Supreme Court disposes of plea challenging validity of Insolvency and Bankruptcy Code Section 3

In particular, the challenge has been laid, but not limited to, Section 3 of the Ordinance which adds provisos in Section 7 of the IBC and set out new condition for real estate allottee to approach NCLT as being in violation of Article (s) 14 and 21 of the Constitution of India.

The Supreme Court has disposed of the petition filed by petitioners (financial creditors) challenging the constitutional vires of the Section 3 of the Insolvency and Bankruptcy Code (Amendment) Act, 2019.

In particular, the challenge has been laid, but not limited to, Section 3 of the Ordinance which adds provisos in Section 7 of the IBC and set out new condition for real estate allottee to approach NCLT as being in violation of Article (s) 14 and 21 of the Constitution of India. 

A bench of comprising of Justice K.M. Joseph and Justice S. Ravindra Bhat dismissed the present petition filed by the petitioner Advocate Taruna Ardhendumauli Prasad on the terms of judgement passed by this court where the similar questions were raised.

“The questions raised in this writ petition are covered by the judgment of this court in Manish Kumar Vs Union of India & Anr. [(2021) 5 SCC 1]. Accordingly the writ petition is disposed of in terms of the said judgment,” noted the Court in its order. 

The petitioner, submitted that the present writ petition is maintainable because the petitioners are a home buyer and have approached the NCLT under Section 7 of the IBC. After coming into effect the aforesaid amendment in Section 7, there is likelihood that petitioner’s case will be withdrawn, if they fail to comply with the new requirement given in section 7 of the IBC. Further, the challenge is against the Union of India which is a State within the meaning of Art.12 of the Constitution.

The petitioner further submits that “the present Act is manifestly arbitrary in light of the test laid down by this Hon’ble Court in the Judgment of Shayara Bano v/s Union of India (2017) 9 SCC 1 which is as follows:

“The test of manifest arbitrariness, therefore, as laid down in the aforesaid judgments would apply to invalidate legislation as well as subordinate legislation Under Article 14. Manifest arbitrariness, therefore, must be something done by the legislattire capriciously, irrationalJy and/or without adequate determining principle. Also, when something is done which is excessive and disproportionate, such legislation would be manifestly arbitrary.”

The petitioners visited the project in June 2017 and were shocked to notice that work at the project is not going as promised. Thereafter, the petitioners were compelled to run from-pillar-to-post to know the status of the project. Believing that Supertech Limited has no resources to build the project and deliver the premises, an application was filed by the petitioners to initiate insolvency proceedings against the Supertech/Corporate Debtors to claim the paid amount with interest.

it is submitted that the present Act is vague and would only serve to exacerbate the confusion, if any. While it posits that Home Buyers have to constitute 10% of the total allottees or be 100 in number, it remains silent on what ought to be done when some of the allottees settle or withdraw. Unlike the Section 244 of the Companies Act, 2013 or the Consumer Protection Act, 1986 which clearly delineate class litigation and the procedures governing the same, nothing in that regard has been made herein.

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