IBC amendment: SC agrees to hear homebuyers’ plea against ordinance

Supreme Court of India

The Supreme Court on January 13 agreed to hear homebuyers’ plea against an Insolvency and Bankruptcy Code (IBC) amendment that requires at least a 100 or 10 percent of the buyers of a project to initiate proceedings against a builder.

A bench led by Justice RF Nariman issued notice on the petitions that challenge the validity of the ordinance issued in December 2019.

“Ramifications will be that all pending cases will not be dismissed in the light of the ordinance and the SC will scrutinise in detail the constitutional validity of the ordinance,” said Aditya Parolia of PSP Legal, who filed the petition on behalf of 11 buyers from different projects. “Until such time, the NCLT (National Company Law Tribunal) should not dismiss the petitions filed by homebuyers."

A group of homebuyers last week challenged additions made to Section 7 of the Insolvency and Bankruptcy (Amendment) Ordinance, 2019, saying the number requirement was against “fundamental rights guaranteed in the Constitution” as well as the very objective of the IBC.

In the absence of any public data, such a threshold was almost impossible to meet, they said.

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The ordinance discriminated against homebuyers as no such pre-conditions were required of other financial creditors under IBC, the petition said.

"Because the Ordinance runs in complete contradiction to IBC and imposing such a pre-condition on the filing of the application under Section 7 of the IBC is completely against the objective of the IBC, as the pre-condition for any financial creditor to approach the adjudicating authority is quantum of the debt and not the number of financial creditors," it said.

It says that homebuyers looking to take a developer to an insolvency court will have to ensure that a minimum of 100 or 10 percent of the total allottees were part of the legal move.

"The Ordinance is completely against the fundamental rights guaranteed to the Homebuyers (Financial Creditors) under Article 14 and 21 of the Constitution of India. The Union of India has brought in the Ordinance with absolute discrimination by putting a precondition/threshold in the form of minimum number of Allottees of a particular project required for filing an application for triggering the code under Section 7 of the IBC, which is not applicable to other financial creditors under IBC," the writ petition said.