is trite that malice does not furnish a ground to attack a plenary law
[See in this regard K. Nagaraj and others v. State of Andhra Pradesh
and another47 and State of Himachal Pradesh v. Narain Singh48].
53. Yet another ground which has been urged in these cases is
that when this Court decided Pioneer (supra) the Union of India defended
the amendment to the Code which included the insertion of the explanation
to Section 5(8)(f) of the Code. It was this explanation which made it
clear that home buyers would be financial creditors. All grounds urged
by the financial creditors were fiercely countered by the very same
Union of India by contending that the home buyers are financial creditors
and what is more, there existed sufficient safeguards against abuse of
power by the individual home buyers. What is contended before us by
some of the petitioners is that the supreme legislature is
in such
circumstances estopped by the principle of promissory estoppel from
enacting the impugned enactment.
54. A supreme legislature cannot be cribbed, cabined or confined
by the doctrine of promissory estoppel or estoppel. It acts as a sovereign
body.  The theory of promissory estoppel, on the one hand, has witnessed
an incredible trajectory of growth but it is incontestable that it serves as
an effective deterrent to prevent injustice from a Government or its
agencies which seek to resile from a representation made by them, without
just cause [See in this regard Union of India and others v. Godfrey
Philips India Ltd.49 – Paragraph-13].
47 (1985) 1 SCC 523
48 (2009) 13 SCC 165
49 (1985) 4 SCC 369
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UNRAVELLING THE WORKING OF THE CODE AS
REGARDS CORPORATE DEBTOR
55. The Code was passed by Parliament in the year 2016 however,
under Section 1(3) provisions were to come into force on such day as
the Central Government was to appoint. The provisions of the Code
stand enforced from 2017.
56. Part II of the code applies to matters relating to Insolvency
and Liquidation of Corporate Debtors where the minimum amount of
default is Rupees One crore as it stands [Section 4]. Under Section 6 of
the Code when any corporate debtor commits a default, a financial
creditor, an operational creditor or the corporate debtor itself is permitted
to initiate the corporate insolvency resolution process (hereinafter referred
to as CIRP) in respect of the corporate debtor in the manner provided
under Chapter II.  Chapter II consists of Section 6 to Section 32A.
Section 7 (1) provides that a financial creditor by himself or joining with
other financial creditors or any other person on behalf of the financial
creditor as may be notified by the Central Government may file an
application under Section 7 for initiating the CIRP before the adjudicating
authority when a default has occurred. The adjudicating authority defined
in Section 5(1) of the Code is the NCLT constituted under Section 408
of the Companies Act 2013. The unamended Section 7(1) read as follows:
“7. (1) A financial creditor either by itself or jointly with other
financial
creditors may file an application for initiating corporate
insolvency resolution process against a corporate debtor before
the Adjudicating Authority when a default has occurred.”
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.”
 57. The three impugned provisos which we have already noted
and which have been inserted vide the impugned amendment have been
sandwitched in between the provisions of sub-section (1) and the
explanation. Sub- section 2 of Section 7 provides that the financial creditor
shall make the application which shall be in such manner and form and
accompanied by such fee as may be prescribed.
58. Section 3(26) defines the word ‘prescribed’ as meaning
prescribed by rules made by the Central Government. Section 239, inter
alia, confers power on the Central Government to make rules for carrying
out the provisions of the Code. Accordingly, the Insolvency and
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Bankruptcy (Application to Adjudicating Authority) Rules, 2016 came to
be made and were enforced from 1.12.2016.  Rule 4 reads as under:
“4. Application by financial creditor.—(1) A financial creditor, either
by itself or jointly, shall make an application for initiating the
corporate insolvency resolution process against a corporate debtor
under section 7 of the Code in Form 1, accompanied with
documents and records required therein and as specified in the
Insolvency and Bankruptcy Board of India (Insolvency Resolution
Process for Corporate Persons) Regulations, 2016.
(2) Where the applicant under sub-rule (1) is an assignee or
transferee of a financial contract, the application shall be
accompanied with a copy of the assignment or transfer agreement
and other relevant documentation to demonstrate the assignment
or transfer.
(3) The applicant shall dispatch forthwith, a copy of the application
filed with the Adjudicating Authority, by registered post or speed
post to the registered office of the corporate debtor.
(4) In case the application is made jointly by financial creditors,
they may nominate one amongst them to act on their behalf.”
59. Rule 8 contemplates withdrawal of application. It reads as
follows:
“8. Withdrawal of application —
The Adjudicating Authority may permit withdrawal of the
application made under rules 4, 6 or 7, as the case may be, on a
request made by the applicant before its admission.”
60. It must be noticed that Rules 6 and 7
deal with applications by
operational creditors and corporate applicants respectively. Rule 10 (1)
(2) and (3) read as follows:
“10. Filing of application and application fee —
(1) Till such time the rules of procedure for conduct of proceedings
under the Code are notified, the application made under sub-section
(1) of section 7, sub-section (1) of section 9 or sub-section (1) of
section 10 of the Code shall be filed before the Adjudicating
Authority in accordance with rules 20, 21, 22, 23, 24 and 26 of
Part III of the National Company Law Tribunal Rules, 2016.
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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(2) An applicant under these rules shall immediately after becoming
aware, notify the Adjudicating Authority of any winding-up petition
presented against the corporate debtor.
(3) The application shall be accompanied by such fee as specified
in the Schedule.”
