LAW FOR ALL : Sections 3, 4 and 10 of the Insolvency and Bankruptcy Code (Amendment) Act 2020 (hereinafter referred to as ‘the impugned amendments’, for short). Section 3 of the impugned amendment, amends Section 7(1) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘the Code’, for short).

Thursday, January 28, 2021

Sections 3, 4 and 10 of the Insolvency and Bankruptcy Code (Amendment) Act 2020 (hereinafter referred to as ‘the impugned amendments’, for short). Section 3 of the impugned amendment, amends Section 7(1) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘the Code’, for short).

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

WRIT PETITION(C) NO.26 OF 2020

MANISH KUMAR ……… PETITIONER(S)

VERSUS

UNION OF INDIA AND ANOTHER ………… RESPONDENT(S)

WITH

WRIT PETITION (C) NO. 53/2020

WRIT PETITION (C) NO. 28/2020

WRIT PETITION (C) NO. 47/2020

WRIT PETITION (C) NO. 27/2020

WRIT PETITION (C) NO. 73/2020

WRIT PETITION (C) NO. 328/2020

WRIT PETITION (C) NO. 210/2020

WRIT PETITION (C) NO. 191/2020

WRIT PETITION (C) NO. 164/2020

WRIT PETITION (C) NO. 163/2020

WRIT PETITION (C) NO. 166/2020

WRIT PETITION (C) NO. 173/2020

WRIT PETITION (C) NO. 182/2020

WRIT PETITION (C) NO. 176/2020

WRIT PETITION (C) NO. 177/2020

WRIT PETITION (C) NO. 257/2020

WRIT PETITION (C) NO. 341/2020

WRIT PETITION (C) NO. 267/2020

WRIT PETITION (C) NO. 333/2020

WRIT PETITION (C) NO. 337/2020

WRIT PETITION (C) NO. 388/2020

WRIT PETITION (C) NO. 402/2020

WRIT PETITION (C) NO. 390/2020

WRIT PETITION (C) NO. 393/2020

WRIT PETITION (C) NO. 783/2020

TRANSFERRED CASE(C) NO. 228/2020

WRIT PETITION (C) NO. 579/2020

WRIT PETITION (C) NO. 806/2020

WRIT PETITION (C) NO. 714/2020

WRIT PETITION (C) NO. 642/2020

WRIT PETITION (C) NO. 805/2020

WRIT PETITION (C) NO. 19/2020

WRIT PETITION (C) NO. 33/2020

WRIT PETITION (C) NO. 75/2020

WRIT PETITION (C) NO. 165/2020

WRIT PETITION (C) NO. 850/2020

WRIT PETITION (C) NO. 374/2020

WRIT PETITION (C) NO. 229/2020

WRIT PETITION (C) NO. 228/2020

WRIT PETITION(C) NO. 209/2020

J U D G M E N T

K.M. JOSEPH, J.

1. The petitioners have approached this Court under

Article 32 of the Constitution of India. They call in

question Sections 3, 4 and 10 of the Insolvency and

Bankruptcy Code (Amendment) Act 2020 (hereinafter

referred to as ‘the impugned amendments’, for short).

Section 3 of the impugned amendment, amends

Section 7(1) of the Insolvency and Bankruptcy Code,

2016 (hereinafter referred to as ‘the Code’, for

short). Section 4 of the impugned amendment,

incorporates an additional Explanation in Section 11

of the Code. Section 10 of the impugned amendment

inserts Section 32A in the Code.

2. Section 7(1) of the Code before the amendment read

as follows:

“7. Initiation of corporate insolvency

resolution process by financial creditor:

(1) A financial creditor either by itself

or jointly with other financial

creditors, or any other person on

behalf of the financial creditor, as

may be notified by the Central

Government, may file an application

for initiating corporate insolvency

resolution process against a

corporate debtor before the

Adjudicating Authority when a default

has occurred.”

Explanation- For the purposes of this sub

section, a default includes a default in

respect of a financial debt owed not only to

the applicant financial creditor but to any

other financial creditor of the corporate

debtor.

The amendment to the same by Section 3 of the

impugned amendment incorporates 3 provisos to Section

7(1), which reads as under:

"Provided that for the financial

creditors, referred to in clauses (a) and

(b) of sub-section (6A) of section 21, an

application for initiating corporate

insolvency resolution process against the

corporate debtor shall be filed jointly

by not less than one hundred of such

creditors in the same class or not less

than ten per cent. of the total number of

such creditors in the same class,

whichever is less:

Provided further that for financial

creditors who are allottees under a real

estate project, an application for

initiating corporate insolvency

resolution process against the corporate

debtor shall be filed jointly by not less

than one hundred of such allottees under

the same real estate project or not less

than ten per cent. of the total number of

such allottees under the same real estate

project, whichever is less:

Provided also that where an application

for initiating the corporate insolvency

resolution process against a corporate

debtor has been filed by a financial

creditor referred to in the first and

second provisos and has not been admitted

by the Adjudicating Authority before the

commencement of the Insolvency and

Bankruptcy Code (Amendment) Act, 2020,

such application shall be modified to

comply with the requirements of the first

or second proviso within thirty days of

the commencement of the said Act, failing

which the application shall be deemed to

be withdrawn before its admission."

3. Section 11 before the amendment read as follows:

“11. Persons not entitled to make

application. - The following persons

shall not be entitled to make an

application to initiate corporate

insolvency resolution process under this

Chapter, namely: -

(a) a corporate debtor undergoing a

corporate insolvency resolution process;

(b) a corporate debtor having completed

corporate insolvency resolution process

twelve months preceding the date of

making of the application; or

creditor who has violated any of the terms

of resolution plan which was approved

twelve months before the date of making

of an application under this Chapter; or

(d) a corporate debtor in respect of whom

a liquidation order has been made.

Explanation 1 [I]. - For the purposes of

this section, a corporate debtor includes

a corporate applicant in respect of such

corporate debtor.”

The explanation which was inserted through the

impugned amendment reads as follows:

“Explanation II.- For the purposes of

this section, it is hereby clarified that

nothing in this section shall prevent a

corporate debtor referred to in clauses

(a) to (d) from initiating corporate

insolvency resolution process against

another corporate debtor.”

4. Section 32A inserted through the impugned

amendment reads as follows:

“32A. (1) Notwithstanding anything to the

contrary contained in this Code or any

other law for the time being in force,

the liability of a corporate debtor for

an offence committed prior to the

commencement of the corporate insolvency

resolution process shall cease, and the

corporate debtor shall not be prosecuted

for such an offence from the date the

resolution plan has been approved by the

Adjudicating Authority under section 31,

if the resolution plan results in the

change in the management or control of

the corporate debtor to a person who was

not—

(a) a promoter or in the management or

control of the corporate debtor or a

related party of such a person; or

(b) a person with regard to whom the

relevant investigating authority has, on

the basis of material in its possession,

reason to believe that he had abetted or

conspired for the commission of the

offence, and has submitted or filed a

report or a complaint to the relevant

statutory authority or Court:

Provided that if a prosecution had been

instituted during the corporate

insolvency resolution process against

such corporate debtor, it shall stand

discharged from the date of approval of

the resolution plan subject to

requirements of this sub-section having

been fulfilled:

Provided further that every person who

was a "designated partner" as defined in

clause (j) of section 2 of the Limited

Liability Partnership Act, 2008, or an

"officer who is in default", as defined

in clause (60) of section 2 of the

Companies Act, 2013, or was in any manner

incharge of, or responsible to the

corporate debtor for the conduct of its

business or associated with the corporate

debtor in any manner and who was directly

or indirectly involved in the commission

of such offence as per the report

submitted or complaint filed by the

investigating authority, shall continue

to be liable to be prosecuted and punished

for such an offence committed by the

corporate debtor notwithstanding that the

corporate debtor's liability has ceased

under this sub-section.

(2) No action shall be taken against the

property of the corporate debtor in

relation to an offence committed prior to

the commencement of the corporate

insolvency resolution process of the

corporate debtor, where such property is

covered under a resolution plan approved

by the Adjudicating Authority under

section 31, which results in the change

in control of the corporate debtor to a

person, or sale of liquidation assets

under the provisions of Chapter III of

Part II of this Code to a person, who was

not—

(i) a promoter or in the management or

control of the corporate debtor or a

related party of such a person; or

(ii) a person with regard to whom the

relevant investigating authority has, on

the basis of material in its possession

reason to believe that he had abetted or

conspired for the commission of the

offence, and has submitted or filed a

report or a complaint to the relevant

statutory authority or Court.

Explanation.—For the purposes of this

sub-section, it is hereby clarified

that,—

(i) an action against the property of

the corporate debtor in relation to

an offence shall include the

attachment, seizure, retention or

confiscation of such property under

such law as may be applicable to

the corporate debtor;

(ii) nothing in this sub-section shall

be construed to bar an action

against the property of any person,

other than the corporate debtor or

a person who has acquired such

property through corporate

insolvency resolution process or

liquidation process under this Code

and fulfils the requirements

specified in this section, against

whom such an action may be taken

under such law as may be

applicable.

(3) Subject to the provisions contained

in sub-sections (1) and (2), and

notwithstanding the immunity given in

this section, the corporate debtor

and any person who may be required to

provide assistance under such law as

may be applicable to such corporate

debtor or person, shall extend all

assistance and co-operation to any

authority investigating an offence

committed prior to the commencement

of the corporate insolvency

resolution process."

WHO ARE THE PETITIONERS?

5. More than the lion’s share of the petitioners are

allottees under real estate projects and hereinafter

referred to as allotees. They have trained the

constitutional gun at the impugned provisos.

6. Under the second proviso, a new threshold has been

declared for an allottee to move an application under

Section 7 for triggering the insolvency resolution

process under the Code. The threshold is the

requirement that there should be at least 100 allottees

to support the application or 10 per cent of the total

allottees whichever is less. Moreover, they should

belong to the same project. Almost all (except in two

petitions), the petitioners also had under the

erstwhile regime which permitted even a single allottee

to move an application under Section 7 filed petitions

singly or with less than the number required under the

proviso and they are visited with the provisions of the

third proviso as per which such of those applications

under section 7 which had not been admitted would stand

withdrawn within 30 days, if the newly declared

threshold of 100 allottees or 10 per cent of the

allottee whichever is lower was not garnered by the

applicant/applicants.

7. In some of the petitions, the petitioners are money

lenders, that is, they have stepped in to provide

finance for the real estate projects. They are also

visited with the requirement which is imposed upon them

under the first impugned proviso which is on similar

lines as those comprised in the second proviso.

8. Then, there is, no doubt, Section 32A, which stands

impugned by the creditors and allottees.

THE CODE

9. The Code was enacted in the year 2016. It is one

of the most important economic measures contemplated

by the State to prevent insolvency, to provide last

mile funding to revive ailing businesses, maximise

value of assets of the entrepreneurs, balance the

interest of all the stakeholders and even to alter the

order of priority of payment of Government dues. The

Code is divided into five parts. The first part is

shortest portion. Part II deals with what we are

concerned with in these cases and it purports to deal

with insolvency resolution and liquidation for

corporate persons. ‘Corporate person’ has been defined

in Section 3(7) as follows:

“3(7). “corporate person” means a

company as defined in clause (20) of

section 2 of the Companies Act, 2013, a

limited liability partnership, as

defined in clause (n) of sub-section (1)

of section 2 of the Limited Liability

Partnership Act, 2008, or any other

person incorporated with limited

liability under any law for the time

being in force but shall not include any

financial service provider.”

10. Section 3(8) defines ‘corporate debtor’ which

provides that a corporate debtor means a person who

owes a debt to any person.

11. We may notice that Chapter II of Part II which

consists of Sections 6 to 32 deal with the corporate

insolvency resolution process. Chapter III deals with

ordinary liquidation process in regard to corporate

person. Chapter IV of Part II consisting of four

sections deal with fast-track insolvency resolution

process. Chapter V which consists of Section 59 only

deals with voluntary liquidation of corporate person.

Chapter VI deals with miscellaneous aspects. Chapter

VII Part II deals with Penalties.

12. Part III deals with insolvency resolution and

bankruptcy code for individuals and partnership firms.

It may be noticed at once that partnership firms with

limited liability as defined in the Limited Liability

Partnership Act, 2008 fall within the definition of the

word ‘Corporate person’ and insolvency and liquidation

process in regard to the same is found in Part II of

the Code. It is in regard to Insolvency resolution and

bankruptcy for the other partnership firms which one

has to look to the provisions of Part III. Part III

begins with Section 78 and ends with Section 187. The

further provisions relate to the regulation of

insolvency professional agencies and information

utilities. They are all key instrumentalities for the

effective working of the Code. Equally, it may be

apposite to bear in mind Section 238A. It reads as

follows:

“238A. Limitation - The provisions of the

Limitation Act, 1963 (36 of 1963) shall,

as far as may be, apply to the proceedings

or appeals before the Adjudicating

Authority, the National Company Law

Appellate Tribunal, the Debt Recovery

Tribunal or the Debt Recovery Appellate

Tribunal, as the case may be.”

13. Shri Krishna Mohan Menon, learned counsel for the

petitioners(allottees) in some of the petitions has

addressed the following submissions before us:

The impugned amendment clearly falls foul of

the mandate of Articles 14, 19 (1)(g), 21 and 300A

of the Constitution. The amendment by virtue of

section 3 of the Amendment Act introducing the

second proviso in Section 7(1) of the Code makes a

hostile discrimination between financial

creditors, the category, to which the petitioners

belong and the other financial creditors.

Secondly, it is contended that the amendment

imposing a threshold restriction is afflicted with

the vice of palpable and hostile discrimination

qua operational creditors. The purported

protection sought to be accorded to the real estate

developer, cannot form the premise for inflicting

violation of constitutionally protected freedom

under Article 19(1)(g) just as much as it also

constitutes an insupportable invasion of the grand

mandate of equality. Next, he would submit that

there are inherent leakages in the impugned

provisions which would make it unworkable.

Thereafter, learned counsel would submit that the

impugned amendment is also bad in law for the

reason that it is manifestly arbitrary. Yet another

argument addressed by Shri Krishna Mohan Menon,

learned counsel is that the amendment has the

legally pernicious effect of creating a class

within a class, a result, which is frowned upon by

the law.

14. Learned counsel would expatiate and submit that

under the Code, the law provides for a period of 14

days for the Adjudicating Authority to decide whether

an application under Section 7 should be admitted.

Section 12 declares an inflexible time limit for the

insolvency resolution process to be terminated. The

whole purport of the provisions of the Code and the

manner in which it is structured is geared to achieve

a laudable object. The Code aims at improving the

ranking of India in the matter of ease of doing

business. It is an economic measure which is intended

to transform India into a country which would attract

capital and investment. The Code has indeed resulted

in a transformation of attitudes of the key players,

in that it has come to be perceived as a law not merely

on paper but one with teeth to it. He would point out

that this Court in its decision in the Pioneer’s Case

Pioneer Urban Land and Infrastructure Ltd. and another

v. Union of India and others1 has elaborately dealt

with the apprehension that allowing the home buyers

1 (2019) 8 SCC 416

like the petitioners who finance the builder’s

activities to invoke the CIRP process will lead to

misuse of the provisions and allayed the unfounded

fears. Yet the legislature has ventured to place

unjustifiable clogs on the right of one category of

financial creditors alone which is impermissible. The

spectre of a speculative investor running riot and

playing havoc has been adequately addressed by this

Court. There is no worthwhile data of misuse by home

buyers. He points out the judgments passed by NCLAT

where the financial creditors, who are home buyers,

approach the Tribunal and the cases reflect gross and

inordinate delay of nearly five years justifying the

approach made by the home buyers under the Code. In

other words, there were genuine cases where the debtor

had become insolvent and hence the home buyer had

complete justification in knocking at the doors of the

competent Tribunal under the Code. He took us through

the reports of the Parliamentary Committee and

complained that no reasons are discernible to justify

the amendments. Equally, he commended for our

acceptance the observations in the dissent notes and

contended that they fortify the submissions.

15. In regard to the comparison sought to be made, with

similar requirements in Sections 397, 398 read with 399

of the Companies Act, 1956 and Section 241 and 244 of

the Companies Act, 2013, he would submit that there are

significant distinctions.

16. Firstly, he would submit that in the case of

shareholders approaching the Tribunal under the

Companies Act, they would be armed with the details

regarding shareholding which are always available

having regard to the scheme of the Companies Act. On

the other hand, he points that in regard to home buyers

who have sunk their hard-earned money in real estate

projects there is no system under which they could

obtain data or information regarding the persons

similarly circumstanced and whose co-operation and

support is necessary under the impugned amendment to

activise the Code.

17. Secondly, he would submit that having regard to

the explanation in Section 244 of the companies Act,

2013, it brings about clarity in regard to the

situation where there is a joint holding. The absence

of any such similar provision in Section 7 of the Code

is emphasised in an attempt at persuading the court to

overturn the law. He would further point out the

practical difficulties in the working of the amended

law. He submits that the date of default of various

home buyers may be different. Therefore, to forge a

common complaint impelling a group of home buyers to

come together is impracticable and not workable’. He

would submit that legislature cannot be permitted to

take away through one hand what it has given by the

other.

18. Learned Counsel would further contended that as

far as the third proviso is concerned while accepting

the position that the 14 days period for disposal of

the matter under the Code has been understood to be

directory and not mandatory, at the same time, it

cannot be the law that a case should grace the docket

endlessly and never witness an end and the

retrospectivity which it reflects clearly renders it

arbitrary.

19. Shri Shikhil Suri, learned Counsel for the

petitioner in Writ Petition (Civil) No. 191 of 2020

would submit that the impugned amendment is arbitrary

being in the teeth of the principles laid down in

Pioneer (supra). The object of the law would stand

defeated he contends. The Ordinance would not only

deprive the petitioner of her right under Section 7 but

it also violates Article 14 of the Constitution of

India. The threshold limit is unreasonable and

arbitrary. It is excessive and irrational. It is not

in public interest. He also points out that there

exists adequate shield against a single allottee

misusing the Code. The threshold is thrust upon only

on the home buyer and is not applicable across the

board for other financial creditors. It is

discriminatory. There is no rationale. It treats

equals unequally and unequals as equals. There is no

intelligible differentia. The law does not permit

classes among financial creditors. There is breach of

the guarantee of equal protection of law. The

threshold in Section 4, namely, default of Rupees One

crore is the one which applies to all creditors. It

is inexplicable as to how only in regard to home buyers,

a different threshold should be insisted upon. The

remedy of the home buyer is defeated. The Ordinance

was brought in haste without proper discussion and

debate. The amendment takes away the vested right of

the home buyers. There is no intelligible differentia

bearing a nexus with the object and purpose of the Act.

He also emphasised the practical difficulties involved

in arranging the necessary numerical strength under the

impugned provision.

20. Shri Piyush Singh, learned counsel for the

petitioners would submit that once the right is

conferred to make an application, then it cannot come

conditioned with threshold limit as is provided in the

impugned provisos. Secondly, he would point out that

there is manifest arbitrariness. That apart, he would

also contend that there is hostile discrimination qua

other corporate debtor. The builder who is a corporate

debtor, in other words, is given a more favourable

treatment than other corporate debtors which is

afflicted with the vice of hostile discrimination. He

also complained of both under and over inclusiveness

in the impugned provisions. Next, learned counsel

submits that the very object is discriminatory.

Drawing our attention to both Chitra Sharma and others

v. Union of India and others2 and Pioneer (supra), he

would highlight that having regard to the background

in which the rights of the home buyer was recognised

as being one of that of a financial creditor, the

amendment is clearly impermissible. He would also

submit that having regard to the stand taken by the

Government in the case before this Court, in

particular, Pioneer (supra), the principles of

promissory estoppel will apply and prevent enactment

of the impugned provisions. He would expatiate and

submit that the conditions which have been imposed

render the remedy illusory. He drew our attention to

Order 1 Rule 8 of the Code of Civil Procedure and also

took us to the explanation therein. He would submit

that the proviso is not on similar lines as Order 1

Rule 8. This is for the reason that under the procedure

under Order 1 Rule 8, the numerical stipulation in the

impugned Provisos is not insisted upon. Once persons

2 (2018) 18 SCC 575

having same interest institute a civil suit, after

following the procedure all persons having the same

interest become involved and what is more would be

bound by the decision. Section 12 of the Consumer

Protection Act which also captures and embodies the

principle of Order 1 Rule 8 ensures the protection of

class interest and also protect class interest without

putting stiff barriers as threshold limits as done by

the impugned amendment. He pointed out that the real

estate owners do not take any loan from financial

institutions. They raise capital exclusively from the

allottees virtually. In such circumstances, to put

this threshold limit is clearly impermissible. He drew

our attention to the judgment of the Court in Motilal

Padampat Sugar Mills Co. Ltd. v. State of U.P3

. , to

buttress his submission regarding availability of

principles of promissory estoppel. There is manifest

arbitrariness in the provisions. He complained that

the RERA has not been constituted in all the States.

He also made an attempt at pointing out the perception

that the amendment is to confer an unmerited advantage

3(1979) 2 SCC 409

on the builder. This he purported to do by drawing our

attention to an article in a newspaper. He essentially

projected this argument as a thinly disguised argument

of malice against the law giver. He also sought to

draw support from the judgment of this Court in Nagpur

Investment Trust and others v. Vithal Rao and others4.

He reiterated the principle of hostile discrimination.

He drew our attention to the definition of the word

‘allottee’ in RERA. It is here that he complained of

the provision being under inclusive and over inclusive.

The legislature, he points out should have waited and

at best could have acted if there is impeachable and

empirical evidence warranting such a drastic incursion

into the vested right of the home buyer. He also

highlights that in law there can only be one default.

A home buyer who before the amendment could by himself

set the law into motion, is now left at the mercy of

similarly circumstanced persons which itself is

rendered impossible by the absence of an information

generating mechanism which is accessible. He would

also point out that the dates of the agreements of

4(1973) 1 SCC 500

different home buyers would be different. Depending

on the dates of the agreements being different, it is

incontrovertible, he points out that the date of

default would be different. He would pose the question

as to how in such circumstances the law could insist

upon a home buyer assembling together other homebuyers

and that too one hundred in number or one-tenth of the

total number of allottees. Allottees are spread all

over the world. It is inconceivable as to how the

provision can be worked in a reasonable and fair

manner.

21. Shri Rahul Rathore, learned Counsel for the

petitioners in some of the writ petition would apart

adopting the contentions, contend that insolvency has

been predicated project wise. He would submit that

under the impugned amendment, the allottees are to be

culled out from among a particular project. In other

words, the requirement under the provision is that the

applicants must be 100 allottees or one-tenth of the

allottees of a particular real estate project. He

would point out that a corporate body may be having

different projects. If that be so, there is no

rationale in insisting that the said corporate body has

become insolvent, qua the particular project in which

the applicants are interested. Insolvency, in other

words, would be a financial malaise, which afflicts the

corporate body as a whole, qua all its projects. If

the allottees can be drawn from other projects

undertaken by the company then maybe it may have

rendered the provisions more reasonable appears to be

the argument of the petitioner. But this is not so.

The provisions are irrational. The home buyer is a

person who invests his life time savings. He is in a

weak position already. Instead of conferring protection

on him, the homebuyer is being saddled with more

oppressive and burdensome conditions. There is no

platform for the exchange and availability of

information with details regarding the allottees. The

Limitation Act applies as held by this Court. He would

also appear to rely on the theory of a single default.

The conditions are impossible to fulfil. The home

buyer is being shut out at the very threshold.

22. Shri Dinesh C. Pandey, learned Counsel would also

contend that Section 6 of the General Clauses Act would

protect all the pending applications.

23. Shri Dhruv Gupta, learned Counsel appearing in

W.P. (C) No.177 of 2020 complained against

retrospectivity spelt out by the impugned provisions.

The right which was a vested right was substantive in

nature. The law could only be prospective. He draws

our attention to the judgment of this Court in B.K.

Educational Services (P) Ltd. v. Parag Gupta &

Associates5

. He also lays store by the principles laid

down by this Court in Swiss Ribbon Pvt. Ltd. & Ors. v.

Union of India & Ors.

6 and also in The Pioneer (supra).

24. Ms. Purti Marwaha Gupta, learned counsel in W.P.(C)

No. 75 of 2020 adopted the contentions of Shri Krishna

Mohan Menon. Learned counsel would make submissions

qua section 32A which is yet another provision which

is challenged. She drew our attention to Section 2(u)

and 20 of the Prevention of Money Laundering Act, 2002.

She would submit but for Section 32A, the properties

5 (2019) 11 SCC 633

6 (2019) 4 SCC 17

which are acquired could be attached but that is preempted by Section 32A. The civil remedies open are

taken away in regard to acts of crime. Section 14 of

the Act which deals with Moratorium is referred to in

this regard.

25. Shri A.D.N. Rao, learned Counsel would submit that

a substantive right cannot be taken away by a

procedural requirement. The home buyers have been

conferred the substantive right to invoke the code by

moving an application under Section 7. This right

cannot be taken away by providing for a procedure and

what is more which is impossible to attain. He drew

our attention to the decision of this Court in

Garikapati Veeraya v. N. Subbiah Choudhry7. He would

submit that the law as on the date of initiation should

prevail and it cannot be taken away by the amendment

which is made subsequently. Apparently, the learned

counsel is making his submission qua the 3rd proviso

inserted in Section 7(1) of the Code. He seeks to

drawn support from judgment of this court in Thirumalai

7 AIR 1957 SC 540 / 1957 SCR 488

Chemicals Limited v. Union of India and others8. He

also contends that a proviso cannot override the main

provision. In this regard, he relied upon the judgment

of this court in Delhi Metro Rail Corporation Ltd. v.

Tarun Pal Singh and others9. He would in fact point

out with reference to facts that the orders were

reserved in the application under Section 7 in

November, 2019. The proviso came to be inserted on

28th December 2019. Resultantly, when the order came

to be pronounced regarding admission of the application

under Section 7, the authorities stood overtaken by the

amendment. All of this is for no fault of the litigant

who at the time when the application was moved was

governed by a different regime which did not contain

the harsh and arbitrary provisions. He would also

point out practical difficulty in finding out other

allottees.

26. Smt. Tasleem Ahmadi, learned Counsel would submit

that an amendment as impugned in this case has the

effect of setting at nought the directions and decision

8 (2011) 6 SCC 739

9 (2018) 14 SCC 161

of this court. She would complain that an amendment has

been engrafted without removing the premise on which

Pioneer was decided. She drew our attention to the

judgment of this Court in State of Karnataka and others

v. The Karnataka Pawn Brokers Association and others10

(paragraphs-16, 20, 23 and 24).

27. Shri Aditya Parolia, learned Counsel would submit

that while the legislature has the freedom to

experiment the power does not exist beyond certain

limits. It cannot create provisions which are

arbitrary. Unequals are treated equally. The

objections of the home buyers were not discussed. The

draft was not discussed. In this regard he points to

the dissent of Shri TK Rangarajan. There is no

intelligible differentia to distinguish the home buyers

from the other creditors. The class action under the

Consumer Protection Act is denied under the code. Even

a decree holder under the aegis of RERA is denied

relief. He also points out the lack of information

required to properly work the statute. Allottees are

10 (2018) 6 SCC 363

spread across the globe. The real estate investor

siphons off major amounts. The default is in rem.

28. Shri Pallav Mongia, learned Counsel would point

out that home buyers would continue to be financial

creditors. The proviso cannot take away the said

right. Unequals are being made equal. Information

regarding allottees is not available. He refers to the

report of the Parliamentary Committee. He also

complains about the absence of undisputed documents.

As regards information relating to allottees he would

make the point that the Code itself does not provide

for a mechanism for a home buyer to glean information.

He is being called upon to collect information with

reference to another enactment namely RERA. This

should be treated as fatal to the constitutionality of

the impugned amendments. He would further submit that

the provision is bad for it being vague. The argument

of vagueness is addressed with reference to the

following:

1.The date of default.

2.The court fee payable when there is more than one

applicant.

3.The threshold amount of default stipulated under

section 4 namely Rs. One crore at present.

4.He also would complain against the retrospectivity

involved.

29. Shri Rana Mukherjee, learned Senior Counsel

appears in writ petition where first proviso is called

in question, he represents the cause of money lenders.

He drew our attention to paragraph-43 of the Pioneer

(supra). He pointed out that the requirement that the

applicants must be of the same class and there must be

100 of them rendered the provisions unachievable. He

drew our attention to Sections 244 and 245 of the

Companies Act, 2013. He pointed out that the threshold

under the said Act could be relaxed whereas under the

code the law giver has inflicted the requirement as an

inflexible mandate. He also complained of there being

no information qua the requirement of 10 percent. He

drew our attention to Rule 8A. He would submit that

actually Parliament had in mind the home buyer. The

insertion of the 1st proviso betrays a mistaken roping

in of the category of creditors represented by his

clients. He sought to draw considerable support from

the judgment of this Court in Vasant Ganpat Padvave (D)

by LRs & Ors. v. Anant Mahadev Sawant (D) Through LRs.

& Ors.11 of his compilation. He commended for our

acceptance the principle that the law must be

considered having regard to consequences it produces.

He requested that the court may bear in mind the

requirement that the law in its application must

produce fair results.

30. Per contra, the stand of the Union, as projected

through Smt. Madhavi Divan, learned ASG, and through

the Written Submissions submitted, can be summed-up as

follows:

The impugned amendments are perfectly valid.

The amendments are part of an economic measure.

There was a Report of an Expert Committee. The

Expert Committee recommended imposing a threshold

amendment in respect of certain classes of

financial creditors. It is modelled on the

11 2019 (12) SCALE 572

Companies Act. There are other statutory examples

of such threshold requirements. The impugned

provisions conform to the principle of reasonable

classification. Intelligible differentia

distinguishes the allottees and debenture holders

and security holders covered by the provisos from

the other financial creditors. The amendments were

necessitated from experience. There is a rational

nexus between the differentia and the objects. The

amendment, as far as the impugned provisos are

concerned, are essentially an extension of

Sections 21(6A) and Section 25A of the Code, under

which, the debenture holders and security holders,

on the one hand, and allottees, on the other, are

treated differently. The provisions are not

manifestly arbitrary, they are, indeed, workable.

Having regard to the Explanation in Section 7(1),

the default qua any financial creditor, even if,

he is not an applicant, can be made use of by other

allottees or debenture holders and security

holders.

31. It is pointed out further that the constitutional

validity of Sections 21(6A) and 25A of the Code, was

upheld by this Court in Pioneer (supra). In this

regard, attention is also drawn to the observations of

this Court in paragraph-43 of Pioneer (supra). On the

strength of the said observations, it is contended that

this court has recognized that allottees/home buyers

are not a homogenous group. This Court also recognized,

it is pointed out, that the deposit-holders and

security-holders form a sub-class/class of financial

creditors, who are treated a little differently, on

account of the sheer number of such creditors coupled

with the heterogeneity within the group that may cause

difficulties in the decision-making process. The

provisions were introduced for ironing out the

logistical/procedural complications that may arise on

account of the peculiar nature of these groups. The

provisions impugned in the present litigation merely

supplement Sections 21(6A) and Section 25A of the Code.

The rationale in the said judgment should be applied

in this case also. It is further pointed out that the

challenge in Pioneer (supra) was mounted by the

developers and the home buyers accepted the provisions,

as being necessary to iron out the creases. The ASG

drew support from judgments of this Court which are as

follows:

i. Ameerunnissa Begum and others v. Mahboob Begum

and others12;

ii. State of Jammu and Kashmir v. Triloki Nath Khosa

and others13;

iii. Murthy Match Works and others v. Assistant

Collector of Central Excise and another14;

iv. Ajoy Kumar Banerjee and others v. Union of India

and others15;

v. Ashutosh Gupta v. State of Rajasthan and

others16;

32. It is contended that there is a rational nexus with

the objects of the Code insofar as the impugned

provisos are concerned and the classification is

permissible under Article 14 of the Constitution. She

12 (1953) SCR 404

13 (1974) 1 SCC 19

14 (1974) 4 SCC 428

15 (1984) 3 SCC 127

16 (2002) 4 SCC 34

drew our attention to the Statements of Objects and

Reasons appended to the amendment Bill to the Code,

2019, which introduced sub-Section 3A in Section 25A.

It reads as follows:

“[…]

2. The Preamble to the Code lays down the

objects of the Code to include “the

insolvency resolution” in a time bound

manner for maximisation of value of assets

in order to balance the interests of all

the stakeholders. Concerns have been

raised that in some cases extensive

litigation is causing undue delays, which

may hamper the value maximisation. There

is a need to ensure that all creditors are

treated fairly, without unduly burdening

the Adjudicating Authority whose role is

to ensure that the resolution plan

complies with the provisions of the Code.

Various stakeholders have suggested that

if the creditors were treated on an equal

footing, when they have different

preinsolvency entitlements, it would

adversely impact the cost and availability

of credit. Further, views have also been

obtained so as to bring clarity on the

voting pattern of financial creditors

represented by the authorised

representative.

[…]

(d) to insert sub-section (3A) in section

25A of the Code to provide that an

authorised representative under subsection (6A) of section 21 will cast the

vote for all financial creditors he

represents in accordance with the decision

taken by a vote of more than fifty per

cent. of the voting share of the financial

creditors he represents, who have cast

their vote, in order to facilitate

decision making in the committee of

creditors, especially when financial

creditors are large and heterogeneous

group;”

33. Thus, the Statement of Objects and Reasons

recognizes the heterogeneity within the class and the

need to streamline, smoothen and facilitate the process

so as to avoid unnecessary delay. There is also a

concern about extensive litigation causing delays and

hampering the maximization of value, it is pointed out.

