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2019 (8) TMI 532
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....(CIVIL) NO.185 OF 2019 WITH WRIT PETITION (CIVIL) NO.177 OF 2019 WITH WRIT PETITION (CIVIL) NO.214 OF 2019 WITH WRIT PETITION (CIVIL) NO.303 OF 2019 WITH WRIT PETITION (CIVIL) NO.195 OF 2019 WITH WRIT PETITION (CIVIL) NO.197 OF 2019 WITH WRIT PETITION (CIVIL) NO.196 OF 2019 WITH WRIT PETITION (CIVIL) NO.243 OF 2019 WITH WRIT PETITION (CIVIL) NO.198 OF 2019 WITH WRIT PETITION (CIVIL) NO.199 OF 2019 WITH WRIT PETITION (CIVIL) NO.200 OF 2019 WITH WRIT PETITION (CIVIL) NO.309 OF 2019 WITH WRIT PETITION (CIVIL) NO.217 OF 2019 WITH WRIT PETITION (CIVIL) NO.230 OF 2019 WITH WRIT PETITION (CIVIL) NO.304 OF 2019 WITH WRIT PETITION (CIVIL) NO.258 OF 2019 WITH WRIT PETITION (CIVIL) NO.221 OF 2019 WITH WRIT PETITION (CIVIL) NO.229 OF 2019 WITH WRIT PETITION (CIVIL) NO.241 OF 2019 WITH WRIT PETITION (CIVIL) NO.293 OF 2019 WITH WRIT PETITION (CIVIL) NO.310 OF 2019 WITH WRIT PETITION (CIVIL) NO.242 OF 2019 WITH WRIT PETITION (CIVIL) NO.280 OF 2019 WITH WRIT PETITION (CIVIL) NO.261 OF 2019 WITH WRIT PETITION (CIVIL) NO.263 OF 2019 WITH WRIT PETITION (CIVIL) NO.272 OF 2019 WITH WRIT PETITION (CIVIL) NO.362 OF 2019 WITH WRIT PETITION (CIVIL) NO.358 OF 2019 WITH WRIT PETITION (CIVIL) NO.281 OF 2019 W....
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....IT PETITION (CIVIL) NO.529 OF 2019 WITH WRIT PETITION (CIVIL) NO.492 OF 2019 WITH WRIT PETITION (CIVIL) NO.532 OF 2019 WITH WRIT PETITION (CIVIL) NO.540 OF 2019 WITH WRIT PETITION (CIVIL) NO.522 OF 2019 WITH WRIT PETITION (CIVIL) NO.503 OF 2019 WITH WRIT PETITION (CIVIL) NO.506 OF 2019 WITH WRIT PETITION (CIVIL) NO.513 OF 2019 WITH WRIT PETITION (CIVIL) NO.530 OF 2019 WITH WRIT PETITION (CIVIL) NO.555 OF 2019 WITH WRIT PETITION (CIVIL) NO.634 OF 2019 WITH WRIT PETITION (CIVIL) NO.580 OF 2019 WITH WRIT PETITION (CIVIL) NO.587 OF 2019 WITH WRIT PETITION (CIVIL) NO.682 OF 2019 WITH WRIT PETITION (CIVIL) NO.585 OF 2019 WITH WRIT PETITION (CIVIL) NO.613 OF 2019 WITH WRIT PETITION (CIVIL) NO.571 OF 2019 WITH WRIT PETITION (CIVIL) NO.578 OF 2019 WITH WRIT PETITION (CIVIL) NO.600 OF 2019 WITH WRIT PETITION (CIVIL) NO.589 OF 2019 WITH WRIT PETITION (CIVIL) NO.610 OF 2019 WITH WRIT PETITION (CIVIL) NO.648 OF 2019 WITH WRIT PETITION (CIVIL) NO.673 OF 2019 WITH WRIT PETITION (CIVIL) NO.629 OF 2019 WITH WRIT PETITION (CIVIL) NO.638 OF 2019 WITH WRIT PETITION (CIVIL) NO.597 OF 2019 WITH WRIT PETITION (CIVIL) NO.636 OF 2019 WITH WRIT PETITION (CIVIL) NO.632 OF 2019 WITH WRIT PETITION (CIVIL) NO.6....
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....tees of real estate projects to be "financial creditors" so that they may trigger the Code, under Section 7 thereof, against the real estate developer. In addition, being financial creditors, they are entitled to be represented in the Committee of Creditors by authorised representatives. The amendments so made to the Code are as follows: PROVISIONS OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016 BEING CHALLENGED 1. Explanation to Section 5(8)(f): "5. Definitions In this part, unless the context otherwise requires, - (8) "financial debt" means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes- (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; Explanation. - For the purposes of this sub- clause,- (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and (ii) the expressions, "allottee" and "real estate project" shall have the meanings respectively assigned to them....
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....f creditors any instructions received by way of physical or electronic means, from the financial creditor he represents, for voting in accordance therewith, to ensure that the appropriate voting instructions of the financial creditor he represents is correctly recorded by the interim resolution professional or resolution professional, as the case may be. Explanation - For the purposes of this section, the "electronic means" shall be such as may be specified."" 2. The Code was passed by the Parliament on 28th May, 2016. Several petitions were then filed against real estate developers under the Code by allottees who had entered into "assured returns / committed returns" agreements with these developers, whereby, upon payment of a substantial portion of the total sale consideration upfront at the time of execution of the agreement, the developer undertook to pay a certain amount to allottees on a monthly basis from the date of execution of the agreement till the date of handing over of possession to the allottees. The National Company Law Appellate Tribunal (hereinafter referred to as "NCLAT") on 21st July, 2017 in Nikhil Mehta and Sons (HUF) v. AMR Infrastructure Ltd., (C....
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....h August, 2018, the Parliament passed the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 (hereinafter referred to as the "Amendment Act") incorporating the aforesaid amendments as were provided for by the Amendment Ordinance. 5. Dr. Abhishek Manu Singhvi, learned Senior Advocate, leading the charge on behalf of the real estate developers, has argued that the treatment of allottees as financial creditors violates two facets of Article 14. One, that the amendment is discriminatory inasmuch as it treats unequals equally, and equals unequally, having no intelligible differentia; and two, that there is no nexus with the objects sought to be achieved by the Code. In fact, according to the learned senior counsel the amendments fly in the face of the objects sought to be achieved by the Code, i.e. to maximise value of assets so that the shareholders of a corporate debtor do not suffer from bad management or poor management. In the facts of the present cases, according to Dr. Singhvi, the "bad eggs" alone have been looked at, and entities like his client and many others before us, who have completed building projects in time and are in every way compliant with the law, can y....
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....s would be addressed by this sector-specific legislation and that the enactment of a sledgehammer to kill a gnat would render the impugned amendments excessive, disproportionate and violative of Articles 14 and 19(1)(g) of the Constitution on this score also. In addition, the learned senior counsel scoffed at the Union's stand, in their counter affidavit before this Court, that the amendments made are clarificatory in nature. According to Dr. Singhvi, by no stretch of imagination could allottees who have parted with money as sale consideration for an apartment be included within the definition of "financial creditor" as originally enacted by Section 5(7). In fact, the very need for a deeming fiction is so that Parliament brings in persons who are not financial creditors, by forcibly inserting a square peg in a round hole. He read to us this Court's judgment in Swiss Ribbons v. Union of India (2019) 4 SCC 17, in copious detail, in order to drive home the point that not a single one of several characteristics of financial creditors stated in that judgment would apply to allottees/home buyers. On the contrary, if at all they could be assimilated to anybody, it would be to operational ....
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....entials of being a financial creditor. According to him, there is no "debt" as defined under the Code; there is no "borrowing" as there is no temporary handing over of money which has then to be returned; there is no "disbursal" and no "sum raised" which has then to be handed back. Equally, the commercial effect of a borrowing must be qua transactions in which money is later replaced by money. According to him, in the present case, at the time that the agreement is made between the allottee and the real estate developer, what is agreed is that in return for money paid by the allottee, a flat/apartment would be allotted. It is only in the event of breach of the agreement on the part of the real estate developer that monies are to be refunded, which does not bring allottees within the definition of "financial creditor". He also argued, adopting Dr. Singhvi's arguments, that all other categories of financial creditors would involve these elements, and if read noscitur a sociis with the other clauses, Section 5(8) of the Code would also make it clear that persons can only be included if there is a borrowing, at the end of which the borrowing is returned - with or without interest. He t....