61. Form 1 is the application prescribed in relation to an application
to be filed by the financial creditor.  It reads as follows:
“FORM 1
(See sub-rule (1) of rule 4)
APPLICATION BY FINANCIAL CREDITOR(S) TO
INITIATE CORPORATE INSOLVENCY RESOLUTION
PROCESS UNDER   CHAPTER II OF PART II UNDER
CHAPTER IV OF PART II OF THE CODE.
[*strike out whichever is not applicable]
(Under section 7 of the Insolvency and Bankruptcy Code,
2016 read with Rule 4 of the Insolvency and Bankruptcy
(Application to Adjudicating Authority) Rules, 2016)
[Date]
To,
The National Company Law Tribunal
[Address]
From,
[Names and addresses of the registered officers of the
financial creditors]
In the matter of [name of the corporate debtor]
Subject: Application to initiate corporate insolvency resolution
process in the matter of [name of the corporate debtor] under
the Insolvency and Bankruptcy Code, 2016.
Madam/ Sir,
[Names of the financial creditor(s)], hereby submit this
application to initiate a corporate insolvency resolution process in
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the matter of [name of corporate debtor]. The details for the
purpose of this application are set out below:
Part-I
PART-II
PARTICULARS OF THE CORPORATE DEBTOR 
1. 
NAME OF THE CORPORATE DEBTOR

2. 
IDENTIFICATION NUMBER OF CORPORATE 
DEBTOR 
3. 
DATE 
OF 
INCORPORATION 
OF 
CORPORATE 
DEBTOR 
4. 
NOMINAL SHARE CAPITAL AND THE PAID-UP 
SHARE CAPITAL OF THE CORPORATE DEBTOR 
AND/OR DETAILS OF GUARANTEE CLAUSE AS PER 
MEMORANDUM 
OF 
ASSOCIATION 
(AS 
APPLICABLE) 
5. 
ADDRESS OF THE REGISTERED OFFICE OF THE 
CORPORATE DEBTOR 
6. 
DETAILS OF THE CORPORATE DEBTOR AS PER THE 
NOTIFICATION UNDER SECTION 55(2) OF THE 
CODE- 
(i) ASSETS AND INCOME 
(ii) CLASS OF CREDITORS OR AMOUNT OF DEBT 
(iii)CATEGORY OF CORPORATE PERSON 
(WHERE APPLICATION IS UNDER CHAPTER IV OF 
PART II OF THE CODE) 
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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Part-III
Part-IV
Part-V
PARTICULARS OF FINANCIAL DEBT [DOCUMENTS, RECORDS AND EVIDENCE OF 
DEFAULT] 
1. 
PARTICULARS OF SECURITY HELD, IF ANY, THE DATE OF ITS CREATION, ITS 
ESTIMATED VALUE AS PER THE CREDITOR. 
ATTACH A COPY OF A CERTIFICATE OF REGISTRATION OF CHARGE ISSUED BY 
THE REGISTRAR OF COMPANIES (IF THE CORPORATE DEBTOR IS A COMPANY) 
2. 
PARTICULARS OF AN ORDER OF A COURT, TRIBUNAL OR ARBITRAL PANEL 
ADJUDICATING ON THE DEFAULT, IF ANY (ATTACH A COPY OF THE ORDER) 
3. 
RECORD OF DEFAULT WITH THE INFORMATION UTILITY, IF ANY (ATTACH A 
COPY OF SUCH RECORD) 
4. 
DETAILS OF SUCCESSION CERTIFICATE, OR PROBATE OF A WILL, OR LETTER 
OF ADMINISTRATION, OR COURT DECREE (AS MAY BE APPLICABLE), UNDER 
THE INDIAN SUCCESSION ACT, 1925 (10 OF 1925) (ATTACH A COPY) 
5. 
THE LATEST AND COMPLETE COPY OF THE FINANCIAL CONTRACT 
REFLECTING ALL AMENDMENTS AND WAIVERS TO DATE (ATTACH A COPY) 
6. 
A RECORD OF DEFAULT AS AVAILABLE WITH ANY CREDIT INFORMATION 
COMPANY (ATTACH A COPY) 
7. 
COPIES OF ENTRIES IN A BANKERS BOOK IN ACCORDANCE WITH THE 
BANKERS BOOKS EVIDENCE ACT, 1891 (18 OF 1891) (ATTACH A COPY) 
8. 
LIST OF OTHER DOCUMENTS ATTACHED TO THIS APPLICATION IN ORDER TO 
PROVE THE EXISTENCE OF FINANCIAL DEBT, THE AMOUNT AND DATE OF 
DEFAULT 
I, hereby certify that, to the best of my knowledge, [name of
proposed insolvency professional], is fully qualified and
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permitted to act as an insolvency professional in accordance with
the Insolvency and Bankruptcy Code, 2016 and the associated
rules and regulations.
[Name of the financial creditor] has paid the requisite fee for
this application through [state means of payment] on [date].
Yours sincerely,
Instructions
Please attach the following to this application:
Annex I Copies of all documents referred to in this application.
Annex II Written communication by the proposed interim resolution
professional as set out in Form 2.
Annex III Proof that the specified application fee has been paid.
Annex IV Where the application is made jointly, the particulars
specified in this form shall be furnished in respect of all the joint
applicants along with a copy of authorisation to the financial creditor
to file and act on this application on behalf of all the applicants.”