Multiple applications by members of this large class

of financial creditors, in such a class, would also add

to the burden of the Adjudicating Authority, choke-up

its docket and delay the process. This would be

counterproductive to the object of the Code which seeks

to ensure time-bound Resolution Process for the

maximization of total value of assets. Reference is

made to the Report of the Insolvency Law Committee,

dated February, 2020, which recommended the insertion

of a minimum number of financial creditors in a class.

It reads as follows:

“ii. Application for Initiation of CIRP

by Class of Creditors- As CIRP can be

initiated by a single financial creditor,

such as a homebuyer or a deposit holder,

that belongs to a certain class of

creditors following a minor dispute, it

might exert undue pressure on the

corporate debtor and might jeopardize the

interests of the other creditors in the

class who are not in favor of such

initiation. It is being recommended that

there should be a requirement for a

minimum threshold number of certain

financial creditors in a class for

initiation of the CIRP. So, an amendment

to section 7(1) to provide that for a

class of creditors falling within clause

(a) or (b) of Section 21(6A), the CIRP may

only be initiated by at least a hundred

such creditors or 10 percent of the total

number of such creditors in a class.

4. APPLICATION FOR INITIATION OF CIRP BY

CLASSES OF CREDITORS

4.1. Section 7 of the Code allows a

financial creditor to initiate a CIRP

against a corporate debtor upon the

occurrence of default, either by itself,

or jointly with other financial creditors.

4.2. It was brought to the Committee that

for classes of financial creditors

referred to in sub-clauses (a) and (b) of

Section 21(6A) of the Code - such as

deposit holders, bondholders and

homebuyers - there was a concern that the

CIRP can be initiated by only one or few

such financial creditors following minor

disputes. This may exert undue pressure

on the corporate debtor, and has the

potential to jeopardise the interests of

the other creditors in the class who are

not in favour of the initiation of CIRP.

This may also impose additional burden

upon the Adjudicating Authority to hear

objections to heavily disputed

applications. The Committee noted that

this may be antithetical to the value of

a time-bound resolution process, as the

already over-burdened Adjudicating

Authorities are unable to list and admit

all such cases filed before them.

4.3. The Committee discussed that classes

of creditors such as homebuyers and

deposit holders have every right as

financial creditors to initiate CIRP

against a corporate debtor that has

defaulted in the repayment of its dues.

However, it was acknowledged that

initiation of CIRP by classes of similarly

situated creditors should be done in a

manner that represents their collective

interests. It was felt that a CIRP should

be initiated only where there is enough

number of such creditors in a class

forming a critical mass that indicates

that there is in fact largescale agreement

that the issues against a corporate entity

need to be resolved by way of a CIRP under

the Code. This may well be a more

streamlined way of allowing a well-defined

class of creditors to agree upon

initiating what is a collective process

of resolution under the Code.

4.4. In this regard, and specific to the

interests of homebuyers, the Committee

also noted that in cases where a homebuyer

cannot file an application for initiation

of CIRP for having failed to reach the

aforesaid critical mass, she would still

have access to alternative fora under the

RERA and under consumer protection laws.

For instance, as recognised by the Supreme

Court in the case of Pioneer Urban Land

and Infrastructure Limited and Ors. v

Union of India, the remedies under the

Code and under the RERA operate in

completely different spheres. The Code

deals with proceedings in rem, under which

homebuyers may want the corporate debtor’s

management to be removed and replaced so

that the corporate debtor can be

rehabilitated. On the other hand, the RERA

protects the interests of the individual

investor in real estate projects by

ensuring that homebuyers are not left in

the lurch, and get either compensation or

delivery of their homes. Thus, if there

is a failure to reach a critical mass for

initiation of CIRP, it may indicate that

in such cases another remedy may be more

suitable.

4.5. Accordingly, it was agreed that there

should be a requirement to have the

support of a threshold number of financial

creditors in a class for initiation of

CIRP.

4.6. In this regard, the Committee

considered if a cue may be taken from the

requirements for filing of class actions

suits as provided under the Companies Act,

2013. Class action suits may inter alia

be filed by a hundred members or

depositors or by at least 5 per cent of

the total number of members or depositors

of the company.14 Similar to this

requirement, and keeping with the extant

situation of classes of creditors under

the Code, it was suggested that Section 7

of the Code could be amended in respect

of such classes of creditors to allow

initiation by a collective number of at

least a hundred such creditors or at least

ten percent of the total number of such

creditors forming part of the same class.

Thus, the Committee agreed that Section

7(1) of the Code may be amended to provide

that for classes of creditors falling

within clauses (a) and (b) of Section

21(6A), the CIRP may only be initiated by

at least a hundred such creditors, or ten

percent of the total number of such

creditors in a class.

4.7. The Committee also noted that the

collective number of homebuyers that form

the threshold amount for initiation of a

CIRP, should belong to the same real

estate project. This would allow

homebuyers that have commonality of

interests, i.e. allottees under the same

real estate project, to come together to

take action for initiating CIRP against a

real estate developer. Thus, in such

cases, the CIRP may be initiated by at

least a hundred such allottees or ten

percent of the total number of such

allottees belonging to the same real

estate project.

4.8. However, to ensure that there is no

prejudice to the interests of any such

creditor in a class whose application has

already been filed but not admitted by the

Adjudicating Authority, the Committee

agreed that a certain grace period may be

provided within which such creditor in a

class may modify and file its application

in accordance with the above-stated

threshold requirements. However, if the

creditor is unable to fulfil the threshold

requirements to file such modified

application within the grace period

provided, the application filed by such

creditor would be deemed withdrawn.”

(Emphasis supplied)

34. In the Statement of Objects and Reasons to the

Second Amendment Bill, 2019, promulgated as an

Ordinance, and thereafter, as the impugned Act, it was,

inter alia, stated that it was necessitated to prevent

potential abuse of the Code by certain classes of

financial creditors, inter alia. This was necessary to

prevent the derailing of the time-bound CIRP, which was

designed to secure the maximization of value of the

assets. The provision only supplements the protection

under Sections 65 and 75 of the Code. The intelligible

differentia is projected as follows:

i. Numerosity;

ii. Heterogeneity;

iii. Lack of special expertise and individuality in

decision making. It is sought to be contrasted with

institutional decision-making which is associated

with banks and financial institutions;

iv. Typicality in determination of default. In other

words, in the case of banks and financial

institutions, records of public utilities, would

show a default. In the case of allottees, records

must be accessed through data publicly available

under RERA;

35. The object and rationale of the impugned provisions

are stated to be as follows:

i. Preventing multiple individual applications, which

has the effect of not only crowding the docket of

the Adjudicating Authority and further holding up

a process in which time is of the essence;

ii. Safeguarding the interest of hundreds or even

thousands of allottees who may oppose the

application of a single home-buyer;

iii. Balancing the interest of members of the same subClass as also other financial creditors and other

operational creditors. The availability of

remedies to the members of the sub-class under

RERA, in the case of allottees;

iv. Lastly, the process becomes smoother and costeffective. Unnecessary financial bleeding of the

corporate debtor who is already in difficulty, is

avoided.

36. Time is of the essence of the Code. Proceedings

are in the nature of proceedings in rem. It impacts

the rights of creditors, including similarly placed

creditors. It is therefore, reasonable and logical to

place the threshold. The minimum threshold is a minimum

requirement. The threshold is kept low and reasonable.

This Court has upheld subclassification provided there

is a rational basis. She drew support from the

following decisions;

i. Indra Sawhney and others v. Union of India and

others17;

ii. Lord Krishna Sugar Mills Limited and another v.

Union of India and another18;

iii. State of Kerala and another v. N.M. Thomas and

others19;

iv. State of West Bengal and another v. Rash Behari

Sarkar and another20;

v. State of Kerala v. Aravind Ramakant Modawdakar and

others21.

17 1992 Supp.(3) SCC 217

18 (1960) 1 SCR 39

19 (1976) 2 SCC 310

20 (1993) 1 SCC 479

21 (1999) 7 SCC 400

37. She sought to distinguish the judgment of this

Court in Sansar Chand Atri v. State of Punjab and

another22, which was relied on by the petitioners on

the basis that this Court in the said case, only frowned

upon creating a class within a class without rational

basis. In this case, there was a rational basis for

creating a sub-class. Differential treatment is also

contemplated under UNCITRAL Legislative Guide and the

Guidelines.

38. There is no basis in the contention that

the amendments go against the law laid down in

Pioneer (supra). The question involved in the said case

was not whether there can be a different treatment to

the real estate allottees for the purpose of initiating

CIRP. Secondly, it is pointed out that the Legislature

is free to make laws to deal with problems that manifest

with experience. The numerical threshold was felt

necessary with experience and recommendations of an

Expert Committee. There has been a manifold increase

of claim petitions filed by single or handful of

22 (2002) 4 SCC 154

allottees resulting in an already overburdened

Adjudicating Authorities being flooded with such

petitions. The amendment is consistent with the

Pioneer (supra) judgment. The uniqueness of the

allottees as a class of financial creditors, has been

recognized in Pioneer (supra). The fact that they

constituted a distinct and separate class of financial

creditors meriting distinct treatment, has been

approved in Pioneer (supra). The minimum threshold

requirement is a procedural requirement. There is no

deviation from Pioneer (supra) in a manner which is

irreconcilable with it. The legislation, being an

economic measure, free play in the joints, must be

accorded to the Legislature. The impugned amendment is

reasonable, minimal and proportionate. The data

gathered by the respondent discloses that between June,

2016 and 5th June, 2018, there were 253 cases filed by

allottees in the N.C.L.T.. However, between 6th June,

2018 and 28th December, 2019, as many as 2201 cases were

filed by the allottees. Thereafter, pursuant to the

Ordinance between December 29th, 2019 and August 26th,

2020, there is a sharp fall, as, nearly in eight months,

only 130 cases were filed. It is pointed out that the

argument, based on estoppel and malice against the

Legislature, is untenable. There can be no estoppel

against the Legislature and the decision of this Court

in Union of India and others v. Godfrey Philips India

Ltd.

23, is relied on. The concept of transferred malice

is alien in the field of legislation. In this regard,

reference is placed on decisions of this Court in

K. Nagaraj and others v. State of A.P. and another24

and State of Himachal Pradesh v. Narain Singh25.

39. The right to file an application under Section 7

is a statutory right and it can be conditioned.

Reliance is placed on judgment of this Court in Gujarat

Agro Industries Co. Ltd. v. Municipal Corporation of

the City of Ahmedabad and others26. There is no inherent

or absolute right to file an application under Section

7 of the Code. The Legislature is well within its power

to impose conditions for the exercise of such statutory

rights. It is further contended that the third proviso

23 (1985) 4 SCC 369

24 (1985) 1 SCC 523

25 (2009) 13 SCC 165

26 (1999) 4 SCC 468

inserted in Section 7(1) does not affect any vested

right of the creditors who have already filed

applications for initiating CIRP. A vested right has

been the subject matter of several decisions. In this

regard reliance is placed on the following judgments:

i. Howrah Municipal Corporation and others v. Ganges

Rope Co. Ltd. and others27;

ii. Arcelormittal India Private Limited v. Satish

Kumar Gupta and others28;

iii. Swiss Ribbons Private Limited and another v. Union

of India and others29;

iv. Karnail Kaur and others v. State of Punjab and

others30;

v. Committee of Creditors of Essar Steel India Limited

Through Authorised Signatory v. Satish Kumar Gupta

and Others31.

27 (2004) 1 SCC 663

28 (2019) 2 SCC 1

29 (2019) 4 SCC 17

30 (2015) 3 SCC 206

31 (2019) SCCONLINE SC 1478

40. Mere right to take advantage of a statute is not a

vested right. In this regard, the following case law

is relied upon:

i. Director of Public Works and another v. Ho Po Sang

and Others32;

ii. M.S. Shivananda v. Karnataka State Road Transport

Corporation and others33;

iii. Lalji Raja and Sons v. Hansraj Nathuram34;

iv. Kanaya Ram and others v. Rajender Kumar and

others35;

41. The third proviso is enacted to protect the

collective interests of others in a class of creditors.

Before admission of the application for insolvency, no

vested right accrues in favour of the allottee. The

amendment, therefore, cannot be said to have

retrospective application in a manner that impairs

vested rights. Prior to admission, there is no vested

32 [1961]3 WLR 39

33 (1980) 1 SCC 149

34 (1971) 1 SCC 721

35 (1985) 1 SCC 436

right. Insistence on compliance with the new provisos

cannot be regarded as having retrospective operation

taking away vested rights. It is done to avoid needless

multiplicity and to ensure that no single allottee

would be able to achieve admission and its

consequences, without having a threshold of his

compatriots on board.

42. Placing reliance on judgment of this Court, in

Garikapati Veeraya(supra), it is contended that even a

vested right can be taken away by the Legislature, if

a subsequent enactment so expressly provides or if it

so by necessary implication. A minimum threshold

requirement is a common feature of class action

litigation. There are several legislations which

provide for a minimum threshold in order to initiate

class action. Section 245 of the Companies Act, 2013

and 241 of the said Act are relied upon. Sections 397

and 398 of the Companies Act, 1956, read with Section

399, contemplated a minimum threshold requirement for

seeking relief under Sections 397 and 398. Reference

is placed on the Bhabha Committee Report (Company Law

Committee) in 1952. So also, is support, sought to be

drawn from the judgment of this Court in J.P.

Srivastava & Sons (P) Ltd. and others v. Gwalior Sugar

Co. Ltd. and others36. Under the Consumer Protection

Act, this Court, rendered the judgment in Anjum Hussain

and others v. Intellicity Business Park Private Limited

and others37. A minimum threshold adds, authenticity

and weightage to the claim in a class action, proving

it to be a common grievance and not a mere obstruction

in the work of the opposite party. Reference is made

to Rule 23 of Federal Rules of Civil Procedure in the

United States, which provide for class action suits.

The said Rules contemplate numerosity, commonality,

typicality and adequacy of representation. It is

pointed out that joint filing was not only not alien

to Section 7 but it was interwoven into its very DNA.

Even as originally enacted, Section 7 contemplated

joint filing by financial creditors. Uniqueness of the

Code lies in the fact that the financial creditors may

file an application based on a default that occurred

in respect of the third-party financial creditor, who

36 (2005) 1 SCC 172

37 (2019) 6 SCC 519

may choose not to file an application itself. At the

triggering stage, an application under Section 7

partakes the character of an application in rem

proceeding rather than in personam one. The impugned

amendment merely extends the same rationale.

43. It is further pointed out that Debenture Trustees

are defined in Section 2(bb)of the Securities and

Exchange Board of India Debenture Trustees Regulations,

1993, as a Trustee of a trust deed for securing any

issue of debentures of a body corporate. Debenture is

a long-term bond issued by a company or an unsecured

loan that a company issues without a pledge of assets,

as for example, interest bearing bond. Debenture

Trustees are registered under Chapter 2 of the said

Regulations. The Regulations provide for

responsibilities and duties of Debenture Trustees. In

the case of a debenture-holder and other securityholder, there is a Debenture Trustee to protect their

interest from the inception under SEBI.

44. As far as absence of information, so far as

debenture holders are concerned, necessary information

regarding them is available in the public domain, under

Section 88(1)(b) and Section 88(1)(c) of the Companies

Act, 2013, which obliges every company to maintain a

A penalty for non-compliance is contemplated under

Section 88(5). Section 95 of the Companies Act, 2013

provides that registers, required to be maintained by

the Company under Section 88, shall be kept in the

registered office. Without payment of fees, the

holder or other security holder. Extracts and copies

of such registered can be obtained. Reference is also

made to Rule 4 of the Companies (Management and

Administration) Rules, 2014, which contemplates a

separate register in Form - FMG-II for debenture

holders. It contains all details of the debenture

holder, including the e-mail id, address, etc.. Thus,

there is a reservoir of information available for

complying with the requirement under the first proviso.

45. As regards the allottees are concerned, the

submission, is as follows:

Reference is made to Section 19 of RERA.

Thereunder, Section 19(9) obliges every allottee

of a real estate project to participate towards

the Association of Allottees. Section 11 (4)(e) of

RERA also obliges the Promoter to enable the

formation of such an Association. RERA compels the

constitution of such an Association, prior to the

allotment. This is for the reason that an

Association plays an important role during the

development of the project. It is pointed out that

under Section 8 of RERA, upon lapse of or

revocation of the registration, the Authority is

obliged to take such action, as it may deem fit,

including the carrying out of the remaining

development works. The Association of allottees

have been given the right of first refusal for

carrying out the remaining development works.

Section 11(4) contemplates the obligations to be

discharged by the Promoter towards the

Association. Reference is also made to Section

4(2)(c) of RERA. Under Section 17 of the RERA, the

Promoter is to execute a registered conveyance in

regard to the undivided proportionate title in the

common areas to the Association of the allottees.

Physical possession of the common areas is to be

handed over to the Association of the Allottees.

Under Section 31 of RERA, the Association can file

complaint with the Authority. Apart from this, it

is also pointed out that under Section 11(1)(b),

the Promoter is bound to create a webpage on the

website of the RERA Authority and enter thereon

the quarterly up-to-date list of the number and

the types of the plots/apartments as may be booked.

46. Shri Sajan Poovayya, learned senior Counsel who

appears on behalf of respondent no. 4 in Writ Petition

No. 191 of 2020, which is a builder, also supported the

Union. The second proviso, he contends is a logical and

legitimate method to strike a fair balance between all

stakeholders. It makes the Code workable. The object

of the Amendment Act is to prevent the use of the Code

for an extraneous purpose and not to shield and protect

an errant real estate developer. He has referred to the

facts pertaining to his client by way of an example of

the misuse which has happened under the earlier regime.

He drew support from paragraph-41 of the judgment in

Pioneer (supra). Second proviso is an independent

provision to made the Code workable. He drew our

attention to paragraph-43 of this court in 1985 1 SCC

591. As regards the information, he also pointed out

Section 11 of RERA, pointing to the information which

is available in public domain. Illustratively, he drew

our attention to the Haryana Real Estate Regulatory

Authority, (Gurugram, Quarterly Progress Report

Regulations), 2018, under which the format provides

various details which include the names of the

allottees and the date of booking, inter alia. He also

points out that there is no unfair discrimination.

CHALLENGE TO PLENARY LEGISLATION; GROUNDS

47. The grounds on which plenary law can be challenged

are well established. In the first two decades

decisions of this Court unerringly point to three

grounds which render legislation vulnerable. A law can

be successfully challenged if contrary to the division

of powers, either the Parliament or the State

Legislature usurps power that does not fall within its

domain thus, rendering it incompetent to make such law.

Secondly, a law made contravening Fundamental Rights

guaranteed under Part III of the Constitution of India

would be visited with unconstitutionality and declared

void to the extent of its contravention. Needless to

say, a law within the meaning of Article 19 of the

Constitution would remain valid qua a non-citizen (see

in this regard The State of Gujarat and others v. Shri

Ambica Mills Ltd., Ahmedabad and Others38). Thirdly,

apart from Fundamental Rights, the supremacy of the

Constitution vis-a-vis the ordinary legislation, even

when the law is plenary legislation, is preserved with

a view that legislation must be in conformity with the

other provisions of the Constitution.

48. While on breaches of the Fundamental Right,

furnishing a plank of attack against plenary law, it

is necessary to notice a challenge to law under Article

14, was essentially confined to the law, being class

legislation. In other words, a law, if it manifested

reasonable classification for treating different

38 (1974) 4 SCC 656

persons or things differently, the law would pass

muster. Interestingly, even while the theory of

reasonable classification had come to be proclaimed in

the first year of the Republic, and what is more

followed in State of West-Bengal v. Anwar Ali39, the

following doubts were expressed by Justice Vivian Bose:

“82. I can conceive of cases where there

is the utmost good faith and where the

classification is scientific and rational

and yet which would offend this law. Let

us take an imaginary cases in which a

State legislature considers that all

accused persons whose skull measurements

are below a certain standard, or who

cannot pass a given series of

intelligence tests, shall be tried

summarily whatever the offence on the

ground that the less complicated the

trial the fairer it is to their substandard of intelligence. Here is

classification. It is scientific and

systematic. The intention and motive are

good. There is no question of

favouritism, and yet I can hardly believe

that such a law would be allowed to stand.

But what would be the true basis of the

decision? Surely simply this that the

judges would not consider that fair and

proper. However much the real ground of

decision may be hidden behind a screen of

words like 'reasonable', 'substantial',

'rational' and 'arbitrary' the fact would

remain that judges are substituting their

own judgment of what is right and proper

and reasonable and just for that of the

legislature; and up to a point that, I

39 AIR 1952 SC 75

think, is inevitable when a judge is

called upon to crystallise a vague

generality like article 14 into a

concrete concept. Even in England, where

Parliament is supreme, that is

inevitable, for, as Dicey tells us in his

Law of the Constitution:

"Parliament is the supreme legislator,

but from, the moment Parliament has

uttered its will as law-giver, that will

becomes subject to the interpretation put

upon it by the judges of the land, and

the judges, who are influenced by the

feelings of magistrates no less than by

the general spirit of the common law, are

disposed to construe statutory exceptions

to common law principles in a mode which

would not commend itself either to a body

of officials, or the Houses of

Parliament, if the Houses were called

upon to interpret their own enactments.”

But the following caveat by the learned Judge is

worth noticing:

“83. This, however, does not mean that

judges are to determine what is for the

good of the people and substitute their

individual and personal opinions for that

of the government of the day, or that they

may usurp the functions of the

legislature. That is not their province

and though there must always be a narrow

margin within which judges, who are

human, will always be influenced by

subjective factors, their training and

their tradition makes the main body of

their decisions speak with the same voice

and reach impersonal results whatever

their personal predilections or their

individual backgrounds. It is the

function of the legislature alone, headed

by the government of the day, to determine

what is, and what is not, good and proper

for the people of the land and they must

be given the widest latitude to exercise

their functions within the ambit of their

powers, else all progress us barred. But,

because of the Constitution, there are

limits beyond which they cannot go and

even though it falls to the lot of judges

to determine where those limits, lie, the

basis of their decision cannot be whether

the Court thinks the law is for the

benefit of the people of not. Cases of

this type must be decided solely on the

basis whether the Constitution forbids

it.”

(Emphasis supplied)

49. The seed of this idea had a muted growth. It was

in the decision of this Court in E.P. Royappa v. State

of Tamil Nadu and Another40 that this Court laid bare a

new dimension in the majestic provisions of Article 14.

This Court took the view that arbitrariness and

fairness are sworn enemies. The guarantee of Article

14 is not confined in other words to it being a

prohibition against equals being discriminated against

or unequals being treated alike. State action must be

fair and not arbitrary if it is to be pass muster in a

court of law. It is essentially following the dicta

laid down as aforesaid that this Court in the case of

Shayara Bano v. Union of India41, wherein one of us

(Justice Rohinton F. Nariman), speaking for the

majority, held as follows:

“101. It will be noticed that a

Constitution Bench of this Court

in Indian Express Newspapers (Bombay)

(P) Ltd. v. Union of India [Indian

40 (1974) 4 SCC 3

41 (2017) 9 SCC 1

Express Newspapers (Bombay) (P)

Ltd. v. Union of India, (1985) 1 SCC 641

: 1985 SCC (Tax) 121] stated that it was

settled law that subordinate

legislation can be challenged on any of

the grounds available for challenge

against plenary legislation. This being

the case, there is no rational

distinction between the two types of

legislation when it comes to this ground

of challenge under Article 14. The test

of manifest arbitrariness, therefore,

as laid down in the aforesaid judgments

would apply to invalidate legislation

as well as subordinate legislation

under Article 14. Manifest

arbitrariness, therefore, must be

something done by the legislature

capriciously, irrationally and/or

without adequate determining principle.

Also, when something is done which is

excessive and disproportionate, such

legislation would be manifestly

arbitrary. We are, therefore, of the

view that arbitrariness in the sense of

manifest arbitrariness as pointed out

by us above would apply to negate

legislation as well under Article 14.”

(Emphasis supplied)

50. This view, namely, that be it a plenary law if it

is found to be manifestly arbitrary it become

vulnerable has been followed in the following

decisions, among other judgments:

(1) Navtej Singh Johar and Others v. Union of India

and Others42;

(2) Joseph Shine v. Union of India43;

(3) Justice K.S. Puttuswamy and Others v. Union of

India and Others44.

(4) Hindustan Construction Company Ltd. and Others v.

Union of India and Others45.

51. Yet another ground recognised by this Court is that

a law, be it the offspring of a Legislature, it falls

foul of Article 14 if it is found to be vague – (see

in this regard Shreya Singhal v. Union of India46). It

must be elaborated and we must remember that the case

involved overturning Section 66A of the Information

Technology Act which purported to create a criminal

offence, the ingredients of which were found to be

vague.

52. While, on the basis, furnished under law, for

impugning the plenary legislation, we may notice two

grounds, which have been urged before us by some of the

42 (2018) 10 SCC 1

43 (2019) 3 SCC 39

44 (2017) 10 SCC 1

45 AIR 2020 SC 122

46 (2015) 5 SCC 1

petitioners. It has been urged that the law was created

by way of pandering to the real estate lobby and

succumbing to their pressure or by way of placating

their vested interests. Such an argument is nothing but

a thinly disguised attempt at questioning the law of

the Legislature based on malice. A law is made by a

body of elected representatives of the people. When

they act in their legislative capacity, what is being

rolled out is ordinary law. Should the same legislators

sit to amend the Constitution, they would be acting as

members of the Constituent Assembly. Whether it is

ordinary legislation or an amendment to the

Constitution, the activity is one of making the law.

While malice may furnish a ground in an appropriate

case to veto administrative action it is trite that

malice does not furnish a ground to attack a plenary

law [See in this regard K. Nagaraj and others v. State

of Andhra Pradesh and another47 and State of Himachal

Pradesh v. Narain Singh48].

47(1985) 1 SCC 523

48(2009) 13 SCC 165

53. Yet another ground which has been urged in these

cases is that when this Court decided Pioneer (supra)

the Union of India defended the amendment to the Code

which included the insertion of the explanation to

Section 5(8)(f) of the Code. It was this explanation

which made it clear that home buyers would be financial

creditors. All grounds urged by the financial creditors

were fiercely countered by the very same Union of India

by contending that the home buyers are financial

creditors and what is more, there existed sufficient

safeguards against abuse of power by the individual

home buyers. What is contended before us by some of

the petitioners is that the supreme legislature is in

such circumstances estopped by the principle of

promissory estoppel from enacting the impugned

enactment.

54. A supreme legislature cannot be cribbed, cabined

or confined by the doctrine of promissory estoppel or

estoppel. It acts as a sovereign body. The theory of

promissory estoppel, on the one hand, has witnessed an

incredible trajectory of growth but it is incontestable

that it serves as an effective deterrent to prevent

injustice from a Government or its agencies which seek

to resile from a representation made by them, without

just cause [See in this regard Union of India and others

v. Godfrey Philips India Ltd.49 – Paragraph-13].

UNRAVELLING THE WORKING OF THE CODE AS REGARDS

CORPORATE DEBTOR

55. The Code was passed by Parliament in the year 2016

however, under Section 1(3) provisions were to come

into force on such day as the Central Government was

to appoint. The provisions of the Code stand enforced

from 2017.

56. Part II of the code applies to matters relating to

Insolvency and Liquidation of Corporate Debtors where

the minimum amount of default is Rupees One crore as

it stands [Section 4]. Under Section 6 of the Code

when any corporate debtor commits a default, a

financial creditor, an operational creditor or the

corporate debtor itself is permitted to initiate the

corporate insolvency resolution process (hereinafter

49 (1985) 4 SCC 369

referred to as CIRP) in respect of the corporate debtor

in the manner provided under Chapter II. Chapter II

consists of Section 6 to Section 32A. Section 7 (1)

provides that a financial creditor by himself or

joining with other financial creditors or any other

person on behalf of the financial creditor as may be

notified by the Central Government may file an

application under Section 7 for initiating the CIRP

before the adjudicating authority when a default has

occurred. The adjudicating authority defined in Section

5(1) of the Code is the NCLT constituted under Section

408 of the Companies Act 2013. The unamended Section

7(1) read as follows:

“7. (1) A financial creditor either by

itself or jointly with other financial

creditors may file an application for

initiating corporate insolvency

resolution process against a corporate

debtor before the Adjudicating Authority

when a default has occurred.”

Explanation - For the purposes of this

sub-section, a default includes a default

in respect of a financial debt owed not

only to the applicant financial creditor

but to any other financial creditor of

the corporate debtor.”

57. The three impugned provisos which we have already

noted and which have been inserted vide the impugned

amendment have been sandwitched in between the

provisions of sub-section (1) and the explanation.

Sub- section 2 of Section 7 provides that the financial

creditor shall make the application which shall be in

such manner and form and accompanied by such fee as may

be prescribed.

58. Section 3(26) defines the word `prescribed’ as

meaning prescribed by rules made by the Central

Government. Section 239, inter alia, confers power on

the Central Government to make rules for carrying out

the provisions of the Code. Accordingly, the

Insolvency and Bankruptcy (Application to Adjudicating

Authority) Rules, 2016 came to be made and were

enforced from 1.12.2016. Rule 4 reads as under:

“4. Application by financial creditor.—

(1) A financial creditor, either by

itself or jointly, shall make an

application for initiating the corporate

insolvency resolution process against a

corporate debtor under section 7 of the

Code in Form 1, accompanied with

documents and records required therein

and as specified in the Insolvency and

Bankruptcy Board of India (Insolvency

Resolution Process for Corporate Persons)

Regulations, 2016.

(2) Where the applicant under sub-rule

(1) is an assignee or transferee of a

financial contract, the application shall

be accompanied with a copy of the

assignment or transfer agreement and

other relevant documentation to

demonstrate the assignment or transfer.

(3) The applicant shall dispatch

forthwith, a copy of the application

filed with the Adjudicating Authority, by

registered post or speed post to the

registered office of the corporate

debtor.

(4) In case the application is made

jointly by financial creditors, they may

nominate one amongst them to act on their

behalf.”

59. Rule 8 contemplates withdrawal of application. It

reads as follows:

“8. Withdrawal of application —

The Adjudicating Authority may permit

withdrawal of the application made under

rules 4, 6 or 7, as the case may be, on a

request made by the applicant before its

admission.”

60. It must be noticed that Rules 6 and 7 deal with

applications by operational creditors and corporate

applicants respectively. Rule 10 (1) (2) and (3) read

as follows:

“10. Filing of application and

application fee —

(1) Till such time the rules of procedure

for conduct of proceedings under the Code

are notified, the application made under

sub-section (1) of section 7, sub-section

(1) of section 9 or sub-section (1) of

section 10 of the Code shall be filed

before the Adjudicating Authority in

accordance with rules 20, 21, 22, 23, 24

and 26 of Part III of the National Company

Law Tribunal Rules, 2016.

(2) An applicant under these rules shall

immediately after becoming aware, notify

the Adjudicating Authority of any

winding-up petition presented against

the corporate debtor.

(3) The application shall be accompanied

by such fee as specified in the

Schedule.”

61. Form 1 is the application prescribed in relation

to an application to be filed by the financial

creditor. It reads as follows:

“FORM 1

(See sub-rule (1) of rule 4)

APPLICATION BY FINANCIAL CREDITOR(S) TO INITIATE

CORPORATE INSOLVENCY RESOLUTION PROCESS UNDER

CHAPTER II OF PART II UNDER CHAPTER IV OF PART II

OF THE CODE.

[*strike out whichever is not applicable]

(Under section 7 of the Insolvency and Bankruptcy Code,

2016 read with Rule 4 of the Insolvency and Bankruptcy

(Application to Adjudicating Authority) Rules, 2016)

[Date]

To,

The National Company Law Tribunal

[Address]

From,

[Names and addresses of the registered officers of the

financial creditors]

In the matter of [name of the corporate debtor]

Subject: Application to initiate corporate insolvency

resolution process in the matter of [name of the

corporate debtor] under the Insolvency and Bankruptcy

Code, 2016.