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.... to recalcitrant States to immediately set up the requisite authorities under RERA and made an impassioned plea that the words "claims as may be specified" in Section 15(1)(c) of the Code be struck down. According to him, real estate developers and borrowers are treated as equals when they are, in fact, unequals. Also, real estate developers are discriminated against when compared with other entities supplying goods or services. The amendments made are, therefore, excessive and disproportionate being manifestly arbitrary. He also buttressed Dr. Singhvi's argument that a square peg is fitted into a round hole as none of the identifying traits of financial creditors as explained in Swiss Ribbons (supra) are present insofar as allottees are concerned. He added that, in any case, RERA looks after all possible difficulties of allottees, who may in addition, invoke the arbitration clause for resolution of disputes with the real estate developer contained in most agreements. 10. Shri Krishnan Venugopal, learned Senior Advocate, who followed Shri Gopal Sankaranarayanan, placed before us the Global Derivatives Study Group and extracts from Philip Wood's Project Finance, Subordinated Debt....
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....e fundamental difference between financial and operational creditors was ignored. Secondly, he contended that by treating home buyers, who are in substance operational creditors, as financial creditors, infracts the principle of equitable treatment of similarly situated creditors. Further, the UNCITRAL Legislative Guide states that recognition of existing creditor's rights before the commencement of the insolvency proceedings by the insolvency law is important. He contended that by treating a home buyer as a financial creditor, the Code creates rights which such home buyer never had earlier. He further contended that by involving such persons in the negotiation process by putting them on the Committee of Creditors would infract the principle that, given their number and the diverse interests that they have, coupled with no knowledge or any commercial expertise of the corporate debtor, they should not and ought not to be allowed to participate in the Committee of Creditors. Also, insolvency law and other laws should be harmoniously construed, which harmony is disrupted when the Code is applied to cases which should really fall under RERA. Shri Bhandari was followed by Shri J. Gupta,....
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....ly prospectively, either from 2018 itself or at the very earliest from 1st December, 2016. He also argued that if this Court were to uphold the vires of the Amendment Act, his clients ought to be at liberty to take various defences under the agreement between his client and allottees, which this Court should make clear in the event of allottees knocking at the doors of the NCLT. 12. Mrs. Madhavi Divan, learned Additional Solicitor General, relying strongly upon Swiss Ribbons (supra), argued that the Amendment Act would clearly be covered by the ratio laid down by this Court in Swiss Ribbons (supra), which is that sufficient play in the joints must be given to the legislature when it comes to economic legislation, and every experiment that the legislature bona fide undertakes should not be interfered with by the Court. She referred copiously to the Insolvency Committee Report which led to the enactment of the Amendment Act, and stated that the real reason for including allottees as financial creditors is because, in substance, they finance the project in which they will ultimately be given flats/apartments. She contended that a cursory look at the agreement between developers and....
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....e afresh and argued that Section 5(8)(f), even read without the explanation, would, on its plain language, include real estate development agreements. For this purpose, she relied upon the definition of "payment" which would include "recompense" and on the definition in Collin's English dictionary of "borrow" which is "to obtain or receive money on loan for temporary use intending to give either money or something equivalent back to the lender". In the facts of these cases, she contended that the "something equivalent" would be the flat/apartment. She also relied upon the definition of "commercial" to show that the profit element is important. She stressed the fact that the "time value of money" is present qua both allottee and builder as the allottee would pay less than he would have to for a complete flat/apartment, in which case the entire consideration for the flat/apartment would have to be paid upfront; as against instalments while it is being completed. Qua the builder, she contended that the time value of money would be the money paid by way of advances by allottees which would be used to finance the building of the flats/apartments in the project. She also relied strongly ....
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....from the real estate developer, would then easily be able to decide whether a real estate developer owes money in the form of compensation payable for late completion of the project, and/or refund of money paid by the allottee. It would be open for the real estate developer in its defence to say that no amount is due and payable from the allottee, in that, the allottee is himself in breach of conditions laid down by the agreement read with the RERA, and rules and regulations made thereunder. According to her, therefore, the NCLT would be able to decide such applications in the same manner as would be decided in the case of banks and financial institutions. She also rebutted the argument that the collegiality of creditors will be affected by inserting home buyers into their committee by stating that home buyers, like banks and financial institutions, and unlike other operational creditors, are vitally concerned with the well-being of the corporate debtor, as otherwise the real estate project would never come to fruition. In rebutting the challenge to Section 21(6A) and Section 25A, she said there may be teething problems with regard to how an authorised representative is to vote on ....
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....RA has come into force. This has been done, for example, by defining 'Completion Certificate' to include partial completion certificates of projects (or parts of projects), so that such partial certificates given to the real estate developer before coming into force of RERA would make the provisions of RERA inapplicable. Also, it has been pointed out that real estate developers have been successful in arguing that RERA has now shut out the consumer fora so far as allottees are concerned, and referred to stay orders by which consumer fora for a long period of time were unable to proceed with cases filed by allottees before them, until the National Consumer Disputes Redressal Commission finally decided that the Consumer Protection Act, 1986 was an additional remedy and continued to be an additional remedy to the remedies provided under RERA. They also pointed out that the authorities themselves under RERA jostled the allottees about, as when an allottee went to the Real Estate Regulatory Authority and obtained orders against developers, such orders were nullified by some Appellate Tribunal orders, stating that they should be sent to the adjudicating officer who alone could decide dis....
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....m the presumption of constitutionality which arises in such cases, the legislative judgment in economic choices must be given a certain degree of deference by the courts. In paragraph 120 of the said judgment, this Court held: "120. The Insolvency Code is a legislation which deals with economic matters and, in the larger sense, deals with the economy of the country as a whole. Earlier experiments, as we have seen, in terms of legislations having failed, "trial" having led to repeated "errors", ultimately led to the enactment of the Code. The experiment contained in the Code, judged by the generality of its provisions and not by so- called crudities and inequities that have been pointed out by the petitioners, passes constitutional muster. To stay experimentation in things economic is a grave responsibility, and denial of the right to experiment is fraught with serious consequences to the nation. We have also seen that the working of the Code is being monitored by the Central Government by Expert Committees that have been set up in this behalf. Amendments have been made in the short period in which the Code has operated, both to the Code itself as well as to subordinate leg....
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....o be on the committee of creditors ("CoC") and third, the guarantee of receiving at least the liquidation value under the resolution plan. Recent cases like Chitra Sharma v. Union of India and Bikram Chatterji v. Union of India have evidenced the stance of the Hon'ble Supreme Court in safeguarding the rights of home buyers under the Code due to their current disadvantageous position. 1.3 To completely understand the issue, it is imperative that the peculiarity of the Indian real estate sector is highlighted. Delay in completion of under-construction apartments has become a common phenomenon and the records indicate that out of 782 construction projects in India monitored by the Ministry of Statistics and Programme Implementation, Government of India, a total of 215 projects are delayed with the time over-run ranging from 1 to 261 months. Another study released by the Associated Chambers of Commerce and Industry of India, revealed that 826 housing projects are running behind schedule across 14 states as of December 2016. Further, the Committee agreed that it is well understood that amounts raised under home buyer contracts is a significant amount, which contributes to the f....
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....ck by way of a forward contract. The difference between the two prices would imply the rate of return to the financer." (emphasis supplied) 1. 6 Thus, not all forward sale or purchase are financial transactions, but if they are structured as a tool or means for raising finance, there is no doubt that the amount raised may be classified as financial debt under section 5(8)(f). Drawing an analogy, in the case of home buyers, the amounts raised under the contracts of home buyers are in effect for the purposes of raising finance, and are a means of raising finance. Thus, the Committee deemed it prudent to clarify that such amounts raised under a real estate project from a home buyer fall within entry (f) of section 5(8). 1.7 Further, it may be noted that the amount of money given by home buyers as advances for their purchase is usually very high, and frequent delays in delivery of possession may thus, have a huge impact. For example, in Chitra Sharma v. Union of India the amount of debts owed to home buyers, which was paid by them as advances, was claimed to be INR Fifteen Thousand Crore, more than what was due to banks. Despite this, banks are in a more favourable po....