62. The schedule prescribes the fees which is contemplated under
Rule 10(3). It, inter alia, provides that for an application by a financial
creditor (whether solely or jointly a sum of Rupees Twenty-five thousand).
Sub-section 3 of Section 7 provides that financial creditor along with the
application shall furnish record of the default recorded by the information
utility or all such other record or evidence before as may be specified.
The word ‘specified’ has been defined in Section 3 (32) as meaning
specified by regulations made by the Board and the term ‘specify’ is to
be construed accordingly.
63. Section
7(3) (b) requires the financial creditor who makes the
application to furnish the name of the Resolution Professional proposed
as an Interim Resolution Professional (hereafter referred to as “RP”
and “IRP” respectively). Section 5(27) defines the word ‘Resolution
Professional’ for the purpose of Part 2 to mean an insolvency professional
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
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appointed to conduct the CIRP and includes an interim resolution
professional. In turn Section 3(19) defines ‘insolvency professional’ as
the person enrolled under Section 206 with an insolvency professional
agency as its member and registered with the Board as an insolvency
professional under Section 207. Sub-Section (5) of Section 7 proclaims
that when adjudicating authority is satisfied that a default has occurred
and the application under sub-section is complete and that there is no
disciplinary proceedings pending against the proposed resolution
professional, it may by order admit an application. Inter alia on the ground
that default has not occurred, it is open to adjudicating authority to reject
the application. If rejection is intended, the proviso obliges the adjudicating
authority to issue a notice to rectify any defect in the application (this is
for the reason that under sub-Section 5 apart from there being no default,
if there is any disciplinary action against the proposed resolution
professional, the application is liable to be rejected) This is apart from
the application being otherwise defective. The application is to contain
other information as may be specified under regulations by the Code.
The adjudicating authority is required by the letter of the law and indeed
we may say so, in accordance with the spirit to ascertain within 14 days
of the receipt of the application if there is any default from
the records
of information utility or on the basis of other evidence made available by
the financial creditor under sub-section (3) [In Pioneer (supra), the period
has been understood as directory]. ‘Information utility’ has been defined
in Section 3(21), as a person who is registered with the Board as
information utility under Section 210.  The word ‘Board’ has been defined
in Section 3(1) to be the ‘Insolvency and Bankruptcy Board of India’
which is established under sub-Section (1) of Section 188.
64. Section 7(6) declares that the CIRP shall commence from the
date of admission of the application under sub-section (5).
65. Section 8 read with Section 9 deal with application for initiation
of the CIRP by an operational creditor.  Section 10 deals with an
application by the corporate applicant. The word Corporate applicant is
defined to refer to the corporate debtor and other entities associated
with it. More about it at a later stage. It is thereafter that law giver has
in Section 11 proscribed applications which should otherwise be
maintainable. This is a provision in which we will devote more time later
on in this judgement. Section 12 places the time limit.  Section 12 has a
marginal note which is to the following effect:
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“12. Time-limit for completion of insolvency resolution process.-
(1) Subject to sub-section (2), the corporate insolvency resolution
process shall be completed within a period of one hundred and
eighty days from the date of admission of the application to initiate
such process.
(2) The resolution professional shall file an application to the
Adjudicating Authority to extend the period of the corporate
insolvency resolution process beyond one hundred and eighty days,
if instructed to do so by a resolution passed at a meeting of the
committee of creditors by a vote of seventy-five per cent. of the
voting shares.
(3) On receipt of an application under sub-section (2), if
the Adjudicating Authority is satisfied that the subject matter of
the case is such that corporate insolvency resolution process cannot
be completed within one hundred and eighty days, it may by order
extend the duration of such process beyond one hundred and eighty
days by such further period as it thinks fit, but not exceeding ninety
days:
Provided that any extension of the period of corporate insolvency
resolution process under this section shall not be granted more
than once.
Provided further that the corporate insolvency resolution process
shall mandatorily be completed within a period of three hundred
and thirty days from the insolvency commencement date, including
any extension of the period of corporate insolvency resolution
process granted under this section and the time taken in
legal
proceedings in relation to such resolution process of the corporate
debtor:
Provided also that where the insolvency resolution process of a
corporate debtor is pending and has not been completed within
the period referred to in the second proviso, such resolution process
shall be completed within a period of ninety days from the date of
commencement of the Insolvency and Bankruptcy Code
(Amendment) Act, 2019.”
66. Coming to sub-Section 2, the CIRP is to be completed within
180 days from the date of admission of the application to initiate the
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
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process. As far as an application by a financial creditor is concerned,
the date of admission is the date of the order admitting the application.