Madam/ Sir,

[Names of the financial creditor(s)], hereby submit

this application to initiate a corporate insolvency

resolution process in the matter of [name of corporate

debtor]. The details for the purpose of this

application are set out below:

Part-I

PARTICULARS OF APPLICANT (PLEASE PROVIDE FOR EACH

FINANCIAL CREDITOR MAKING THE APPLICATION)

1. NAME OF FINANCIAL CREDITOR

2. DATE OF INCORPORATION OF FINANCIAL

CREDITOR

3. IDENTIFICATION NUMBER OF FINANCIAL

CREDITOR

4. ADDRESS OF THE REGISTERED OFFICE OF

THE FINANCIAL CREDITOR

5. NAME AND ADDRESS OF THE PERSON

AUTHORISED TO SUBMIT APPLICATION ON

ITS BEHALF (ENCLOSE AUTHORISATION)

6. NAME AND ADDRESS OF PERSON RESIDENT

IN INDIA AUTHORISED TO ACCEPT THE

SERVICE OF PROCESS ON ITS BEHALF

(ENCLOSE AUTHORISATION)

PART-II

PARTICULARS OF THE CORPORATE DEBTOR

1. NAME OF THE CORPORATE DEBTOR

2. IDENTIFICATION NUMBER OF

CORPORATE DEBTOR

3. DATE OF INCORPORATION OF

CORPORATE DEBTOR

4. NOMINAL SHARE CAPITAL AND THE

PAID-UP SHARE CAPITAL OF THE

CORPORATE DEBTOR AND/OR DETAILS

OF GUARANTEE CLAUSE AS PER

MEMORANDUM OF ASSOCIATION (AS

APPLICABLE)

5. ADDRESS OF THE REGISTERED OFFICE

OF THE CORPORATE DEBTOR

6. DETAILS OF THE CORPORATE DEBTOR

AS PER THE NOTIFICATION UNDER

SECTION 55(2) OF THE CODE-

(i) ASSETS AND INCOME

(ii) CLASS OF CREDITORS OR

AMOUNT OF DEBT

(iii) CATEGORY OF CORPORATE

PERSON

(WHERE APPLICATION IS UNDER

CHAPTER IV OF PART II OF THE

CODE)

Part-III

PARTICULARS OF THE PROPOSED INTERIM RESOLUTION

PROFESSIONAL

1. NAME, ADDRESS, EMAIL ADDRESS AND

THE REGISTRATION NUMBER OF THE

PROPOSED INTERIM RESOLUTION

PROFESSIONAL

Part-IV

PARTICULARS OF FINANCIAL DEBT

1. TOTAL AMOUNT OF DEBT GRANTED

DATE(S) OF DISBURSEMENT

2. AMOUNT CLAIMED TO BE IN DEFAULT

AND THE DATE ON WHICH THE

DEFAULT OCCURRED (ATTACH THE

WORKINGS FOR COMPUTAION OF

AMOUNT AND DAYS OF DEFAULT IN

TABULAR FORM)

Part-V

PARTICULARS OF FINANCIAL DEBT [DOCUMENTS, RECORDS AND

EVIDENCE OF DEFAULT]

1. PARTICULARS OF SECURITY HELD, IF ANY, THE DATE OF

ITS CREATION, ITS ESTIMATED VALUE AS PER THE

CREDITOR.

ATTACH A COPY OF A CERTIFICATE OF REGISTRATION OF

CHARGE ISSUED BY THE REGISTRAR OF COMPANIES (IF

THE CORPORATE DEBTOR IS A COMPANY)

2. PARTICULARS OF AN ORDER OF A COURT, TRIBUNAL OR

ARBITRAL PANEL ADJUDICATING ON THE DEFAULT, IF ANY

(ATTACH A COPY OF THE ORDER)

3. RECORD OF DEFAULT WITH THE INFORMATION UTILITY, IF

ANY (ATTACH A COPY OF SUCH RECORD)

4. DETAILS OF SUCCESSION CERTIFICATE, OR PROBATE OF

A WILL, OR LETTER OF ADMINISTRATION, OR COURT

DECREE (AS MAY BE APPLICABLE), UNDER THE INDIAN

SUCCESSION ACT, 1925 (10 OF 1925) (ATTACH A COPY)

5. THE LATEST AND COMPLETE COPY OF THE FINANCIAL

CONTRACT REFLECTING ALL AMENDMENTS AND WAIVERS TO

DATE (ATTACH A COPY)

6. A RECORD OF DEFAULT AS AVAILABLE WITH ANY CREDIT

INFORMATION COMPANY (ATTACH A COPY)

7. COPIES OF ENTRIES IN A BANKERS BOOK IN ACCORDANCE

WITH THE BANKERS BOOKS EVIDENCE ACT, 1891 (18 OF

1891) (ATTACH A COPY)

8. LIST OF OTHER DOCUMENTS ATTACHED TO THIS

APPLICATION IN ORDER TO PROVE THE EXISTENCE OF

FINANCIAL DEBT, THE AMOUNT AND DATE OF DEFAULT

I, hereby certify that, to the best of my knowledge,

[name of proposed insolvency professional], is fully

qualified and permitted to act as an insolvency

professional in accordance with the Insolvency and

Bankruptcy Code, 2016 and the associated rules and

regulations.

[Name of the financial creditor] has paid the requisite

fee for this application through [state means of

payment] on [date].

Yours sincerely,

Signature of person authorised to act on behalf of

the financial creditor

Name in block letters

Position with or in relation to the financial creditor

Address of person signing

Instructions

Please attach the following to this application:

Annex I Copies of all documents referred to in this

application.

Annex II Written communication by the proposed interim

resolution professional as set out in Form 2.

Annex III Proof that the specified application fee has

been paid.

Annex IV Where the application is made jointly, the

particulars specified in this form shall be furnished

in respect of all the joint applicants along with a

copy of authorisation to the financial creditor to file

and act on this application on behalf of all the

applicants.”

62. The schedule prescribes the fees which is

contemplated under Rule 10(3). It, inter alia,

provides that for an application by a financial

creditor (whether solely or jointly a sum of Rupees

Twenty-five thousand). Sub-section 3 of Section 7

provides that financial creditor along with the

application shall furnish record of the default

recorded by the information utility or all such other

record or evidence before as may be specified. The

word ‘specified’ has been defined in Section 3 (32) as

meaning specified by regulations made by the Board and

the term ‘specify’ is to be construed accordingly.

63. Section 7(3) (b) requires the financial creditor

who makes the application to furnish the name of the

Resolution Professional proposed as an Interim

Resolution Professional (hereafter referred to as “RP”

and “IRP” respectively). Section 5(27) defines the

word ‘Resolution Professional’ for the purpose of Part

2 to mean an insolvency professional appointed to

conduct the CIRP and includes an interim resolution

professional. In turn Section 3(19) defines

‘insolvency professional’ as the person enrolled under

Section 206 with an insolvency professional agency as

its member and registered with the Board as an

insolvency professional under Section 207.

Sub-Section (5) of Section 7 proclaims that when

adjudicating authority is satisfied that a default has

occurred and the application under sub-section is

complete and that there is no disciplinary proceedings

pending against the proposed resolution professional,

it may by order admit an application. Inter alia on

the ground that default has not occurred, it is open

to adjudicating authority to reject the application.

If rejection is intended, the proviso obliges the

adjudicating authority to issue a notice to rectify any

defect in the application (this is for the reason that

under sub-Section 5 apart from there being no default,

if there is any disciplinary action against the

proposed resolution professional, the application is

liable to be rejected) This is apart from the

application being otherwise defective. The application

is to contain other information as may be specified

under regulations by the Code. The adjudicating

authority is required by the letter of the law and

indeed we may say so, in accordance with the spirit to

ascertain within 14 days of the receipt of the

application if there is any default from the records

of information utility or on the basis of other

evidence made available by the financial creditor under

sub-section (3) [In Pioneer (supra), the period has

been understood as directory]. `Information utility’

has been defined in Section 3(21), as a person who is

registered with the Board as information utility under

Section 210. The word ‘Board’ has been defined in

Section 3(1) to be the ‘Insolvency and Bankruptcy Board

of India’ which is established under sub-Section (1)

of Section 188.

64. Section 7(6) declares that the CIRP shall commence

from the date of admission of the application under

sub-section (5).

65. Section 8 read with Section 9 deal with application

for initiation of the CIRP by an operational creditor.

Section 10 deals with an application by the corporate

applicant. The word Corporate applicant is defined to

refer to the corporate debtor and other entities

associated with it. More about it at a later stage.

It is thereafter that law giver has in Section 11

proscribed applications which should otherwise be

maintainable. This is a provision in which we will

devote more time later on in this judgement. Section

12 places the time limit. Section 12 has a marginal

note which is to the following effect:

“12. Time-limit for completion of

insolvency resolution process.-

(1) Subject to sub-section (2), the

corporate insolvency resolution

process shall be completed within a

period of one hundred and eighty days

from the date of admission of the

application to initiate such process.

(2) The resolution professional shall

file an application to the

Adjudicating Authority to extend the

period of the corporate insolvency

resolution process beyond one hundred

and eighty days, if instructed to do

so by a resolution passed at a meeting

of the committee of creditors by a vote

of seventy-five per cent. of the

voting shares.

(3) On receipt of an application

under sub-section (2), if the

Adjudicating Authority is satisfied

that the subject matter of the case is

such that corporate insolvency

resolution process cannot be completed

within one hundred and eighty days, it

may by order extend the duration of

such process beyond one hundred and

eighty days by such further period as

it thinks fit, but not exceeding

ninety days:

Provided that any extension of the

period of corporate insolvency

resolution process under this section

shall not be granted more than once.

Provided further that the corporate

insolvency resolution process shall

mandatorily be completed within a

period of three hundred and thirty

days from the insolvency commencement

date, including any extension of the

period of corporate insolvency

resolution process granted under this

section and the time taken in legal

proceedings in relation to such

resolution process of the corporate

debtor:

Provided also that where the

insolvency resolution process of a

corporate debtor is pending and has

not been completed within the period

referred to in the second proviso,

such resolution process shall be

completed within a period of ninety

days from the date of commencement of

the Insolvency and Bankruptcy Code

(Amendment) Act, 2019.”

66. Coming to sub-Section 2, the CIRP is to be

completed within 180 days from the date of admission

of the application to initiate the process. As far as

an application by a financial creditor is concerned,

the date of admission is the date of the order admitting

the application. Under sub-Section (2) however if the

Committee of creditors by a vote of 66 per cent of the

voting share instructs the RP to extend the period of

CIRP beyond 180 days, the RP is bound to file an

application. The adjudicating authority on receipt of

the application can extend the period of 180 days for

a maximum period of 90 days. Such extension can be

granted only once. With effect from 16.8.2019, two

provisos have been inserted. The provisos were added

in fact as noted in paragraph-74 of the Essar

Steel(supra)to overcome what was laid down in (2019) 2

SCC 1 decided by this Court 04.10.2018. In the latter

decision in Arcellormittal(supra), this Court

purported to hold that the time taken in legal

proceedings must be excluded. Under the first proviso,

the CIRP has to be mandatorily completed within a

period of 330 days from the insolvency commencement

date. This period of 330 days is to include any

extension granted under sub-Section (3) by the

Adjudicating Authority and also the time taken in legal

proceedings in relation to the resolution process of

the corporate debtor. However, in Committee Creditors

of Essar Steel (supra), this Court struck down the word

‘mandatorily’ as being manifestly arbitrary and in

violation of Article 19 (1)(g) and proceeded to hold

as follows:

“…The effect of this declaration is that

ordinarily the time taken in relation to

the corporate resolution process of the

corporate debtor must be completed

within the outer limit of 330 days from

the insolvency commencement date,

including extensions and the time taken

in legal proceedings. However, on the

facts of a given case, if it can be shown

to the Adjudicating Authority and/or

Appellate Tribunal under the Code that

only a short period is left for

completion of the insolvency resolution

process beyond 330 days, and that it

would be in the interest of all

stakeholders that the corporate 10-12-

2020 (Page 69 of 85) debtor be put back

on its feet instead of being sent into

liquidation and that the time taken in

legal proceedings is largely due to

factors owing to which the fault cannot

be ascribed to the litigants before the

Adjudicating Authority and/or Appellate

Tribunal, the delay or a large part

thereof being attributable to the tardy

process of the Adjudicating Authority

and/or the Appellate Tribunal itself, it

may be open in such cases for the

Adjudicating Authority and/or Appellate

Tribunal to extend time beyond 330 days.

Likewise, even under the newly added

proviso to Section 12, if by reason of

all the aforesaid factors the grace

period of 90 days from the date of

commencement of the Amending Act of 2019

is exceeded, there again a discretion

can be exercised by the Adjudicating

Authority and/or Appellate Tribunal to

further extend time keeping the

aforesaid parameters in mind. It is only

in such exceptional cases that time can

be extended, the general Rule being that

330 days is the outer limit within which

resolution of the stressed assets of the

corporate debtor must take place beyond

which the corporate debtor is to be

driven into liquidation.”

67. At this juncture, it must be noted that under the

first proviso inserted by the amendment dated

16.08.2019, reference to the period of 330 days is made

with regard to the insolvency commencement date. The

insolvency commencement date has been defined in

Section 5(12). Section 5(12) reads as follows:

“5(12) "insolvency commencement date"

means the date of admission of an

application for initiating corporate

insolvency resolution process by the

Adjudicating Authority under sections 7,

9 or section 10, as the case may be.”

There was a proviso but it stands omitted by Act

1/2020 (with effect from 28/12/2019).

68. In this regard, it is to be noticed that the

scheme appears to be that the name of the RP to act as

the IRP is to be indicated in the application. While

admitting the application under Section 7(5), the

adjudicating authority is to appoint the proposed

resolution professional. In fact, Section 16(2) of the

Code contemplates such appointment. We may refer to

Section 12A which was inserted with effect from

6.6.2018. Section 12A reads as follows:

“12A. Withdrawal of application admitted

under section 7, 9 or 10. – The

Adjudicating Authority may allow the

withdrawal of application admitted under

section 7 or section 9 or section 10, on

an application made by the applicant

with the approval of ninety per cent

voting share of the committee of

creditors, in such manner as may be

specified.”

69. The above provision dealing with withdrawal of

application after admission may be contrasted with Rule

(8) which apparently deals with withdrawal before

admission.

70. Section 16 of the Code, however, indicates that

the adjudicating authority shall appoint an interim

resolution professional within 14 days from the

insolvency commencement date. We have already noted

the definition of the words ‘insolvency commencement

date’ as the date of admission. Section 13

contemplates steps to be taken upon admission under

Section 7, inter alia.

1.A moratorium contemplated under Section 14 is to

be declared.

2.A Public announcement of the initiation of the CIRP

and inviting claims against the corporate debtor

is to be made.

3. The appointment of the IRP- the appointment is to

be done in the manner as provided in Section 16.

The announcement is to be made immediately after

the appointment of resolution professional.

71. Section 14 deals with moratorium.

“14. Moratorium. - (1) Subject to

provisions of sub-sections (2) and (3),

on the insolvency commencement date, the

Adjudicating Authority shall by order

declare moratorium for prohibiting all

of the following, namely: -

(a) the institution of suits or

continuation of pending suits or

proceedings against the corporate debtor

including execution of any judgement,

decree or order in any court of law,

tribunal, arbitration panel or other

authority;

(b)transferring, encumbering,

alienating or disposing off by the

corporate debtor 1 Ins. by Act No. 26 of

2019, sec. 4 (w.e.f. 16-8-2019). 2 Ins.

by Act No. 26 of 2018, sec. 9 (w.e.f. 6-

6-2018). 20 any of its assets or any

legal right or beneficial interest

therein;

enforce any security interest created by

the corporate debtor in respect of its

property including any action under the

Securitisation and Reconstruction of

Financial Assets and Enforcement of

Security Interest Act, 2002 (54 of

2002); (d)the recovery of any property

by an owner or lessor where such

property is occupied by or in the

possession of the corporate debtor.

Explanation.-For the purposes of this

sub-section, it is hereby clarified that

notwithstanding anything contained in

any other law for the time being in

force, a licence, permit, registration,

quota, concession, clearance or a

similar grant or right given by the

Central Government, State Government,

local authority, sectoral regulator or

any other authority constituted under

any other law for the time being in

force, shall not be suspended or

terminated on the grounds of insolvency,

subject to the condition that there is

no default in payment of current dues

arising for the use or continuation of

the license, permit, registration,

quota, concession, clearances or a

similar grant or right during the

moratorium period.

(2) The supply of essential goods or

services to the corporate debtor as may

be specified shall not be terminated or

suspended or interrupted during

moratorium period.

(2A) Where the interim resolution

professional or resolution

professional, as the case may be,

considers the supply of goods or

services critical to protect and

preserve the value of the corporate

debtor and manage the operations of such

corporate debtor as a going concern,

then the supply of such goods or

services shall not be terminated,

suspended or interrupted during the

period of moratorium, except where such

corporate debtor has not paid dues

arising from such supply during the

moratorium period or in such

circumstances as may be specified.

(3) The provisions of sub-section (1)

shall not apply to

(a) such transactions, agreements or

other arrangement as may be notified by

the Central Government in consultation

with any financial sector regulator or

any other authority;

(b) a surety in a contract of guarantee

to a corporate debtor.

(4) The order of moratorium shall have

effect from the date of such order till

the completion of the corporate

insolvency resolution process:

Provided that where at any time during

the corporate insolvency resolution

process period, if the Adjudicating

Authority approves the resolution plan

under sub-section (1) of section 31 or

passes an order for liquidation of

corporate debtor under section 33, the

moratorium shall cease to have effect

from the date of such approval or

liquidation order, as the case may be.”

72. It will be noticed that while Section 6 read with

Section 7 contemplates that a financial creditor may

move the application individually, he may also move the

application jointly with other financial creditors.

Even if a single financial creditor was to be the

applicant, after the appointment of the interim

resolution professional, the applicant ceases to be in

seisin of the lis. The provisions of Section 17 is to

be noticed. It reads as follows:

“17. Management of affairs of corporate

debtor by interim resolution

professional. - (1) From the date of

appointment of the interim resolution

professional, -

(a) the management of the affairs of

the corporate debtor shall vest in the

interim resolution professional;

(b) the powers of the board of

directors or the partners of the

corporate debtor, as the case may be,

shall stand suspended and be exercised

by the interim resolution

professional;

corporate debtor shall report to the

interim resolution professional and

provide access to such documents and

records of the corporate debtor as may

be required by the interim resolution

professional;

(d) the financial institutions

maintaining accounts of the corporate

debtor shall act on the instructions

of the interim resolution professional

in relation to such accounts and

furnish all information relating to

the corporate debtor available with

them to the interim resolution

professional.

(2) The interim resolution professional

vested with the management of the

corporate debtor, shall-

(a) act and execute in the name and on

behalf of the corporate debtor all

deeds, receipts, and other documents, if

any;

(b)take such actions, in the manner and

subject to such restrictions, as may be

specified by the Board;

electronic records of corporate debtor

from information utility having

financial information of the corporate

debtor;

(d)have the authority to access the

books of accounts, records and other

relevant documents of corporate debtor

available with government authorities,

statutory auditors, accountants and such

other persons as may be specified; and

(e) 2 [be responsible for complying with

the requirements under any law for the

time being in force on behalf of the

corporate debtor.”

73. Section 17 contemplates that the management of the

affairs of the corporate debtor will vest with the IRP.

This takes effect from the date of the appointment of

the interim resolution professional. Furthermore, the

powers of the Board of Directors who are partners of

the corporate debtors shall stand suspended.

74. Virtually, the entire control of the management

including all the acts and authority indicated in subsection 2 is to be carried out by interim resolution

professional and authority exercised by him. Section

18 details the duties of the IRP. It reads as follows:

“18. Duties of interim resolution

professional. –

The interim resolution professional

shall perform the following duties,

namely: -

(a) collect all information relating to

the assets, finances and operations of

the corporate debtor for determining the

financial position of the corporate

debtor, including information relating

to –

(i) business operations for the

previous two years;

(ii) financial and operational

payments for the previous two years;

(iii) list of assets and liabilities

as on the initiation date; and

(iv) such other matters as may be

specified;

(b) receive and collate all the claims

submitted by creditors to him, pursuant

to the public announcement made under

sections 13 and 15;

(d) monitor the assets of the corporate

debtor and manage its operations until

a resolution professional is appointed

by the committee of creditors;

(e) file information collected with the

information utility, if necessary; and

(f) take control and custody of any

asset over which the corporate debtor

has ownership rights as recorded in the

balance sheet of the corporate debtor,

or with information utility or the

depository of securities or any other

registry that records the ownership of

assets including –

(i) assets over which the corporate

debtor has ownership rights which may

be located in a foreign country;

(ii) assets that may or may not be in

possession of the corporate debtor;

(iii) tangible assets, whether movable

or immovable;

(iv) intangible assets including

intellectual property;

(v) securities including shares held

in any subsidiary of the corporate

debtor, financial instruments,

insurance policies;

(vi) assets subject to the

determination of ownership by a court

or authority:

(g) to perform such other duties as may

be specified by the Board.

Explanation. – For the purposes of this

1 section, the term “assets” shall not

include the following, namely: -

(a) assets owned by a third party in

possession of the corporate debtor held

under trust or under contractual

arrangements including bailment;

(b) assets of any Indian or foreign

subsidiary of the corporate debtor; and

by the Central Government in

consultation with any financial sector

regulator.”

75. It will be noticed that amongst his duties, is the

duty to constitute a Committee of Creditors. The

constitution of the committee of creditors and the

method of voting and the extent of the same are found

detailed inter alia in Section 21. Since much may turn

on the said provision we refer to the same:

“21. Committee of creditors. –

(1) The interim resolution professional

shall after collation of all claims

received against the corporate debtor

and determination of the financial

position of the corporate debtor,

constitute a committee of creditors.

(2) The committee of creditors shall

comprise all financial creditors of the

corporate debtor:

Provided that a financial creditor or

the authorised representative of the

financial creditor referred to in subsection (6) or sub-section (6A) or subsection (5) of section 24, if it is a

related party of the corporate debtor,

shall not have any right of

representation, participation or voting

in a meeting of the committee of

creditors:

Provided further that the first proviso

shall not apply to a financial creditor,

regulated by a financial sector

regulator, if it is a related party of

the corporate debtor solely on account

of conversion or substitution of debt

into equity shares or instruments

convertible into equity shares or

completion of such transactions as may

be prescribed], prior to the insolvency

commencement date.

(3) Subject to sub-sections (6) and

(6A), where the corporate debtor owes

financial debts to two or more financial

creditors as part of a consortium or

agreement, each such financial creditor

shall be part of the committee of

creditors and their voting share shall

be determined on the basis of the

financial debts owed to them.

(4) Where any person is a financial

creditor as well as an operational

creditor –

(a) such person shall be a financial

creditor to the extent of the financial

debt owed by the corporate debtor, and

shall be included in the committee of

creditors, with voting share

proportionate to the extent of financial

debts owed to such creditor;

(b) such person shall be considered to

be an operational creditor to the extent

of the operational debt owed by the

corporate debtor to such creditor.

(5) Where an operational creditor has

assigned or legally transferred any

operational debt to a financial

creditor, the assignee or transferee

shall be considered as an operational

creditor to the extent of such

assignment or legal transfer.

(6) Where the terms of the financial

debt extended as part of a consortium

arrangement or syndicated facility

provide for a single trustee or agent to

act for all financial creditors, each

financial creditor may-

(a) authorise the trustee or agent to

act on his behalf in the committee of

creditors to the extent of his voting

share;

(b) represent himself in the committee

of creditors to the extent of his voting

share;

(other than the resolution professional)

at his own cost to represent himself in

the committee of creditors to the extent

of his voting share; or

(d) exercise his right to vote to the

extent of his voting share with one or

more financial creditors jointly or

severally.

(6A) Where a financial debt—

(a) is in the form of securities or

deposits and the terms of the financial

debt provide for appointment of a

trustee or agent to act as authorised

representative for all the financial

creditors, such trustee or agent shall

act on behalf of such financial

creditors;

(b) is owed to a class of creditors

exceeding the number as may be

specified, other than the creditors

covered under clause (a) or sub-section

(6), the interim resolution professional

shall make an application to the

Adjudicating Authority along with the

list of all financial creditors,

containing the name of an insolvency

professional, other than the interim

resolution professional, to act as their

authorised representative who shall be

appointed by the Adjudicating Authority

prior to the first meeting of the

committee of creditors;

executor or administrator, such person

shall act as authorised representative

on behalf of such financial creditors,

and such authorised representative under

clause (a) or clause (b) or clause (c)

shall attend the meetings of the

committee of creditors, and vote on

behalf of each financial creditor to the

extent of his voting share.

(6B) The remuneration payable to the

authorised representative-

(i) under clauses (a) and (c) of subsection (6A), if any, shall be as per

the terms of the financial debt or

the relevant documentation; and

(ii) under clause (b) of sub-section

(6A) shall be as specified which shall

be form part of the insolvency

resolution process costs.

(7) The Board may specify the manner of

voting and the determining of the voting

share in respect of financial debts

covered under sub-sections (6) and (6A).

(8) Save as otherwise provided in this

Code, all decisions of the committee of

creditors shall be taken by a vote of

not less than fifty-one per cent. of

voting share of the financial creditors:

Provided that where a corporate debtor

does not have any financial creditors,

the committee of creditors shall be

constituted and shall comprise of such

persons to exercise such functions in

such manner as may be specified.

(9) The committee of creditors shall

have the right to require the resolution

professional to furnish any financial

information in relation to the corporate

debtor at any time during the corporate

insolvency resolution process.

(10) The resolution professional shall

make available any financial information

so required by the committee of

creditors under sub-section (9) within

a period of seven days of such

requisition.”

Section 22 (1) and (2) read as follows:

“22. Appointment of resolution

professional. –

(1) The first meeting of the committee

of creditors shall be held within seven

days of the constitution of the

committee of creditors.

(2) The committee of creditors, may, in

the first meeting, by a majority vote of

not less than sixty-six per cent of the

voting share of the financial creditors,

either resolve to appoint the interim

resolution professional as a resolution

professional or to replace the interim

resolution professional by another

resolution professional.”

Section 23 reads as follows:

“23. Resolution professional to conduct

corporate insolvency resolution

process.–

(1) Subject to section 27, the

resolution professional shall conduct

the entire corporate insolvency

resolution process and manage the

operations of the corporate debtor

during the corporate insolvency

resolution process period:

Provided that the resolution

professional shall continue to manage

the operations of the corporate debtor

after the expiry of the corporate

insolvency resolution process period,

until an order approving the resolution

plan under sub-section (1) of section 31

or appointing a liquidator under section

34 is passed by the Adjudicating

Authority.

(2) The resolution professional shall

exercise powers and perform duties as

are vested or conferred on the interim

resolution professional under this

Chapter.

(3) In case of any appointment of a

resolution professional under subsections (4) of section 22, the interim

resolution professional shall provide

all the information, documents and

records pertaining to the corporate

debtor in his possession and knowledge

to the resolution professional.”

76. Section 24 deals with the meeting of committee of

creditors. Now that resolution professional has been

appointed, as contemplated under Section 22, Section

24(2) declares that all the meetings of the committee

of creditors shall be convened by resolution

professional. Section 25 speaks about the duties of

the resolution professional. Section 25(2),(h) and (i)

read as follows:

“25(2) (h) invite prospective resolution

applicants, who fulfil such criteria as

may be laid down by him with the approval

of committee of creditors, having regard

to the complexity and scale of

operations of the business of the

corporate debtor and such other

conditions as may be specified by the

Board, to submit a resolution plan or

plans.

(i) present all resolution plans at the

meetings of the committee of creditors.”

77. Section 25A, which was inserted with effect from

06.06.2018 will be separately dealt with. No doubt,

Section 27 contemplates that a committee of creditors

may at any time during the CIRP replace the resolution

professional as provided in the section. Section 28,

no doubt, constrains the resolution professional in

regard to the matters provided therein. The approval

of the committee of creditors is required in such

matters. It includes making any change in the

management of corporate debtor and its subsidiary

(Section 28(j)). Section 30 contemplates that

resolution applicant may submit a resolution plan. The

‘resolution applicant’ has been defined in sub-section

25 of Section 5 which reads as follows:

“5(25)“resolution applicant” means a

person, who individually or jointly with

any other person, submits a resolution

plan to the resolution professional

pursuant to the invitation made under

clause (h) of sub-section (2) of section

25.”

The resolution plan has been defined in Section 5

(26). The same reads as under:

“5(26) “resolution plan” means a plan

proposed by resolution applicant for

insolvency resolution of the corporate

debtor as a going concern in accordance

with Part II.

Explanation.- For removal of doubts, it

is hereby clarified that a resolution

plan may include provisions for the

restructuring of the corporate debtor,

including by way of merger, amalgamation

and demerger.”

78. The resolution professional has to examine each

resolution plan received by him on the basis of the

invitation made by the resolution professional under

Section 25(h) and ascertain whether the plan is in

conformity with the various criteria mentioned in

Section 30(2) of the Code. The matter is thereafter

put up by the resolution professional before the

committee of creditors. All resolution plans which

conform with the conditions in sub-section (2) of

Section 30 are, in fact, to be placed before the

committee of creditors. The committee of creditors may

approve the resolution plan after considering its

feasibility and viability, the manner of distribution

proposed, which may take into account the hurdles,

priority amongst creditors as laid down in sub-

section(1) of Section 53 including the priority and the

value of security interest of secured creditors and

such other requirements as may be specified by the

Board. There are other details with which we are not

concerned in Section 30. Section 31 requires approval

of the resolution plan by the adjudicating authority.

It reads inter-alia as follows:

“31. Approval of resolution plan. –

(1) If the Adjudicating Authority is

satisfied that the resolution plan as

approved by the committee of creditors

under sub-section (4) of section 30

meets the requirements as referred to

in sub-section (2) of section 30, it

shall by order approve the resolution

plan which shall be binding on the

corporate debtor and its employees,

members, creditors, including the

Central Government, any State

Government or any local authority to

whom a debt in respect of the payment

of dues arising under any law for the

time being in force, such as

authorities to whom statutory dues are

owed, guarantors and other

stakeholders involved in the resolution

plan:

Provided that the Adjudicating Authority

shall, before passing an order for

approval of resolution plan under this

sub-section, satisfy that the resolution

100

plan has provisions for its effective

implementation.”

The scope of these provisions have been dealt with

in the decision of this Court in Essar Steel India

Limited vs. Satish Kumar Gupta and Ors. and (2019) 2

SCC 1 among other decisions authored by one of us

(Justice R.F. Nariman).

79. Sub-section (2) of Section 31 enables the

adjudicating authority to reject the resolution plan.

Section 31 (3) contemplates that after the approval of

the resolution plan that the moratorium order passed

by the adjudicating authority under Section 14 shall

cease to have effect. Section 32A will be separately

dealt with.

80. Section 33, which is in Chapter III in Part II,

compels announcing the death knell of the corporate

debtor. That is if, before the expiry of insolvency

resolution process period or the maximum period

permitted which is CIRP under Section 12, inter alia,

a resolution plan is not received or though received

101

is rejected by the adjudicating authority, then under

Section 33, order is to be passed. The curtains are

wrung down on the insolvency resolution process. The

corporate debtor goes into liquidation. The

adjudicating authority is bound to pass an order

requiring corporate debtor to be liquidated as provided

in chapter III Part II. Section 33(2) contemplates

that before the confirmation of the resolution plan if

the committee of creditors so approved by not less than

66% of the voting decide to liquidate the corporate

debtor, the adjudicating authority is to pass the

liquidation order. Section 33(5) may be noticed at

this stage:

“33 (5) Subject to section 52, when a

liquidation order has been passed, no

suit or other legal proceeding shall be

instituted by or against the corporate

debtor:

Provided that a suit or other legal

proceeding may be instituted by the

liquidator, on behalf of the corporate

debtor, with the prior approval of the

Adjudicating Authority.

An explanation has been added to Section 33(2)of

the Code.

102

“Explanation - For the purpose of this

sub-section, it is hereby declared that

the committee of creditors may take the

decision to liquidate the corporate

debtor, any time after constitution

under sub-section (1) of Section 21 and

before the confirmation of the

resolution plan, including at any time

before the preparation of the

information memorandum.”

THE REAL ESTATE (REGULATION AND DEVELOPMENT) ACT, 2016

AND ITS SCHEME (HEREINAFTER REFERRED TO AS ‘RERA’, FOR

SHORT).

81. The Real Estate Regulation and Development Bill

was introduced in the Rajya Sabha in 2013. Noticing the

fact that though the Consumer Protection Act, 1986 is

available as a Forum in the real estate market for the

buyers, the recourse is only curative and is not

adequate to address all the concerns of the buyers and

promoters in the said sector, it was felt that there

should be a central legislation in the interest of

effective consumer protection, uniformity and

standardization of business practices and transactions

in the real estate sector. The Bill was passed by both

the Houses of Parliament and received the assent of the

President of India on the 25.03.2016. By 01.05.2017,

103

the provisions of the Act came into force, even though,

certain Sections have come into force earlier on

01.05.2016.

