The Supreme Court had ruled with utmost affirmativeness in the case of Pioneer Urban Land and Infrastructure Vs. UOI and Others (2019) 8 SCC 416 that homebuyers in real estate projects were to be considered as ‘Financial Creditors’ within the realm of the Insolvency and Bankruptcy Code, 2016 [code for short] by upholding the amendment effected by the Central Government to the Code specifically to Section 5 (8) (f) thereof – explanation clauses (i) and (ii). The Hon’ble Supreme Court of India had also rejected the arguments of alternative remedies like RERA, Consumer Complaints under C.P.A., 1986 and even Arbitration proceedings being available to the home buyers and held that these are always available in addition to the homebuyers and not in derogation and that they can run concurrently with proceedings triggered under the Code.
This decision had brought in much relief to the homebuyers as the proceedings under the Code provide a much faster and a more effective, viable source of relief for them vis a vis any other proceedings. The same has been put in serious jeopardy now and in doing so, the amendment dated 28.12.2019 which the Central Government has brought vide that too vide an Ordinance route instead of the same having been passed by both houses of the Parliament, is squarely in the teeth of the decision supra.
The onus which has now been put on a homebuyer to virtually gather 100 fellow homebuyers or 10% of the total homebuyers whichever is less, that too in the same project is simply put as though keeping the status of the homebuyer on paper as a Financial Creditor but practically making the homebuyer redundant and toothless as a Financial Creditor under the Code. An honest, bona fide homebuyer with life-savings put into a flat / apartment with limited means and resources is never likely to gather the minimum number of people required for his petition u/s 7 of the Code to go through. Moreover, there has been no proper mechanism put in place to facilitate this process.
Like under the C.P.A., 1986 u/s 12 (1) (c) thereof, a single consumer could knock the doors of the NCDRC having pecuniary jurisdiction of over Rs. 1 Crore agitating his grievances on behalf of fellow homebuyers without actually putting names of such homebuyers with their consent at the outset. Like in these proceedings, a mechanism could have been provided, wherein the N.C.L.T upon a petition by a single homebuyer gives a public notice in newspapers and through other modes inviting parties to join in the petition before it against a particular builder which would lead to parties joining in the petition upon which the criteria as stipulated vide the amendment could be met. However, if the amendment stands as it is, the onus of finding, locating a large number of homebuyers has been thrust upon a single homebuyer.
De hors the aforesaid, this amendment gives rise to material contradictions within the provisions of the Code itself. Financial Creditors move the N.C.L.T. u/s 7 of the Code. Besides homebuyers, banks and financial institutions also move the N.C.L.T. u/s 7 of the Code for various defaults. There are no fetters, restrictions or caveats put on the banks and financial institutions. For example, a single bank could move the N.C.L.T. u/s 7 of the Code against a defaulting corporate debtor which may include a builder as well for a meager amount however a home buyer cannot individually approach now even if the defaulted amount by the builder / corporate debtor runs into crores for a single individual alone.
The homebuyers cannot be singled out when no caveats are in place for all other class(es) of creditors vis a vis section 7 of the Code. The decision of the Hon’ble Supreme Court of India in the case of Pioneer Supra has been made virtually redundant and toothless. The Hon’ble Supreme Court of India had categorically held the status of the homebuyers to be that of Financial Creditors within the meaning of section 7 of the Code without any fetters, restrictions or caveats. This amendment is a way to circumvent and bypass the said decision.
Lastly, this amendment amounts to class legislation and is violative of Article 14 of the Constitution of India, 1950. Class legislation is impermissible, and reference is drawn to the landmark decision of the Constitution Bench of the Hon’ble Supreme Court of India in the case of D.S. Nakara and Others Vs. UOI 1983 (2) SCR 165, which held: “Article 14 strikes at arbitrariness in State action and ensures fairness and equality of treatment. It is attracted where equals are treated differently without any reasonable basis… Article 14 forbids class legislation but permits reasonable classification for the purpose of legislation. The classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from those that are left out of the group and that differentia must have a rational nexus to the object sought to be achieved by the statute in question.”
The Statement of Objects and Reasons of this amendment does not spell out anything which may warrant firstly the amendment in question and secondly the hurried passing of the same vide the Ordinance route.
The Central Government’s hurry to go vide an Ordinance route instead of the amendment having been passed by both the houses of the Parliament is also not understood especially when it had been referred to the Standing Committee of Lok Sabha on Finance / Corporate Affairs. The Code is an important piece of legislation and was dubbed as a major economic reform therefore it is all the more necessary that any amendment to it must not be rushed and must be thoroughly debated and deliberated and approved by both houses of the Parliament of India.
Credits: Judgments pronounced by the Hon’ble Supreme Court of India.
The Author is an Advocate-on-Record with the Supreme Court of India. The views expressed are personal.