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....reditors which exceed a certain number, through an authorised representative. This can be done by adding a new provision to section 21 of the Code. Such a representative may either be a trustee or an agent appointed under the terms of the debt agreement of such creditors, otherwise an insolvency professional may be appointed by the NCLT for each such class of financial creditors. Additionally, the representative shall act and attend the meetings on behalf of the respective class of financial creditors and shall vote on behalf of each of the financial creditor to the extent of the voting share of each such creditor, and as per their instructions. To ensure adequate representation by the authorised representative of the financial creditors, a specific provision laying down the rights and duties of such authorised representatives may be inserted. Further, the requisite threshold for the number of creditors and manner of voting may be specified by IBBI through regulations to enable efficient voting by the representative. Also, regulation 25 may also be amended to enable voting through electronic means such as e-mail, to address any technical issues which may arise due to a large number....
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....to why this particular group of unsecured creditors, like deposit holders, should be part of the Committee of Creditors, it is difficult to appreciate how such a group can be excluded. The Real Estate (Regulation and Development) Act, 2016 (RERA) and its impact on the real estate sector 20. The Statement of Objects and Reasons of RERA reads as follows: STATEMENT OF OBJECTS AND REASONS "1. The real estate sector plays a catalytic role in fulfilling the need and demand for housing and infrastructure in the country. While the sector has grown significantly in recent years, it has been largely unregulated, with absence of professionalism and standardisation and lack of adequate consumer protection. Though the Consumer Protection Act, 1986 is available as a forum to the buyers in the real estate market, the recourse is only curative and is not adequate to address all the concerns of buyers and promoters in that sector. The lack of standardisation has been a constraint to the healthy and orderly growth of industry. Therefore, the need for regulating the sector has been emphasised in various forums. 2. In view of the above, it becomes necessary to have a C....
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....e year later - in the hope and expectation that the appropriate Government would set up the aforesaid authorities within the period of one year from 1st May, 2016. The relevant provisions of RERA are set out hereunder: "2. Definitions. --In this Act, unless the context otherwise requires, - (a) "adjudicating officer" means the adjudicating officer appointed under sub-section (1) of section 71; xxx xxx xxx (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; (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....
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....roject within a period of three months from the date of commencement of this Act: Provided further that if the Authority thinks necessary, in the interest of allottees, for projects which are developed beyond the planning area but with the requisite permission of the local authority, it may, by order, direct the promoter of such project to register with the Authority, and the provisions of this Act or the rules and regulations made thereunder, shall apply to such projects from that stage of registration. (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 square meters or eight apartments, as the case may be, inclusive of all phases, for exemption from registration under this Act; (b) where the promoter has received completion certificate for a real estate projec....
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....tion details of the project, with clear demarcation of land dedicated for the project along with its boundaries including the latitude and longitude of the end points of the project; (g) proforma of the allotment letter, agreement for sale, and the conveyance deed proposed to be signed with the allottees; (h) the number, type and the carpet area of apartments for sale in the project along with the area of the exclusive balcony or verandah areas and the exclusive open terrace areas apartment with the apartment, if any; (i) the number and areas of garage for sale in the project; (j) the names and addresses of his real estate agents, if any, for the proposed project; (k) the names and addresses of the contractors, architect, structural engineer, if any and other persons concerned with the development of the proposed project; (l) a declaration, supported by an affidavit, which shall be signed by the promoter or any person authorised by the promoter, stating:- (A) that he has a legal title to the land on which the development is proposed along with legally valid documents with authentication of such title, if such land is ow....
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....ority shall within a period of thirty days. (a) grant registration subject to the provisions of this Act and the rules and regulations made thereunder, and provide a registration number, including a Login Id and password to the applicant for accessing the website of the Authority and to create his web page and to fill therein the details of the proposed project; or (b) reject the application for reasons to be recorded in writing, if such application does not conform to the provisions of this Act or the rules or regulations made thereunder: Provided that no application shall be rejected unless the applicant has been given an opportunity of being heard in the matter. (2) If the Authority fails to grant the registration or reject the application, as the case may be, as provided under sub-section (1), the project shall be deemed to have been registered, and the Authority shall within a period of seven days of the expiry of the said period of thirty days specified under sub- section (1), provide a registration number and a Login Id and password to the promoter for accessing the website of the Authority and to create his web page and to fill therein th....
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....romoter has approval or affiliation which such promoter does not have; (iii) makes a false or misleading representation concerning the services; (B) the promoter permits the publication of any advertisement or prospectus whether in any newspaper or otherwise of services that are not intended to be offered; (d) the promoter indulges in any fraudulent practices. (2) The registration granted to the promoter under section 5 shall not be revoked unless the Authority has given to the promoter not less than thirty days notice, in writing, stating the grounds on which it is proposed to revoke the registration, and has considered any cause shown by the promoter within the period of that notice against the proposed revocation. (3) The Authority may, instead of revoking the registration under sub-section (1), permit it to remain in force subject to such further terms and conditions as it thinks fit to impose in the interest of the allottees, and any such terms and conditions so imposed shall be binding upon the promoter. (4) The Authority, upon the revocation of the registration,- (a) shall debar the promoter from accessing its we....
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....c) quarterly up-to-date the list of number of garages booked; (d) quarterly up-to-date the list of approvals taken and the approvals which are pending subsequent to commencement certificate; (e) quarterly up-to-date status of the project; and (f) such other information and documents as may be specified by the regulations made by the Authority. (2) The advertisement or prospectus issued or published by the promoter shall mention prominently the website address of the Authority, wherein all details of the registered project have been entered and include the registration number obtained from the Authority and such other matters incidental thereto. (3) The promoter at the time of the booking and issue of allotment letter shall be responsible to make available to the allottee, the following information, namely:- (a) sanctioned plans, layout plans, along with specifications, approved by the competent authority, by display at the site or such other place as may be specified by the regulations made by the Authority; (b) the stage wise time schedule of completion of the project, including the provisions for civic infrastructure ....
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....mpetent authority, as the case may be, as provided under section 17 of this Act; (g) pay all outgoings until he transfers the physical possession of the real estate project to the allottee or the associations of allottees, as the case may be, which he has collected from the allottees, for the payment of outgoings (including land cost, ground rent, municipal or other local taxes, charges for water or electricity, maintenance charges, including mortgage loan and interest on mortgages or other encumbrances and such other liabilities payable to competent authorities, banks and financial institutions, which are related to the project): Provided that where any promoter fails to pay all or any of the outgoings collected by him from the allottees or any liability, mortgage loan and interest thereon before transferring the real estate project to such allottees, or the association of the allottees, as the case may be, the promoter shall continue to be liable, even after the transfer of the property, to pay such outgoings and penal charges, if any, to the authority or person to whom they are payable and be liable for the cost of any legal proceedings which may be taken there....
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....accordance with the terms of the agreement for sale or, as the case may be, duly completed by the date specified therein; or (b) due to discontinuance of his business as a developer on account of suspension or revocation of the registration under this Act or for any other reason, he shall be liable on demand to the allottees, in case the allottee wishes to withdraw from the project, without prejudice to any other remedy available, to return the amount received by him in respect of that apartment, plot, building, as the case may be, with interest at such rate as may be prescribed in this behalf including compensation in the manner as provided under this Act: Provided that where an allottee does not intend to withdraw from the project, he shall be paid, by the promoter, interest for every month of delay, till the handing over of the possession, at such rate as may be prescribed. (2) The promoter shall compensate the allottees in case of any loss caused to him due to defective title of the land, on which the project is being developed or has been developed, in the manner as provided under this Act, and the claim for compensation under this subsectio....
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....sible to make necessary payments in the manner and within the time as specified in the said agreement for sale and shall pay at the proper time and place, the share of the registration charges, municipal taxes, water and electricity charges, maintenance charges, ground rent, and other charges, if any. (7) The allottee shall be liable to pay interest, at such rate as may be prescribed, for any delay in payment towards any amount or charges to be paid under sub-section (6). (8) The obligations of the allottee under sub-section (6) and the liability towards interest under sub- section (7) may be reduced when mutually agreed to between the promoter and such allottee. (9) Every allottee of the apartment, plot or building as the case may be, shall participate towards the formation of an association or society or cooperative society of the allottees, or a federation of the same. (10) Every allottee shall take physical possession of the apartment, plot or building as the case may be, within a period of two months of the occupancy certificate issued for the said apartment, plot or building, as the case may be. (11) Every allottee shall participat....
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....time being in force. (2) The form, manner and fees for filing complaint under sub-section (1) shall be such as may be prescribed. xxx xxx xxx 34. Functions of Authority --The functions of the Authority shall include- (a) to register and regulate real estate projects and real estate agents registered under this Act; (b) to publish and maintain a website of records, for public viewing, of all real estate projects for which registration has been given, with such details as may be prescribed, including information provided in the application for which registration has been granted; (c) to maintain a database, on its website, for public viewing, and enter the names and photographs of promoters as defaulters including the project details, registration for which has been revoked or have been penalised under this Act, with reasons therefor, for access to the general public; (d) to maintain a database, on its website, for public viewing, and enter the names and photographs of real estate agents who have applied and registered under this Act, with such details as may be prescribed, including those whose registration has been reje....