Under sub-Section (2) however if the Committee of creditors by a vote
of 66 per cent of the voting share instructs the RP to extend the period
of CIRP beyond 180 days, the RP is bound to file an application.  The
adjudicating authority on receipt of the application can extend the period
of 180 days for a maximum period of 90 days. Such extension can be
granted only once. With effect from 16.8.2019, two provisos have been
inserted. The provisos were added in fact as noted in paragraph-74 of
the Essar Steel (supra) to overcome what was laid down in (2019) 2
SCC 1 decided by this Court 04.10.2018. In the latter decision in
Arcellormittal (supra), this Court purported to hold that the time taken
in legal proceedings must be excluded. Under the first proviso, the CIRP
has to be mandatorily completed within a period of 330 days from the
insolvency commencement date. This period of 330 days is to include
any extension granted under sub-Section (3) by the Adjudicating Authority
and also the time taken in legal proceedings in relation to the resolution
process of the corporate debtor. However, in Committee Creditors of
Essar Steel (supra), this Court struck down the word ‘mandatorily’ as
being manifestly arbitrary and in violation of Article 19 (1)(g) and
proceeded to hold as
follows:
 “…The effect of this declaration is that ordinarily the time taken
in relation to the corporate resolution process of the corporate
debtor must be completed within the outer limit of 330 days from
the insolvency commencement date, including extensions and the
time taken in legal proceedings. However, on the facts of a given
case, if it can be shown to the Adjudicating Authority and/or
Appellate Tribunal under the Code that only a short period is left
for completion of the insolvency resolution process beyond 330
days, and that it would be in the interest of all stakeholders that
the corporate 10-12-2020 (Page 69 of 85) debtor be put back on
its feet instead of being sent into liquidation and that the time
taken in legal proceedings is largely due to factors owing to which
the fault cannot be ascribed to the litigants before the Adjudicating
Authority and/or Appellate Tribunal, the delay or a large part
thereof being attributable to the tardy process of the Adjudicating
Authority and/or the Appellate Tribunal itself, it may be open in
such cases for the Adjudicating Authority and/or Appellate Tribunal
to extend time beyond 330 days. Likewise, even under the newly
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added proviso to Section 12, if by reason of all the aforesaid factors
the grace period of 90 days from the date of commencement of
the Amending Act of 2019 is exceeded, there again a discretion
can be exercised by the Adjudicating Authority and/or Appellate
Tribunal to further extend time keeping the aforesaid parameters
in mind. It is only in such exceptional cases that time can be
extended, the general Rule being that 330 days is the outer limit
within which resolution of the stressed assets of the corporate
debtor must take place beyond which the corporate debtor is to
be driven into liquidation.”
67. At this juncture, it must be noted that under the first proviso
inserted by the amendment dated 16.08.2019, reference to the period of
330 days is made with regard to the insolvency commencement date.
The insolvency commencement date has been defined in Section 5(12).
Section 5(12) reads as follows:
“5(12) “insolvency commencement date” means the date
of admission of an application for initiating corporate insolvency
resolution process by the Adjudicating Authority under sections 7,
9 or section 10, as the case may be.”
There was a proviso but it stands omitted by Act 1/2020 (with
effect from 28/12/2019).
68. In this regard, it is to be noticed that the scheme appears to be
that the name of the RP to act as the IRP is to be indicated in the
application. While admitting the application under Section 7(5), the
adjudicating authority is to appoint the
proposed resolution professional.
In fact, Section 16(2) of the Code contemplates such appointment. We
may refer to Section 12A which was inserted with effect from 6.6.2018.
Section 12A reads as follows:
“12A. Withdrawal of application admitted under section 7, 9 or
10. – The Adjudicating Authority may allow the withdrawal of
application admitted under section 7 or section 9 or section 10, on
an application made by the applicant with the approval of ninety
per cent voting share of the committee of creditors, in such manner
as may be specified.”
69. The above provision dealing with withdrawal of application
after admission may be contrasted with Rule (8) which apparently deals
with withdrawal before admission.
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70. Section 16 of the Code, however, indicates that the adjudicating
authority shall appoint an interim resolution professional within 14 days
from the insolvency commencement date. We have already noted the
definition of the words ‘insolvency commencement date’ as the date of
admission. Section 13 contemplates steps to be taken upon admission
under Section 7, inter alia.
1. A moratorium contemplated under Section 14 is to be declared.
2. A Public announcement of the initiation of the CIRP and inviting
claims against the corporate debtor is to be made.
3. The appointment of the IRP- the appointment is to be done in
the manner as provided in Section 16. The announcement is to
be made immediately after the appointment of resolution
professional.
71. Section 14 deals with moratorium.
“14. Moratorium. - (1) Subject to provisions of sub-sections
(2) and (3), on the insolvency commencement date, the
Adjudicating Authority shall by order declare moratorium for
prohibiting all of the following, namely: -
(a) the institution of suits or continuation of pending suits or
proceedings against the corporate debtor including execution
of any judgement, decree or order in any court of law, tribunal,
arbitration panel or other authority;
(b) transferring, encumbering, alienating or disposing off by
the corporate debtor 1 Ins. by Act No. 26 of 2019, sec. 4
(w.e.f. 16-8-2019). 2 Ins. by Act No. 26 of 2018, sec. 9 (w.e.f.
6-6-2018). 20
any of its assets or any legal right or beneficial
interest therein;
(c) any action to foreclose, recover or enforce any security
interest created by the corporate debtor in respect of its property
including any action under the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act,
2002 (54 of 2002); (d)the recovery of any property by an owner
or lessor where such property is occupied by or in the
possession of the corporate debtor.
Explanation.-For the purposes of this sub-section, it is hereby
clarified that notwithstanding anything contained in any other
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law for the time being in force, a licence, permit, registration,
quota, concession, clearance or a similar grant or right given
by the Central Government, State Government, local authority,
sectoral regulator or any other authority constituted under any
other law for the time being in force, shall not be suspended or
terminated on the grounds of insolvency, subject to the condition
that there is no default in payment of current dues arising for
the use or continuation of the license, permit, registration, quota,
concession, clearances or a similar grant or right during the
moratorium period.
(2) The supply of essential goods or services to the corporate
debtor as may be specified shall not be terminated or suspended
or interrupted during moratorium period.