82. We may advert to the following definition clauses.

Section 2(b) defines ‘advertisement’, as follows:

“2(b) “advertisement” means any document

described or issued as advertisement

through any medium and includes any

notice, circular or other documents or

publicity in any form, informing persons

about a real estate project, or offering

for sale of a plot, building or apartment

or inviting persons to purchase in any

manner such plot, building or apartment

or to make advances or deposits for such

purposes;”

83. Section 2(c) defines ‘agreement for sale’, as

follows:

“2(c) “agreement for sale” means an

agreement entered into between the

promoter and the allottee;”

84. Section 2(d), which is at the centerstage of the

controversy, defines the word ‘allottee’, which reads

as follows:

“2(d) “allottee” in relation to a real

estate project, means the person to whom

a plot, apartment or building, as the

104

case may be, has been allotted, sold

(whether as freehold or leasehold) or

otherwise transferred by the promoter,

and includes the person who subsequently

acquires the said allotment through sale,

transfer or otherwise but does not

include a person to whom such plot,

apartment or building, as the case may

be, is given on rent;”

85. As can be seen, the word ‘allottee’ includes, plot,

apartment or building. The words ‘apartment’ and

‘building’ are defined. Section 2(e) defines the word

‘apartment’ and it reads as follows:

“2(e) “apartment” whether called block,

chamber, dwelling unit, flat, office,

showroom, shop, godown, premises, suit,

tenement, unit or by any other name, means

a separate and self-contained part of any

immovable property, including one or more

rooms or enclosed spaces, located on one

or more floors or any part thereof, in a

building or on a plot of land, used or

intended to be used for any residential

or commercial use such as residence,

office, shop, showroom or godown or for

carrying on any business, occupation,

profession or trade, or for any other type

of use ancillary to the purpose

specified;”

86. Section 2(j) defines the word ‘building’ and it

reads as follows:

“2(j) “building” includes any structure

or erection or part of a structure or

105

erection which is intended to be used for

residential, commercial or for the

purpose of any business, occupation,

profession or trade, or for any other

related purposes;”

Section 2(s) defines ‘development’ and it reads as

follows:

“2(s) “development” with its grammatical

variations and cognate expressions, means

carrying out the development of immovable

property, engineering or other operations

in, on, over or under the land or the

making of any material change in any

immovable property or land and includes

redevelopment; “

‘Development works’ is defined in Section 2(t) and

it reads as follows:

“2(t) “development works” means the

external development works and internal

development works on immovable property;“

The word ‘promoter’ is defined in 2(zk) and it

reads as follows:

“2(zk) “promoter” means,—

(i) a person who constructs or

causes to be constructed an

independent building or a

building consisting of

apartments, or converts an

existing building or a part

thereof into apartments, for

106

the purpose of selling all or

some of the apartments to

other persons and includes his

assignees; or

(ii) a person who develops land

into a project, whether or not

the person also constructs

structures on any of the

plots, for the purpose of

selling to other persons all

or some of the plots in the

said project, whether with or

without structures thereon; or

(iii) any development authority or

any other public body in

respect of allottees of— (a)

buildings or apartments, as

the case may be, constructed

by such authority or body on

lands owned by them or placed

at their disposal by the

Government; or (b) plots owned

by such authority or body or

placed at their disposal by

the Government, for the

purpose of selling all or some

of the apartments or plots; or

(iv) an apex State level cooperative housing finance

society and a primary cooperative housing society

which constructs apartments or

buildings for its Members or

in respect of the allottees of

such apartments or buildings;

(v) any other person who acts

himself as a builder,

coloniser, contractor,

developer, estate developer or

by any other name or claims to

be acting as the holder of a

power of attorney from the

107

owner of the land on which the

building or apartment is

constructed or plot is

developed for sale; or

(vi) such other person who

constructs any building or

apartment for sale to the

general public.

Explanation.—For the purposes of

this clause, where the person who

constructs or converts a building

into apartments or develops a plot

for sale and the person who sells

apartments or plots are different

person, both of them shall be deemed

to be the promoters and shall be

jointly liable as such for the

functions and responsibilities

specified under this Act or the rules

and regulations made thereunder;”

Section 2(zn) defines ‘real estate project’, it

reads as follows:

“2(zn) “real estate project” means the

development of a building or a building

consisting of apartments, or converting

an existing building or a part thereof

into apartments, or the development of

land into plots or apartments, as the

case may be, for the purpose of selling

all or some of the said apartments or

plots or building, as the case may be,

and includes the common areas, the

development works, all improvements and

structures thereon, and all easement,

rights and appurtenances belonging

thereto;”

108

87. Section 3 prohibits any promoter from advertising,

marketing, etc. or even inviting persons to purchase

any plot, apartment or building in any real estate

project or part of it without there being registration.

Sub-Section (2), however, exempts certain projects from

the requirement of registration and it reads as

follows:

“3(2) Notwithstanding anything

contained in sub-section (1), no

registration of the real estate project

shall be required—

(a) where the area of land proposed

to be developed does not exceed

five hundred square meters or the

number of apartments proposed to be

developed does not exceed eight

inclusive of all phases:

Provided that, if the

appropriate Government considers it

necessary, it may, reduce the

threshold below five hundred 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 project prior to

commencement of this Act;

or repair or re-development which

does not involve marketing,

advertising selling or new

allotment of any apartment, plot or

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building, as the case may be, under

the real estate project.

Explanation.—For the purpose

of this section, where the real

estate project is to be developed

in phases, every such phase shall

be considered a stand alone real

estate project, and the promoter

shall obtain registration under

this Act for each phase

separately.”

Section 7 contemplates revocation of

registration. It is relevant to note Section

7(1), which reads as follows:

“7(1) The Authority may, on receipt of

a complaint or suomotu in this behalf

or on the recommendation of the

competent authority, revoke the

registration granted under section 5,

after being satisfied that—

(a) the promoter makes default in

doing anything required by or

under this Act or the rules or

the regulations made

thereunder;

(b) the promoter violates any of

the terms or conditions of the

approval given by the competent

authority;

kind of unfair practice or

irregularities.

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Explanation.—For the purposes

of this clause, the term “unfair

practice means” a practice which,

for the purpose of promoting the

sale or development of any real

estate project adopts any unfair

method or unfair or deceptive

practice including any of the

following practices, namely:—

(A)

The practice of making any

statement, whether in

writing or by visible

representation which,—

(i) falsely represents that

the services are of a

particular standard or

grade;

(ii) represents that the

promoter 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.”

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We may also further notice Section 7(3). It read

as follows:

“7(3) The Authority may, instead of

revoking the registration under subsection (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.”

We may further bear in mind Section 8 and it reads

as follows:

“8. Obligation of Authority

consequent upon lapse of or on

revocation of registration.—Upon lapse

of the registration or on revocation of

the registration under this Act, the

Authority, may consult the appropriate

Government to take such action as it may

deem fit including the carrying out of

the remaining development works by

competent authority or by the

association of allottees or in any other

manner, as may be determined by the

Authority:

Provided that no direction,

decision or order of the Authority under

this section shall take effect until the

expiry of the period of appeal provided

under the provisions of this Act:

Provided further that in case of

revocation of registration of a project

under this Act, the association of

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allottees shall have the first right of

refusal for carrying out of the

remaining development works.”

88. Section 11 deals with the functions and duties of

a promoter and is of considerable importance, and it

reads as follows:

“11. Functions and duties of promoter —

(1) The promoter shall, upon receiving

his Login Id and password under clause

(a) of sub-section (1) or under subsection (2) of section 5, as the case may

be, create his web page on the website of

the Authority and enter all details of

the proposed project as provided under

sub-section (2) of section 4, in all the

fields as provided, for public viewing,

including—

(a) details of the registration

granted by the Authority;

(b) quarterly up-to-date the list of

number and types of apartments

or plots, as the case may be,

booked;

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.

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(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 like water,

sanitation and electricity.

(4) The promoter shall—

(a) be responsible for all

obligations, responsibilities

and functions under the

provisions of this Act or the

rules and regulations made

thereunder or to the allottees

as per the agreement for sale,

or to the association of

allottees, as the case may be,

till the conveyance of all the

apartments, plots or buildings,

as the case may be, to the

allottees, or the common areas

to the association of allottees

or the competent authority, as

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the case may be: Provided that

the responsibility of the

promoter, with respect to the

structural defect or any other

defect for such period as is

referred to in sub-section (3)

of section 14, shall continue

even after the conveyance deed

of all the apartments, plots or

buildings, as the case may be,

to the allottees are executed.

(b) be responsible to obtain the

completion certificate or the

occupancy certificate, or both,

as applicable, from the relevant

competent authority as per local

laws or other laws for the time

being in force and to make it

available to the allottees

individually or to the

association of allottees, as the

case may be;

lease certificate, where the

real estate project is developed

on a leasehold land, specifying

the period of lease, and

certifying that all dues and

charges in regard to the

leasehold land has been paid, and

to make the lease certificate

available to the association of

allottees;

(d) be responsible for providing and

maintaining the essential

services, on reasonable charges,

till the taking over of the

maintenance of the project by the

association of the allottees;

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(e) enable the formation of an

association or society or cooperative society, as the case

may be, of the allottees, or a

federation of the same, under the

laws applicable: Provided that

in the absence of local laws, the

association of allottees, by

whatever name called, shall be

formed within a period of three

months of the majority of

allottees having booked their

plot or apartment or building,

as the case may be, in the

project;

(f) execute a registered conveyance

deed of the apartment, plot or

building, as the case may be, in

favour of the allottee along with

the undivided proportionate

title in the common areas to the

association of allottees or

competent 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

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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 therefor by such authority

or person;

(h) after he executes an agreement

for sale for any apartment, plot

or building, as the case may be,

not mortgage or create a charge

on such apartment, plot or

building, as the case may be, and

if any such mortgage or charge

is made or created then

notwithstanding anything

contained in any other law for

the time being in force, it shall

not affect the right and interest

of the allottee who has taken or

agreed to take such apartment,

plot or building, as the case may

be;

(5) The promoter may cancel the

allotment only in terms of the agreement

for sale:

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Provided that the allottee may

approach the Authority for relief, if he

is aggrieved by such cancellation and

such cancellation is not in accordance

with the terms of the agreement for sale,

unilateral and without any sufficient

cause.

(6) The promoter shall prepare and

maintain all such other details as may be

specified, from time to time, by

regulations made by the Authority.”

89. Section 14 declares that the proposed project shall

be developed and completed by the promoter in

accordance with the sanctioned plans, layout plans and

specifications, as approved by the Competent

Authorities.

90. Sub-Section (2) of Section 14, reads as follows:

“14. (2) Notwithstanding anything

contained in any law, contract or

agreement, after the sanctioned plans,

layout plans and specifications and the

nature of the fixtures, fittings,

amenities and common areas, of the 16

apartment, plot or building, as the case

may be, as approved by the competent

authority, are disclosed or furnished

to the person who agree to take one or

more of the said apartment, plot or

building, as the case may be, the

promoter shall not make—

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(i) any additions and alterations

in the sanctioned plans, layout

plans and specifications and the

nature of fixtures, fittings and

amenities described therein in

respect of the apartment, plot or

building, as the case may be,

which are agreed to be taken,

without the previous consent of

that person:

Provided that the promoter may

make such minor additions or

alterations as may be required by

the allottee, or such minor

changes or alterations as may be

necessary due to architectural

and structural reasons duly

recommended and verified by an

authorised Architect or Engineer

after proper declaration and

intimation to the allottee.

Explanation.—For the purpose

of this clause, “minor additions

or alterations” excludes

structural change including an

addition to the area or change in

height, or the removal of part of

a building, or any change to the

structure, such as the

construction or removal or

cutting into of any wall or a

part of a wall, partition,

column, beam, joist, floor

including a mezzanine floor or

other support, or a change to or

closing of any required means of

access ingress or egress or a

change to the fixtures or

equipment, etc.

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(ii) any other alterations or

additions in the sanctioned

plans, layout plans and

specifications of the buildings

or the common areas within the

project without the previous

written consent of at least twothirds of the allottees, other

than the promoter, who have

agreed to take apartments in such

building.

Explanation.—For the purpose

of this clause, the allottee,

irrespective of the number of

apartments or plots, as the case

may be, booked by him or booked

in the name of his family, or in

the case of other persons such as

companies or firms or any

association of individuals,

etc., by whatever name called,

booked in its name or booked in

the name of its associated

entities or related enterprises,

shall be considered as one

allottee only.”

91. A similar Explanation, as found in Section 14,

regarding what the word allottee means for the purpose

of section 15 is found in Section 15. Section 15 deals

with obligations of promoter in the case of transfer

of a real estate project to a third party and Section

15(1) reads as follow:

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“15. Obligations of promoter in case of

transfer of a real estate project to a

third party.—(1) The promoter shall not

transfer or assign his majority rights

and liabilities in respect of a real

estate project to a third party without

obtaining prior written consent from

two-third allottees, except the

promoter, and without the prior written

approval of the Authority: Provided

that such transfer or assignment shall

not affect the allotment or sale of the

apartments, plots or buildings as the

case may be, in the real estate project

made by the erstwhile promoter. …”

Section 17 (1) of the RERA, reads as follows:

“17. Transfer of title.—(1) The

promoter shall execute a registered

conveyance deed in favour of the

allottee along with the undivided

proportionate title in the common areas

to the association of the allottees or

the competent authority, as the case may

be, and hand over the physical

possession of the plot, apartment of

building, as the case may be, to the

allottees and the common areas to the

association of the allottees or the

competent authority, as the case may be,

in a real estate project, and the other

title documents pertaining thereto

within specified period as per

sanctioned plans as provided under the

local laws:

Provided that, in the absence of

any local law, conveyance deed in favour

of the allottee or the association of

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the allottees or the competent

authority, as the case may be, under

this section shall be carried out by the

promoter within three months from date

of issue of occupancy certificate”

92. Section 18 deals with the right of the allottee to

obtain the amount given by the allottee and even

compensation. It reads as follows:

“18. Return of amount and

compensation.—(1) If the promoter fails

to complete or is unable to give

possession of an apartment, plot or

building,—

(a) in 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:

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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

subsection shall not be barred by

limitation provided under any law for

the time being in force.

(3) If the promoter fails to

discharge any other obligations imposed

on him under this Act or the rules or

regulations made thereunder or in

accordance with the terms and

conditions of the agreement for sale,

he shall be liable to pay such

compensation to the allottees, in the

manner as provided under this Act.”

Finally, Section 19 deals with the rights and

obligations of an allottee and it reads as follows:

“19. Rights and duties of allottees.—

(1) The allottee shall be entitled to

obtain the information relating to

sanctioned plans, layout plans along

with the specifications, approved by

the competent authority and such other

information as provided in this Act or

the rules and regulations made

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thereunder or the agreement for sale

signed with the promoter.

(2) The allottee shall be entitled to

know stage-wise time schedule of

completion of the project, including

the provisions for water, sanitation,

electricity and other amenities and

services as agreed to between the

promoter and the allottee in accordance

with the terms and conditions of the

agreement for sale.

(3) The allottee shall be entitled to

claim the possession of apartment, plot

or building, as the case may be, and the

association of allottees shall be

entitled to claim the possession of the

common areas, as per the declaration

given by the promoter under sub-clause

section 4.

(4) The allottee shall be entitled to

claim the refund of amount paid along

with interest at such rate as may be

prescribed and compensation in the

manner as provided under this Act, from

the promoter, if the promoter fails to

comply or is unable to give possession

of the apartment, plot or building, as

the case may be, in accordance with the

terms of agreement for sale or due to

discontinuance of his business as a

developer on account of suspension or

revocation of his registration under

the provisions of this Act or the rules

or regulations made thereunder.

(5) The allottee shall be entitled to

have the necessary documents and plans,

including that of common areas, after

handing over the physical possession of

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the apartment or plot or building as the

case may be, by the promoter.

(6) Every allottee, who has entered into

an agreement for sale to take an

apartment, plot or building as the case

may be, under section 13, shall be

responsible 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.

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(11) Every allottee shall participate

towards registration of the conveyance

deed of the apartment, plot or building,

as the case may be, as provided under

sub-section (1) of section 17 of this

Act.”

93. The Act contemplates setting-up of a Real Estate

Regulatory Authority, a Central Advisory Council and

the Real Estate Appellate Tribunal. Offences and

penalties are provided for to give teeth to the Act.

Section 71 gives the power of adjudication of

compensation. Section 72 provides for the factors to

be taken into consideration for adjudging the quantum

of compensation or interest under Section 71. Section

79 enacts a bar of jurisdiction of the civil court in

regard to any matter in which the Authority, the

Adjudicating Officer or the Appellate Tribunal is

empowered by the Act to determine. An injunction cannot

be issued by any court or other Authority in respect

of any action taken or to be taken in pursuance of the

power conferred by or under the Act under the RERA.

94. Section 85 deals with the power to make

regulations. Section 85(2) reads as follows inter alia:

126

“85(2) In particular, and without

prejudice to the generality of the

foregoing power, such regulations may

provide for all or any of the following

matters, namely —

xxx

documents required under clause (f) of

sub-section (1) of section 11;

(d) display of sanctioned plans, layout

plans along with specifications,

approved by the competent authority,

for display under clause (a) of subsection (3) of section 11;

(e) preparation and maintenance of

other details under sub-section (6) of

section 11;

Section 88 of RERA, read as follows:

“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.”

127

It is also important to notice, at once, Section

89 and it reads as follows:

“89. Act to have overriding effect — The

provisions of this Act shall have

effect, notwithstanding anything

inconsistent therewith contained in any

other law for the time being in force.”

95. The only Act, which is repealed is the Maharashtra

Housing (Regulation and Development) Act, 2012.

96. A perusal of Section 88 reveals, on the one hand,

that the provisions of the RERA, are in addition to and

not in derogation of the provisions of any other law

for the time being in force. At the same time, Section

89 provides that the RERA will prevail over any other

inconsistent law. The result is that while all cognate

laws, which are not inconsistent with RERA will

continue to operate within their own sphere, the

provisions, which are, however, inconsistent with RERA,

will not survive after RERA has come into force.

97. In this regard, we may notice, the Delhi Apartment

Ownership Act, 1986. Section 2 deals with the

application of the Act and it reads as follows:

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“2. Application — The provisions of this

Act shall apply to every apartment in a

multi-storeyed building which was

constructed mainly for residential or

commercial or such other purposes as may

be prescribed, by—

(a) any group housing co-operative

society; or

(b) any other person or authority,

before or after the commencement of this

Act and on a free hold land, or a lease

hold land, if the lease for such land

is for a period of thirty years or more:

Provided that, where a building

constructed, whether before or after

the commencement of this Act, on any

land contains only two or three

apartments, the owner of such building

may, by a declaration duly executed and

registered under the provisions of the

Registration Act, 1908 (16 of 1908),

indicate his intention to make the

provisions of this Act applicable to

such building, and on such declaration

being made, such owner shall execute and

accordance with the provisions of this

Act, as if such owner were the promoter

in relation to such building.”

98. Section 3(b) defines the word ‘allottee’ as

follows:

“3(b) “allottee”, in relation to an

apartment, means the person to whom such

apartment has been allotted, sold or

otherwise transferred by the promoter;”

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99. Section 3(c) defines apartment and it reads as

follows:

“3(c) “apartment” means a part of any

property, intended for any type of

independent use, including one or more

rooms or enclosed spaces located on one

or more floors or any part or parts

thereof, in a multi-storeyed building to

be used for residence or office or for

the practice of any profession, or for

the carrying on of any occupation, trade

or business or for such other type of

independent use as may be prescribed, and

with a direct exit to a public street,

road or highway, or to a common area

leading to such street, road or highway,

and includes any garage or room (whether

or not adjacent to the multi-storeyed

building in which such apartment is

located) provided by the promoter for use

by the 4 owner of such apartment for

parking any vehicle or, as the case may

be, for the residence of any domestic

aide employed in such apartment;”

100. Section 3(e) defines ‘apartment owner’ and it reads

as follows:

“3(d) “apartment number” means the

number, letter or combination thereof,

designating an apartment;

101. Section 3(f) defines ‘association of apartment

owners’ as follows:

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“3(e) “apartment owner” means the person

or persons owning an apartment and an

undivided interest in the common areas

and facilities appurtenant to such

apartment in the percentage specified in

the Deed of Apartment;

102. Section 4, 4(1), (2) and (3), read as follows:

“4. Ownership of apartments.—(1) Every

person to whom any apartment is allotted,

sold or otherwise transferred by the

promoter, on or after the commencement of

this Act, shall, save as otherwise

provided in section 6, and subject to the

other provisions of this Act, be entitled

to the exclusive ownership and possession

of the apartment so allotted, sold or

otherwise transferred to him.

(2) Every person to whom any apartment

was allotted, sold or otherwise

transferred by the promoter before the

commencement of this Act shall, save as

otherwise provided under section 6 and

subject to the other provisions of this

Act, be entitled, on and from such

commencement, to the exclusive ownership

and possession of the apartment so

allotted, sold or otherwise transferred

to him.

(3) Every person who becomes entitled to

the exclusive ownership and possession of

an apartment under sub-section (1) or

sub-section (2) shall be entitled to such

percentage of undivided interest in the

common areas and facilities as may be

specified in the Deed of Apartment and

such percentage shall be computed by

131

taking, as a basis, the value of the

apartment in relation to the value of the

property.

xxx xxx xxx”

103. Section 5 provides that subject to the provisions

of Section 6, the apartment owner may transfer his

apartment and his right is heritable.

104. Section 14 provides for registration for the deed

of apartment, which is to be executed under Section 13.

105. Section 15 declares that there shall be an

association of apartment owners in relation to the

apartment and property pertaining thereto and for the

management of common areas and facilities. Model

byelaws are to be framed by the Administrator and the

Association of Apartment Owners can make departure from

the model byelaws only with the prior approval of the

Administrator.

106. There are similar laws made in the States which

relate to the right of the apartment owners. We will

132

revert back to the specific questions which have been

raised by the petitioners.

THE CONTENTIONS

107. The contention which is raised is that under the

impugned provisos inserted in Section 7(1) of the Code,

an application by an allottee, can be made only if

there are hundred allottees or a number representing

one-tenth of the total number of allottees, whichever

is less, with a further rider that the allottees must

be part of the same real estate project. It is contended

that the word ‘allottee’ is to be understood in the

sense in which the word has been defined in the RERA.

If that is so, it is contended that the impugned

amendment would be inflicted with the vice of vagueness

and it is arbitrary.

108. What is to be meaning of the word ‘allottees’? The

following questions are posed:

i. Is the total number of the allottees, to be

calculated qua the Units promised?

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ii. Is it to be based on the number of units

constructed or is it to be the number of units

allotted or units where the agreement to sell is

entered into?

109. There is an information asymmetry. There is no

published data available of status of allotted units.

No builder shares the information. It is impossible for

the buyers to obtain the information. Ten per cent of

allotted units, even it is assumed to be qua letter of

allotment, is a dynamic figure and keeps changing. A

buyer may calculate ten per cent of the hundred units

allotted by morning and it may become 110 by night

rendering the filing impossible.

110. Further, it is complained that it is not clear as

to whether in determining allottees, in a real estate

project, whether it is a tower? the entire

colonization? Or a SPV? Ten per cent of a real estate

allottees could mean ten per cent of the allotted units

or ten per cent of the total legal persons, who have

bought into the project, particularly, in cases of

multiple ownership of the same property. The provision,

134

in fact, renders group members prone to corruption by

cash settlement by the builder. The coram will be

disrupted, if one or two members are bought of or even

legally settled. This will necessitate fresh filing.

FINDINGS

111. We have referred to the definition of the word

allottee and real estate project and Section 3 of the

Act which requires prior registration. We have also

referred to the definition of real estate project. In

all these definition clauses, the words ‘as the case

may be’ is found after the words plot, apartment or

building. Thus, the Act is meant to regulate the

dealings in plots, apartments and buildings. A real

estate project, in other words, as defined, is the

development of a building or apartments or the

development of land into plots or apartments. The

development is contemplated as being towards selling

apartments, plots or buildings. It would also

necessarily include common areas. The expression

‘apartment’, as defined in RERA, is a very

comprehensive one. It takes in, blocks, chamber,

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dwelling unit, flat, office, showroom, shop, godown,

premises, suite, tenement, unit or by any other name

and which is a separate and self-contained part of any

immovable property. It includes any one or more rooms

or enclosed spaces located on one or more floors or any

part thereof, in a building or on a plot of land. It

may be used or intended to be used for any residential

or commercial use such as residence, office, shop,

showroom or godown or for carrying on any business,

occupation, profession, trade or any other type of use,

which his ancillary.

112. ‘Building’ has been defined as including any

structure or erection or part of any structure and

intended to be used for residential or commercial

purposes, inter alia. Thus, an allotment under RERA can

be in relation to a plot, an apartment or a building.

In other words, a project, would be in relation to

plots, apartments or buildings. It could also be for a

composite one for plots and apartments or for plots and

buildings. We have noticed the expansive definition of

the word apartment and flats are comprehended within

the definition of the word apartment. We have also

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noticed in this regard, the definition of the word

apartment, in the Delhi Apartment Ownership Act, 1986.

We have also seen that under the Delhi Apartment

Ownership Act, allottee has been defined in relation

to an apartment to mean the person to whom such

apartment has been allotted, sold or otherwise

transferred by the promoter.

113. For appreciating the meaning of the word

‘allottee’, for the purpose of the Code, undoubtedly,

it is necessary to travel to Section 2(d) and 2(zn)of

RERA for the reason that in Section 5(8)(f) of the

Code, the following Explanation was inserted by Act 26

of 2018 w.e.f. 06.06.2018. This provision has been

upheld by this Court in Pioneer (supra).

“5(8)(f) xxx xxx xxx

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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in clauses (d) and (zn) of section 2 of

the Real Estate (Regulation and

Development) Act, 2016;”

114. Real estate project may relate to plots,

apartments, or buildings or plots/apartments and

plots/buildings. As far as the expression ‘allottee’

is concerned, since the Code in the Explanation to

Section 5(8)(f), incorporates the definition of the

word ‘allottee’ in RERA, for the purpose of the

provisos in question, we must necessarily seek light

only from the expression ‘allottee’ defined in

Section 2(d) of RERA.

115. If we breakdown Section 2(d), it yields the

following component parts:

i. An allottee may be an allottee of a plot or an

apartment or a building. A real estate project

may relate to plots or apartments or buildings;

or plots/buildings or plots/apartments.

ii. An allottee, in the case of an apartment, which

expression includes flats, among other

structures, would include the following

categories of persons. It would include a person

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to whom the apartment is allotted. It would also

include a person to whom the apartment is sold,

whether as freehold or leasehold.

iii. Thirdly, it would include a person to whom the

promoter has transferred the apartment,

otherwise than by way of a sale;

iv. Lastly, it would include persons who have

acquired the allotment through sale, transfer

or otherwise, with the caveat that it will not

include a person to whom the apartment is given

on rent. Whatever we have mentioned about

apartments, is equally true qua allotment of

plots or buildings.

A MISCELLANY OF CONTENTIONS REGARDING ALLOTTEES

116. The definition of the word ‘promoter’ in RERA may

be noticed in this regard. It includes a person who

constructs or causes to be constructed an independent

building or apartments or convert an existing building

or a part thereof into apartments for the purpose of

selling or some of the apartments to other persons. In

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regard to such a person, it is clear that there is no

allotment of any plot as such. It may be another matter

that the contract may contemplate the assignment of the

undivided interest in the land upon which the

construction is made to the allottee but the allottee

is the allottee of the building or the apartment as

defined in the Act. Coming to clause (ii) of Section

2(zk) defining ‘promoter’, it contemplates a developer

who develops land into a project. The promoter in such

a case may also put up construction on any of the plots

for the purpose of sale either with or without

structures thereon. Therefore, this category of

promoter and therefore real estate project would be a

hybrid project which involves the development of the

land into plots sale of plots aloneafter development

or sale of the plot with the construction thereon.

Coming to clause (iii) of the definition of ‘promoter’

it includes any public body or development authority

in respect of allottees of building or apartments

constructed by such authority or body on lands owned

by them or placed at their disposal by the Government.

There may be such promoters who are development

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authorities or public bodies, if they own plots or have

plots at their disposal by the Government which is

then, allotted. The allotment must be for the purpose

of selling. The plots and the apartments must be

intended for sale. In regard to Apex Level Cooperative Housing Society or Primary Co-operative

Housing Society, they are treated as promoters in

regard to apartments or buildings for its purpose or

in respect of allottees, apartments or buildings. This

necessarily mean that in regard to such societies the

allottees could be the members or non-members. Clause

V also includes person who acts as builder, colonizer,

contractor, developer, estate developer or any other

name or claiming to be the Power of Attorney of the

holder of the land on which the building, apartment

constructed or the plot developed for sale. This must

be further understood in the light of the definition

of the real estate project in Section 2 (zn). It

defines as meaning the various activities. It consists

of the following:

1. Development of the building

2. A building which consists of apartments

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3. Converting an existing building or a part thereof

into apartment

4. The development of land into plots or apartments

as the case may be.

117. The aforesaid activities must be for the purpose

of sale of all or some of the apartments, plot or

building along with the common areas and other work and

rights. The task of ascertaining who will be an

allottee as also the question as to what will be the

total number of allottees and therefore what would

constitute one-tenth of total number of allottees must

depend upon the nature of the real estate project in

question. It will depend on what is offered by the

promoter under the project. It may be real estate

project which seeks to develop a building and sale of

the building. It may be a project for the construction

of apartments with the agreements to convey the

undivided interest of land also. It may be a project

which envisages converting an existing building or a

part into an apartment. It may be a project for merely

development of land into plots and sale of the plotted

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land as such. It may be also that the same person may

also develop either apartments or building to be sold.

In this regard we may remember the explanation in

Section 2(zk) (vi)defining the word ‘promoter’. The

said section reads as under:

“(zk) “promoter” means,—

(i) xxx xxx xxx

(ii) xxx xxx xxx

(iii) xxx xxx xxx

(iv) xxx xxx xxx

(v) xxx xxx xxx

(vi) such other person who constructs

any building or apartment for sale to the

general public.

Explanation.—For the purposes of this

clause, where the person who constructs

or converts a building into apartments or

develops a plot for sale and the person

who sells apartments or plots are

different person, both of them shall be

deemed to be the promoters and shall be

jointly liable as such for the functions

and responsibilities specified under this

Act or the rules and regulations made

thereunder;”

118. Therefore, a conspectus of the provisions would

show that having regard to the legislative intention

the term ‘allottees’ as defined in Section 2(d) must

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be understood undoubtedly on its own terms

predominantly. But at the same time the other

provisions which form part of the Act and therefore the

scheme must also be borne in mind. The Argument that

the definition of ‘allottee’ suffers from over

inclusiveness and under inclusiveness needs to be

considered. Under inclusiveness and over inclusiveness

are aspects of the guarantee under Article 14. Equals

must be treated equally. Unequals must not be treated

equally. What constitutes reasonable classification

must depend upon the facts of each case, the context

provided by the statute, the existence of intelligible

differentia which has led to the grouping of the

persons or things as a class and the leaving out of

those who do not share the intelligible differentia.

No doubt it must bear rational nexus to the objects

sought to be achieved.

119. Coming to the definition of the word ‘allottee’ it

appears to be split up into three categories broadly,

they are- plot, apartment and buildings. In the context

of the impugned proviso, it must be remembered that if

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an applicant is able to garner a magical figure of 100

allottees, then he can present the application under

Section 7 of the Code. This is for the reason that the

further requirement of one-tenth of total number of

allottees is meant to apply in a situation only if onetenth of the total number of allottees is less than

100. This is for the reason that the word ‘whichever‘

has been used. No doubt in the context of one-tenth

of the allottees, the greater the number of total

number of allottees, the greater will be the number of

one-tenth. In other words, if the total number of

allottees is less, then, one-tenth of the total number

will be less, and if in such circumstances, it is lesser

than hundred, such number of allottees can make

application under Section 7 under the impugned

provisos. Therefore, in calculating the total number

of allottees in one sense is a double-edged sword as

the more is the numerator, the more will be the

resultant figure required under the proviso.

120. Be that as it may, as we have noticed the

question must be decided with reference to real nature

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of the real estate project in which the applicant is

an allottee. If it is in the case of an apartment,

then necessarily all persons to whom allotment had been

made would be treated as allottees for calculating the

figure mentioned in the impugned proviso. The word

‘allotment’ does mean allotment in the sense of

documented booking as is mentioned in Section 11(1)(b)

in regard to apartment or plot with which we are largely

concerned. Such detail regarding the quarterly up-todate list of the number and the types of apartments are

to be uploaded as provided in Section 11. It is this

information incidentally, which is the reservoir of

data which the legislature intends that the allottees

can use even though it is not necessarily confined to

them. The allottee would also include a person who

acquires the allotment either through sale, transfer

or otherwise. The transferee of the allotment is

contemplated. There can be no difficulty in including

such assignee of the allotment as also the allottee for

the purpose of complying with the threshold requirement

under the impugned proviso. Thus, all allottees and

all assignees of allotment would qualify both to be

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considered for the purpose of calculating the total

number of allottees but confined to the particular real

estate project and therefore for arriving at the figure

of 100 allottees or one-tenth of the allottees as the

case may be. Then, there is a third category, which

is introduced by the expression ‘sold’ (whether as

‘leasehold’ or ‘freehold’ or otherwise transferred by

the Promoter). Here a question may arise, if the word

‘sold’ is applied to the expression ‘plot’, then

undoubtedly the transferee would be an allottee. If

the sale is to the allottee in a real estate project

which is a hybrid project consisting of development of

land into plots and also development of buildings as

is contemplated under Section 2(zk) then the transferee

of the plot undoubtedly would be an allottee. He may

have a complaint regarding the default by the promoter

in the matter of development of the plot under hybrid

project. As far as sale whether ‘freehold’ or

‘leasehold’ of an apartment or a building is concerned,

once an apartment or building is sold, it presupposes

that the construction of the building or the apartment

is complete ordinarily. No doubt, he may also have

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complaints against the promoter which may be addressed

under the RERA. For the purpose of the proviso in

question, going by the definition, undoubtedly, such

transferee of an apartment or building, is to be

treated as an allottee. Let us take an example. A

Promoter constructs several apartments. An apartment

is defined so as to include ‘flat’. It can be

residential or commercial. Assume that the Promoter has

constructed and completed construction, five out of the

fifteen floors (which constitutes the project), on the

basis of the occupation certificate, as different from

the completion certificate, as the latter certificate

is given only on the completion of the project. He

assigns and transfers the apartment to those allottees

to whom he allotted the apartment when he has completed

the construction. Such transferees would be allottees

under the RERA. The question, however, may arise from

the point of view of the impugned proviso as to what

is the common feature between such an allottee to whom

the constructed apartment is already handed over after

sale and the allottee of the remaining floors where

there is no construction or only construction which is

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pronouncedly lagging behind the schedule. The question

may arise whether banding together such allottees under

the definition clause make out the case of over

inclusive classification. Are unequals being treated

equally?

121. A mere charge of either under inclusiveness or over

inclusiveness which is not difficult to make hardly

suffices to persuade the court to strike down a law.