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....fect of market power of monopoly situation being abused for affecting interest of allottees adversely, then the Authority, may suo motu, make reference in respect of such issue to the Competition Commission of India. 39. Rectification of orders. --The Authority may, at any time within a period of two years from the date of the order made under this Act, with a view to rectifying any mistake apparent from the record, amend any order passed by it, and shall make such amendment, if the mistake is brought to its notice by the parties: Provided that no such amendment shall be made in respect of any order against which an appeal has been preferred under this Act: Provided further that the Authority shall not, while rectifying any mistake apparent from record, amend substantive part of its order passed under the provisions of this Act. 40. Recovery of interest or penalty or compensation and enforcement of order, etc.- (1) If a promoter or an allottee or a real estate agent, as the case may be, fails to pay any interest or penalty or compensation imposed on him, by the adjudicating officer or the Regulatory Authority or the Appellate Au....
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....ten per cent of the estimated cost of the real estate project as determined by the Authority. (2) If any promoter does not comply with the orders, decisions or directions issued under sub-section (1) or continues to violate the provisions of section 3, he shall be punishable with imprisonment for a term which may extend up to three years or with fine which may extend up to a further ten per cent of the estimated cost of the real estate project, or with both. 60. Penalty for contravention of section 4. --If any promoter provides false information or contravenes the provisions of section 4, he shall be liable to a penalty which may extend up to five per cent. of the estimated cost of the real estate project, as determined by the Authority. 61. Penalty for contravention of other provisions of this Act.-- If any promoter contravenes any other provisions of this Act, other than that provided under section 3 or section 4, or the rules or regulations made thereunder, he shall be liable to a penalty which may extend up to five per cent. of the estimated cost of the real estate project as determined by the Authority. xxx xxx xxx 71. Power to adju....
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....ely:- (a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (b) the amount of loss caused as a result of the default; (c) the repetitive nature of the default; (d) such other factors which the adjudicating officer considers necessary to the case in furtherance of justice. xxx xxx xxx 79. Bar of jurisdiction. --No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Authority or the adjudicating officer or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act. xxx xxx xxx 88. Application of other laws not barred-- The provisions of this Act shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force. 89. Act to have overriding effect.-- The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law ....
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....him in respect of such apartment etc. with such interest as may be prescribed and must, in addition, compensate the allottee in case of any loss caused to him. Under Section 19, the allottee shall be entitled to claim possession of the apartment, plot or building, as the case may be, or refund of amount paid along with interest in accordance with the terms of the agreement for sale. In addition, all allottees are to be responsible for making necessary payments in instalments within the time specified in the agreement for sale and shall be liable to pay interest at such rate as may be prescribed for any delay in such payment. Under Section 31, any aggrieved person may file a complaint with the authority or the adjudicating officers set up by such authority against any promoter, allottee or real estate agent, as the case may be, for violation or contravention of the RERA, and rules and regulations made thereunder. Also, if after adjudication a promoter, allottee or real estate agent fails to pay interest, penalty or compensation imposed on him by the authorities under the RERA, the same shall be recoverable as arrears of land revenue. Appeals may be filed to the Real Estate Appellate....
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....ed to be additional and not exclusive remedies. Also, it is important to remember that as the authorities under RERA were to be set up within one year from 1st May, 2016, remedies before those authorities would come into effect only on and from 1st May, 2017 making it clear that the provisions of the Code, which came into force on 1st December, 2016, would apply in addition to the RERA. 25. In KSL & Industries Ltd. v. Arihant Threads Ltd. (2015) 1 SCC 166, a Three Judge Bench of this Court held that the Sick Industries Companies (Special Provisions) Act, 1985 (hereinafter referred to as the "Sick Act") would prevail over the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the "Recovery Act") - both statutes containing non-obstante clauses. After going into the scheme of both the statutes, this Court referred in particular to Section 34(2) of the Recovery Act and then held as follows: "35. This special law, which deals with the recovery of debts due to banks and financial institutions, makes the procedure for recovery of such debts exclusive and even unique. The non obstante clause in sub-section (1) confers an overriding e....
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....curity charged with the bank or financial institution, on the other. xxx xxx xxx 48. In view of the observations of this Court in the decisions referred to and relied on by the learned counsel for the parties we find that, the purpose of the two enactments is entirely different. As observed earlier, the purpose of one is to provide ameliorative measures for reconstruction of sick companies, and the purpose of the other is to provide for speedy recovery of debts of banks and financial institutions. Both the Acts are "special" in this sense. However, with reference to the specific purpose of reconstruction of sick companies, SICA must be held to be a special law, though it may be considered to be a general law in relation to the recovery of debts. Whereas, the RDDB Act may be considered to be a special law in relation to the recovery of debts and SICA may be considered to be a general law in this regard. For this purpose we rely on the decision in LIC v. Vijay Bahadur [(1981) 1 SCC 315 : 1981 SCC (L&S) 111] . Normally the latter of the two would prevail on the principle that the legislature was aware that it had enacted the earlier Act and yet chose to enac....
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.... Transactions in Securities) Act, 1992 (hereinafter referred to as the "Special Court Act") must be considered to be legislation that is subsequent to the Recovery Act, since Section 9A was introduced by amendment, into the Special Court Act after the Recovery Act. Needless to add, both statutes contained non-obstante clauses. This Court held: "28. In the present case, both the two Acts i.e. the Act of 1992 and the Act of 1993 start with the non obstante clause. Section 34 of the Act of 1993 starts with non obstante clause, likewise Section 9-A (sic 13) of the Act of 1992. But incidentally, in this case Section 9-A came subsequently i.e. it came on 25-1-1994. Therefore, it is a subsequent legislation which will have the overriding effect over the Act of 1993. But cases might arise where both the enactments have the non obstante clause then in that case, the proper perspective would be that one has to see the subject and the dominant purpose for which the special enactment was made and in case the dominant purpose is covered by that contingencies, then notwithstanding that the Act might have come at a later point of time still the intention can be ascertained by looking to ....
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....s are given to allottees - under RERA to see that their flat/apartment is constructed and delivered to them in time, barring which compensation for the same and/or refund of amounts paid together with interest at the very least comes their way. If, however, the allottee wants that the corporate debtor's management itself be removed and replaced, so that the corporate debtor can be rehabilitated, he may prefer a Section 7 application under the Code. That another parallel remedy is available is recognised by RERA itself in the proviso to Section 71(1), by which an allottee may continue with an application already filed before the Consumer Protection fora, he being given the choice to withdraw such complaint and file an application before the adjudicating officer under RERA read with Section 88. In similar circumstances, this Court in Swaraj Infrastructure Private Limited v. Kotak Mahindra Bank Limited (2019) 3 SCC 620 has held that Debt Recovery Tribunal proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and winding up proceedings under the Companies Act, 1956 can carry on in parallel streams (see paragraphs 21 and 22 therein). Financial and ....
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....led form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in Part III, particulars of the financial debt in Part IV and documents, records and evidence of default in Part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the "debt", which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred,....
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.... certain circumstances, financial creditors could also be individuals, such as debenture holders and fixed deposit holders, who were then spoken of as follows: "42. A perusal of the definition of "financial creditor" and "financial debt" makes it clear that a financial debt is a debt together with interest, if any, which is disbursed against the consideration for time value of money. It may further be money that is borrowed or raised in any of the manners prescribed in Section 5(8) or otherwise, as Section 5(8) is an inclusive definition. On the other hand, an "operational debt" would include a claim in respect of the provision of goods or services, including employment, or a debt in respect of payment of dues arising under any law and payable to the Government or any local authority. 43. A financial creditor may trigger the Code either by itself or jointly with other financial creditors or such persons as may be notified by the Central Government when a "default" occurs. The Explanation to Section 7(1) also makes it clear that the Code may be triggered by such persons in respect of a default made to any other financial creditor of the corporate debtor, making it ....