(2A) Where the interim resolution professional or resolution
professional, as the case may be, considers the supply of goods
or services critical to protect and preserve the value of the
corporate debtor and manage the operations of such corporate
debtor as a going concern, then the supply of such goods or
services shall not be terminated, suspended or interrupted during
the period of moratorium, except where such corporate debtor
has not paid dues arising from such supply during the
moratorium period or in such circumstances as may be
specified.
(3) The provisions of sub-section (1) shall not apply to
(a) such transactions, agreements or other arrangement as may
be notified by the Central Government
in consultation with any
financial sector regulator or any other authority;
(b) a surety in a contract of guarantee to a corporate debtor.
(4) The order of moratorium shall have effect from the date of
such order till the completion of the corporate insolvency
resolution process:
Provided that where at any time during the corporate insolvency
resolution process period, if the Adjudicating Authority approves
the resolution plan under sub-section (1) of section 31 or passes
an order for liquidation of corporate debtor under section 33,
the moratorium shall cease to have effect from the date of
such approval or liquidation order, as the case may be.”
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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72. It will be noticed that while Section 6 read with Section 7
contemplates that a financial creditor may move the application
individually, he may also move the application jointly with other financial
creditors. Even if a single financial creditor was to be the applicant,
after the appointment of the interim resolution professional, the applicant
ceases to be in seisin of the lis. The provisions of Section 17 is to be
noticed. It reads as follows:
“17. Management of affairs of corporate debtor by interim
resolution professional. - (1) From the date of appointment of the
interim resolution professional, -
(a) the management of the affairs of the corporate debtor shall
vest in the interim resolution professional;
(b) the powers of the board of directors or the partners of the
corporate debtor, as the case may be, shall stand suspended
and be exercised by the interim resolution professional;
(c) the officers and managers of the corporate debtor shall
report to the interim resolution professional and provide access
to such documents and records of the corporate debtor as may
be required by the interim resolution professional;
(d) the financial institutions maintaining accounts of the
corporate debtor shall act on the instructions of the interim
resolution professional in relation to such accounts and furnish
all information relating to the corporate debtor available with
them to the interim resolution professional.
(2) The interim resolution professional vested with the management
of the corporate debtor, shall-
(a) act and execute in the name and on behalf of the corporate
debtor all deeds, receipts, and other documents, if any;
(b) take such actions, in the manner and subject to such restrictions,
as may be specified by the Board;
(c) have the authority to access the electronic records of corporate
debtor from information utility having financial information of the
corporate debtor;
(d) have the authority to access the books of accounts, records
and other relevant documents of corporate debtor available with
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government authorities, statutory auditors, accountants and such
other persons as may be specified; and
(e) 2 [be responsible for complying with the requirements under
any law for the time being in force on behalf of the corporate
debtor.”
73. Section 17 contemplates that the management of the affairs
of the corporate debtor will vest with the IRP. This takes effect from the
date of the appointment of the interim resolution professional.
Furthermore, the powers of the Board of Directors who are partners of
the corporate debtors shall stand suspended.
74. Virtually, the entire control of the management including all
the acts and authority indicated in sub-section 2 is to be carried out by
interim resolution professional and authority exercised by him. Section
18 details the duties of the IRP. It reads as follows:
“18. Duties of interim resolution professional. –
The interim resolution professional shall perform the following
duties, namely: -
(a) collect all information relating to the assets, finances and
operations of the corporate debtor for determining the financial
position of the corporate debtor, including information relating to
–
(i) business operations for the previous two years;
(ii) financial and operational payments for the previous two
years;
(iii) list of assets and liabilities as on the initiation date; and
(iv) such other matters as may be specified;
(b) receive and collate all the claims submitted by creditors to
him, pursuant to the
public announcement made under sections
13 and 15;
(c) constitute a committee of creditors;
(d) monitor the assets of the corporate debtor and manage its
operations until a resolution professional is appointed by the
committee of creditors;
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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(e) file information collected with the information utility, if
necessary; and
(f) take control and custody of any asset over which the corporate
debtor has ownership rights as recorded in the balance sheet of
the corporate debtor, or with information utility or the depository
of securities or any other registry that records the ownership of
assets including –
(i) assets over which the corporate debtor has ownership rights
which may be located in a foreign country;
(ii) assets that may or may not be in possession of the corporate
debtor;
(iii) tangible assets, whether movable or immovable;
(iv) intangible assets including intellectual property;
(v) securities including shares held in any subsidiary of the
corporate debtor, financial instruments, insurance policies;
(vi) assets subject to the determination of ownership by a court
or authority:
(g) to perform such other duties as may be specified by the Board.
Explanation. – For the purposes of this 1 section, the term “assets”
shall not include the following, namely: -
(a) assets owned by a third party in possession of the corporate
debtor held under trust or under contractual arrangements including
bailment;
(b) assets of any Indian or foreign subsidiary of the corporate
debtor; and
(c) such other assets as may be notified by the Central Government
in consultation with any financial sector regulator.”
75. It will be noticed that amongst his duties, is the duty to
constitute
a Committee of Creditors. The constitution of the committee of creditors
and the method of voting and the extent of the same are found detailed
inter alia in Section 21. Since much may turn on the said provision we
refer to the same:
“21. Committee of creditors. –
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(1) The interim resolution professional shall after collation of all
claims received against the corporate debtor and determination
of the financial position of the corporate debtor, constitute a
committee of creditors.