There is a wide latitude allowed in the legislature in

these matters. The examination cannot be extended to

find out whether there is mathematical precision or

wooden equality established. The working of the

statute may produce further issues, all of it may not

be fully perceived as which may not be wholly foreseen

by the law giver. The freedom to experiment must be

conceded to the legislature, particularly, in economic

laws. If problems emerge in the working of law and

which require legislative intervention, the court

cannot be oblivious to the power of the legislative to

respond by stepping in with necessary amendment. There

is nothing like a perfect law and as with all human

institutions there are bound to be imperfections. What

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is significant is however for the court ruling on

constitutionality, the law must present a clear

departure from constitutional limits.

122. In the example of an apartment which is sold where

the project is not complete, we bear in mind the

following features:

In such cases if there is insolvency, the project would

remain incomplete. Common areas/common facilities

would not become available. The feature which attract

a buyer is the whole project which is completed. The

apartment owner may very well refuse to accept delivery

as he may insist upon the completion of the project

with all its promised facilities. Section 17 of RERA

contemplates the transfer of title to the common areas

to the association of allottees. Obviously, such a

thing would not be possible ordinarily unless the

construction is complete. In other words, unlike an

allottee of a different project under the same promoter

the different allottees as contained in the definition

of the word ‘allottee’ would have room for common

complaints. A realistic and pragmatic approach is not

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to be eschewed or abandoned. Thus, we cannot see merit

in the contention.

123. We have noticed Section 11 (1) (b) of RERA. It

contemplates details of booking qua apartments and

plots. This is sufficient to reject the argument that

it could be based on a total number of the units

promised. What is required is allotment and not

promised flats as per a brochure. It is also not the

total constructed units. This is as what is relevant

under the impugned provisos read with Section 5(8)(f)

explanation and section 2 (d) of RERA read with Section

11(1)(b) and the rules made thereunder is the ‘booking’

of apartments or plots. What is allotted or booked may

be more than what is constructed if there is a mismatch

at any given point of time. It is the number of units

allotted. Now, the allotment and the agreement to sell

are not irreconcilable with each other and may signify

the same.

124. The further contention that 10 percent is dynamic

and what is 1/10 in the morning may fall short by night

if more allotment is made, is untenable in law. The

provisions of the Companies Act, 1913 (Section 153-C),

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Section 399 of the Companies Act, 1956 and Section 244

of the Companies Act, 2013 contain similar provisions.

The mere difficulties in given cases, to comply with a

law can hardly furnish a ground to strike it down. As

to what would constitute the real estate project, it

must depend on the terms & conditions and scope of a

particular real estate project in which allottees are

a part of. These are factual matters to be considered

in the facts of each case.

THE PROBLEM OF DEFAULT AND LIMITATION

125. It is urged on behalf of the petitioners that the

provisos requiring support of one hundred persons or

one-tenth of the allottees, whichever is lower, is

unworkable and arbitrary having regard to the

provisions of the Code. There can only be one default

in a complaint, it is contended. When the required

number of allottees may have to be drawn from allottees

who may have entered into agreements with the builder

on different dates, the date of default would be

different. This would adversely impinge on the absolute

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right which otherwise exist with an allottee to make

an application under Section 7 of the Code.

126. Per contra, the learned Additional Solicitor

General would draw attention to Explanation to

Section 7(1). She would further contend that as long

as there is a default which need not be qua the

applicant or applicants, an application would be

maintainable and there is no merit in this contention.

127. In this context, it is necessary to recapture

Section 4 of the Code. It reads as follows:

“4. (1) This Part shall apply to matters

relating to the insolvency and

liquidation of corporate debtors where

the minimum amount of the default is one

lakh rupees:

Provided that the Central Government may,

by notification, specify the minimum

amount of default of higher value which

shall not be more than one crore rupees.”

The amount is now fixed at Rs.1 crore.

128. It is thereafter that Section 6 declares that where

any corporate debtor commits default, a financial

creditor, an operational creditor or a corporate debtor

may itself initiate CIRP in the manner provided in

Chapter 2.

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129. Section 7 continues to declare that a financial

creditor either by itself or jointly by other creditors

or any other central government notified person, file

an application before the Adjudicating Authority, when

a default has occurred. It is thereafter that the

following Explanation is present, no doubt, after the

impugned provisions, after the amendment:

“7. (1) xxx xxx xxx

Explanation.—For the purposes of this subsection, a default includes a default in

respect of a financial debt owed not only

to the applicant financial creditor but

to any other financial creditor of the

corporate debtor.”

130. The Explanation makes it clear that a financial

debt, which is owed to any other financial creditor of

the corporate debtor would suffice to make an

application on the basis that the default has occurred.

Default has been defined in Section 3(12) of the Code

as follows:

“3(12) "default" means non-payment of

debt when whole or any part or

instalment of the amount of debt has

become due and payable and is not repaid

by the debtor or the corporate debtor,

as the case may be;”

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131. Interpreting these provisions and the Rules as

well, this Court in Innoventive (supra), held as

follows:

“28. When it comes to a financial

creditor triggering the process,

Section 7 becomes relevant. Under the

Explanation to Section 7(1), a default

is in respect of a financial debt owed

to any financial creditor of the

corporate debtor — it need not be a debt

owed to the applicant financial

creditor. Under Section 7(2), an

application is to be made under subsection (1) in such form and manner as

is prescribed, which takes us to the

Insolvency and Bankruptcy (Application

to Adjudicating Authority) Rules, 2016.

Under Rule 4, the application is made

by a financial creditor in Form 1

accompanied by documents and records

required therein. Form 1 is a detailed

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

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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, the

application must be admitted unless it

is incomplete, in which case it may give

notice to the applicant to rectify the

defect within 7 days of receipt of a

notice from the adjudicating authority.

Under sub-section (7), the adjudicating

authority shall then communicate the

order passed to the financial creditor

and corporate debtor within 7 days of

admission or rejection of such

application, as the case may be.”

(Emphasis supplied)

132. It is true that Section 238A (inserted with effect

from 06.06.2018) of the Code provides that the

provisions of the Limitation Act shall be applicable

as far as may be to the proceedings or appeals before

the Adjudicating Authority and the NCLAT, as the case

may be, inter alia. Interpreting this provision, inter

alia, this Court in B.K. Educational Services Private

156

Limited (supra), has held that Article 137 in Schedule

I of the Limitation Act, 1963, will apply in regard to

an application under Sections 7 and 9 of the Code. This

Court held, inter alia, as follows:

“42. It is thus clear that since the

Limitation Act is applicable to

applications filed under Sections 7 and 9

of the Code from the inception of the

Code, Article 137 of the Limitation Act

gets attracted. “The right to sue”,

therefore, accrues when a default occurs.

If the default has occurred over three

years prior to the date of filing of the

application, the application would be

barred under Article 137 of the

Limitation Act, save and except in those

cases where, in the facts of the case,

Section 5 of the Limitation Act may be

applied to condone the delay in filing

such application.”

133. In fact, the Court, in the said case, in the course

of its judgment, gives an example of a debt which is

due since 1990 and which has become barred but which

is sought to be revived through the medium of Section

7 of the Code which law came into being in 2016. It is

to avoid such situations that this Court noted that

even if Section 238A was inserted after the original

enactment, the Limitation Act, 1963, would, indeed

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apply, right from the inception of the Code. It is to

be noticed that this Court has applied Article 137, and

also, at the same time, countenanced the applicability

of Section 5 of the Limitation Act, providing for

condonation of delay in appropriate cases.

134. It is, therefore, clear that the requirement of

the Code in regard to an application by a financial

creditor does not mandate that the financial debt is

owed to the applicant in terms of the Explanation. This

is for the reason that apparently that the CIRP and

which, if unsuccessful, is followed by the liquidation

procedure is in all a proceeding, in rem. The Law Giver

has envisaged in the Code, an action, merely for

setting in motion the process initially. The litmus

test on the anvil of which, the Adjudicating Authority

will scrutinize the matter, is only the existence of

the default, as defined in Section 4 of the Code. As

on date, the amount of default is pegged at Rs.1 crore.

Present a financial debt which has not been paid, the

doors are thrown open for the processes under the Code

to flow in and overwhelm the corporate debtor. The

further barrier is limitation, no doubt, as noticed in

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B.K. Educational Services Private Limited v. Parag

Gupta & Associates50. As with anything in life, not

only will imperfections stand out and mathematical

nicety be flouted, a law may end up seemingly trampling

upon the interests of a few or even many. Since, the

Code undoubtedly bears the brand of an economic measure

upon its face, and in true spirit, being one of the

most significant and dynamic economic experiments

indulged in by the Law Giver, not by becoming servile

to Parliament, but by way of time hallowed deference

to the sovereign body experimenting in such matters,

this Court will lean heavily in favour of such a law.

The complaint of the petitioners that an increase in

the required strength of applicants, will create legal

knots which do not admit of solution, do not appeal to

us and we intend lay bare how the law can indeed be

worked, even with the extra burden which is cast on the

persons covered by the provisos.

135. It is indisputable that in order to successfully

move an application under Section 7 that there must be

50 (2019) 11 SCC 633

159

a default which must be in a sum of Rs.1 crore. It is

equally clear that the amount of Rs.1 crore need not

be owed by the corporate debtor in favour of the

applicant. It must be noted that the Explanation

existed even prior to the provisos being inserted. It

is open to a financial creditor, to move an application

in the company of another financial creditor or more

than one other financial creditor. In fact, a perusal

of the Rules, which we have already extracted, would

indicate that irrespective of the number of applicants

the Court Fee would remain Rs. 25,000/-. This answers

the alleged vagueness about court fees where the

provisos are given effect to. Thus, dehors the impugned

provisos in terms of the Explanation in sub-Section

7(1), a financial debt need not be owed to the applicant

and as joint application by more than one applicant was

and is contemplated, the resultant position would be

that any number of applicants, without any amount being

due to them, could move an application under Section

7, provided that they are financial creditors and there

is a default in a sum of Rs.1 crore even if the said

amount is owed to none of the applicants but to any

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another financial creditor. This position has not

undergone any change even with the insertion of the

provisos. In other words, even though the provisos

require that in the case of a real estate project,

being conducted by a corporate debtor, an application

can be filed by either one hundred allottees or

allottees constituting one-tenth of the allottees,

whichever is less, if they are able to establish a

default in regard to a financial creditor and it is not

necessary that there must be default qua any of the

applicants. We have taken an extreme example to

illustrate how the Code can possibly be worked.

136. In practice, it may be unlikely, however, that

persons would come together as applicants under the

Code, if they are real estate allottees, particularly

knowing what the admission of application under Section

7 entails, and the destiny of an application which has

reached the stage of compulsory winding up under

Section 33. However, taking a more likely example,

viz., of the corporate debtor operating in the real

estate sector and an allottee moving an application

upon there being amounts due to him, prior to the

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amendment, undoubtedly, a single allottee could set the

ball in motion and all he had to satisfy is default to

him or any other financial creditor. The change that

is brought about is only that apart from establishing

the factum of default, he must present the application

endorsed by the requisite number introduced by the

proviso. Since, default can be qua any of the

applicants, and even a person, who is not an applicant,

and the action is, one which is understood to be in

rem, in that, the procedures, under the Code, would

bind the entire set of stakeholders, including the

whole of the allottees, we can see no merit in the

contention of the petitioner based on the theory of

default, rendering the provisions unworkable and

arbitrary.

137. In this regard, it is necessary to notice Form 1,

in which, an application is to be maintained under

Section 7 of the Code read with Rule 4 of the Rules.

In the said Form, in Part IV, there are two columns.

The first column is total amount of debt granted, dates

of disbursement. Under the second column in Part IV,

the applicant must show the amount claimed to be in

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default and the date on which the default occurred (the

applicant is required to attach the workings for

computation of the amount and days of default in

tabular form). Part V deals with particulars of the

financial debt (documents, records and evidence of

default). The applicant is called upon to attach copy

of record of default with information utility, if any.

The applicant may attach list of any other document to

prove the existence of the default, as can be seen from

clause 8 of Part V.

138. In this regard, question may arise as to how the

application would have to be filled-up, if there are

hundred allottees in a given case to comply with the

requirement of the proviso. In the very first place,

we must notice that as far as the workability of this

provision in such a situation is looked at, it cannot

be called into question, having regard to one aspect

in particular. Even before the amendment, and what is

more also, after the amendment, a joint application is

permissible (though not mandated) in respect of all

classes of financial creditors. This means, even in the

case of any application filed by more than one

163

applicant, if the requirements of the Code are

otherwise fulfilled, there can be cases where the

applicants can file a single application by giving the

details which we have adverted to. Secondly, we must

bear in mind again, that the application is

contemplated to be an application in rem. One or more

financial creditors activises the Code with reference

to the threshold figure of Rs.1 crore, being in

default. The Authority is alerted. He verifies this

aspect, finding that the debt is established under

Section 7(5), and further that it is not barred by

limitation or if he invokes the power under Section 5

of the Limitation Act, to condone the delay [as

contemplated in B.K. Educational Services Private

Limited (supra)], the curtains are raised for the Code

to be applied since the default in the sum may be owed

to any financial creditor. It suffices that the said

sum can be claimed as a sum in default in terms of the

Explanation in Section 7(1). Undoubtedly, the record

of default, as contemplated in the Code, which need not

be the record of default with the information utility

alone, has to be furnished. If the default is qua all

164

the applicants, then also, as long as the statutory

requirements regarding the amount, and it not being

barred, are fulfilled, it will be open to the

applicants to plead the same. Undoubtedly, if the debt,

in a sum of Rs.1 crore, happens to be set up, which is

barred, then, unless Section 5 of the Limitation Act

is successfully invoked, the applicants would risk

rejection of the application, which cannot be stated

to be unfair as it is in accordance with law. What we

are indicating is that in view of the special

provision, contained in the Explanation to Section

7(1), the arguments appear to be farfetched. We must

bear in mind that when we reasonably contemplate, a

state of insolvency, while in law, the corporate

debtor, being in default to a single financial creditor

in a sum of Rs. 1 crore, is sufficient, it is highly

unlikely that the corporate debtor would not be

similarly financially in dire straits towards the other

creditors (allottees). Another aspect, which is raised,

is that in the example of a hundred allottees, if they

have agreements, under which, the date of default is

different, how is the application to be drafted and

165

processed? What, if the debt is barred qua some of the

applicants, whereas, it is not so in regard to the

other applicants. Taking a cue from the Explanation to

Section 7(1), all that would be required is, to plead

the default, no doubt, in the sum of Rs. 1 crore, which

is not barred as the cause of action. In other words,

if a law contemplates that the default in a sum of Rs.1

crore can be towards any financial creditor, even if

he is not an applicant, the fact that the debt is barred

as against some of the financial creditors, who are

applicants, whereas, the application by some others,

or even one who have moved jointly, fulfill the

requirement of default, both in terms of the sum and

it not being barred, the application would still lie.

ALLOTTEES TO BE FROM SAME REAL ESTATE PROJECT: IS IT

UNCONSTITUTIONAL?

139. We have referred to the definition of the word

‘allotee’ in Section 2(d) of the RERA. In regard to a

real estate project, all persons, who are treated as

allottees, as per the definition of allottee would be

entitled to be treated as allottees, for the purpose

166

of Section 5(8)(f) (Explanation) and also, for the

purpose of the impugned provisos. All that is required

is that the allottees must relate to same real estate

project. In other words, if a Promoter has a different

real estate project, be it in relation to apartments,

in the case an application under Section7, those would

not be reckoned in computing one-tenth as well as the

total allotments.

140. The rationale behind, confining allottees to the

same real estate project, is to promote the object of

the Code. Once the threshold requirement can pass

muster when tested in the anvil of a challenge based

on Articles 14, 19 and 21, then, there is both logic

and reason behind the legislative value judgment that

the allottees, who must join the application under the

impugned provisos, must be related to the same real

estate project. The connection with the same real

estate project is crucial to the determination of the

critical mass, which Legislature has in mind, as a part

of its scheme, to streamline the working of the Code.

If it is to embrace the total number of allottees of

all projects, which a Promoter of a real estate

167

project, may be having, in one sense, it will make the

task of the applicant himself, more cumbersome. It

becomes a sword, which will cut both ways. This is for

the reason that the complaints, relating to different

projects, may be different. With regard to one project

of a Promoter of real estate project, maybe, in the

advanced stage, the allottees in a particular project,

may not have much of a complaint. The complaint, in

relation to yet another project, may be more serious.

If the complaint in respect of the latter, attracts the

attention of a critical mass of allottees, and the

proposed applicant is part of that project in the said

project, then, it may be easier for the allottees to

fulfil the statutory mantra in the impugned provisos,

with the junction of likeminded souls. If, on the other

hand, the requirement was to make a search for

allottees of different projects, as would be the case,

if the entirety of the allottees, under different

projects, were to be reckoned, the task would have been

much more cumbersome. The requirement of the allottees,

being drawn from the same project, stands to reason and

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also does not suffer from any constitutional blemish,

as pointed out.

THE POINT OF TIME TO COMPLY WITH THE THRESHHOLD

REQUIREMENTS

141. The question, then arises, as to the alleged lack

of clarity about the point of time, at which the

requirements of the impugned provisos, are to be met.

Is it sufficient, if the required number of allottees

join together and file an application under Section 7

and fulfil the requirements, at the time of

presentation? Or, is it necessary that the application

must conform the numerical strength, under the new

proviso, even after filing of the application, and till

the date, the application is admitted under Section

7(5)? There can be no doubt that the requirement of a

threshold under the impugned proviso, in Section 7(1),

must be fulfilled as on the date of the filing of the

application. In this regard, we find support from an

early judgment of this Court, which was rendered

under Section 153-C of the Companies Act, 1913.

Section 153-C is the predecessor to Sections 397 and

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398 read with Section 399 of the Companies Act, 1956.

Its most recent avatar is contained in Sections 241 and

242 of the Companies Act, 2013 read with Section 244.

In fact, Section 399 (3) of the Companies Act, 1956,

read as follows:

“399(3) Where any members of a company

are entitled to make an application in

virtue of sub-section (1), any one or

more of them having obtained the consent

in writing of the rest, may make the

application on behalf and for the

benefit of all of them.”

142. In the decision of this Court in Rajahmundry

Electric Supply Corporation Ltd. v. A. Nageshwara Rao

and others51, the provision in question, viz., Section

153-C of Companies Act, 1913 dealt with the power of

the Court to Act, when the Company acts in a prejudicial

manner or oppresses any part of its members. It, inter

alia, provided that no application could be made by any

member, in the case of a company having a share capital

unless the member has obtained consent, in writing,

of not less than one hundred in number of the members

51 AIR 1956 SC 213

170

of the company or not less than one-tenth in number of

the members, whichever is less. There was also an

alternate requirement, to which, resort could be made

in regard to company, not having share capital. There

was another mode of fulfilling the threshold

requirement. In the facts of the said case, the number

of the members of the company were 603. Sixty-five

members consented to the application. The problem,

however, arose as it was contended that 13 of the

members who had consented, had, subsequent to the

presentation of the application, withdrawn their

consent. This Court went on to hold as follows:

“5 xxx xxx xxx

We have no hesitation in rejecting

this contention. The validity of a

petition must be judged on the facts as

they were at the time of its

presentation, and a petition which was

valid when presented cannot, in the

absence of a provision to that effect

in the statute, cease to be maintainable

by reason of events subsequent to its

presentation. In our opinion, the

withdrawal of consent by 13 of the

members, even if true, cannot affect

either the right of the applicant to

proceed with the application or the

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jurisdiction of the court to dispose of

it on its own merits.”

143. In the matter of presentation of an application

under Section 7, if the threshold requirement, under

the impugned provisos, stands fulfilled, the

requirement of the law must be treated as fulfilled.

The contention, relating to the ambiguity and

consequent unworkability and the resultant

arbitrariness, is clearly untenable and does not appeal

to us. If an allottee is able to, in other words,

satisfy the requirements, as on the date of the

presentation, the requirement of the impugned law is

fulfilled.

HOLDINGS BY FAMILY MEMBERS ETC. AND JOINT HOLDINGS OF

A UNIT; SINGLE ALLOTTEE?

144. One of the contentions, which is raised is that in

Section 399 (2) of the Companies Act, 1956, it was

provided that in applying the threshold test of

requisite number of members, to join in an application

under Sections 397 and 398, where any share or shares

are held by two or more persons, they shall be counted

172

only as one member. Section 244 of the Companies Act,

2013, corresponds to Section 399 of the Companies Act,

1956. The Explanation in Section 241(1) contains an

identical provision as in Section 399(2). It is,

however, pointed out by the petitioners that in the

matter of an allotment, being made to more than one

person, of an apartment or other real estate property,

it is not laid down as to how the matter is to be dealt

with. It is vague. It is arbitrary. It is true that in

the impugned proviso, introduced in Section 7(1), there

is no indication as to how the number of allottees are

to be reckoned in the case of more than one person. It

will be of interest to note that in Section 14 of the

RERA, the Promoter is forbidden from making any

additions and alterations in the sanctioned plans,

layout plans and specifications, the nature of the

fixtures, fittings and amenities, which are agreed to

be undertaken, without the consent of that person. Of

course, minor additions or alterations, in

circumstances provided in the proviso, can be carried

out.

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145. Thereafter, Section 14(2)(ii) contemplates that

any other alterations in the sanctioned plans, layout

plans and specifications or the common area within the

project, cannot be carried out except with the previous

written consent of at least two-thirds of the

allottees, other than the Promoter, who had agreed to

take the apartments in such building. In this context,

there is an Explanation. The Explanation purports to

declare that if an allottee has taken more than one

apartment or plot in his name or in the name of his

family, it will be treated as a single allotment. In

the case of persons, such as companies or firms or

association of individuals, bookings in its name or in

the name of associated entities or related enterprises,

are to be treated as a single allotment.

146. Similarly, Section 15 of RERA interdicts transfer

or assignment of his majority rights and liabilities

to a third party, without obtaining the prior written

consent of two-thirds of the allottees and also without

the prior written approval of the Authority. A similar

Explanation, as is found in Section 14, which we have

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already described, is to be found in Section 15. Such

an Explanation is, however, not found in the definition

of ‘allottee’ in Section 2(d) of RERA. The object of

the Explanation, both in Sections 14 and 15, is

apparent. It is to avoid defeating the object, which

would occur, if members of the same family, monopolises

a project or associated and related concerns of a

company, firm or association, corner the allotments.

It is also possible that they may be hand-in-glove with

the Promoter, which would result in defeating the

rights of the other allottees, as the figure of twothirds, would cease to represent the interest of the

actual two-third majority, which is intended by the

Legislature, be it in a matter or alterations or

additions in the sanctioned plans or layout plans,

etc., or in the matter of the Promoter getting out of

the project in regard to his majority rights, by

transfer or assignment. These Explanations are intended

to hold the Promoter responsible to the sanctioned

plans as also to prevent the Promoter from wriggling

out of his majority rights, without a real majority,

as would be represented by two-thirds of the separate

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allottees, agreeing to the same. We cannot read the

Explanations in Sections 14 and 15 into the definition

of ‘allotee’ in Section 2(d), as, in Sections 14 and

15, a perusal of Explanations, makes it clear that they

are enacted for the purpose of Sections 14 and 15,

respectively. We would have to take the definition of

the ‘allottee’ from Section 2(d), as it is. Therefore,

it does not matter whether a person has one or more

allotments in his name or in the name of his family

members. As long as there are independent allotments

made to him or his family members, all of them would

qualify as separate allottees and they would count both

in the calculation of the total allotments, as also in

reckoning the figure of hundred allottees or one-tenth

of the allottees, whichever is less.

147. As far as the situation projected about, there

being no clarity regarding whether, if there is a joint

allotment of an apartment to more than one person, is

it to be taken as only one allottee or as many allottees

as there are joint allottees, it would appear to us,

on a proper understanding of the definition of the word

‘allottee’ in Section 2(d) and the object, for which

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the requirement of hundred allottees or one-tenth has

been put, and also, not being oblivious to Section

399(2) of the Companies Act, 1956, as also the

Explanation in Section 244(1) of the Companies Act,

2013, in the case of a joint allotment of an apartment,

plot or a building to more than one person, the

allotment can only be treated as a single allotment.

This for the reason that the object of the Statute,

admittedly, is to ensure that there is a critical mass

of persons (allottees), who agree that the time is ripe

to invoke the Code and to submit to the inexorable

processes under the Code, with all its attendant

perils. The object of maintaining speed in the CIRP and

also the balancing of interest of all the stakeholders,

would be promoted by the view that as in the case of

the Companies Acts, 1956 and 2013, that for the purpose

of complying with the impugned provisos in Section

7(1), while the allottee can be of any of the

categories, fulfilling the description of an allottee

in Section 2(d) of RERA, as interpreted earlier by us

joint allottees of a single apartment, will be treated

as only one allottee. Any other view can lead to clear

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abuse and defeating of the object of the Code. If, for

instance, a single apartment is taken in the name of

hundred persons, a single allottee, who in turn

comprise of relatives or family members or friends, can

move an application, even though the position ante

would be restored, which means that only the allottee

qua one apartment, plot or building, is before the

Authority and it would not really represent a critical

mass of the allottees in the real estate project

concerned. Therefore, we have no hesitation in

rejecting the contentions of the petitioner on having

made the said interpretation.

THE POWER OF WAIVER, BEING DENIED, UNLIKE THE COMPANIES

ACTS

148. There is another argument, which is pressed before

us as one, which distinguishes the impugned provisions

from those contained in the Companies Act. Section

399(4) of the Companies Act, 1956, read as follows:

“399.(4) The Central Government may, if

in its opinion circumstances exist which

make it just and equitable so to do,

authorise any member or members of the

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company to apply to the Tribunal under

section 397 or 398, notwithstanding that

the requirements of clause (a) or clause

(b), as the case may be, of sub-section

(1) are not fulfilled.”

149. It is, therefore, contended that the said provision

rendered the threshold requirement in Section 399(1),

a fair one. This is for the reason that where it was

found just and equitable by the Central Government, it

could authorize any member or members to apply under

Section 397 or Section 398, even though the numerical

strength of members, as required in Section 399(1), did

not come forward to present the application.

150. We are called upon to pronounce on the

constitutionality of the law. Having regard to the

salutary object and the distinguishing features, which

clearly distinguish the allottees and also the

creditors falling in the first proviso from the other

creditors, both financial and operational, we see no

merit in the contention. It is another matter that we

may entertain the belief that it would have been more

wise on the part of the Legislature to have

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incorporated a safety valve to provide for situations

where without complying with threshold requirement, a

single allottee could move the application. In this

regard, we should also bear in mind the scope of an

application under Sections 397 and 398.

151. The Central Government, having regard to the scheme

of Companies Act, is intricately interconnected with

the management of the companies. It had powers of

investigation into the affairs of the companies under

Section 235 and Section 237. The purport of Sections

397 and 398 include the conduct of the affairs of the

company in any manner prejudicial to the public

interest or also, no doubt, prejudicial to member or

members. In such circumstances, clothing the Central

Government with the power to waive the requirement and

permitting the application to be presented by even a

single member, is in sync with the scheme of the

Companies Act. The role of the Central Government is

different under the Code. In fact, the Central

Government does not have any role, as such under the

Code. It acts only through the designated Authorities

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under the Code. The Code is about insolvency resolution

and on failure liquidation. The scheme of the Code is

unique and its objects are vividly different from that

of the Companies Act. Consequently, if the Legislature

felt that threshold requirement representing a critical

mass of allottees, alone would satisfy the requirement

of a valid institution of an application under Section

7, it cannot be dubbed as either discriminatory or

arbitrary.

A LOOK AT ORDER I RULE 8 OF THE CODE OF CIVIL PROCEDURE,

1908 (THE CPC) AND SECTION 12 OF THE CONSUMER

PROTECTION ACT, 1986 and the contentions based on the

same.

152. The argument of the petitioners is that under

Order I Rule 8 of the CPC, where there are numerous

persons having the same interest in one suit, one or

more such persons can, with the permission of the

court, sue or be sued or may defend such suit on behalf

of or for the benefit of all persons so interested, at

the instance of a single person with whom numerous

persons share the same interest. The court, after

giving permission, is to give notice of the institution

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of the suit as provided. Thereupon, any person, on

whose behalf or for whose benefit the suit is

instituted or defended, can apply to the court, to be

made a party. Finally, Sub-Rule (6) of Order I Rule 8

declares that the Decree passed in the suit under Order

I Rule 8, shall be binding on all persons, on whose

behalf or for whose benefit, the suit is instituted or

defended, as the case may be. The Explanation in Order

I Rule 8 of CPC, reads as follows:

“Explanation.— For the purpose of

determining whether the persons who sue

or are sued, or defend, have the same

interest in one suit, it is not

necessary to establish that such

persons have the same cause of action

as the persons on whose behalf, or for

whose benefit, they sue or are sued, or

defend the suit, as the case may be.”

153. This provision is sought to be contrasted with the

provisos inserted by the impugned amendment. It was

sought to be contended that the procedure contemplated

in Order I Rule 8, on the one hand, countenances the

setting in motion of a civil suit by a single person,

no doubt with the permission of the Court and after a

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Notice is given, as provided therein, any of the

persons, who have the same interest, can come forward

and seek to be made a party. By the device, embedded

in Order I Rule 8, the interest of all the persons, who

are having the same interests, is best safeguarded.

Should he wish to oppose the applicant, he is free to

do so. Should he wish to, on the other hand, support

the Plaintiff, it is equally open to him to adopt such

a course. At the end of the proceedings, when the Decree

is passed, it shall be binding on all the persons, for

whose benefit or on whose behalf, the suit is laid even

by a single person. On the other hand, for reasons,

which are entirely arbitrary, it is pointed out that a

most cumbersome and unachievable threshold requirement

is thrust upon a class of the financial creditors

alone, by requiring that should an allottee wish to

invoke Section 7 of the Code, he should muster the

support of at least 99 other allottees or one-tenth of

the total number of allottees, whichever is lower.

Again, it is emphasized that matters are made worse by

insisting that the allottees must be drawn from the

same project. It is, similarly, submitted that the

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Consumer Protection Act also has embraced the principle

of Order I Rule 8 of the CPC, as can be seen from

Section 12 of the Consumer Protection Act. The

definition of the word ‘complainant’, in Section

2(b)(iv) of the Consumer Protection Act, 1986, includes

one or more consumer, where there are numerous persons

having the same interest. Section 12 provides for the

manner in which a complaint is to be made. Section

12(1)(c) reads as follows:

“12(1)(c). One or more consumers, where

there are numerous consumers having the

same interest, with the permission of the

District Forum, on behalf of, or for the

benefit of, all consumers so interested;

154. The last provision, in a string of provisions,

which provide the scheme in regard to an action

modelled on Order 1 Rule 8 of the CPC, is found in

Section 13(6) of the Consumer Protection Act, 1986. It

reads as follows:

“13(6) Where the complainant is a

consumer referred to in sub-clause (iv)

of clause (b) of sub-section (1) of

section 2, the provisions of rule 8 of

Order I of the First Schedule to the

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Code of Civil Procedure, 1908 (5 of

1908) shall apply subject to the

modification that every reference

therein to a suit or decree shall be

construed as a reference to a complaint

or the order of the District Forum

thereon.”

155. Thus, the procedure, under Order I Rule 8, is

squarely made applicable to the proceedings under the

Consumer Protection Act, in a situation, where, there

are more than one consumer, having the same interest.

It is true that the words “same interest”, has been

understood in the light of the Explanation under Order

1 Rule 8 of the CPC and therefore, it is not necessary

that all the numerous persons, within the meaning of

the Consumer Protection Act or in a civil suit, need

establish that they have the same cause of action. What

is essential is that they have the same interest.

Interpreting the words “same interest”, it is still

further true that this Court, in Chairman, Tamil Nadu

Housing Board v. T. N. Ganapathy52, has held that what

is required is only community of interest. This was a

case where a suit was filed by allottees of plots of

52 (1990) 1 SCC 608

185

low-income groups against the appellant-Housing Board

seeking injunction from demanding and collecting any

additional price and the suit was held maintainable

under Order I Rule 8, even though separate demand

notices were issued to each allottees.

156. In appreciating this argument, it is important to

not be oblivious to the scheme of the Code and to

distinguish it from a civil suit laid invoking order I

Rule 8 or the consumer complaint presented by one

consumer, sharing the same interest with numerous

others, again invoking Order I Rule 8. It is true that

once Order I Rule 8 is made applicable, a single

plaintiff or a consumer, in a civil suit or a consumer

complaint respectively, can set the ball rolling. All

the persons, having the same interest, are free to join

in the proceedings. Irrespective of whether they join

or not, a Decree or order, which is pronounced, will

bind all the persons having the same interest. The

procedure, under Order I Rule 8, if it had been made

applicable in regard to an application by the allottee

of a real estate project, would indeed have made it

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very easy for a single allottee to invoke Section 7 of

the Code and it would also have countenanced the

participation of the other allottees, should they

wished to be made parties upon the publication of the

Notice contemplated in Order I Rule 8(2).

157. So far so good. Now, we will examine the other side

of the story and that is the object of the Code and the

scheme of the Code. Under the Code, once an application

is moved and is admitted under Section 7, the stage is

set for resolving the insolvency. The Resolution of the

Insolvency may be attained by replacing the existing

management. The Law Giver has contemplated last mile

funding. It has, however, fixed a time limit, as

contemplated in Section 12 of the Code, no doubt as

explained by this Court. Once, the application is

admitted under Section 7(5), initially, the Interim

Resolution Profession (IRP) would supplant the very

management by virtue of the suspension of the powers

of the management, as contemplated in the Code. The

IRP may or may not continue as the Resolution

Professional (RP) but a RP is, undoubtedly, to be

appointed under the scheme of the Code. The management

187

passes into the hands of the RP. Thereafter, depending

upon the receipt of the Resolution Plan and its

acceptability to the Committee of Creditors and finally

the approval by the Adjudicating Authority of the

Resolution Plan, which is approved by the Committee of

Creditors, depends the Resolution of the Insolvency.