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.... *** 10.8. In light of the deliberation above, the Committee felt that a mechanism requires to be provided in the Code to mandate representation in meetings of security-holders, deposit-holders, and all other classes of financial creditors which exceed a certain number, through an authorised representative. This can be done by adding a new provision to Section 21 of the Code. Such a representative may either be a trustee or an agent appointed under the terms of the debt agreement of such creditors, otherwise an insolvency professional may be appointed by NCLT for each such class of financial creditors. Additionally, the representative shall act and attend the meetings on behalf of the respective class of financial creditors and shall vote on behalf of each of the financial creditors to the extent of the voting share of each such creditor, and as per their instructions. To ensure adequate representation by the authorised representative of the financial creditors, a specific provision laying down the rights and duties of such authorised representatives may be inserted. Further, the requisite threshold for the number of creditors and manner of voting may be specified by ....
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....l select the insolvency professional, who is the choice of the highest number of financial creditors in the class in Form CA received under sub-regulation (1) of Regulation 12, to act as the authorised representative of the creditors of the respective class: Provided that the choice for an insolvency professional to act as authorised representative in Form CA received under sub-regulation (2) of Regulation 12 shall not be considered. (2) The interim resolution professional shall apply to the adjudicating authority for appointment of the authorised representatives selected under sub- regulation (1) within two days of the verification of claims received under sub-regulation (1) of Regulation 12. (3) Any delay in appointment of the authorised representative for any class of creditors shall not affect the validity of any decision taken by the committee. (4) The interim resolution professional shall provide the list of creditors in each class to the respective authorised representative appointed by the adjudicating authority. (5) The interim resolution professional or the resolution professional, as the case may be, shall provide an updated l....
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....ofessional, his decision being subject to challenge before the adjudicating authority under Section 60." The Article 14 Challenge (I): Discrimination 32. Learned counsel for the Petitioners have emphasised that treating allottees to be financial creditors is discriminatory inasmuch as unequals are treated equally, equals are treated unequally, and both are without any intelligible differentia having any nexus with the objects of the Code. It is argued that discrimination arises, equals being treated as unequal, as real estate developers are differentiated from other entities who supply goods or services and would, therefore, be discriminated against as, in the case of real estate developers, all that an allottee would have to show is that a debt is due to him, whereas in the cases of persons supplying goods or services if there exists any pre- existing dispute between the operational debtor and the person who purchases the goods or avails of the services, the operational debtor would be outside the clutches of the Code. It was also argued that unequals are treated as equals as banks and financial institutions are completely different from real estate developers, as has been r....
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....islation. (at page 297, 298)" 34. This principle has been re-iterated by this Court in State of Bihar v. Shree Baidyanath Ayurved Bhawan (P) Ltd. (2005) 2 SCC 762 at 783 and more recently in Karnataka Live Band Restaurants Assn. v. State of Karnataka (2018) 4 SCC 372 at 393 where this Court re-iterated the principles to test legislation on the touchstone of Article 14 as laid down by this Court in Ram Krishna Dalmia (supra), wherein as extracted above, this Court held that the legislature is free to recognise degrees of harm and confine its application to those cases where the need is deemed to be the clearest. 35. In State of Gujarat and Anr. v. Shri Ambica Mills Ltd., Ahmedabad, etc. (1974) 4 SCC 656, this Court dealt with classifications that are under-inclusive and held, particularly with regard to economic legislation, that such under-inclusion would not result in the death-knell of such laws on the anvil of Article 14. This Court put it thus: "53. The equal protection of the laws is a pledge of the protection of equal laws. But laws may classify. And the very idea of classification is that of inequality. In tackling this paradox the Court has neither abandoned ....
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....nable. But the Court has recognised the very real difficulties under which legislatures operate - difficulties arising out of both the nature of the legislative process and of the society which legislation attempts perennially to re-shape - and it has refused to strike down indiscriminately all legislation embodying classificatory inequality here under consideration. Mr Justice Holmes, in urging tolerance of under-inclusive classifications, stated that such legislation should not be disturbed by the Court unless it can clearly see that there is no fair reason for the law which would not require with equal force its extension to those whom it leaves untouched. [ Missouri, K&T Rly v. May, 194 US 267, 269] What, then, are the fair reasons for non- extension? What should a court do when it is faced with a law making an under-inclusive classification in areas relating to economic and tax matters? Should it, by its judgment, force the legislature to choose between inaction or perfection? xxx xxx xxx 66. That the legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent that ....
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.... What Article 14 prohibits is hostile discrimination and not reasonable classification for the purpose of legislation. Furthermore, the legislature which is in the best position to understand the needs and requirements of the people must be given sufficient latitude for making selection or differentiation and so long as such a selection is not arbitrary and has a rational basis having regard to the object of the Act, Article 14 would not be attracted. That is why this Court has laid down that presumption is always in favour of the constitutionality of an enactment and the onus lies upon the person who attacks the statute to show that there has been an infraction of the constitutional concept of equality. It has also been held that in order to sustain the presumption of constitutionality, the court is entitled to take into consideration matters of common knowledge, common report, the history of the times and all other facts which may be existing at the time of the legislation. Similarly, it cannot be presumed that the administration of a particular law would be done with an "evil eye and an unequal hand". Finally, any person invoking Article 14 of the Constitution must show that the....
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....y and uniformity within each group, the law will not be condemned as discriminative, though due to some fortuitous circumstance arising out of a peculiar situation some included in a class get an advantage over others, so long as they are not singled out for special treatment. (See: Khandige Sham Bhat v. Agricultural I.T.O. [(1963) 3 SCR 809, 817: AIR 1963 SC 591: (1963) 48 ITR 21]) (emphasis supplied) xxx xxx xxx 23. Just as a difference in the treatment of persons similarly situate leads to discrimination, so also discrimination can arise if persons who are unequals, i.e. differently placed, are treated similarly. In such a case failure on the part of the legislature to classify the persons who are dissimilar in separate categories and applying the same law, irrespective of the differences, brings about the same consequence as in a case where the law makes a distinction between persons who are similarly placed. A law providing for equal treatment of unequal objects, transactions or persons would be condemned as discriminatory if there is absence of rational relation to the object intended to be achieved by the law. xxx xxx xxx 29. In t....
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....he instant relief to the indebted which is the promise of the legislature." (SCC p. 689, para 44)" The principle contained in Swiss Ribbons (supra), that far greater deference is accorded to economic legislation, as the legislature is given free play in the joints and is at liberty to conduct economic experiments in public interest, finds an early application in Shri Ambica Mills (supra), and applies on all fours in this case. Sub- paras (b), (c), (d) and (f) of Ram Krishna Dalmia (supra) are all also attracted in the present case. 39. It is also important to remember that the Code is not meant to be a debt recovery mechanism [see paragraph 28 of Swiss Ribbons (supra)]. It is a proceeding in rem which, after being triggered, goes completely outside the control of the allottee who triggers it. Thus, any allottee/home buyer who prefers an application under Section 7 of the Code takes the risk of his flat/apartment not being completed in the near future, in the event of there being a breach on the part of the developer. Under the Code, he may never get a refund of the entire principal, let alone interest. This is because, the moment a petition is admitted under Section 7, the re....
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....em from other operational creditors, nor is it possible to say that such classification is palpably arbitrary having no rational relation to the objects of the Code. It was vehemently argued by learned counsel on behalf of the Petitioners that if at all real estate developers were to be brought within the clutches of the Code, being like operational debtors, at best they could have been brought in under this rubric and not as financial debtors. Here again, what is unique to real estate developers vis-à-vis operational debts, is the fact that, in operational debts generally, when a person supplies goods and services, such person is the creditor and the person who has to pay for such goods and services is the debtor. In the case of real estate developers, the developer who is the supplier of the flat/apartment is the debtor inasmuch as the home buyer/allottee funds his own apartment by paying amounts in advance to the developer for construction of the building in which his apartment is to be found. Another vital difference between operational debts and allottees of real estate projects is that an operational creditor has no interest in or stake in the corporate debtor, unlike ....
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.... own information given on its webpage as to delay in construction, etc. It is these fundamental differences between the real estate developer and the supplier of goods and services that the legislature has focused upon and included real estate developers as financial debtors. This being the case, it is clear that there cannot be said to be any infraction of equal protection of the laws. 41. Shri Shyam Divan relying upon Nagpur Improvement Trust and Anr. v. Vithal Rao and Ors. (1973) 1 SCC 500 at paragraph 26 and Subramanian Swamy v. Director, Central Bureau of Investigation and Anr. (2014) 8 SCC 682 at paragraphs 44, 58 and 68 argued that the object of the amendment is itself discriminatory in that it seeks to insert into a "means and includes" definition a category which does not fit therein, namely, real estate developers who do not, in the classical sense, borrow monies like banks and financial institutions. According to him, therefore, the object itself being discriminatory, the inclusion of real estate developers as financial debtors should be struck down. We have already pointed out how real estate developers are, in substance, persons who avail finance from allottees who ....