(2) The committee of creditors shall comprise all financial creditors
of the corporate debtor:
Provided that a financial creditor or the authorised representative
of the financial creditor referred to in sub-section (6) or sub-section
(6A) or sub-section (5) of section 24, if it is a related party of the
corporate debtor, shall not have any right of representation,
participation or voting in a meeting of the committee of creditors:
Provided further that the first proviso shall not apply to a financial
creditor, regulated by a financial sector regulator, if it is a related
party of the corporate debtor solely on account of conversion or
substitution of debt into equity shares or instruments convertible
into equity shares or completion of such transactions as may be
prescribed], prior to the insolvency commencement date.
(3) Subject to sub-sections (6) and (6A), where the
corporate debtor owes financial debts to two or more financial
creditors as part of a consortium or agreement, each such financial
creditor shall be part of the committee of creditors and their voting
share shall be determined on the basis of the financial debts owed
to them.
(4) Where any person is a financial creditor as well as an
operational creditor –
(a) such person
shall be a financial creditor to the extent of the
financial debt owed by the corporate debtor, and shall be included
in the committee of creditors, with voting share proportionate to
the extent of financial debts owed to such creditor;
 (b) such person shall be considered to be an operational creditor
to the extent of the operational debt owed by the corporate debtor
to such creditor.
(5) Where an operational creditor has assigned or legally
transferred any operational debt to a financial creditor, the
assignee or transferee shall be considered as an operational creditor
to the extent of such assignment or legal transfer.
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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(6) Where the terms of the financial debt extended as part of a
consortium arrangement or syndicated facility provide for a single
trustee or agent to act for all financial creditors, each financial
creditor may-
 (a) authorise the trustee or agent to act on his behalf in the
committee of creditors to the extent of his voting share;
(b) represent himself in the committee of creditors to the extent
of his voting share;
(c) appoint an insolvency professional (other than the resolution
professional) at his own cost to represent himself in the committee
of creditors to the extent of his voting share; or
(d) exercise his right to vote to the extent of his voting share with
one or more financial creditors jointly or severally.
(6A) Where a financial debt—
(a) is in the form of securities or deposits and the terms of the
financial debt provide for appointment of a trustee or agent to act
as authorised representative for all the financial creditors, such
trustee or agent shall act on behalf of such financial creditors;
(b) is owed to a class of creditors exceeding the number as may
be specified, other than the creditors covered under clause (a) or
sub-section (6), the interim resolution professional shall make an
application to the Adjudicating Authority along with the list of all
financial creditors, containing the name of an insolvency
professional, other than the interim resolution professional, to act
as their authorised
representative who shall be appointed by the
Adjudicating Authority prior to the first meeting of the committee
of creditors;
(c) is represented by a guardian, executor or administrator, such
person shall act as authorised representative on behalf of such
financial creditors, and such authorised representative under clause
(a) or clause (b) or clause (c) shall attend the meetings of the
committee of creditors, and vote on behalf of each financial
creditor to the extent of his voting share.
(6B) The remuneration payable to the authorised representative-
(i) under clauses (a) and (c) of sub-section (6A), if any, shall be
as per the terms of the financial debt or the relevant documentation;
and
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(ii) under clause (b) of sub-section (6A) shall be as specified which
shall be form part of the insolvency resolution process costs.
(7) The Board may specify the manner of voting and the
determining of the voting share in respect of financial debts covered
under sub-sections (6) and (6A).
(8) Save as otherwise provided in this Code, all decisions of
the committee of creditors shall be taken by a vote of not less
than fifty-one per cent. of voting share of the financial creditors:
Provided that where a corporate debtor does not have any financial
creditors, the committee of creditors shall be constituted and shall
comprise of such persons to exercise such functions in such
manner as may be specified.
(9) The committee of creditors shall have the right to require
the resolution professional to furnish any financial information in
relation to the corporate debtor at any time during the corporate
insolvency resolution process.
(10) The resolution professional shall make available any financial
information so required by the committee of creditors under sub-
section (9) within a period of seven days of such requisition.”
Section 22 (1) and (2) read as follows:
“22. Appointment of resolution professional. –
(1) The first meeting of the committee of creditors shall be
held within seven days of the constitution of the committee of
creditors.
(2) The committee of creditors, may, in the first meeting, by a
majority vote of not less than sixty-six per cent of the
voting
share of the financial creditors, either resolve to appoint the
interim resolution professional as a resolution professional or
to replace the interim resolution professional by another
resolution professional.”
Section 23 reads as follows:
“23. Resolution professional to conduct corporate insolvency
resolution process.–
(1) Subject to section 27, the resolution professional shall conduct
the entire corporate insolvency resolution process and manage
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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the operations of the corporate debtor during the corporate
insolvency resolution process period:
Provided that the resolution professional shall continue to manage
the operations of the corporate debtor after the expiry of the
corporate insolvency resolution process period, until an order
approving the resolution plan under sub-section (1) of section 31
or appointing a liquidator under section 34 is passed by the
Adjudicating Authority.
(2) The resolution professional shall exercise powers and
perform duties as are vested or conferred on the interim resolution
professional under this Chapter.
(3) In case of any appointment of a resolution professional under
sub-sections (4) of section 22, the interim resolution professional
shall provide all the information, documents and records pertaining
to the corporate debtor in his possession and knowledge to the
resolution professional.”