All of this is to be completed within a period of 330

days again subject to the limit not being ‘mandatory’

as explained by this Court in Essar Steel(supra).

Should this not happen, the Adjudicating Authority is

obliged, under Section 33, to pass an Order for winding

up of the Corporate Debtor. Section 53 provides for the

priority in the matter of payment of the amounts which

are collected by way of liquidation value. The

allottees would rank as unsecured creditors. The

inevitable conclusion is that unlike in an ordinary

civil suit or in a consumer complaint, the drastic

consequences, as the inexorable liquidation of the

corporate debtor, contemplated under the Code, is the

inevitable consequence, of the application reaching the

stage of Section 33 of the Code. Liquidation could take

place even earlier under Section 33(4). As to whether

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the procedure contemplated in Order I Rule 8 is

suitable, more appropriate and even more fair, is a

matter, entirely in the realm of legislative choice and

policy. Having regard to the scheme of the Code, which

we have detailed above, there cannot be scintilla of

doubt that what the petitioners are seeking to persuade

us to hold, is to make a foray into the forbidden

territory of legislative value judgment. This is all

the more so, when the dangers lurking behind full play

to Order I Rule 8 being given appear to be fairly clear.

We have, therefore, no hesitation in rejecting this

contention, which no doubt, at first blush, may appear

attractive. We only need add that invalidating a law

made by a competent Legislature, on the basis of what

the Court may be induced to conclude, as a better

arrangement or a more wise and even fairer system, is

constitutionally impermissible. If, the impugned

provisions are otherwise not infirm, they must pass

muster.

158. Are the Amendments violative of the `Pioneer

Judgment’ in Pioneer Urban Land and Infrastructure Ltd.

189

and another v. Union of India and others53, certain

amendments to the Code were challenged. The challenged

provisions included the Explanation added to Section

5(8)(f).

159. The challenge was made in a batch of Writ Petitions

filed by a group of Real Estate Developers. This Court

was invited to adjudicate upon the constitutionality

on a wide range of grounds. It is important to cull out

the findings rendered by the Court in the said decision

as much reliance has been placed by the Petitioners on

the decision:

i. The Code is a Legislation which deals with

economic matters and, therefore, the Legislature

must be given free play in the joints;

ii. The legislative judgment in economic choices

must be given a certain degree of deference by

the Courts;

iii. The amendment by which the explanation was

inserted in Section 5(8) was clarificatory in

nature and allottees/home buyers were included

53 (2019) 8 SCC 416

190

in the main provision, i.e., Section 5(8)(f) from

the inception of the Code;

iv. The amending Act did not infringe Articles 14,

19(1)(g) read with Article 19(6) or 300A of the

Constitution of India;

v. RERA and the Code must be held to co-exist, and

in the event of a clash, RERA must give way to

the Code. The Code and RERA operate in completely

different spheres.

vi. Paragragraph-30 of the judgment in Pioneer Urban

Land and Infrastructure Ltd.(supra) reads as

follows:

“30. As a matter of fact, the Code and RERA

operate in completely different spheres. The

Code deals with a proceeding in rem in which

the focus is the rehabilitation of the

corporate debtor. This is to take place by

replacing the management of the corporate

debtor by means of a resolution plan which

must be accepted by 66% of the Committee of

Creditors, which is now put at the helm of

affairs, in deciding the fate of the corporate

debtor. Such resolution plan then puts the

same or another management in the saddle,

subject to the provisions of the Code, so that

the corporate debtor may be pulled out of the

woods and may continue as a going concern,

thus benefitting all stakeholders involved. It

is only as a last resort that winding up of

the corporate debtor is resorted to, so that

its assets may be liquidated and paid out in

191

the manner provided by Section 53 of the Code.

On the other hand, RERA protects the interests

of the individual investor in real estate

projects by requiring the promoter to strictly

adhere to its provisions. The object of RERA

is to see that real estate projects come to

fruition within the stated period and to see

that allottees of such projects are not left

in the lurch and are finally able to realise

their dream of a home, or be paid compensation

if such dream is shattered, or at least get

back monies that they had advanced towards the

project with interest. At the same time,

recalcitrant allottees are not to be

tolerated, as they must also perform their

part of the bargain, namely, to pay

instalments as and when they become due and

payable. Given the different spheres within

which these two enactments operate, different

parallel remedies 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 (P) Ltd. v. Kotak Mahindra Bank

Ltd. [Swaraj Infrastructure (P) Ltd. v. Kotak

Mahindra Bank Ltd., (2019) 3 SCC 620 : (2019)

2 SCC (Civ) 136] has held that the Debts

192

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 paras 21 and

22 therein).”

[para 30]

vii. It is apposite to advert to paragraph-41 in the

nature of the contentions raised in this case.

To quote:

“41. It is also important to remember

that the Code is not meant to be a debt

recovery mechanism (see para 28 of Swiss

Ribbons [Swiss Ribbons (P) Ltd. v. Union of

India, (2019) 4 SCC 17]). 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 resolution professional must first

advertise for and find a resolution plan by

somebody, usually another developer, which

has then to pass muster under the Code i.e.

that it must be approved by at least 66% of

the Committee of Creditors and must further

go through challenges before NCLT

and NCLAT before the new management can

take over and either complete construction,

or pay out or refund amounts. Depending on

193

the kind of resolution plan that is

approved, such home buyer/allottee may have

to wait for a very long period for the

successful completion of the project. He

may never get his full money back together

with interest in the event that no suitable

resolution plan is forthcoming, in which

case, winding up of the corporate debtor

alone would ensue. On the other hand, if

such allottee were to approach the Real

Estate Regulatory Authority under RERA, it

is more than likely that the project would

be completed early by the persons mentioned

therein, and/or full amount of refund and

interest together with compensation and

penalty, if any, would be awarded. Thus,

given the bona fides of the allottee who

moves an application under Section 7 of the

Code, it is only such allottee who has

completely lost faith in the management of

the real estate developer who would come

before NCLT under the Code hoping that some

other developer takes over and completes

the project, while always taking the risk

that if no one were to come forward,

corporate death must ensue and the allottee

must then stand in line to receive whatever

is given to him in winding up. Given the

reasons of the Insolvency Committee Report,

which show that experience of the real

estate sector in this country has not been

encouraging, in that huge amounts are

advanced by ordinary people to finance

housing projects which end up in massive

delays on the part of the developer or even

worse i.e. failure of the project itself,

and given the state of facts which was

existing at the time of the legislation, as

adverted to by the Insolvency Committee

Report, it is clear that any alleged

discrimination has to meet the tests laid

down in Ram Krishna Dalmia [Ram Krishna

Dalmia v. S.R. Tendolkar, 1959 SCR 279 :

194

AIR 1958 SC 538] , V.C. Shukla [V.C.

Shukla v. State (Delhi Admn.), 1980 Supp

SCC 249 : 1980 SCC (Cri) 849] , Shri Ambica

Mills Ltd. [State of Gujarat v. Shri Ambica

Mills Ltd., (1974) 4 SCC 656 : 1974 SCC

(L&S) 381] , Venkateshwara

Theatre [Venkateshwara Theatre v. State of

A.P., (1993) 3 SCC 677] and Mardia

Chemicals [Mardia Chemicals Ltd. v. Union

of India, (2004) 4 SCC 311].”

[para 41]

viii. On the possibility of the Code being misused

by a single allottee, we may notice the

following:

“51. One other argument that is made

on behalf of the counsel for the

petitioners is that allottees of

flats/apartments who do not want refunds,

but who want their flats/apartments

constructed so that they may occupy and

live in their flats/apartments, will be

jeopardised, as a single allottee who does

not want the flat/apartments, but wants a

refund of amounts paid for reasons best

known to him, can trigger the Code and upset

the 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

195

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 delivery of the

flat/apartment. This contention,

therefore, also has no legs to stand upon.”

ix. This Court also held that the erstwhile

Management is free to offer a resolution plan in

the event of an Application under Section 7,

being admitted in favour of an allottee, subject,

no doubt, to Section 29 (A) of the Code, which

may be accepted.

160. It is clear that impugned provisos do not set at

nought the ruling of this Court in Pioneer (supra). In

a challenge by real estate developers upholding the

196

provisions in the manner done including the explanation

in Section 5 (8)(f) and allaying the apprehension about

abuse by individual allotees cannot detract from the

law giver amending the very law on its understanding

of the working of the Code at the instance of certain

groups of applicants and impact it produces on the

economy and the frustration of the sublime goals of the

law.

INFORMATION ASYMMETRY

161. The contention on behalf of the petitioner’s both

in regard to the debenture holders and security holders

as also the allottees is that the provisos are

unworkable. This is for the reason that information

relating to allottees in respect of real estate

projects and the debenture holders and security holders

in regard to the first proviso is not available. In

regard to shareholders with respect to Section 399 of

the Companies Act, 1956 and section 244 of the

Companies Act 2013, it is pointed out that the

threshold requirements can be fulfilled having regard

to the documented information regarding the

shareholding available in law. This is not the position

197

it is pointed out in regard to the categories covered

by provisos one and two. This renders the provisions

manifestly arbitrary.

162. Per contra, the stand of the union is as follows.

As far as allottees in a real estate project is

concerned, there is information available under the

provisions of Real Estate Regulation Act. Firstly, it

is pointed out that the said act contemplates an

association of allottees. The association plays an

important role. The promoter has to take a lead in the

formation of the Association. The allottees are also

obliged to take interest in the formation of the

Association. Once the association is formed, the law

giver contemplates naturally that information relating

to allotment would become available. The provisions of

the Act, which we have referred to earlier, are

emphasised. Secondly, it is pointed out that under

Section 11 of the Act as also the rules the promoter

is bound to open a webpage and post information

relating to allotments. This is to be updated.

Therefore, there is no merit in the contention. Similar

submissions are made in regard to debenture holders and

198

security holders. It is submitted that information is

available in terms of section 88 of the Companies Act,

2013. It is open to any of the security holders or

debenture holders to inspect the registers and

ascertain about security holders and debenture holders.

163. As far as allottees are concerned in regard to

apartments and plots, Section 11(1)(b) of the RERA

makes it mandatory for the promoter to make available

information regarding the bookings. We have conflated

bookings with allotments. We cannot proceed on the

basis of the contention of the petitioners that the

impugned provisos are unworkable and arbitrary on the

basis that the court must take notice of the ‘reality’

which is that the promoters do not make available

information as required of them. The burden it is well

settled to prove all facts to successfully challenge

the statute is always on the petitioner. There cannot

be a priori reasoning, and there is no burden on the

state. If there is defiance of the law by promoters,

the allottees are not helpless. They can always seek

proper redress in the appropriate forum. No doubt, we

199

also would observe that it becomes the duty of all the

authorities to ensure that the promoters will

stringently abide by their duties under the act.

Section 11(1)(b) of the RERA speaks about information

being made available regarding bookings which can be

understood as the ‘allotments’. The word ‘allottee’

as defined in Section 2(d) also takes in a person who

subsequently acquires the allotment through sale,

transfer or otherwise. In Section 11(1)(b) there is

reference to bookings. If the information is to be

limited to the original booking then the information

about assignment just mentioned may not be made

available. In this regard we may notice the Haryana

Real Estate Regulatory Authority, Gurugram (Quarterly

Progress Report) Regulations 2018. Regulation 4

provides inter alia that the promoter shall upload on

the webpage which he has to create for the project

within 15 days from the expiry of each quarter, namely,

the list of number and types of apartments/plots

booked. Our attention has also been drawn to the format

for Quarterly Progress Report to be submitted under

Haryana Regulations. A perusal of the report would

200

show that the promoter is obliged to submit the names

of the allottees. Obviously, if there is change in the

allotment the changed name should be reflected in the

Report. This must undoubtedly be ensured by the

authorities stringently. We also find merit in the

contention of the Union that the Association of

allottees has to be formed under the mandate of the law

it is expected to play an important role. Information

will certainly be forthcoming in regard to allotments

upon the allottees becoming members of the Association

as required. We cannot ignore the role of the

association in the matter of becoming the transferee

of the common areas, being clothed with the right of

first refusal within the meaning of section 7 of the

Act and also the right to complain otherwise under the

Act. This aspect of the association of allottees is not

a matter of mere trifle. The allottees cannot truly

possess and enjoy their properties be it an apartment

or building without their having right of common areas.

The promoter is bound under Section 17 to transfer

title to the common areas to the association. Section

19(9) of RERA makes it a duty on the part of the

201

allottee to participate towards the formation of the

association or cooperative society or the federation

of the same. The possession of the common areas is

also to be handed over to the association of the

allottees. The law giver has therefore created a

mechanism, namely, the association of allottees through

which the allottees are expected to gather information

about the status of the allotments including the names

and addresses of the allottees. We cannot proceed on

the basis in a case which involves a challenge to a

statute that the information to be gathered under the

statute will not be available on the basis that the

statute will not be worked as contemplated by the law

giver. Hence, we reject the contentions of the

allottees.

164. In regard to the debenture holders and security

holders also we would see no merit in the contentions.

There is a statutory mechanism, which is comprised in

the provisions of the Companies act 2013, namely

Section (88). Section 88 (1) reads as follows:

202

“88. Register of members, etc

(1) Every company shall keep and maintain

the following registers in such form

and in such manner as may be

prescribed, namely:—

(a) register of members indicating

separately for each class of equity

and preference shares held by each

member residing in or outside India;

(b) register of debenture-holders; and

holders.

165. Violation of Section 88 (1) is made punishable

under Section 88 (3).

166. There is no case established that the version of

the Union about availability of information contained

in the registers which can be perused is not correct.

Again, the burden is on the petitioners and they have

not discharged their burden.

THE FIRST AND SECOND PROVISOS CLASSIFICATION

DOWN MEMORY LANE: ARTICLE 14 AND REASONABLE

CLASSIFICATION

167. Both sides have placed reliance on a large number

of decisions in relation to reasonable classification

203

under Article 14 of the Constitution. Even in the first

decade of the Republic, this Court has, in a large

number of cases, settled the principles in regard to

what constitutes hostile discrimination and what is

reasonable classification. Since, we would be in the

region of platitude, if we were to chronicle the

principles laid down in each of those cases, we think

it suffices to refer to some of the decisions of this

Court alone.

168. In Ameerunnissa Begum (supra), which involved the

challenge to law made by the Nizam as Raj Pramukh of

the former State of Hyderabad, we need notice the

following:

“11. The nature and scope of the

guarantee that is implied in the equal

protection clause of the Constitution

have been explained and discussed in more

than one decision of this court and do

not require repetition. It is well

settled that a legislature which has to

deal with diverse problems arising out of

an infinite variety of human relations

must, of necessity, have the power of

making special laws to attain particulars

objects; and for that purpose it must

have large powers of selection or

classification of persons and things upon

which such laws are to operate. Mere

differentiation or inequality of

204

treatment does not per se amount to

discrimination within the inhibition of

the equal protection clause. To attract

the operation of the clause it is

necessary to show that the selection or

differentiation is unreasonable

arbitrary; that it does not rest on any

rational basis having regard to the

objects which the legislature has in

view.”

169. In Nagpur Improvement Trust (supra), the

petitioner before the High Court alleged discriminatory

proceedings for acquiring his land under the

Improvement Trust Act instead of the Land Acquisition

Act. This Court while dismissing the appeal and

affirming the view of the High Court that there was

hostile discrimination proceeded to lay down as

follows:

“26. It is now well-settled that the

State can make a reasonable

classification for the purpose of

legislation. It is equally well-settled

that the classification in order to be

reasonable must satisfy two tests: (i)

the classification must be founded on

intelligible differentia and (ii) the

differentia must have a rational

relation with the object sought to be

achieved by the legislation in question.

205

In this connection it must be borne in

mind that the object itself should be

lawful. The object itself cannot be

discriminatory, for otherwise, for

instance, if the object is to

discriminate against one section of the

minority the discrimination cannot be

justified on the ground that there is a

reasonable classification because it

has rational relation to the object

sought to be achieved.

xxx xxx xxx xxx

28. It would not be disputed that

different principles of compensation

cannot be formulated for lands acquired

on the basis that the owner is old or

young, healthy or ill, tall or short,

or whether the owner has inherited the

property or built it with his own

efforts, or whether the owner is

politician or an advocate. Why is this

sort of classification not sustainable?

Because the object being to compulsorily

acquire for a public purpose, the object

is equally achieved whether the land

belongs to one type of owner or another

type.

29. Can classification be made on the

basis of the public purpose for the

purpose of compensation for which land

is acquired? In other words can the

Legislature lay down different

principles of compensation for lands

acquired say for a hospital or a school

206

or a Government building? Can the

Legislature say that for a hospital land

will be acquired at 50% of the market

value, for a school at 60% of the value

and for a Government building at 70% of

the market value? All three objects are

public purposes and as far as the owner

is concerned it does not matter to him

whether it is one public purpose or the

other. Article 14 confers an individual

right and in order to justify a

classification there should be

something which justifies a different

treatment to this individual right. It

seems to us that ordinarily a

classification based on the public

purpose is not permissible under Article

14 for the purpose of determining

compensation. The position is different

when the owner of the land himself is

the recipient of benefits from an

improvement scheme, and the benefit to

him is taken into consideration in

fixing compensation. Can classification

be made on the basis of the authority

acquiring the land? In other words can

different principles of compensation be

laid if the land is acquired for or by

an Improvement Trust or Municipal

Corporation or the Government? It seems

to us that the answer is in the negative

because as far as the owner is concerned

it does not matter to him whether the

land is acquired by one authority or the

other.”

207

170. It is also correct that this decision has come to

be relied upon by this Court recently in Union of India

vs. Tarsem Singh54.

171. What is emphasized before us by the petitioners is

the principle that the object itself cannot be

discriminate. It is pointed out that the object in the

case of impugned provisos between different sections

of financial creditors is such discrimination. Further

the corporate debtors are discriminated again in that

builders are accorded special treatment qua other

corporate debtors.

172. In Triloki Nath Khosa(supra), this Court was called

upon to pronounce on subordinate legislation which

according to writ petitioners denied them the guarantee

of Article 14. This Court held, inter-alia, as follows:

“18. This submission is erroneous in

its formulation of a legal proposition

governing onus of proof and it is

unjustified in the charge that the record

discloses no evidence to show the

necessity of the new Rule. There is

always a presumption in favour of the

constitutionality of an enactment and the

54 (2019) 9 SCC 304

208

burden upon him who attacks it to show

that there has been a clear transgression

of the constitutional principles. [Ram

Krishan Dalmia v. Justice S. R. Tendolkar

AIR 1958 SC 538: 1959 SCR 279, 297(b):

1959 SCJ 147] A rule cannot be struck

down as discriminatory on any a

priori reasoning. “That where a party

seeks to impeach the validity of a rule

made by a competent authority on the

ground that the Rules offend Act. 14 the

burden is on him to plead and prove the

infirmity is too well established to need

elaboration.” The burden thus is on the

respondents to set out facts necessary to

sustain the plea of discrimination and to

adduce “cogent and convincing evidence”

to prove those facts for “there is a

presumption that every factor which is

relevant or material has been taken into

account in formulating the

classification”. [State of U.

P. v. Kartar SinghAIR 1964 SC 1135 :

(1964) 6 SCR 679, 687 : (1964) 2 SCJ 666.]

In G.D. Kelkar v. Chief Controller of

Imports and Exports [AIR 1967 SC 839 :

(1967) 2 SCR 29, 34 : (1967) 2 SCJ 182]

Subba Rao, C.J., speaking for the Court

has cited three other decisions of the

Court in support of the proposition that

“unless the classification is unjust on

the face of it, the onus lies upon the

party attacking the classification to

show by pleading the necessary material

before the Court that the said

classification is unreasonable and

violative of Article 16 of the

Constitution”.

209

19.Thus, it is no part of the appellants'

burden to justify the classification or

to establish its constitutionality.

Discrimination is the essence of

classification and does violence to the

constitutional guarantee of equality only

if it rests on an unreasonable basis.

31.Classification, however, is fraught

with the danger that it may produce

artificial inequalities and therefore,

the right to classify is hedged in with

salient restraints; or else, the

guarantee of equality will be submerged

in class legislation masquerading as laws

meant to govern well marked classes

characterized by different and distinct

attainments. Classification, therefore,

must be truly founded on substantial

differences which distinguish persons

grouped together from those left out of

the group and such differential

attributes must bear a just and rational

relation to the object sought to be

achieved.

32. Judicial scrutiny can therefore

extend only to the consideration whether

the classification rests on a reasonable

basis and whether it bears nexus with the

object in view. It cannot extend to

embarking upon a nice or mathematical

evaluation of the basis of

classification, for were such an inquiry

permisible it would be open to the Courts

to substitute their own judgment for that

of the legislature or the Rule-making

authority on the need to classify or the

210

desirability of achieving a particular

object.”

(Emphasis supplied)

173. Justice Krishna Iyer in his concurring

judgement laid down inter-alia as follows:

“Mini-classifications based on microdistinctions are false to our egalitarian

faith and only substantial and

straightforward classifications plainly

promoting relevant goals can have

constitutional validity. To overdo

classification is to undo equality.”

174. The case in Murthy Match Works (supra), involved a

challenge to the levy of Excise duty on match box

directed against medium sized manufacturers and it was

impugned as being discriminatory. This Court’s

conclusions are apposite and are as follows:

“There can be hostile discrimination

while maintaining façade of equality.

13. Right at the threshold we must warn

ourselves of the limitations of judicial

power in this jurisdiction. Mr Justice

Stone of the Supreme Court of the United

States has delineated these limitations

in United States v. Butler [(1936) 297

US 1: Tresolini and Shapiro: American

Constitutional Law, 3rd Edn.] thus:

211

“The power of Courts to declare a

statute unconstitutional is subject

to two guiding principles of decision

which ought never to be absent from

judicial consciousness. One is that

Courts are concerned only with the

power to enact statutes, not with

their wisdom. The other is that while

unconstitutional exercise of power

by the executive and legislative

branches of the government is subject

to judicial restraint, the only check

upon our exercise of power is our own

sense of self-restraint for the

removal of unwise laws from the

statute books appeal lies not to the

Courts but to the ballot and to the

processes of democratic Government.”

14. In short, unconstitutionality and not

unwisdom of a legislation is the narrow

area of judicial review. In the present

case unconstitutionality is alleged as

springing from lugging together two

dissimilar categories of match

manufacturers into one compartment for

like treatment.

15. Certain principles which bear upon

classification may be mentioned here. It

is true that a State may classify persons

and objects for the purpose of

legislation and pass laws for the purpose

of obtaining revenue or other objects.

Every differentiation is not a

discrimination. But classification can be

sustained only it is founded on pertinent

and real differences as distinguished

from irrelevant and artificial ones. The

constitutional standard by which the

sufficiency of the differentia which form

a valid basis for classification may be

measured, has been repeatedly stated by

212

the Courts. If it rests on a difference

which bears a fair and just relation to

the object for which it is proposed, it

is constitutional. To put it differently,

the means must have nexus with the ends.

Even so, a large latitude is allowed to

the State for classification upon a

reasonable basis and what is reasonable

is a question of practical details and a

variety of factors which the Court will

be reluctant and perhaps ill-equipped to

investigate. In this imperfect world

perfection even in grouping is an

ambition hardly ever accomplished. In

this context, we have to remember the

relationship between the legislative and

judicial departments of Government in the

determination of the validity of

classification. Of course, in the last

analysis Courts possess the power to

pronounce on the constitutionality of the

acts of the other branches whether a

classification is based upon substantial

differences or is arbitrary, fanciful and

consequently illegal. At the same time,

the question of classification is

primarily for legislative judgment and

ordinarily does not become a judicial

question. A power to classify being

extremely broad and based on diverse

considerations of executive pragmatism,

the Judicature cannot rush in where even

the Legislature warily treads. All these

operational restraints on judicial power

must weigh more emphatically where the

subject is taxation.

18. Another proposition which is equally

settled is that merely because there is

room for classification it does not

follow that legislation without

classification is always

unconstitutional. The Court cannot strike

213

down a law because it has not made the

classification which commends to the

Court as proper. Nor can the legislative

power be said to have been

unconstitutionally exercised because

within the class a sub-classification was

reasonable but has not been made.”

(Emphasis supplied)

175. In State of Gujarat and Another v. Shree Ambica

Mills Ltd.55, this Court has laid down certain

principles relating to under inclusive and over

inclusive classification. This is, no doubt, apart

from holding that a law which contravenes fundamental

rights of the citizens may continue to be valid as

regards non-citizens. As regards classification and

the vice of under inclusive and over inclusive

classification we may notice the following statement

of the law:

“54. A reasonable classification is

one which includes all who are

similarly situated and none who are

not. The question then is: what does

the phrase “similarly situated” mean?

The answer to the question is that we

must look beyond the classification to

the purpose of the law. A reasonable

classification is one which includes

all persons who are similarly situated

(1974) 4 SCC 656

214

with respect to the purpose of the

law. The purpose of a law may be either

the elimination of a public mischief

or the achievement of some positive

public good.

55. A classification is underinclusive when all who are included in

the class are tainted with the

mischief but there are others also

tainted whom the classification does

not include. In other words, a

classification is bad as underinclusive when a State benefits or

burdens persons in a manner that

furthers a legitimate purpose but does

not confer the same benefit or place

the same burden on others who are

similarly situated. A classification

is over-inclusive when it includes not

only those who are similarly situated

with respect to the purpose but others

who are not so situated as well. In

other words, this type of

classification imposes a burden upon

a wider range of individuals than are

included in the class of those

attended with mischief at which the

law aims. Herod ordering the death of

all male children born on a particular

day because one of them would some day

bring about his downfall employed such

a classification.

58. The piecemeal approach to a

general problem permitted by underinclusive classifications, appears

justified when it is considered that

215

legislative dealing with such problems

is usually an experimental matter. It

is impossible to tell how successful

a particular approach may be, what

dislocations might occur, what

evasions might develop, what new evils

might be generated in the attempt.

Administrative expedients must be

forged and tested. Legislators,

recognising these factors, may wish to

proceed cautiously, and courts must

allow them to do so. [ See Joseph

Tussman and Jacobusten Brook The Equal

Protection of the Law, 37 California

Rev 341]

62. In short, the problem of

legislative classification is a

perennial one, admitting of no

doctrinaire definition. Evils in the

same field may be of different

dimensions and proportions requiring

different remedies. Or so the

legislature may think

(see Tigner v. Texas). [310 US 141]

64. Laws regulating economic activity

would be viewed differently from laws

which touch and concern freedom of

speech and religion, voting,

procreation, rights with respect to

criminal procedure, etc. The

prominence given to the equal

protection clause in many modern

opinions and decisions in America all

show that the Court feels less

constrained to give judicial deference

to legislative judgment in the field

216

of human and civil rights than in that

of economic regulation and that it is

making a vigorous use of the equal

protection clause to strike down

legislative action in the area of

fundamental human rights. [See

“Developments Equal Protection”, 32

Harv, Law Rev 1065, 1127]

65. The question whether, under

Article 14, a classification is

reasonable or unreasonable must, in

the ultimate analysis depend upon the

judicial approach to the problem. The

great divide in this area lies in the

difference between emphasising the

actualities or the abstractions of

legislation. The more complicated

society becomes, the greater the

diversity of its problems and the more

does legislation direct itself to the

diversities.

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 laws are not

abstract propositions and do not relate

to abstract units and are not to be

measured by abstract symmetry, that

exact wisdom and nice adaption of

remedies cannot be required, that

judgment is largely a prophecy based on

meagre and uninterpreted experience,

should stand as reminder that in this

area the Court does not take the equal

protection requirement in a pedagogic

manner [See “General theory of law and

state” P-161].”

(Emphasis supplied)

217

176. In the decision of this Court in In Re The Special

Courts Bill, 197856, a bench of seven learned judges of

this Court laid down certain propositions. We need only

allude to those propositions which are apposite for

deciding the fate of these cases before us:

“(1) The first part of Article 14, which

was adopted from the Irish Constitution,

is a declaration of equality of the civil

rights of all persons within the

territories of India. It enshrines a

basic principle of republicanism. The

second part, which is a corollary of the

first and is based on the last clause of

the first section of the Fourteenth

Amendment of the American Constitution,

enjoins that equal protection shall be

secured to all such persons in the

enjoyment of their rights and liberties

without discrimination of favouritism. It

is a pledge of the protection of equal

laws, that is, laws that operate alike on

all persons under like circumstances.

(2) The State, in the exercise of its

governmental power, has of necessity to

make laws operating differently on

different groups or classes of persons

within its territory to attain particular

ends in giving effect to its policies,

and it must possess for that purpose

large powers of distinguishing and

56 (1979) 1 SCC 380

218

classifying persons or things to be

subjected to such laws.

(3) The constitutional command to the

State to afford equal protection of its

laws sets a goal not attainable by the

invention and application of a precise

formula. Therefore, classification need

not be constituted by an exact or

scientific exclusion or inclusion of

persons or things. The courts should not

insist on delusive exactness or apply

doctrinaire tests for determining the

validity of classification in any given

case. Classification is justified if it

is not palpably arbitrary.

(4) The principle underlying the

guarantee of Article 14 is not that the

same rules of law should be applicable to

all persons within the Indian territory

or that the same remedies should be made

available to them irrespective of

differences of circumstances. It only

means that all persons similarly

circumstanced shall be treated alike both

in privileges conferred and liabilities

imposed. Equal laws would have to be

applied to all in the same situation, and

there should be no discrimination between

one person and another if as regards the

subject-matter of the legislation their

position is substantially the same.

(5) By the process of classification, the

State has the power of determining who

should be regarded as a class for

purposes of legislation and in relation

to a law enacted on a particular subject.

This power, no doubt, in some degree is

likely to produce some inequality; but if

a law deals with the liberties of a number

of well defined classes, it is not open

to the charge of denial of equal

219

protection on the ground that it has no

application to other persons.

Classification thus means segregation in

classes which have a systematic relation,

usually found in common properties and

characteristics. It postulates a rational

basis and does not mean herding together

of certain persons and classes

arbitrarily.

(6) The law can make and set apart the

classes according to the needs and

exigencies of the society and as

suggested by experience. It can recognise

even degree of evil, but the

classification should never be arbitrary,

artificial or evasive.

(7) The classification must not be

arbitrary but must be rational, that is

to say, it must not only be based on some

qualities or characteristics which are to

be found in all the persons grouped

together and not in others who are left

out but those qualities or

characteristics must have a reasonable

relation to the object of the

legislation. In order to pass the test,

two conditions must be fulfilled, namely,

(1) that the classification must be

founded on an intelligible differentia

which distinguishes those that are

grouped together from others and (2) that

that differentia must have a rational

relation to the object sought to be

achieved by the Act.

(8) The differentia which is the basis of

the classification and the object of the

Act are distinct things and what is

necessary is that there must be a nexus

between them. In short, while Article 14

forbids class discrimination by

conferring privileges or imposing

220

liabilities upon persons arbitrarily

selected out of a large number of other

persons similarly situated in relation to

the privileges sought to be conferred or

the liabilities proposed to be imposed,

it does not forbid classification for the

purpose of legislation, provided such

classification is not arbitrary in the

sense abovementioned.

xxx xxx xxx

(11) Classification necessarily implies

the making of a distinction or

discrimination between persons

classified and those who are not members

of that class. It is the essence of a

classification that upon the class are

cast duties and burdens different from

those resting upon the general public.

Indeed, the very idea of classification

is that of inequality, so that it goes

without saying that the mere fact of

inequality in no manner determines the

matter of constitutionality.

(12) Whether an enactment providing for

special procedure for the trial of

certain offences is or is not

discriminatory and violative of Article

14 must be determined in each case as it

arises, for, no general rule applicable

to all cases can safely be laid down. A

practical assessment of the operation of

the law in the particular circumstances

is necessary.

(13) A rule of procedure laid down by

law comes as much within the purview of

Article 14 as any rule of substantive law

and it is necessary that all litigants,

who are similarly situated, are able to

221

avail themselves of the same procedural

rights for relief and for defence with

like protection and without

discrimination.”

177. In Ajoy Kumar Banerjee and ors. v. Union of India

and ors.57, this Court, inter-alia, held, while dealing

with the challenge to a scheme, as amended by employees

of Insurance Companies, on the grounds that it violated

the fundamental rights of Article 14, 19 (1)g and 31

of the Constitution. This Court held inter-alia as

follows:

“Whether the same results or better results

could have been achieved and better basis

of differentiation evolved is within the

domain of legislature and must be left to

the wisdom of the legislature.”

178. In the Constitution Bench decision of this Court

in Subramanian Swami vs. Director, CBI and ors. 58 the

issue was the constitutional validity of Section 6A of

the Delhi Special Police Establishment Act, 1946.