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....lso argued with reference to Regulation 9A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 that home buyers would really fall within "other creditors" as a residuary class, who would have to stand in line with their claims which would be made to the resolution professional once the Code is triggered. Regulation 9A reads as follows: "9A. Claims by other creditors. (1) A person claiming to be a creditor, other than those covered under regulations 7, 8, or 9, shall submit proof of its claim to the interim resolution professional or resolution professional in person, by post or by electronic means in Form F of the Schedule. (2) The existence of the claim of the creditor referred to in sub-section (1) may be proved on the basis of - (a) the records available in an information utility, if any, or (b) other relevant documents sufficient to establish the claim, including any or all of the following:- (i) documentary evidence demanding satisfaction of the claim; (ii) bank statements of the creditor showing non- satisfaction of claim; (iii) an order ....
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.... generally involve large sums of money. By way of contrast, operational contracts have dues whose quantum is generally less. ● In the running of a business, operational creditors can be many as opposed to financial creditors, who lend finance for the set up or working of business. It is obvious that debenture holders and persons with home loans may be numerous and, therefore, have been statutorily dealt with by the aforesaid change made in the Code as well as the Regulations. However, as a general rule, it is correct to say that financial creditors, which involve banks and financial institutions, would certainly be smaller in number than operational creditors of a corporate debtor. ● Also, financial creditors have specified repayment schedules, and defaults entitle financial creditors to recall a loan in totality. Contracts with operational creditors do not have any such stipulations. ● Also, the forum in which dispute resolution takes place is completely different. Contracts with operational creditors can and do have arbitration clauses where dispute resolution is done privately. Operational debts also tend to be recurring in nature and the possibility of ....
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....t is unlikely that sound financial decisions will be taken having regard to the overall status of the entity which will undoubtedly defeat the very purpose and objective of the CIRP process. 4 Regarding participation in the COC meetings: "Under the Code, the committee of creditors is entrusted with the primary responsibility of financial restructuring. They are required to assess the viability of a corporate debtor by taking into account all available information as well as to evaluate all alternative investment opportunities that are available. The committee of creditors is required to evaluate the resolution plan on the basis of feasibility and viability." "Since the financial creditors are in the business of money lending, banks and financial institutions are best equipped to assess viability and feasibility of the business of the corporate debtor. Even at the time of granting loans, these banks and financial institutions undertake a detailed market study which includes a techno-economic valuation report, evaluation of business, financial projection, etc. Since this detailed study has already been undertaken before sanctioning a loan, and since financial creditors have tra....
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.... financial debt: (a) Particulars of security held, if any, the date of its creation, its estimated value as per the creditor; (b) Certificate of registration of charge issued by the registrar of companies (if the corporate debtor is a company); (c) Order of a court, tribunal or arbitral panel adjudicating on the default; (d) Record of default with the information utility; (e) 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; (f) The latest and complete copy of the financial contract reflecting all amendments and waivers to date; (g) A record of default as available with any credit information company; (h) Copies of entries in a bankers book in accordance with the Bankers Books Evidence Act, 1891." [Para 48, 49] ● With respect to set-offs: "a set-off of amounts due from financial creditors is a rarity. Usually, financial debts point only in one way - amounts lent have to be repaid." [Para 55] ● Requirement of proving 'default' in case of section 7 applications: Whereas a "claim" gives rise to a "debt" only when it becomes "due", a "default"....
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....ises - as has been pointed out by us hereinabove - in paragraphs 46 to 49, that it was not dealing with individual financial creditors, such as debenture holders, fixed deposit holders and home buyers. To apply a judgment rendered in a wholly different context to the facts in the present cases would itself be an arbitrary exercise. What has been stated hereinabove as to allottees being individual financial creditors like deposit holders and debenture holders, applies on all fours to repel this argument based on another facet of Article 14. In fact, the object of the Code, as originally set out in paragraphs 27 and 28 of Swiss Ribbons (supra) is as follows: "27. As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganisation and insolvency resolution of corporate debtors. Unless such reorganisation is effected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximisation of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entreprene....
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....tects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends." A reading of these paragraphs will show these very objects are sub-served by treating allottees as financial creditors. The Code is thus a beneficial legislation which can be triggered to put the corporate debtor back on its feet in the interest of unsecured creditors like allottees, who are vitally interested in the financial health of the corporate debtor, so that a replaced management may then carry out the real estate project as originally envisaged and deliver the flat/apartment as soon as possible and/or pay compensation in the event of late delivery, or non-delivery, or refund amounts advanced together with interest. Thus, applying the Shayara Bano v. Union of India (2017) 9 SCC 1 test, it cannot be said that a square peg has been forcibly fixed into a round hole so as to render Section 5(8)(f) manifestly arbitrary i.e. excessive, disproportionate or without adequate determining principle. For the same reason, it cannot be said that Article....
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....construction and handing over of such flats/apartments to the vast bulk of allottees of a project who may be genuine buyers who wish to occupy such flats/apartments as roofs over their heads. Another facet of this argument is that the bulk of such persons will never be on the Committee of Creditors, as they may not be persons who trigger the Code at all. These arguments are met by the fact that all the allottees of the project in question can either join together under the explanation to Section 7(1) of the Code, or file their own individual petitions after the Code gets triggered by a single allottee, stating that in addition to the construction of their flat/apartment, they are also entitled to compensation under RERA and/or under the general law, and would thus be persons who have a "claim", i.e. a right to remedy for breach of contract which gives rise to a right to compensation, whether or not such right is reduced to judgment, and would therefore be persons to whom a liability or obligation in respect of a "claim" is due. Such persons would, therefore, have a voice in the Committee of Creditors as to future plans for completion of the project, and compensation for late delive....
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....er and purchaser". This is achieved through Section 4, where every promoter in its application to the authority for registration under sub-clause (2)(b), has to include the current status of the project, any delay in its completion, details of cases pending, payments pending etc. Equally, under sub-clause (g), the proforma of the allotment letter, agreement for sale and conveyance deed proposed to be signed with the allottee are all to be furnished. Also, under sub-clause (l)(C), the time period within which he undertakes to complete the project is also to be stated. Above all, under Section 4(3) read with Section 11, the authority is to operationalise a web-based online system in which the promoter shall, upon receiving his Login Id and password, create a webpage on the website of the authority to enter all details as required by Section 4(2), including quarterly update of the status of the project and the stage-wise time schedule of completion of the project. Also, under Section 7, the Authority may revoke registration for various reasons, and under Section 7(4)(a) shall debar the promoter from accessing its website in relation to that project, and thereafter specify its name in ....
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....llottee or by the allottee to the promoter, as the case may be, shall be the State Bank of India highest Marginal Cost of Lending Rate plus two per cent. Provided that in case the State Bank of India Marginal Cost of Lending Rate is not in use it would be replaced by such benchmark lending rates which the State Bank of India may fix from time to time for lending to the general public. 16. Timelines for refund- Any refund of monies along with the applicable interest and compensation, if any, payable by the promoter in terms of the Act or the rules and regulations made thereunder, shall be payable by the promoter to the allottee within forty-five days from the date on which such refund along with applicable interest and compensation, as the case may be, become due." It can thus be seen that just as information utilities provide the kind of information as to default that banks and financial institutions are provided under Sections 214 to 216 of the Code read with Regulations 25 and 27 of the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, allottees of real estate projects can come armed with the same kind of information, this ti....
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....ling with timelines provided qua operational creditors, in Surendra Trading Company (supra), held that the timelines contained in the provisos to Section 7(5), Section 9(5) and Section 10(4) of the Code are all directory and not mandatory. This is for the obvious reason that no consequence is provided if the periods so mentioned are exceeded. Though this decision is not in the context of the 14-day period provided by Section 7(4), we are of the view that this judgment would apply squarely on all fours so that the period of 14 days given to the NCLT for decision under Section 7(4) would be directory. We are conscious of the fact that under Section 64(1) of the Code, the NCLT President or the Chairperson of the NCLAT may, after taking into account reasons by the NCLT or NCLAT for exceeding the period mentioned by statute, extend the period of 14 days by a period not exceeding 10 days. We may note that even this provision is directory, in that no consequence is provided either if the period is not extended, or after the extension expires. This is also for the good reason that an act of the court cannot harm the litigant before it. Unfortunately, both the NCLT and NCLAT do not have suf....