76. Section 24 deals with the meeting of committee of creditors.
Now that resolution professional has been appointed, as contemplated
under Section 22, Section 24(2) declares that all the meetings of the
committee of creditors shall be convened by resolution professional.
Section 25 speaks about the duties of the resolution professional. Section
25(2),(h) and (i) read as follows:
“25(2) (h) invite prospective resolution applicants, who fulfil such
criteria as may be laid down by him with the approval of committee
of creditors, having regard
to the complexity and scale of operations
of the business of the corporate debtor and such other conditions
as may be specified by the Board, to submit a resolution plan or
plans.
(i) present all resolution plans at the meetings of the committee of
creditors.”
77. Section 25A, which was inserted with effect from 06.06.2018
will be separately dealt with. No doubt, Section 27 contemplates that a
committee of creditors may at any time during the CIRP replace the
resolution professional as provided in the section.  Section 28, no doubt,
constrains the resolution professional in regard to the matters provided
therein. The approval of the committee of creditors is required in such
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matters. It includes making any change in the management of corporate
debtor and its subsidiary (Section 28(j)). Section 30 contemplates that
resolution applicant may submit a resolution plan. The ‘resolution
applicant’ has been defined in sub-section 25 of Section 5 which reads
as follows:
“5(25) “resolution applicant” means a person, who individually or
jointly with any other person, submits a resolution plan to the
resolution professional pursuant to the invitation made under clause
(h) of sub-section (2) of section 25.”
The resolution plan has been defined in Section 5 (26).  The same
reads as under:
“5(26) “resolution plan” means a plan proposed by resolution
applicant for insolvency resolution of the corporate debtor as a
going concern in accordance with Part II.
Explanation.- For removal of doubts, it is hereby clarified that a
resolution plan may include provisions for the restructuring of the
corporate debtor, including by way of merger, amalgamation and
demerger.”
78. The resolution professional has to examine each resolution
plan received by him on the basis of the invitation made by the resolution
professional under Section 25(h) and ascertain whether the plan is in
conformity with the various criteria mentioned in Section 30(2) of the
Code. The matter is thereafter put up by the resolution professional
before the committee of creditors. All resolution plans which conform
with the conditions in sub-section (2) of Section 30 are, in fact, to be
placed before the committee of creditors. The committee of creditors
may approve the resolution plan after considering its feasibility and
viability, the manner of distribution proposed, which may take into account
the hurdles, priority amongst creditors as laid down in sub-section(1) of
Section 53 including the priority and the value of security interest of
secured creditors and such other requirements as may be specified by
the Board. There are other details with which we are not concerned in
Section 30. Section 31 requires approval of the resolution plan by the
adjudicating authority. It reads inter-alia as follows:
“31. Approval of resolution plan. –
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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(1) If the Adjudicating Authority is satisfied that the resolution
plan as approved by the committee of creditors under sub-section
(4) of section 30 meets the requirements as referred to in sub-
section (2) of section 30, it shall by order approve the resolution
plan which shall be binding on the corporate debtor and its
employees, members, creditors, including the Central Government,
any State Government or any local authority to whom a debt in
respect of the payment of dues arising under any law for the time
being in force, such as authorities to whom statutory dues are
owed,  guarantors and other stakeholders involved in the resolution
plan:
Provided that the Adjudicating Authority shall, before passing an
order for approval of resolution plan under this sub-section, satisfy
that the resolution plan has provisions for its effective
implementation.”
The scope of these provisions have been dealt with in the decision
of this Court in Essar Steel India Limited vs. Satish Kumar Gupta and
Ors. and (2019) 2 SCC 1 among other decisions authored by one of us
(Justice R.F. Nariman).
79. Sub-section (2) of Section 31 enables the adjudicating authority
to reject the resolution plan. Section 31 (3) contemplates that after the
approval of the resolution plan that the moratorium order passed by the
adjudicating authority under Section 14 shall cease to have effect. Section
32A will be separately dealt with.
80. Section 33,
which is in Chapter III in Part II, compels
announcing the death knell of the corporate debtor. That is if, before the
expiry of insolvency resolution process period or the maximum period
permitted which is CIRP under Section 12, inter alia, a resolution plan
is not received or though received is rejected by the adjudicating authority,
then under Section 33, order is to be passed. The curtains are wrung
down on the insolvency resolution process. The corporate debtor goes
into liquidation. The adjudicating authority is bound to pass an order
requiring corporate debtor to be liquidated as provided in chapter III
Part II. Section 33(2) contemplates that before the confirmation of the
resolution plan if the committee of creditors so approved by not less than
66% of the voting decide to liquidate the corporate debtor, the adjudicating
authority is to pass the liquidation order.  Section 33(5) may be noticed at
this stage:
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“33 (5) Subject to section 52, when a liquidation order has been
passed, no suit or other legal proceeding shall be instituted by or
against the corporate debtor:
Provided that a suit or other legal proceeding may be instituted by
the liquidator, on behalf of the corporate debtor, with the prior
approval of the Adjudicating Authority.
An explanation has been added to Section 33(2)of the Code.
“Explanation - For the purpose of this sub-section, it is hereby
declared that the committee of creditors may take the decision to
liquidate the corporate debtor, any time after constitution under
sub-section (1) of Section 21 and before the confirmation of the
resolution plan, including at any time before the preparation of the
information memorandum.”