Section 6A declared that the CBI shall not conduct any

inquiry or investigation into any offence alleged to

57(1984) 3 SCC 127

(2014) 8 SCC 682

222

have been committed under the Prevention of Corruption

Act 1988 except with the previous approval of the

Central Government where the allegation was in relation

to employees of the Central government of the level of

Joint Secretary and above and also officers appointed

by the Central Government in public sector corporations

controlled by the Central Government. It is dealing

with this challenge that this Court went on to hold

after refering to the earlier case law including the

judgment of this Court in the Special Courts case

(supra) that it is well settled that the Courts do not

substitute their views as to what the policy is. It

held as follows:

“49. Where there is challenge to

the constitutional validity of a law

enacted by the legislature, the Court

must keep in view that there is always

a presumption of constitutionality of

an enactment, and a clear

transgression of constitutional

principles must be shown. The

fundamental nature and importance of

the legislative process needs to be

recognised by the Court and due regard

and deference must be accorded to the

legislative process. Where the

legislation is sought to be challenged

as being unconstitutional and

violative of Article 14 of the

Constitution, the Court must remind

223

itself to the principles relating to

the applicability of Article 14 in

relation to invalidation of

legislation. The two dimensions of

Article 14 in its application to

legislation and rendering legislation

invalid are now well recognised and

these are: (i) discrimination, based

on an impermissible or invalid

classification, and (ii) excessive

delegation of powers; conferment of

uncanalised and unguided powers on the

executive, whether in the form of

delegated legislation or by way of

conferment of authority to pass

administrative orders—if such

conferment is without any guidance,

control or checks, it is violative of

Article 14 of the Constitution. The

Court also needs to be mindful that a

legislation does not become

unconstitutional merely because there

is another view or because another

method may be considered to be as good

or even more effective, like any issue

of social, or even economic policy. It

is well settled that the courts do not

substitute their views on what the

policy is.”

(Emphasised)

179. It was found that the classification made in

Section 6A on the basis of status in Central Government

service is not permissible under Article 14 of the

Constitution. The Court posed the question as to

whether there is sound differentiation between corrupt

224

public servant based on their status. As noted, the

provision was found to be unconstitutional.

180. In the context of the argument that a sub-class

cannot be created within a class, the following

decisions of this Court were relied upon by the Union

to contend that it depends on the availability or

absence of a rational basis.

181. In 1960 1 SCR 39 / AIR 1959 SC 1124, the petitioners

challenged the constitutionality of the Sugar Export

Promotion Act, 1958 apart from certain orders passed

thereunder. The contention taken by the petitioners was

that since the declared object of the Act was to earn

foreign exchange, compelling only sugar manufacturers

which manufactured by vacuum pan process to export

sugar was discriminatory. They also pointed out that

manufactures of commodities other than sugar were not

compelled to export in the same manner and there was

further discrimination. It was while repelling this

contention that the Court laid down as follows:

“21. In our opinion, this argument

is without substance. The power of

Parliament to make laws in relation

225

to foreign exchange is manifest.

Entry No. 36 of the Union List

specifically confers jurisdiction

on Parliament to legislate in

relation to foreign exchange. That

Entry, if interpreted widely, would

embrace within itself not only laws

relating to the control of foreign

exchange but also to its acquisition

to better the economic stability of

the country. The need for foreign

exchange to finance the various

development schemes was, very

properly, not disputed. It is, thus,

plain that the object of the Act is

in the public interest. If we are

to exist as a progressive nation,

it is very necessary that we carve

out a place for ourselves in the

International market. The beginning

has to be made, and many a time, it

is at a great loss. That the Central

Government has selected the sugar

industry for an export programme

does not mean that it cannot make a

classification of the commodities,

bearing in mind which commodity will

have an easy market abroad for the

purpose of earning foreign

exchange. During the Suez crisis,

sugar was exported in large

quantities from this country, and

earned 12.4 crores as foreign

exchange. There is nothing on the

record to show that export of other

commodities was not also

undertaken, though it was pointed

out in arguments that manganese ore

was also exported in a similar

manner to earn foreign exchange. It

226

is quite obvious that the Central

Government cannot order the export

of all and sundry manufactured

commodities from the country,

without being assured of a market

in foreign countries. Necessarily,

the Government can only embark upon

an export policy in relation to

those products, for which there is

an easy and readily available market

abroad. For this reason also, sugar

produced by the vacuum pan process

may have been selected, because such

sugar is perhaps in demand abroad

and not sugar produced by any other

process. It must be realised that

goods manufactured in our country

have to stand heavy competition from

goods produced abroad, and even this

export can only be made at great

sacrifice, and is made only to earn

foreign exchange, which would not,

otherwise, be available.

182. In 1976 2 SCC 310, this Court was dealing with the

challenge to the judgment of the High Court by which

it had upheld the challenge by the respondent to a rule

which granted power to the appellant State to grant

further exemption to the members of scheduled castes

and scheduled tribes to pass the departmental test

necessary for being considered for promotion. The

227

learned ASG drew support from the following statement

in the judgement by Justice K.K. Mathew:

“83. A classification is

reasonable if it includes all persons

who are similarly situated with

respect to the purpose of the law. In

other words, the classification must

be founded on some reasonable ground

which distinguishes persons who are

grouped together and the ground of

distinction must have rational

relation to the object sought to be

achieved by the rule or even the rules

in question. It is a mistake to assume

a priori that there can be no

classification within a class, say,

the lower division clerks. If there

are intelligible differentia which

separates a group within that class

from the rest and that differentia

have nexus with the object of

classification, I see no objection to

a further classification within the

class. It is no doubt a paradox that

though in one sense classification

brings about inequality, it is

promotive of equality if its object is

to bring those who share a common

characteristic under a class for

differential treatment for sufficient

and justifiable reasons. In this view,

I have no doubt that the principle

laid down in All India Station Masters

and Assistant Station Masters

Association v. General Manager,

Central Railway [(1960) 2 SCR 311 :

AIR 1960 SC 384.] ; S.G.

Jaisinghani v. Union of

India and State of J&K. v. Triloki

Nath Khosa [(1974) 1 SCR 771 : (1974)

228

1 SCC 19 : 1974 SCC (L&S) 49.] has no

application here.”

183. In Indira Sawney v. Union of India59, this Court

held, “This merely sees goes to show that even among

backward classes, there can be sub-classification on a

reasonable basis.”

184. In State of West Bengal and ors. v. Rash Bihari

Sarkar and ors.60, exemption was granted under Bengal

Amusements Act, 1922 as amended in 1981 from

Entertainment Tax for theatre groups which were

bonafide and which performed not for monetary gain

which tax exemption was not given to theatre groups

which performed for monetary gains. Both were theatre

groups. Noticing however, the distinction between the

theatre groups, this Court went on to hold as follows:

“4. Equality means equality in

similar circumstances between same

class of persons for same purpose and

objective. It cannot operate amongst

unequals. Only likes can be treated

alike. But even amongst likes the

legislature or executive may classify

on distinction which are real. A

classification amongst groups

59 1992 Supp 3 SCC 217

60 (1993) 1 SCC 479

229

performing shows for monetary gains

and cultural activities cannot be said

to be arbitrary. May be that both the

groups carry out the legislative

objective of promoting social and

educational activities and,

therefore, they are likes but the

distinction between the two on

monetary gains and otherwise is real

and intelligible. So long the

classification is reasonable it

cannot be struck down as arbitrary.

Likes can be treated differently for

good and valid reasons. The State in

treating the group performing

theatrical shows for advancement of

social and educational purpose,

differently, on basis of profitmaking from those formed exclusively

for cultural activities cannot be said

to have acted in violation of Article

14.”

185. In State of Kerala v. Aravind Ramakant Modawdakar

and ors.61, reduction in taxes was given to inter-state

stage carriage operators which benefit was not extended

to intra-state stage carriage operators. The Court

though noted, that both the inter-state operators and

intra-state operators were, in a generic sense, state

carriage operators, there was a distinction between the

61 1999 7 SCC 400

230

two. It is apposite to refer to what this Court laid

down in para 10 of the judgement.

“10.The validity of Section 22 of the

Act has not been questioned which

section empowers the State in public

interest to grant exemptions in such

a manner as it deems fit to a class

of people. Once we hold that the

contract carriages covered by intraState permits and inter-State permits

can form two distinct and separate

classes within the larger class of

contract carriages, we find it

difficult to hold that this

classification is either

unreasonable or it lacks a nexus to

the object or is violative of Article

14.”

186. In Sansar Chand Atri v. State of Punjab and

another62, relied upon by the petitioners, for

contending that Article 14 frowns upon creation of a

sub-class within a class, the case turned on its facts.

What is significant, however, is the reasoning. The

question, in short, was whether the appellant was an

ex-serviceman or not, on the basis of the provisions

of the Punjab Recruitment of Ex-Servicemen Rules, 1982,

62 (2002) 4 SCC 154

231

as amended by Notification dated 22.09.1992. The

contention of the respondent was that since the

appellant was discharged from the army on his own

request, he could not be treated as an ex-serviceman.

After considering the Rules, as amended and on the

facts, it was held as follows:

“8. …If the contention raised on behalf

of the Service Commission and the State

Government that since the appellant has

been discharged from the army at his own

request, he cannot be treated as an exserviceman, is accepted then it will

create a class within a class without

rational basis and, therefore, becomes

arbitrary and discriminatory. It will

also defeat the purpose for which the

provision for reservation has been

made.”

187. We have already adverted to the decision of this

Court in relation to the taboo, which is alleged by the

petitioners against creating a class within a class.

188. We are of the view that the principles, which

governed the legitimacy of the sub-class within a

class, is based, essentially, on the very principles,

which are discernible in regard to reasonable

classification under Article 14. It is clear that the

232

law does not interdict the creation of a class within

a class absolutely. Should there be a rational basis

for creating a sub-class within a class, then, it is

not impermissible. This is the inevitable result of an

analysis of the judgments relied upon by the petitioner

themselves, viz., Sansar Chand Atri v. State of Punjab

and another (supra). The decisions, which have been

relied upon by the Union and which we have adverted to,

clearly indicate that a class within a sub-class, is

indeed not antithetical to the guarantee of equality

under Article 14.

189. Now, let us apply the principles, which are

indisputable to the facts before us. Allottees are,

indeed, financial creditors. They do possess certain

characteristics, however, which appear to have appealed

to the Legislature as setting them apart from the

generality of financial creditors. These features,

which set them apart, have been clearly indicated in

the stand of the Union. They are:

i. Numerosity;

ii. Heterogeneity;

233

iii. The individuality in decision making.

190. Section 21(6A) and Section 25A, constitutionality

of which has been upheld by this Court in Pioneer

(supra), would go to show that the debenture holders

and security holders would be covered by 21(6A)(a). As

far as the allottees of a real estate project are

concerned, they would be governed by 21(6A)(b). Both

these categories, have a common feature. The

distinguishing hallmark which separates them from the

generality of the financial creditor is numerosity. In

fact this aspect has been noticed by this Court in

Swiss Robbins (supra)(para 49). By the sheer numbers

of these creditors, they have come in for special

treatment under Section 21(6A). Another feature, which

is to be noticed in this regard in heterogeneity.

Lastly, there is also the aspect of individualized

decision-making. Authorized representatives are

contemplated in regard to these categories of financial

creditors under Section 21(6A). The manner in which

these authorized representatives are to vote is also

provided in Section 25A. There is another aspect also

234

to be noticed. Section 7 always contemplated the

possibility of a joint application. The impugned

amendments incorporating the provisos 1 and 2 only

builds upon the edifice erected already by way of

Section 21(6A) and 25A based on the experience of the

Legislature as also the Report of the Expert Body. This

certainly is a highly important input which persuades

us further that the classification in regard to these

classes of financial creditors does not represent

forbidden classification.

191. Section 25A of Code, reads as follows:

“25A. Rights and duties of authorised

representative of financial creditors.-

(1) The authorised representative under

sub-section (6) or sub-section (6A) of

section 21 or sub-section (5) of section

24 shall have the right to participate

and vote in meetings of the committee of

creditors on behalf of the financial

creditor he represents in accordance with

the prior voting instructions of such

creditors obtained through physical or

electronic means.

(2) It shall be the duty of the authorised

representative to circulate the agenda

and minutes of the meeting of the

committee of creditors to the financial

creditor he represents.

235

(3) The authorised representative shall

not act against the interest of the

financial creditor he represents and

shall always act in accordance with their

prior instructions:

Provided that if the authorised

representative represents several

financial creditors, then he shall cast

his vote in respect of each financial

creditor in accordance with instructions

received from each financial creditor, to

the extent of his voting share:

Provided further that if any

financial creditor does not give prior

instructions through physical or

electronic means, the authorised

representative shall abstain from voting

on behalf of such creditor.

(3A) Notwithstanding anything to the

contrary contained in sub-section (3),

the authorised representative under subsection (6A) of section 21 shall cast his

vote on behalf of all the financial

creditors he represents in accordance

with the decision taken by a vote of more

than fifty per cent. of the voting share

of the financial creditors he represents,

who have cast their vote:

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).]

(4) The authorised representative shall

file with the committee of creditors any

236

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.]”

192. We will expatiate on these aspects. In the case of

the allottees of a real estate project, it is the

approach of the Legislature that in a real estate

project there would be large number of allottees.

There can be hundreds or even thousands of allottees

in a project. If a single allottee, as a financial

creditor, is allowed to move an application under

Section 7, the interests of all the other allottees may

be put in peril. This is for the reason that as

stakeholders in the real estate project, having

invested money and time and looking forward to

obtaining possession of the flat or apartment and faced

with the same state of affairs as the allottee, who

moves the application under Section 7 of the Code, the

237

other allottees may have a different take of the whole

scenario. Some of them may approach the Authority under

the RERA. Others may, instead, resort to the Fora under

the Consumer Protection Act, though, the remedy of a

civil suit is, no doubt, not ruled out. Ordinarily, the

allottee would have the remedies available under RERA

or the Consumer Protection Act, as the more effective

option. In such circumstances, if the Legislature,

taking into consideration, the sheer numbers of a group

of creditors, viz., the allottees of real estate

projects, finds this to be an intelligible differentia,

which distinguishes the allottees from the other

financial creditors, who are not found to possess the

characteristics of numerosity, then, it is not for this

Court to sit in judgment over the wisdom of such a

measure.

193. The enquiry, we realize, must not end with finding

that there is an intelligible differentia, to be found

in the numerosity, heterogeneity and individuality in

decision-making of the allottees. The law further

requires that the differentia must have bear a rational

nexus with the object of the law.

238

194. The object of the law is clear. A radical departure

was contemplated from the erstwhile regime, which was

essentially contained in The Sick Industrial Companies

(Special Provisions) Act, 1985, and which manifested a

deep malaise, which impacted the economy itself. To put

it shortly, the procedures involved under the Act,

simply meant procrastination in matters, where speed

and dynamic decisions were the crying need of the hour.

The value of the assets of the Company in distress, was

wasted away both by the inexorable and swift passage

of time and tardy rate at which the forums responded

to the problem of financial distress. The Code was an

imperative need for the nation to try and catch up with

the rest of the world, be it in the matter of ease of

doing business, elevating the rate of recovery of

loans, maximization of the assets of ailing concerns

and also, the balancing the interests of all

stakeholders. The Code purports to achieve the object

of maximization of the assets of corporate bodies,

inter alia, which have slipped into insolvency. Present

a default, which, no doubt, is not barred by time

(subject to the power of the Authority under Section 5

239

of the Limitation Act), the Insolvency Resolution

Process can be triggered. It falls into two stages. In

the first stage or the calm period, every attempt is

contemplated to rescue the corporate debtor from

falling into liquidation. No doubt the moratorium under

section 14 is inevitable. The most significant feature

of the Code is the seemingly inexorable time limit,

which is fixed under Section 12. On the application

being admitted under Section 7(5), an Interim

Resolution Professional makes his appearance. In him,

vests the powers to manage the affairs of the corporate

debtor. He may be replaced by a Resolution Professional

or he may be appointed as a Resolution Professional.

The most striking feature of the Code is the

constitution of the Committee of Creditors and the

role, which it plays. In short, the show is run by the

Resolution Professional, subject to the control of the

Committee of Creditors. The Resolution of Insolvency

is essentially sought through the instrument of a

Resolution Plan to be submitted by a Resolution

Applicant. Various restrictions are cast, in regard to

a Resolution Applicant, through the device of Section

240

29A of the Code. A Resolution Plan is intended to

resuscitate an ailing corporate debtor and keep it

going as a going concern. The importance of rescuing

ailing businesses in the form of infusing new life in

such concerns, cannot be understated. Its significance

lies in various directions. There would be various

categories of creditors, of which, the legislative

choice appears to show some degree of preference for

the financial creditors, particularly in the form of

banks and financial institutions. One of the chief

goals of the Code is to prevent the loss of the value

of capital. If the recovery of the loan is effected at

the earliest, it translates into the availability of

the recovered capital for being lent to other

entrepreneurs, and this is an aspect, which goes to the

root of the matter. With every passing hour, not

unnaturally, depreciation will claim its victim in the

form of diminution of value of the assets. Should

insolvency pass into the stage of liquidation, the loss

is not only of the concerned businesses, but it also

would represent a loss for the Nation. This is,

undoubtedly, apart from the impairment of the interests

241

of all stakeholders. The stakeholders would include the

financial creditors and the operational creditors, as

well. Employees of the failed business, would take a

direct hit. Therefore, the Code accords the highest

importance to speed in the matter of undergoing the

process of insolvency.

195. Section 12 contemplates, in short, a maximum period

of 330 days from the date of the insolvency

commencement date, which we have already explained.

Though, the word ‘mandatorily’ has been struck down by

this Court in the decision in Committee of Creditors

of Essar Steel India Limited(supra), this Court has

only balanced the interest of all concerned, by

permitting an enlargement of the time, only in those

cases, where the delay occurs not on account of the

fault of the players concerned and it is based on the

principle actus curiae nemiem gravabit, which means

that the act of Court shall prejudice no man. This

Court has not undermined the timeline fixed by the

Legislature and, in fact, it has underlined the

importance of conforming to the time limit. Speed,

indeed, continues to be of the essence of the Code.

242

196. The speed, with which the processes can be

conducted and completed, is based on the volume of the

litigation. The Adjudicating Authorities and the

Appellate Bodies, viz., N.C.L.A.T., are authorities

under other enactments, as well. They are hard-pressed

for time. The matters, which are covered by the Code,

may present convoluted facts. The issues may bristle

with complications, both in points of law and also

facts. If, out of a large body of financial creditors

belonging to a sub-group, as for instance allottees of

a real estate project, were to be given the freedom to

activise the Code, then, the possibility of multiple

individual actions, is a spectre, which the

Legislature, must be presumed to be aware of. In other

words, the Legislature became alive to the peril of

entire object of the Code, being derailed by permitting

the individual players crowding the docket of the

Authorities under the Code, and resultantly, reviving

the very state of affairs, which compelled the

Legislature to script a new dawn in this area of law.

Instead, having regard to the numerosity, the

Legislature has thought it fit to adopt a balanced

243

approach by not taking the allottee out of the fold of

the financial creditors altogether. The allottee

continues to be a financial creditor. All that is

envisaged is the legislative value judgment that a

critical mass is indispensable for allottees to be

present before the Code, can be activised. The purport

of the critical mass of applicants would ensure that a

reasonable number of persons similarly circumstanced,

form the view that despite the remedies available under

the RERA or the Consumer Protection Act or a civil

suit, the invoking of the Code is the only way out, in

a particular case. As held by this Court, in Pioneer

(supra), after having analyzed, what awaits an

allottee, moving an application under Section 7 of the

Code, as contrasted with what he could get under RERA

or what we note under the Consumer Protection Act and

finding that the Code would be ordinarily activised by

an allottee, when he feels that the solution lies in

the remedy provided under the Code, viz., replacing the

management of the real estate project with a new

management, this Court took notice of the fact that

should Insolvency Resolution reach a stage of

244

liquidation, being unsecured creditors, the allottees

would not even get the amount, which he has invested.

In fact, after insertion of the explanation to section

33 (2) at any time after a committee of creditors is

constituted such an eventuality is possible. In short,

numerosity of the allottees of a real estate project,

necessitated, in the view of the Legislature, as

gleaned from the provisions, to condition an absolute

right, which does have a clear rational nexus with the

object sought to be achieved. We have noticed, one of

the objects is the balancing of the interests of all

stakeholders. By imposing a threshold limit of either

hundred allottees or if the number of allottees going

by the criteria of one-tenth of the allottees is, even

less than hundred, then, the said number of allottees

must agree to invoke the Code. This is again, based on

the intelligible differentia of heterogeneity. By

heterogeneity, is meant, differences between a

seemingly homogenous group. All allottees of a real

estate project form a class. All of them have stakes

in the prompt and effective completion of the real

estate project. We must proceed on the basis that what

245

the allottee would legitimately look forward is the

completion of the project and the handing over of the

possession of the flat or apartment in due time. The

achievement of this object, which must be attributed

reasonably to each and every allottee, as his goal, may

be possible in the views of different allottees

differently. As noted, there is a plurality of

remedies, which the law provides. More importantly, the

outcome of activising the Code, is almost like an

uncertain wager. The outcome of invoking the Code by

individual allottees would be apart from clogging the

dockets of the Adjudicating Authorities with even more

voluminous files leading to greater delay, that at the

instance of such individual allottees, what would be

perceived as an avoidable calamity, is perpetuated. In

other words, while a vast majority of allottees may see

reason in either giving time and reposing faith in

existing management of real estate project or

successfully invoking the other remedies available to

them, an individual allottee, out of the heterogenous

group, would throw the spanner in the works and bring

the entire real estate project itself to a possible

246

doom. Under the newly added Explanation to Section

33(2), at any time, after the constitution of the

Committee of Creditors, there can be liquidation.

197. The third distinguishing feature, which has been

projected by the Union, is the difference in

individuality in decision-making process, attributed

to the allottees. This means that unlike a bank or a

financial institution, where the decision-making

process is more institutionalized, an individual

allottee, left free to file an application under

Section 7, would exhibit a high-level of subjectivity.

As the learned ASG points out, and which is also part

of the argument, based on both, numerosity and

heterogeneity, what Parliament has instated upon is,

the presence of the commendable value of exhibiting

concern for the other allottees, who may think

completely differently about the wisdom of invoking the

Code. Here again, this distinguishing feature, which

becomes an intelligible differentia, in the view of the

Legislature, and which cannot be shown to be

demonstrably a mere pretense, it bears a rational nexus

247

with the objects of the Code, which we have already

delineated. To recapitulate, the individual allottee,

with a high-level of subjectivity in decision-making,

may take a plunge at invoking the Code, without having

a more global view of the consequences, which will

follow. Any such attempt would only be dubbed as

frivolous. This attempt by individual allottees would

have the following consequences:

i. It would crowd an already heavy docket;

ii. It would consequently slow down the processes under

the Code, even with respect to matters, which may

be more genuine and require greater and more timely

attention;

iii. It will defeat the object of the balancing the

interests of all stakeholders. We must indicate

that the aspect about delaying of the processes,

when allottees are pulling at each other, having

conflicting views about the appropriateness of the

Code being invoked, is the clear prospect of

allottees coming into collision in the Fora by way

of opposing the application, would be an undeniable

reality. This is despite the fact that it could

248

always be argued by the individual allottee that

what the law mandates in Section 4, is only the

proving of the fact of default in a sum of Rs.1

crore, as thing stand. It is also the argument of

the petitioners that since what is relevant for

the other financial creditors, is proving the

default of Rs.1 crore, the insistence on a

threshold for allottees alone, makes it

discriminatory. Allottees being financial

creditors, must be assumed to know what is in their

best interest. What is given through one hand,

cannot be taken away by another, is another allied

submission. It is also contended that there is no

empirical evidence of there being misused, after

the judgment of this Court in Pioneer (supra),

upholding the rights of the allottees, including

debunking the argument that a lone ranger will end

up abusing the system;

198. This aspect, in fact, is countered by the learned

ASG, by reeling out facts. Between 2016, when the Code

was enacted and June, 2018, there were 241 applications

249

by the allottees. In the aftermath of the amendment,

i.e., from 06.06.2018, there was a sudden spurt of

applications by allottees (2201 cases in a short span

of about eighteen months). This is again sought to be

contrasted by a mere 130 applications, which came to

be filed from 29.12.2019, over a period of eight months

till August, 2020. There is also the case for the Union

that an Expert Body, viz., the Committee has

recommended for the threshold. This recommendation was

born out of experience of the pitfalls, which follow,

allowing a completely free hand to individual allottees

to move the application. We are not impressed by

reference to the discordant notes struck, both by

reason of the nature of jurisdiction we exercise as

also the merit we see otherwise in the rationale behind

the law.

199. We see considerable merit in the stand of the

Union. This is not a case where there is no intelligible

differentia. The law under scrutiny is an economic

measure. As laid down by this Court, in dealing with

the challenge on the anvil of Article 14, the Court

will not adopt a doctrinaire approach. Representatives

250

of the people are expected to operate on democratic

principles. The presumption is that they are conscious

of every fact, which would go to sustain the

constitutionality of the law. A law cannot operate in

a vacuum. In the concrete world, when the law is put

into motion in practical experiences, bottlenecks that

would flow from its application, are best envisaged by

the Law Givers. Solutions to vexed problems made

manifest through experience, would indeed require a

good deal of experimentation, as long as it passes

muster in law. It is no part of a court’s function to

probe into what it considers to be more wise or a better

way to deal with a problem. In economic matters, the

wider latitude given to the Law Giver is based on sound

principle and tested logic over time. In fact, though

there is no rigid separation of powers in India, as it

obtains in the United States, there is broadly

separation of powers, which in fact, has been

recognized as a basic feature of the Constitution (see

His Holiness Kesavananda Bharti Sripadagalvaru v. State

of Kerala and another63). In any case, the Court errs

63 (1973) 4 SCC 225

251

in the judicial veto of legislation, in a manner of

speaking, it is usurping the power, which is earmarked

to another organ of the State, viz., the Legislature.

The large number of validating acts would produce

undeniable proof of the same.

ALLOTTEES VS. OPERATIONAL CREDITORS

200. One of the contentions raised by petitioners is as

regards the hostile discrimination between petitioner

(allottees) and operational creditors. The advantages

which, financial creditor have over operational

creditors is referred to.

201. In regard to the advantages, which the financial

creditors enjoyed over operational creditors, which

constituted also differences between them, the

following are highlighted, apart from the difference

in procedure, by which, the operational creditor could

stand ousted, if the corporate debtor could set up a

plausible dispute:

i. Firstly, it is pointed out that the financial

creditor is on the Committee of Creditors and

manages the affairs of the debtor with the

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Resolution Professional; The operational creditors

have no such power.

ii. Financial creditors decide who is to be the

Resolution Professional;

iii. The financial creditors approve or disapprove the

resolution plan.

iv. Almost, all, major decisions require the sanction

of financial creditors.

v. Financial debts enjoy priority over third party,

operational claims under Section 53 in

liquidation. It is despite all this, post the

impugned amendment, a large number of financial

creditors covered by the provisos are required to

initiate a proceeding. It is palpably arbitrary.

The financial creditor in the category of the

allottees are now worse off.

202. As far as the argument relating to violation of

Article 14 qua operational creditor is concerned, we

are of the view that there is no merit in the same.

Quite apart from the fact that under the code they are

dealt with under different provisions and a different

procedure is entailed thereunder, even the decisions

253

of this Court relied on by the allottees have treated

the financial creditor differently from the operational

creditor.

203. In Innoventive Industries Limited v. ICICI Bank

and another64, this Court elaborately analysed the

scheme of the Code and the distinction between the

financial creditors and the operational creditors. This

Court noticed that in the case of application, under

Section 8, by an operational creditor, the corporate

debtor within ten days of the notice, issued under

Section 8 can bring to the notice of the operational

creditor, the existence of the dispute or a record of

a proceeding in a court or before an Arbitrator. This

exercise, successfully carried out by the corporate

debtor, will enable it to get out of the purview of the

Code. In case of a financial creditor, if the debt is

due, that it is payable unless it is interdicted by

some law or it has not become due, the default,

contemplated under the Code, has occurred and the

64 (2018) 1 SCC 407

254

application, filed by the financial creditor, must be

admitted and the matter proceeded with.

204. In Swiss Ribbons (supra) the classification in

controversy was between operational and financial

creditor. Apart from dealing with the policy behind

the Code and the reasons which led to it, this Court

inter alia held 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

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debtor, making it clear that once

triggered, the resolution process

under the Code is a collective

proceeding in rem which seeks, in the

first instance, to rehabilitate the

corporate debtor. Under Section 7(4),

the adjudicating authority shall,

within the prescribed period,

ascertain the existence of a default

on the basis of evidence furnished by

the financial creditor; and under

Section 7(5), the adjudicating

authority has to be satisfied that a

default has occurred, when it may, by

order, admit the application, or

dismiss the application if such default

has not occurred. On the other hand,

under Sections 8 and 9, an operational

creditor may, on the occurrence of a

default, deliver a demand notice which

must then be replied to within the

specified period. What is important is

that at this stage, if an application

is filed before the adjudicating

authority for initiating the corporate

insolvency resolution process, the

corporate debtor can prove that the

debt is disputed. When the debt is so

disputed, such application would be

rejected.

49. It is obvious that debentureholders 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.

256

50. According to us, it is clear that

most financial creditors, particularly

banks and financial institutions, are

secured creditors whereas most

operational creditors are unsecured,

payments for goods and services as well

as payments to workers not being

secured by mortgaged documents and the

like. The distinction between secured

and unsecured creditors is a

distinction which has obtained since

the earliest of the Companies Acts both

in the United Kingdom and in this

country. Apart from the above, the

nature of loan agreements with

financial creditors is different from

contracts with operational creditors

for supplying goods and services.

Financial creditors generally lend

finance on a term loan or for working

capital that enables the corporate

debtor to either set up and/or operate

its business. On the other hand,

contracts with operational creditors

are relatable to supply of goods and

services in the operation of business.

Financial contracts 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. 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

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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 genuine disputes in case

of operational debts is much higher

when compared to financial debts. A

simple example will suffice. Goods that

are supplied may be substandard.

Services that are provided may be

substandard. Goods may not have been

supplied at all. All these qua

operational debts are matters to be

proved in arbitration or in the courts

of law. On the other hand, financial

debts made to banks and financial

institutions are well documented and

defaults made are easily verifiable.

51. Most importantly, financial

creditors are, from the very beginning,

involved with assessing the viability

of the corporate debtor. They can, and

therefore do, engage in restructuring

of the loan as well as reorganisation

of the corporate debtor's business when

there is financial stress, which are

things operational creditors do not and

cannot do. Thus, preserving the

corporate debtor as a going concern,

while ensuring maximum recovery for all

creditors being the objective of the

Code, financial creditors are clearly

different from operational creditors

and therefore, there is obviously an

intelligible differentia between the

two which has a direct relation to the

objects sought to be achieved by the

Code.

xxx xxx xxx xxx

258

119. It will be seen that the reason

for differentiating between financial

debts, which are secured, and

operational debts, which are

unsecured, is in the relative

importance of the two types of debts

when it comes to the object sought to

be achieved by the Insolvency Code. We

have already seen that repayment of

financial debts infuses capital into

the economy inasmuch as banks and

financial institutions are able, with

the money that has been paid back, to

further lend such money to other

entrepreneurs for their businesses.

This rationale creates an intelligible

differentia between financial debts

and operational debts, which are

unsecured, which is directly related

to the object sought to be achieved by

the Code. In any case, workmen's dues,

which are also unsecured debts, have

traditionally been placed above most

other debts. Thus, it can be seen that

unsecured debts are of various kinds,

and so long as there is some legitimate

interest sought to be protected, having

relation to the object sought to be

achieved by the statute in question,

Article 14 does not get infracted. For

these reasons, the challenge to Section

53 of the Code must also fail.”

205. It must be remembered that the principles laid down

came to be made in the context of challenge to the

provisions of the Code pointing out violation of

Article 14 insofar as the classification between

259

operational creditor and financial creditor was alleged

to be contrary to Article 14.

206. In Pioneer (supra) the case and the decision is

closer to the facts before us. The challenge was to

the amendments to the Code including the explanation

added to Section 5(8) to the Code. As we have noted the

explanation purports to clarify that any loan raised

from an allottee under the real estate project is to

be deemed to be an amount having commercial effect of

borrowing. Apart from the said provision, there were

other provisions also called in question. This Court

proceeded to find inter alia as follows:

The amendment by way of insertion of

explanation in 5(8)(f) was only clarificatory of

the existing law. The allottees of flats and

apartments were subsumed within the provisions of

Section 5(8)(f). In other words, an allottee was a

financial creditor. After a conspectus of the

provisions the Code and the RERA, this Court also

held that the RERA and the Code co-exist and in

the event of the confrontation, the Code will hold

sway. RERA was thus found to be not a special

260

statute which will override the general statute

namely the Code. Dealing with the challenge to

the amendment to the Code on the ground that there

is violation of Article 14 on the basis that the

equals are being treated unequally and unequals

are being treated equally this Court found it

unacceptable. This Court found the amendment to

be an economic measure. This Court also pointed

out the perils associated with an allottee pursuing

remedy under the Code in paragraph 41 and

thereafter went on to hold as follows:

“42. It is impossible to say that

classifying real estate developers

is not founded upon an intelligible

differentia which distinguishes

them 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 the 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

261

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 the case

of an allottee of a real estate

project, who is vitally concerned

with the financial health of the

corporate debtor, for otherwise,

the real estate project may not be

brought to fruition. Also, in such

event, no compensation, nor refund

together with interest, which is

the other option, will be

recoverable from the corporate

debtor. One other important

distinction is that in an

operational debt, there is no

consideration for the time value of

money—the consideration of the debt

is the goods or services that are

either sold or availed of from the

operational creditor. Payments made

in advance for goods and services

are not made to fund manufacture of

such goods or provision of such

services. Examples given of advance

262

payments being made for turnkey

projects and capital goods, where

customisation and uniqueness of

such goods are important by reason

of which advance payments are made,

are wholly inapposite as examples

vis-à-vis advance payments made by

allottees. In real estate projects,

money is raised from the allottee,

being raised against consideration

for the time value of money. Even

the total consideration agreed at a

time when the flat/apartment is

non-existent or incomplete, is

significantly less than the price

the buyer would have to pay for a

ready/complete flat/apartment, and

therefore, he gains the time value

of money. Likewise, the developer

who benefits from the amounts

disbursed also gains from the time

value of money. The fact that the

allottee makes such payments in

instalments which are co-terminus

with phases of completion of the

real estate project does not any

the less make such payments as

payments involving “exchange” i.e.

advances paid only in order to

obtain a flat/apartment. What is

predominant, insofar as the real

estate developer is concerned, is

the fact that such instalment

payments are used as a means of

finance qua the real estate

project. One other vital difference

with operational debts is the fact

that the documentary evidence for

amounts being due and payable by

the real estate developer is there

in the form of the information

provided by the real estate

developer compulsorily under RERA.