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....refore, to be a homogenous class. A glance at the five categories would show, they argue, that they have, in fact, conflicting interests. These five categories are stated to be as follows: a) "Those who have taken possession and have executed sale deeds, with or without further claims for delay compensation; b) Those who have taken possession but are yet to execute sale deeds, with or without further claims for delay compensation; c) Those who are yet to receive possession and seek possession, with or without delay compensation; or d) Those who are yet to receive possession and seek to obtain refunds of sale consideration with interest. e) Each of the above may be without or without NCDRC/RERA orders/decrees." 54. It has been argued that different instructions may be given by different allottees making it difficult for the authorised representatives to vote on the Committee of Creditors and that in any case, the collegiality of the secured creditors will be disturbed. To this the answer is that like other financial creditors, be they banks and financial institutions, or other individuals, all persons who have advanced monies to the co....
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.... of the financial creditors he represents, who have cast their vote: Provided that for a vote to be cast in respect of an application under section 12A, the authorised representative shall cast his vote in accordance with the provisions of sub-section (3)." Given the fact that allottees may not be a homogenous group, yet there are only two ways in which they can vote on the Committee of Creditors - either to approve or to disapprove of a proposed resolution plan. Sub-section (3A) goes a long way to ironing out any creases that may have been felt in the working of Section 25A in that the authorised representative now casts his vote on behalf of all financial creditors that he represents. If a decision taken by a vote of more than 50% of the voting share of the financial creditors that he represents is that a particular plan be either accepted or rejected, it is clear that the minority of those who vote, and all others, will now be bound by this decision. As has been stated by us in Swiss Ribbons (supra), the legislature must be given free play in the joints to experiment. Minor hiccups that may arise in implementation can always be sorted out later. Thus, any challenge t....
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....ch may be endemic to them, or owing to the fact that the market may have slumped as a result of which the investment made by them in the flat/apartment would fall flat requiring them to pull out of the transaction, would then be able to trigger the Code mala fide, and a reading down of these provisions would, therefore, obviate such problem. All these arguments have been refuted in detail earlier in this judgment. In a Section 7 application made by an allottee, the NCLT's 'satisfaction' will be with both eyes open - the NCLT will not turn a Nelson's eye to legitimate defences by a real estate developer, as outlined by us hereinabove. There is, therefore, no necessity to read into or read down any of these provisions. Also, in Cellular Operators Association of India v. TRAI (2016) 7 SCC 703, this Court held that when a provision is cast in definite and unambiguous language, it is not permissible either to mend or bend it, even if such recasting is in accord with good reason and conscience. This Court said: "50. But it was said that the aforesaid Regulation should be read down to mean that it would apply only when the fault is that of the service provider. We are afraid that....
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....ate the services of a permanent and confirmed employee by issuing a notice terminating his services, or by making payment in lieu of such notice without assigning any reasons and without any opportunity of hearing to the employee, could be said to be violative of the appellants' fundamental rights. Four of the learned Judges who heard the case, the Chief Justice alone dissenting on this aspect, decided that the regulation cannot be read down, and must, therefore, be held to be unconstitutional. In the lead judgment on this aspect by Sawant, J., this Court stated: (SCC pp. 728-29, para 255) "255. It is thus clear that the doctrine of reading down or of recasting the statute can be applied in limited situations. It is essentially used, firstly, for saving a statute from being struck down on account of its unconstitutionality. It is an extension of the principle that when two interpretations are possible-one rendering it constitutional and the other making it unconstitutional, the former should be preferred. The unconstitutionality may spring from either the incompetence of the legislature to enact the statute or from its violation of any of the provisions of the Constitu....
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....ents were made on the effect of deeming fictions generally and on the functions of an explanation to a Section. Let us address all of these arguments. 59. First and foremost, a financial debt is defined as meaning a "debt". "Debt" is defined by Section 3(11) of the Code as follows: "3. Definitions.- In this Code, unless the context otherwise requires, - xxx xxx xxx (11) "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; This definition in turn takes us to the definition of "claim" in Section 3(6) and "default" in Section 3(12) of the Code which read as follows: "(6) "claim" means- (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured; xxx xxx xxx (12) "default" means non-payment....
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....ount of money given for a particular purpose." In the present context, it is clear that the expression "disburse" would refer to the payment of instalments by the allottee to the real estate developer for the particular purpose of funding the real estate project in which the allottee is to be allotted a flat/apartment. The expression "disbursed" refers to money which has been paid against consideration for the "time value of money". In short, the "disbursal" must be money and must be against consideration for the "time value of money", meaning thereby, the fact that such money is now no longer with the lender, but is with the borrower, who then utilises the money. Thus far, it is clear that an allottee "disburses" money in the form of advance payments made towards construction of the real estate project. We were shown the 'Dictionary of Banking Terms' (Second edition) by Thomas P. Fitch in which "time value for money" was defined thus: "present value: today's value of a payment or a stream of payment amount due and payable at some specified future date, discounted by a compound interest rate of DISCOUNT RATE. Also called the time value of money. Today's value of a strea....
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....se- out of that derivative transaction, that amount) shall be taken into account); (h)any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution; and (i) the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (a) to (h) above." 63. When compared with Section 5(8), it is clear that Section 5(8) seems to owe its genesis to the definition of "financial indebtedness" that is contained for the purposes of Investment Grade Agreements. Shri Venugopal argued that even insofar as derivative transactions are concerned, it is clear that money alone is given against consideration for time value of money and a transaction which is a pure sale agreement between "borrowers" and "lender" cannot possibly be said to fit within any of the categories mentioned in Section 5(8). He relied strongly on the passage in Slaughter and May's book which are extracted hereinbelow: "Any amount raised having the "commercial effect of a borrowing" A wide range of transactions can be caught by pa....
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.... have the commercial effect of a borrowing. We were referred to Collins English Dictionary & Thesaurus (Second Edition, 2000) for the meaning of the expression "borrow" and the meaning of the expression "commercial". They are set out hereinbelow: "borrow-vb 1. to obtain or receive (something, such as money) on loan for temporary use, intending to give it, or something equivalent back to the lender. 2. to adopt (ideas, words, etc.) from another source; appropriate. 3. Not standard. to lend. 4. (intr) Golf. To putt the ball uphill of the direct path to the hole: make sure you borrow enough." xxx xxx xxx "commercial. -adj. 1. of or engaged in commerce. 2. sponsored or paid for by an advertiser: commercial television. 3. having profit as the main aim: commercial music. 4. (of chemicals, etc.) unrefined and produced in bulk for use in industry. 5. a commercially sponsored advertisement on radio or television." 67. A perusal of these definitions would show that even though the Petitioners may be right in stating that a "borrowing" is a loan of money for temporary use, they are not necessarily right in stating that the transaction must culminate in m....
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....e as financial creditors (as financial creditors include debenture holders and bond holders), along with banks and financial institutions to whom crores of money may be due. 69. That this amendment is in fact clarificatory is also made clear by the Insolvency Committee Report, which expressly uses the word "clarify", indicating that the Insolvency Law Committee also thought that since there were differing judgments and doubts raised on whether home buyers would or would not be included within Section 5(8)(f), it was best to set these doubts at rest by explicitly stating that they would be so covered by adding an explanation to Section 5(8)(f). Incidentally, the Insolvency Law Committee itself had no doubt that given the 'financing' of the project by the allottees, they would fall within Section 5(8)(f) of the Code as originally enacted. 70. And now some of the other arguments on behalf of the Petitioners need to be met. According to learned counsel for the Petitioners, the expression "means and includes" would indicate that that the definition section is exhaustive, and this being so, alien subject matter such as home buyers cannot be inserted therein. For this proposition, t....
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...., 105-106 : (1895-9) All ER Rep Ext 1576] (Lord Watson); Mahalakshmi Oil Mills v. State of A.P. [(1989) 1 SCC 164, 169 : 1989 SCC (Tax) 56] The use of the words "means and includes" in Rule 2(b) would, therefore, suggest that the definition of 'college' is intended to be exhaustive and not extensive and would cover only the educational institutions falling in the categories specified in Rule 2(b) and other educational institutions are not comprehended. Insofar as engineering colleges are concerned, their exclusion may be for the reason that the opening and running of the private engineering colleges are controlled through the Board of Technical Education and Training and the Director of Technical Education in accordance with the directions issued by the AICTE from time to time. As noticed earlier the Grants-in-Aid Code contains provisions which, in many respects, cover the same field as is covered by the Act and the Rules. The Director of Technical Education has been entrusted with the functions of proper implementation of those provisions. There is nothing to show that the said arrangement was not working satisfactorily so as to be replaced by the system sought to be introduced by....