THE 
REAL 
ESTATE 
(REGULATION 
AND
DEVELOPMENT) ACT, 2016 AND ITS SCHEME
(HEREINAFTER REFERRED TO AS ‘RERA’, FOR
SHORT).
81. The Real Estate Regulation and Development Bill was
introduced in the Rajya Sabha in 2013. Noticing the fact that though the
Consumer Protection Act, 1986 is available as a Forum in the real estate
market for the buyers, the recourse is only curative and is not adequate
to address all the concerns of the buyers and promoters in the said sector,
it was felt that there should be a central legislation in the interest of
effective consumer protection, uniformity and standardization of business
practices and transactions in the real estate sector. The Bill was passed
by both the Houses of Parliament
and received the assent of the President
of India on the 25.03.2016. By 01.05.2017, the provisions of the Act
came into force, even though, certain Sections have come into force
earlier on 01.05.2016.
82. We may advert to the following definition clauses. Section
2(b) defines ‘advertisement’, as follows:
 “2(b) “advertisement” means any document described or issued
as advertisement through any medium and includes any notice,
circular or other documents or publicity in any form, informing
persons about a real estate project, or offering for sale of a plot,
building or apartment or inviting persons to purchase in any manner
MANISH KUMAR v. UNION OF INDIA AND ANOTHER
[K. M. JOSEPH, J.]
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such plot, building or apartment or to make advances or deposits
for such purposes;”
 83. Section 2(c) defines ‘agreement for sale’, as follows:
“2(c) “agreement for sale” means an agreement entered into
between the promoter and the allottee;”
84. Section 2(d), which is at the centerstage of the controversy,
defines the word ‘allottee’, which reads as follows:
“2(d) “allottee” in relation to a real estate project, means the person
to whom a plot, apartment or building, as the case may be, has
been allotted, sold (whether as freehold or leasehold) or otherwise
transferred by the promoter, and includes the person who
subsequently acquires the said allotment through sale, transfer or
otherwise but does not include a person to whom such plot,
apartment or building, as the case may be, is given on rent;”
85. As can be seen, the word ‘allottee’ includes, plot, apartment
or building. The words ‘apartment’ and ‘building’ are defined. Section
2(e) defines the word ‘apartment’ and it reads as follows:
“2(e) “apartment” whether called block, chamber, dwelling unit,
flat, office, showroom, shop, godown, premises, suit, tenement,
unit or by any other name, means a separate and self-contained
part of any immovable property, including 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, 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 or trade, or for any other type of use ancillary to the
purpose specified;”
86. Section 2(j) defines the word ‘building’ and it reads as follows:
“2(j) “building” includes any structure or erection or part of a
structure or erection which is intended to be used for residential,
commercial or for the purpose of any business, occupation,
profession or trade, or for any other related purposes;”
Section 2(s) defines ‘development’ and it reads as follows:
“2(s) “development” with its grammatical variations and cognate
expressions, means carrying out the development of immovable
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property, engineering or other operations in, on, over or under the
land or the making of any material change in any immovable
property or land and includes redevelopment;’’
‘Development works’ is defined in Section 2(t) and it reads as
follows:
“2(t) “development works” means the external development works
and internal development works on immovable property;”
The word ‘promoter’ is defined in 2(zk) and it reads as follows:
“2(zk) “promoter” means,—
(i)
a person who constructs or causes to be constructed an
independent building or a building consisting of apartments,
or converts an existing building or a part thereof into
apartments, for the purpose of selling all or some of the
apartments to other persons and includes his assignees;
or
(ii)
a person who develops land into a project, whether or
not the person also constructs structures on any of the
plots, for the purpose of selling to other persons all or
some of the plots in the said project, whether with or
without structures thereon; or
(iii)
any development authority or any other public body in
respect of allottees of— (a) buildings or apartments, as
the case may be, constructed by such authority or body
on lands owned by them or placed at their disposal by
the Government; or (b) plots owned by such authority or
body or placed at their disposal by the Government, for
the purpose of selling all or some of the apartments or
plots; or
(iv)
an apex State level co-operative housing finance society
and a
primary co-operative housing society which
constructs apartments or buildings for its Members or in
respect of the allottees of such apartments or buildings;
or
(v)
any other person who acts himself as a builder, coloniser,
contractor, developer, estate developer or by any other
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[K. M. JOSEPH, J.]
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name or claims to be acting as the holder of a power of
attorney from the owner of the land on which the building
or apartment is constructed or plot is developed for sale;
or
(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;”
Section 2(zn) defines ‘real estate project’, it reads as follows:
“2(zn) “real estate project” means the development of a building
or a building consisting of apartments, or converting an existing
building or a part thereof into apartments, or the development of
land into plots or apartments, as the case may be, for the purpose
of selling all or some of the said apartments or plots or building, as
the case may be, and includes the common areas, the development
works, all improvements and structures thereon, and all easement,
rights and appurtenances belonging thereto;”
87. Section 3 prohibits any promoter from advertising, marketing,
etc. or even inviting persons to purchase any plot, apartment or building
in any real estate project or part of it
without there being registration.
Sub-Section (2), however, exempts certain projects from the requirement
of registration and it reads as follows:
“3(2) Notwithstanding anything contained in sub-section (1), no
registration of the real estate project shall be required—
(a) where the area of land proposed to be developed does not
exceed five hundred square meters or the number of apartments
proposed to be developed does not exceed eight inclusive of
all phases:
Provided that, if the appropriate Government considers
it necessary, it may, reduce the threshold below five hundred