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....lso includes such items which come into being in processed form and further includes such items which are called as gur, rab, shakkar, khandsari and jaggery." 72. This statement of the law, as can be seen from the quotation hereinabove, is without citation of any authority. In fact, in Jagir Singh & Ors. v. State of Bihar & Anr. (1976) 2 SCC 942 at paragraphs 11 and 19 to 21 and Mahalakshmi Oil Mills v. State of Andhra Pradesh & Ors. (1989) 1 SCC 164, at paragraphs 8 and 11 (which has been cited in P. Kasilingam (supra)), this Court set out definition sections where the expression "means" was followed by some words, after which came the expression "and includes" followed by other words, just as in the Krishi Utpadan Mandi Samiti (supra) case. In two other recent judgments, Bharat Coop. Bank (Mumbai) Ltd. v. Coop. Bank Employees Union (2007) 4 SCC 685, at paragraphs 12 and 23, and State of West Bengal and Ors. v. Associated Contractors (2015) 1 SCC 32 at paragraph 14, this Court has held that wherever the expression "means" is followed by the expression "and includes" whether with or without additional words separating "means" from "includes", these expressions indicate that the ....
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....pressly meant considerably to widen the concept and therefore suggests a somewhat contrary intention to the application of the ejusdem generis rule. We may derive instruction from Green's construction of the identical expression in the English Act. [Section 45 (2)]. The learned author writes: "A disclaimer is an extinguishment of a right for this purpose. Although in the event the person disclaiming never has any right in the property, he has the right to obtain it, this inchoate right is a 'right' for the purposes of Section 45(2). The ejusdem generis rule does not apply to the words 'a debt or other right' and the word 'right' is a word of the widest import. Moreover, the expression 'at the expense of the deceased' is used in an ordinary and natural manner; and is apt to cover not only cases where the extinguishment involves a loss to the deceased of a benefit he already enjoyed, but also those where it prevents him from acquiring the benefit." Also, in Subramanian Swamy v. Union of India (2016) 7 SCC 221, this Court held: "70. The other aspect that is being highlighted in the context of Article 19(2) is that defamation eve....
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....and free of ambiguity, the rule of construction in question cannot be pressed into service. 72. In Bank of India v. Vijay Transport [Bank of India v. Vijay Transport, 1988 Supp SCC 47 : AIR 1988 SC 151] , the Court was dealing with the contention that a literal interpretation is not always the only interpretation of a provision in a statute and the court has to look at the setting in which the words are used and the circumstances in which the law came to be passed to decide whether there is something implicit behind the words actually used which would control the literal meaning of the words used. For the said purpose, reliance was placed on R.L. Arora (2) v. State of U.P. [R.L. Arora (2) v. State of U.P., (1964) 6 SCR 784 : AIR 1964 SC 1230] . Dealing with the said aspect, the Court has observed thus: (Vijay Transport case [Bank of India v. Vijay Transport, 1988 Supp SCC 47 : AIR 1988 SC 151] , SCC p. 51, para 11) "11. ... It may be that in interpreting the words of the provision of a statute, the setting in which such words are placed may be taken into consideration, but that does not mean that even though the words which are to be interpreted convey a clear mea....
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....dragadkar, J. in the following words: 'This rule, according to Maxwell [ Maxwell, Interpretation of Statutes (11th Edn., 1962) 321.] , means that when two or more words which are susceptible of analogous meaning are coupled together, they are understood to be used in their cognate sense. They take as it were their colour from each other, that is, the more general is restricted to a sense analogous to a less general.'" The learned author on further discussion has expressed the view that meaning of a word is to be judged from the company it keeps i.e. reference to words found in immediate connection with them. It applies when two or more words are susceptible of analogous meanings are coupled together, to be read and understood in their cognate sense. [Principles of Statutory Interpretation by G.P. Singh (8th Edn.) 379.] Noscitur a sociis is merely a rule of construction and cannot prevail where it is clear that wider and diverse etymology is intentionally and deliberately used in the provision. It is only when and where the intention of the legislature in associating wider words with words of narrowest significance is doubtful or otherwise not clear, that the rule ....
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.... State of Rajasthan and Ors. (1996) 2 SCC 449, that a deeming fiction can only be as to facts and cannot be the deeming of a legal position. It was further argued relying upon Daiichi Sankyo Company Limited v. Jayaram Chigurupati and Ors. (2010) 7 SCC 449, that a deeming provision cannot be destructive of the main provision and cannot be construed as such. 80. A closer look at Delhi Cloth & General Mills Co. Ltd. (supra) would show that the judgment in essence followed this Court's judgment in Shri Prithvi Cotton Mills Ltd. & Anr. v. Broach Borough Municipality & Ors. 1969 (2) SCC 283, in that the validating statute in question had not cured the defect that was pointed out. This becomes clear on a reading of paragraph 16 and 17 of the judgment which read as follows: "16. The Validating Act provides that, notwithstanding anything contained in Sections 4 to 7 of the 1959 Act or in any judgment, decree, order or direction of any court, the villages of Raipura and Ummedganj should be deemed always to have continued to exist and they continue to exist within the limits of the Kota Municipality, to all intents and for all purposes. This provision requires the deeming of the l....
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....show that a deeming fiction can also be used to put beyond doubt a particular construction that might otherwise be uncertain. Thus, Stroud's Judicial Dictionary of Words and Phrases (Seventh Edition, 2008), defines "deemed" as follows: "Deemed"-, as used in statutory definitions "to extend the denotation of the defined term to things it would not in ordinary parlance denote, is often a convenient device for reducing the verbiage or an enactment, but that does not mean that wherever it is used it has that effect; to deem means simply to judge or reach a conclusion about something, and the words 'deem' and 'deemed' when used in a statute thus simply state the effect or meaning which some matter or things has- the way in which it is to be adjudged ; this need not import artificiality or fiction; it may simply be the statement of an indisputable conclusion." 84. In Hindustan Cooperative Housing Building Society Limited v. Registrar, Cooperative Societies and Anr. (2009) 14 SCC 302, this Court in dealing with legal fictions generally quoted a large number of authorities thus at paragraph 17: "17. "13. ... It is, as noted above, a deeming provision. Such a provision ....
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....es it is used to give a comprehensive description that includes what is obvious, what is uncertain and what is, in the ordinary sense, impossible.' [Per Lord Radcliffe in St. Aubyn v. Attorney General (No. 2) [1952 AC 15 : (1951) 2 All ER 473 (HL)] , AC p. 53.] 14. 'Deemed', as used in statutory definitions [is meant] 'to extend the denotation of the defined term to things it would not in ordinary parlance denote, is often a convenient devise for reducing the verbiage of an enactment, but that does not mean that wherever it is used it has that effect; to deem means simply to judge or reach a conclusion about something, and the words "deem" and "deemed" when used in a statute thus simply state the effect or meaning which some matter or thing has - the way in which it is to be adjudged; this need not import artificiality or fiction; it may simply be the statement of an undisputable conclusion.' (Per Windener, J. in Hunter Douglas Australia Pty. v. Perma Blinds [(1970) 44 Aust LJ R 257] .) 15. When a thing is to be 'deemed' something else, it is to be treated as that something else with the attendant consequences, but it is not that something else (per Cave,....
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....s home buyers/allottees would be subsumed within Section 5(8)(f) as it originally stood as has been held by us hereinabove. As a matter of statutory interpretation, that interpretation, which accords with the objects of the statute in question, particularly when we are dealing with a beneficial legislation, is always the better interpretation or the "creative interpretation" which is the modern trend of authority, and which is reflected in the concurring judgment of Eera (through Dr. Manjula Krippendorf) v. State (NCT of Delhi) and Anr. (2017) 15 SCC 133 at paragraphs 122 and 127. This argument must, therefore, also be rejected. 86. We, therefore, hold that allottees/home buyers were included in the main provision, i.e. Section 5(8)(f) with effect from the inception of the Code, the explanation being added in 2018 merely to clarify doubts that had arisen. Conclusion i. The Amendment Act to the Code does not infringe Articles 14, 19(1)(g) read with Article 19(6), or 300-A of the Constitution of India. ii. The RERA is to be read harmoniously with the Code, as amended by the Amendment Act. It is only in the event of conflict that the Code will prevail over the RERA. Remedi....