263

This information, like the

information from information

utilities under the Code, makes it

easy for homebuyers/allottees to

approach NCLT under Section 7 of

the Code to trigger the Code on the

real estate developer's 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.

43. Shri Shyam Divan relying

upon Nagpur Improvement

Trust v. Vithal Rao [Nagpur

Improvement Trust v. Vithal Rao,

(1973) 1 SCC 500] SCC para 26

and Subramanian swamy v. CBI

[Subramanian Swamy v. CBI, (2014) 8

SCC 682 : (2014) 6 SCC (Cri) 42 :

(2014) 3 SCC (L&S) 36] SCC paras

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

264

have already pointed out how real

estate developers are, in

substance, persons who avail

finance from allottees who then

fund the real estate development

project. The object of dividing

debts into two categories under the

Code, namely, financial and

operational debts, is broadly to

sub-divide debts into those in

which money is lent and those where

debts are incurred on account of

goods being sold or services being

rendered. We have no doubt that

real estate developers fall

squarely within the object of the

Code as originally enacted insofar

as they are financial debtors and

not operational debtors, as has

been pointed out hereinabove. So

far as unequals being treated as

equals is concerned,

homebuyers/allottees can be

assimilated with other individual

financial creditors like debenture

holders and fixed-deposit holders,

who have advanced certain amounts

to the corporate debtor. For

example, fixed-deposit holders,

though financial creditors, would

be like real estate allottees in

that they are unsecured creditors.

Financial contracts in the case of

these individuals need not involve

large sums of money. Debenture

holders and fixed-deposit holders,

unlike real estate holders, are

involved in seeing that they

recover the amounts that are lent

and are thus not directly involved

or interested in assessing the

viability of the corporate debtors.

Though not having the expertise or

265

information to be in a position to

evaluate feasibility and viability

of resolution plans, such

individuals, by virtue of being

financial creditors, have a right

to be on the Committee of Creditors

to safeguard their interest. Also,

the question that is to be asked

when a debenture holder or fixeddeposit holder prefers a Section 7

application under the Code will be

asked in the case of allottees of

real estate developers — is a debt

due in fact or in law? Thus,

allottees, being individual

financial creditors like debenture

holders and fixed-deposit holders

and classified as such, show that

they are within the larger class of

financial creditors, there being no

infraction of Article 14 on this

score.”

207. Thus, we notice the following aspects:

In Swiss Robbins (supra) on the basis of the

challenge involved to the legislation, this Court

noted that a financial creditor can trigger the

Code either by itself or jointly with other

financial creditors when a default occurs. The

procedure in regard to operational creditors is

however different. At the stage prior to admission

of the application, it is open to the corporate

debtor to show that the debt is disputed in which

266

event the application stands rejected. In

paragraph-49, this Court took the view that the

debenture holder and the persons with home loans

may be numerous and therefore have been statutorily

dealt with by the changes made in the Code. But

as a general rule it was found that financial

creditors which involved banks and financial

institutions will be certainly smaller than the

operational creditors. Further it was held that

most financial creditors particularly Banks and

financial institutions are secured creditors

whereas most operational creditors are unsecured.

In para 50 of Swiss Ribbon this Court distinguished

between secured and unsecured creditors and noted

that a divide existed from the earliest of the

Companies Acts both in U.K. and in India.

Financial creditors generally lend on a term loan

or for working capital. Operational creditors are

creditors on account of supply of goods and

services. The sums involved in the financial

contracts are generally large sums in contrast with

amounts involved in operational credit which are

267

generally less. Repayment schedules are

different. Other distinctions are noticed between

the two. It is further found that even more

importantly financial creditors are involved with

the assessing of viability of the corporate debtor

from the very beginning. This enables the

financial creditor to indulge in restructuring of

the loan. Preserving the corporate debtor as a

going concern while securing the highest recovery

for all creditors is the objective of the Code.

Financial creditors were therefore clearly

different from operational creditors. There is

obviously an intelligible differentia between the

two which has the direct relation with the object

to the object which is to be achieved by the Code.

This Court further noticed in the context of

challenge to Section 53 of the Code which deals

with the manner of distribution of assets of

corporate debtor in liquidation proceedings, that

there is difference in relative importance between

financial debt which are secured and operational

debts which are unsecured. The distinction was

268

found in the relative importance of two types of

debts when it comes to the objects sought to be

achieved. This Court was of the view when

repayment takes place in regard to financial

creditors it leads to fresh infusion of capital

into the economy which results in the money being

available to be lent to other businessmen.

208. In Swiss Ribbons (supra), dealing with the

challenge to the provisions based on Article 14 of the

Constitution of India, this Court adopted the following

reasoning. Financial creditors were essentially

identified as being banks and other financial

institutions. Banks and financial institutions, are

generally secured creditors. The procedure adopted by

these institutions, right from the time the loan is

applied for, and it being processed, the largeness of

the sums involved, the method of repayment, the rearrangement of the repayment of the loan, the study

conducted, in fact, before the loan is given the

control, which the banks and the financial institutions

retain over the debtor, and finally, the importance of

269

the repayment to such institutions, for the economic

stability and progress of the country, by way of the

recovered amounts being infused a fresh capital for

other entrepreneurs, was contrasted with the

operational debtors, who were, in the first place,

unsecured creditors, generally. Operational creditors

are creditors to whom the corporate debtor owes money

for having availed goods and services. The features

which mark out the banks and financial institution were

found in applicable to the operational creditors.

209. Coming to Pioneer (supra), this Court has

recognized that allottees under a real estate project

are unsecured creditors (See paragraph-61, wherein it

is so found). Equally, it is noted in paragraph-43 as

follows:

“43. for example, fixed deposit

holders, though financial creditors,

would be like real estate allottees in

that they are unsecured creditors.”

210. It is further found that financial contracts in

the case of these individuals, (allottees) need not

270

involve large sums of money [See paragraph-43 of

Pioneer (supra)].

211. It could be urged, therefore, that the real

foundation on the basis of which, this Court justified

the difference in procedure under Section 7 on the one

hand and Sections 8 and 9 on the other hand between

financial creditors and operational creditors, is that

after conflating financial creditors with banks and

financial institutions and noting them to be secured

creditors, lending large sums of money, both of which

features are not present in the case of an allottees

under a real estate project as allottees remain

unsecured creditors and also their contract need not

involve large sums of money, they should, therefore,

fall to be treated at least like the operational

creditors with whom they bear the greater resemblance.

What is complained of is before the impugned

amendments, allottees being treated as part of the

larger group of financial creditors, could invoke the

provisions of Section 7 singly and without having to

garner the support of any fellow traveller. The

operational debtor could also, likewise, file such an

271

application without having to search around for kindred

souls. After the amendment, however, the advantageous

position which was occupied by the allottee as a

financial creditor, has been extinguished and the

allottee is worse off than even an operational

creditor. This is for the reason that a single

operational creditor could all by himself, activise the

Code whereas the allottee is left far behind. This

amounts to treating the allottee with discrimination.

212. While it may be true that the allottee is not a

secured creditor and he is not in the position of a

bank or the financial institution, the contentions of

the petitioners that there is hostile discrimination

forbidden Article 14 is untenable. There cannot be any

doubt that intrinsically a financial creditor and an

operational creditor are distinct. An operational

creditor is one to whom money is due on account of

goods or services supplied to the debtor. The financial

creditor on the other hand, is so described, on account

of there being the element of borrowing. This

distinction is indisputable. The other distinctions are

272

articulated with clarity in paragraph-42 of the

judgment of this Court in Pioneer (supra) which we have

already adverted to. As noticed by this Court, what is

unique to the real estate developer vis-a-vis

operational debts is that the developer is the debtor

as an allottee funds his own apartment by paying

amounts in advance. On the other hand, in case of

operational debt, the person who has supplied the goods

and services, becomes the creditor and the corporate

debtor is one who has availed such services. Another

distinction noticed is that an operational creditor has

no interest or stake in the corporate debtor. The

allottee is, on the other hand, vitally concerned with

the financial health of the corporate debtor. Should

financial ruin occur, the real estate project will come

to a nought. Should such an event take place also, the

allottee would not be in a position to either claim or

get compensation or even refund with interest. Thirdly,

as again noticed by this Court, there is no

consideration for the time value of money in the

operational debt. This is not so in the case of an

allottee. The non-availability of documentary evidence

273

in respect of operational debts as against information

available under the RERA qua real estate developers is

yet another feature which was noticed in Pioneer

(supra) dealing with the differences between an

operational debtor and an allottee.

213. The operational debtor, is concerned with the

payment of the amount due to it for the goods and

services supplied. When an allottee invests money in a

real estate project, his primary and principal concern

is that the project is completed and he gets possession

of the apartment or the flat. The problem really arises

as there are many stakeholders whose interests are

affected. It cannot be in dispute that under the law,

an allottee can seek remedies under the RERA. An

allottee can also seek remedies under the Consumer

Protection Act or even file a suit. No doubt, Section

71 of the RERA permits a person who has filed a

complaint in respect of matters governed by Sections

12, 14, 18 and 19 of RERA to withdraw the complaint and

file the same before the Adjudicating Officer under

RERA. There are large number of cases where allottee

seek refuge either under the RERA or under the Consumer

274

Protection Act. An action under the Code by way of an

application under Section 7 is an action in rem. The

recovery of the amounts paid is not what is primarily

contemplated under the Code. In paragraph-41 of

judgment of this Court in Pioneer (supra), this Court

has painted the rather dismal but realistic picture of

the fruits of litigation launched under Section 7 by

an allottee of a real estate project. This Court has

gone on to hold that only such allottee who has

completely lost faith in management would come under

Section 7 in hope that some other developer will take

over and complete the project. At the same time, this

Court noticed that such an adventure would be in the

teeth of an impending peril, that should things do not

go as planned, corporate demise follows and the

allottee would stand reduced to receiving whatever

little may remain and found on the basis that he is a

mere unsecured creditor in the order of priority

prescribed under Section 53 of the Code. This Court has

painted a more rosy picture for an allottee approaching

under the RERA, as there is a great likelihood, it is

noted that the project could be completed or the full

275

amount of refund together with penalty is awarded.

Thus, the vires of the impugned provisions must be

judged without turning a blind eye to the distinction

between the wisdom and the legislative value judgment

behind the Statute being immune from judicial scrutiny

on the one hand and a hostile discrimination falling

foul of the mandate of equality under Article 14, being

fatal to the Statute. In this case, while it may be

true that the allottees are unsecured creditors and in

that regard, they are similar to the operational

creditors and it also may be true that many contracts

under real estate projects, may not involve large sums

as the subject matter of advances by banks and other

financial institutions, the similarity between the two

ends there. What is of greater importance is the

distinctions which we have already noted and the most

vital point which sets them apart, in the matter of

pronouncing on the vires of the provisos under Section

7 is the numerosity of the allottees, and what is more

not being homogeneous in what they want in a particular

situation, since the law has indeed endowed the

allottees with different remedies, having different

276

implications, be it under the Consumer Protection Act

or under RERA. If the Legislature felt that having

regard to the consequences of an application under the

Code, when such a large group of persons, pull at each

other, an additional threshold be erected for

exercising the right under Section 7, certainly, it

cannot suffer a constitutional veto at the hands of

Court exercising judicial review of legislation. In

fact, this Court in Pioneer was invited to hold that

the allottees were more like operational creditors than

financial creditors and many aspects were pointed out

and this Court after referring to the differences

pointed out to it in a tabular form in [para 48],

rejected the contentions. The rejection is supported

with reference to the findings in Swiss Robbin (supra)

which is alluded to in para 32 of Pioneer (supra).

214. It is to be noted also that it is not a case where

the right of the allottee is completely taken away. All

that has happened is a half-way house is built between

extreme positions, viz., denying the right altogether

to the allottee to move the application under Section

277

7 of the Code and giving an unbridled license to a

single person to hold the real estate project and all

the stakeholders thereunder hostage to a proceeding

under the Code which must certainly pass inexorably

within a stipulated period of time should circumstances

exists under Section 33 into corporate death with the

unavoidable consequence of all allottees and not merely

the applicant under Section 7 being visited with

payment out of the liquidation value, the amounts which

are only due to the unsecured creditor.

It must be remembered that, the point of distinction,

between a financial creditor in this case, the

allottees of a real estate project and the operational

creditors, as contained in Section 7 on the one hand

and Sections 8 and 9 are preserved. In other words, the

operational creditor still has to cross the threshold

of not being shut off from the application not being

processed in the teeth of the defense allowed to the

corporate debtor in regard to an operational creditor.

All that has happened is the Legislature in its wisdom

has found that the greater good lies in conditioning

an absolute right which existed in favour of an

278

allottee by requirements which would ensure some

certain element of consensus among the allottees. It

must be remembered that the requirement is a mere onetenth of the allottees. This is a number which goes to

policy and lies exclusively within the wisdom of the

Legislature. Hence, we have no hesitation in repelling

the contentions in this regard.

DEBENTURE HOLDERS/SECURITY HOLDERS: THE CHALLENGE TO

THE FIRST IMPUGNED PROVISO

215. Shri Rana Mukherjee, learned senior counsel in

W.P.(C) No.579 of 2020 would submit that the first

proviso appears to be clearly the result of a mistake.

It is contended that the target of the legislature was

the problem created by individual allottees invoking

section 7 of IBC. As far as his clients are concerned,

they are debenture holders and other security holders

to whom debt is owed by the corporate debtor. There is

no rational basis for imposing a threshold requirement

upon the security holders. Reference is made to the

mention of ‘class’.

279

216. Learned counsel would commend to us the principle

of absurdity. It is pointed out that the principle of

absurdity should guide this Court to read down the

first proviso to not apply it in regard to security

holders and debenture holders. In this regard our

attention has been drawn to the decision of this court

in Vasant Ganpat Padave (D) by L.Rs. and Ors. v. Anant

Mahadev Sawant (D) through L.Rs. and Ors.65. It is

further brought to the notice of the court that the

provision suffers from manifest arbitrariness. Counsel

relies upon the judgement of this Court in Shayara Bano

v. Union of India and others66 decision which witnessed

the striking down of the law relating to triple talak.

Per contra, it is the stand of the Union that

Section 21(6A)(a) and (b) read with Section 25A of the

Code contemplated certain classes of financial

creditors as falling in a separate class by themselves.

217. It is the stand of the Union that in regard to

certain classes of creditors, financial creditors,

65(2019) 12 SCALE 579

66(2017) 9 SCC 1

280

i.e., having regard to the large numbers, they were to

be treated differently. It is accordingly that with the

insertion of sub-section (6A) in section 21 with clause

(a) dealing with security holders including debenture

holders which would cover the petitioners that an

authorised representative was to be appointed to be on

the committee of creditors.

218. Section 25A provides for the rights and liabilities

of the authorised representatives who include the

authorised representatives of debenture holders,

security holders and finally the allottees. As far as

allottees are concerned, it is the stand of the Union

that they would fall under Section 21 (6A)(b) whereas

the security holders including debenture holders to

whom the corporate debtor owes money would fall under

section 21 (6A)(a). In regard to both these categories,

in other words, the feature which stands out is the

large number of the creditors as also the large number

of allottees. No doubt, in the case of allottees there

are other distinguishing features as well. The

interplay of the Consumer Protection Act, the

provisions of the Real Estate Regulation Act, the

281

balancing of the interests of the allottees in the

sense of the optimal securing of the stake of the

allottees in the continuance of the real estate project

itself would only strengthen the classification further

in regard to allottees. However, that is not to say

that in regard to the debentures and security holders

they can individually be permitted to set in motion

CIRP. In regard to the question of availability of

information with respect to similarly placed debenture

holders or security holders, the contention of the

Union is that under section 88 of the Companies Act

information is generated regarding debenture holders

and security holders. Anyone can inspect the records

of the company and glean information with which

application can be moved under the first proviso to

Section 7(1). In regard to them also it is the case of

the Union that the principle of heterogeneity applies.

Equally, it is the case of the Union that the individual

creditor in the said class would make a highly

individualised and subjective decision in regard to

whether an application under Section 7 must be moved

and this is sought to be contrasted with the

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institutional decision-making which would come into

play in regard to banks and other financial

institutions.

219. We are of the view that the first proviso is

invulnerable. As pointed out by the learned Additional

Solicitor General with the insertion of sub-section 6A

in section 21 as also Section 25A, the intention of the

legislature is to treat the financial creditors

differently. They are marked by unique features in

terms of numerosity and heterogeneity is clear.

Section 21 (6A) (a)reads as follows:

“(6A) Where a financial debt –

(a) is in the form of securities or

deposits and the terms of the financial

debt provide for appointment of a

trustee or agent to act as authorised

representative for all the financial

creditors, such trustee or agent shall

act on behalf of such financial

creditors;

(b) xxx xxx xxx

Section 25A provides as follows:

“ 25A. Rights and duties of authorised

representative of financial creditors.

283

(1) The authorised representative under

sub-section (6) or sub-section (6A) of

section 21 or sub-section (5) of section

24 shall have the right to participate

and vote in meetings of the committee

of creditors on behalf of the financial

creditor he represents in accordance

with the prior voting instructions of

such creditors obtained through

physical or electronic means.

(2) It shall be the duty of the

authorised representative to circulate

the agenda and minutes of the meeting

of the committee of creditors to the

financial creditor he represents.

(3) The authorised representative shall

not act against the interest of the

financial creditor he represents and

shall always act in accordance with

their prior intructions:

Provided that if the authorised

representative represents several

financial creditors, then he shall cast

his vote in respect of each financial

creditor in accordance with

instructions received from each

financial creditor, to the extent of his

voting share:

Provided further that if any financial

creditor does not give prior

instructions through physical or

electronic means, the authorised

representative shall abstain from

voting on behalf of such creditor.

(3A) Notwithstanding anything to the

contrary contained in sub-section (3),

the authorised representative under

sub-section (6A) of section 21 shall

cast his vote on behalf of all the

financial creditors he represents in

accordance with the decision taken by a

284

vote of more than fifty per cent. of the

voting share 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).”

220. These provisions were unsuccessfully challenged

before this Court as evident from the decision in the

Pioneer (supra). As pointed out on behalf of the Union,

in the said case the challenge was mounted by the

promoters of real estate projects. These provisions

have been accepted by creditors like the petitioners

covered by sub-section 6A. The impact of the insertion

of sub-section 3A in Section 25A is to be noticed. As

already seen section 25A, inter alia, deals with the

exercise of rights and the liabilities of authorised

representative of creditors like debenture holders and

allottees. After the insertion of sub-section 3A in

section 25A, the majority of the creditors of a class

is permitted to call the shots. It’s view, in other

words, will hold sway. This is subject to the Code

otherwise. The legislative understanding is clear that

285

in regard to such creditors bearing the hallmark of

large numbers they are required to be treated

differently. If they are not treated differently it

would spell chaos and the objects of the Code would not

be fulfilled. It is an extension of this basic

principle which has led to the insertion of the

impugned proviso. Insisting on a threshold in regard

to these categories of creditors would lead to the halt

to indiscriminate litigation which would result in an

uncontrollable docket explosion as far as the

authorities which work the Code are concerned. The

debtor who is apparently stressed is relieved of the

last straw on the camel’s back, as it were, by halting

individual creditors whose views are not shared even

by a reasonable number of its peers rushing in with

applications. Again, as in the case of the allottees,

this is not a situation where while treating them as

financial creditors they are totally deprived of the

right to apply under Section 7 as part of the

legislative scheme. The legislative policy reflects an

attempt at shielding the corporate debtor from what it

considers would be either for frivolous or avoidable

286

applications. What we mean by avoidable applications

is a decision which would not be taken by similarly

placed creditors keeping in mind the consequences that

would ensue not only in regard to persons falling in

the same category but also the generality of creditors

and other stakeholders. All that the amendment is

likely to ensure is that the filing of the application

is preceded by a consensus at least by a minuscule

percentage of similarly placed creditors that the time

has come for undertaking a legal odyssey which is beset

with perils for the applicants themselves apart from

others. As far as the percentage of applicants

contemplated under the proviso it is clear that it

cannot be dubbed as an arbitrary or capricious figure.

The legislature is not wanting in similar requirements

under other laws. The provisions of the Companies Act,

2013 and its predecessors contained similar provisions.

Allowing what is described as ‘lone Ranger’

applications beset with extremely serious

ramifications which are at cross purposes with the

objects of the code. This is apart from it in particular

spelling avoidable doom for the interest of the

287

creditors falling in the same categories. The object

of speed in deciding CIRP proceedings would also be

achieved by applying the threshold to debenture holders

and security holders. The dividing line between wisdom

or policy of the legislature and limitation placed by

the Constitution must not be overlooked.

221. The contention based on the applicability of the

Absurdity Doctrine on the Principle that the result

which, `all mankind without speculation would unite in

rejecting’ can have no application to the provision.

The Code and object of the Code and the unique features

which set apart the creditors involved in this case

from the generality of the creditors, the challenge

being to an economic measure and the consequential

latitude that is owed to the legislature renders the

Principle of Absurdity wholly inapposite.

222. There is no scope also having regard to their

identification in paragraph-49 of Pioneer (supra) with

reference to their numerosity. They cannot be heard to

complain about their inclusion within the terms of the

st proviso. Also Section 21(6A)(a) read with Section

25(A) puts the matter beyond the pale of doubt.

288

223. There is no basis for the petitioners to draw any

support from the decision of this Court in 2019(12)

SCALE.579. The facts in the said case presented a clear

situation which invited the application of the

Principle.

THE CHALLENGE TO EXPLANATION-II TO SECTION 11 OF THE

CODE.

224. The Petitioner, in Writ Petition No. 267 of 2020,

challenges the aforesaid Explanation.

225. As already noticed, the Amendment Act, 2020

received the assent of the President of India on

13.03.2020 and it is deemed to have come into force on

the 28.12.2019 (be it remembered that the Ordinance,

inserting the same Explanation, had been brought into

force on 28.12.2019).

226. The case of the Petitioner, in brief, is as

follows:

Respondent No.3 is a subsidiary company of the

Petitioner. Respondent No. 2 is also a corporate

body. There were certain transactions between

289

Respondent Nos.2 and 3. Alleging default by

Respondent No.3, Respondent No.2 had filed an

Application under Section 9 (the application to be

filed by an operational creditor) against

Respondent No.3. Respondent No.2 had filed the

application under Section 9 of the Code on

24.08.2018. It is the further case of the

Petitioner that Respondent No.2, on the other hand,

was itself undergoing a CIRP and the CIRP

Application had been admitted against the Second

Respondent on 12.09.2017. It is pointed out that

the Respondent No.3 has taken a contention that

Respondent No.2 was disentitled to file an

application under Section 11(a) of the Code as

Respondent No.2 was itself facing a CIRP. It is

further contended that during the pendency of the

proceeding against the second Respondent, the

Adjudicating Authority has passed an Order on

19.11.2018 to liquidate Respondent No.2 under

Section 34 of the Code. This development invites

the wrath of Section 11(d) as well. However, the

Adjudicating Authority had, on 24.08.2019,

290

erroneously admitted the Application filed by

Respondent No.2 under the Code. An Appeal was

carried by the Petitioner against the same, which

is pending. It is while so, that the Ordinance came

to be promulgated on 28.12.2019 adding

Explanation-II to Section 11 vis-à-vis followed by

passing of the impugned, amending Act on similar

lines.

227. The contention of the Petitioner can be summed-up

as follows:

An Explanation cannot modify the main

provision to which it is an Explanation.

Section 11(a) and Section 11(b) unequivocally bar

a Corporate Debtor from filing a CIRP Application

qua another Corporate Debtor under Section 7 and

Section 9 of the Code. Support is sought to be

drawn from the exposition of the law qua an

explanation laid down in S. Sundaram Pillai and

others v. R. Pattabiraman and others67 and Sonia

67(1985) 1 SCC 591

291

Bhatia v. State of U.P. and others68. It is

complained that the label of an Explanation has

been used to substantially amend, which is an

arbitrary and irrational exercise of power.

228. It was pointed out that the word ‘includes’ in

Explanation-I to Section 11 would indicate that an

Application for CIRP is barred not only against itself

but also against any other Corporate Debtor when the

applicant-Corporate Debtor is found placed in

circumstances expressed in Section 11. It is further

contended that the impugned Amendment, effectively

repeals Sections 11(a) and 11(d). If the purport of the

Explanation, which is impugned, is that the intention

of the law was to only bar an Application for CIRP by

a Corporate Debtor against itself, then, it will be

unworkable and practically impossible. Explanation-II

is manifestly arbitrary. Support is sought to be drawn

from Shayara Bano (supra). It was further contended

that the amendment cannot be used retrospectively and

take away the vested right. In fact, it is contended

68(1981) 2 SCC 585

292

that a clarificatory amendment is prospective but

Explanation II is in reality a substantive provision.

Attempt is made to lay store by the Judgment of this

Court in Virtual Soft Systems Ltd. v. Commissioner of

Income Tax, Delhi-I

69, wherein this Court was dealing

with Section 271 of the Income-Tax Act, 1961, in which,

an Explanation was added. The Section in question, was

a penal provision.

229. It was further contended that the law has been

settled by National Company Law Tribunal (NCLT) and

National Company Law Appellate Tribunal (NCLAT) that a

Corporate Debtor, covered by Section 11(a) and 11(d),

cannot file application for CIPR against another

Corporate Debtor. The impugned amendment cannot be used

retrospectively in cases instituted before 28.12.2019,

which is the day on which the impugned amendment came

into force. It is submitted that the amendment is

violative of Article 14 and the relevant law.

69(2007) 9 SCC 665

293

230. Respondent No.2, in its submissions, contends as

follows:

Respondent No. 3 owes Respondent No.2, more

than a sum of Rs. 26 crores, which is 20 per cent

of the liquidation value of Respondent No.2. It

is further contended that the notes on clause

explains the purpose of the provision. The

amendment is defended as reasonable and not

arbitrary. It is pointed out that it will be

contrary to the object of the Code if the debt due

to the Corporate Debtor cannot be secured. The

duties of the Resolution Professional under the

Code to protect and preserve the assets of the

Corporate Debtor are pointed out. An order of the

Appellate Adjudicating Authority in support of

Respondent No.2 is also pointed out. ExplanationII, it is pointed out, only clarifies what was

always the correct position.

231. Learned Additional Solicitor General, appearing on

behalf of the Union of India would also support the

amendment. Reference is made to the Report dated

294

February, 2020 of the Insolvency Law Committee, which,

inter alia, reads as follows:

“6. ELIGIBILITY OF A CORPORATE DEBTOR TO

INITIATE CIRP AGAINST OTHER PERSONS

6.1. Under Section 11(a) and (d) of the

Code, corporate debtors “undergoing a

corporate insolvency resolution process”

and “in respect of whom a liquidation

order has been made” are not permitted to

file an application to initiate CIRP. It

was brought to the Committee that this

has created confusion over whether a

corporate debtor which is undergoing CIRP

or liquidation process, may file an

application to initiate CIRP against

other corporate persons who are its

debtors.

6.2. The Committee noted that different

Adjudicating Authorities had taken

different approaches regarding the right

of a resolution professional to initiate

CIRP against other corporate debtors. On

the one hand, the right of the resolution

professional to initiate CIRP against

other corporate debtors was upheld by

relying on the statutory duty of the

resolution professional to recover

outstanding dues of the corporate debtor

under Section 25(2)(b). On the other

hand, the resolution professional had

been prevented from doing so, on the basis

of a literal interpretation of Section

11(a). While the Appellate Authority had

dismissed the appeals filed against some

of these orders without endorsing either

of these approaches, in Abhay N.

Manudhane v Gupta Coal India Pvt. Ltd.,

it had taken the latter approach and

295

denied the liquidator the right to file

an application to initiate CIRP against

other corporate debtors (in the context

of Section 11(d)).

6.3. However, according to the Notes on

Clauses to Section 11, the section was

enacted to prevent “repeated recourse to

the corporate insolvency resolution

process in order to delay repayment of

debts due or to keep assets out of the

reach of creditors” and to “ensure

finality of the liquidation order” by

preventing a corporate debtor to initiate

CIRP after a liquidation order is passed.

Thus, it is clear that Section 11 aims at

preventing a corporate debtor from

abusing the statutory process under

Chapter II of Part II of the Code by

repeatedly initiating CIRP against itself

or by initiating CIRP even after a

liquidation order is passed against it.

The Committee discussed that if Section

11 were instead, interpreted to prevent

the resolution professional or the

liquidator of a corporate debtor from

initiating CIRP against other defaulting

entities, it would cause serious

detriment to the ability of a corporate

debtor to recover its dues from its

debtors.”

ANALYSIS

232. Before we address the argument with regard to the

provisions of the Code, it is necessary to cull-out the

principles applicable in regard to the function of an

Explanation. A bench of three learned Judges, in an

296

off-quoted judgment in S. Sundaram Pillai (supra) came

to elaborately examine the scope of an Explanation.

Incidentally, the Court had to deal with an Explanation

which was appended to a proviso and, therefore, its

judgment also deals with the principles applicable in

regard to a proviso. On a conspectus of various

decisions, this Court made a survey of the earlier case

law. We may refer to paragraphs-49, 50, 52 and,

finally, its conclusions in paragraph-53 as follows:

“49. The principles laid down by the

aforesaid authors are fully supported by

various authorities of this Court. To quote

only a few, in Burmah Shell Oil Storage and

Distributing Co. of India Ltd. v. CTO [(1961)

1 SCR 902 : AIR 1961 SC 315 : (1960) 11 STC

764] a Constitution Bench decision,

Hidayatullah, J. speaking for the Court,

observed thus:

“Now, the Explanation must be interpreted

according to its own tenor, and it is meant

to explain clause (1)(fl) of the Article and

not vice versa. It is an error to explain

the Explanation with the aid of the Article,

because this reverses their roles.”

50. In Bihta Cooperative Development Cane

Marketing Union Ltd. v. Bank of Bihar [(1967)

1 SCR 848 : AIR 1967 SC 389 : 37 Com Cas 98]

this Court observed thus:

297

“The Explanation must be read so as to

harmonise with and clear up any ambiguity in

the main section. It should not be so

construed as to widen the ambit of the

section.”

52. In Dattatraya Govind Mahajan v. State

of Maharashtra [(1977) 2 SCR 790 : (1977) 2

SCC 548 : AIR 1977 SC 915] Bhagwati, J.

observed thus: (SCC p. 563, para 9)

“It is true that the orthodox function of

an Explanation is to explain the meaning and

effect of the main provision to which it is

an Explanation and to clear up any doubt or

ambiguity in it.... Therefore, even though

the provision in question has been called an

Explanation, we must construe it according

to its plain language and not on any a priori

considerations.”

53. Thus, from a conspectus of the

authorities referred to above, it is manifest

that the object of an Explanation to a

statutory provision is—

“(a) to explain the meaning and intendment

of the Act itself,

(b) where there is any obscurity or

vagueness in the main enactment, to clarify

the same so as to make it consistent with

the dominant object which it seems to

subserve,

the dominant object of the Act in order to

make it meaningful and purposeful,

298

(d) an Explanation cannot in any way

interfere with or change the enactment or

any part thereof but where some gap is left

which is relevant for the purpose of the

Explanation, in order to suppress the

mischief and advance the object of the Act

it can help or assist the Court in

interpreting the true purport and intendment

of the enactment, and

(e) it cannot, however, take away a

statutory right with which any person under

a statute has been clothed or set at naught

the working of an Act by becoming an

hindrance in the interpretation of the

same.”

233. It is important to actually understand the scope

of an Explanation. We have already noticed the summary

of the conclusions of this Court in S. Sundaram Pillai

(supra) at paragraph-53. It may give the impression

that an Explanation, in those circumstances, does not

widen the boundaries of the main provision to which it

is an Explanation. However, it is apposite that we

hearken back to what this Court said on an earlier

occasion. In a judgment rendered by four learned Judges

in Hiralal Rattanlal and Ors. v. State of U.P. and

another70 this Court had, while considering the scope

70 (1973) 1 SCC 216,

299

of an Explanation in a Taxing Statute, viz., the United

Provinces Sales Tax Act, 1948, had this to say:

“22. It was next urged that on a true

construction of Explanation II to Section

3-D, no charge can be said to have been

created on the purchases of split or

processed pulses. It was firstly

contended that an Explanation cannot

extend the scope of the main section, it

can only explain that section. In

construing a statutory provision, the

first and the foremost rule of

construction is the literary

construction. All that we have to see at

the very outset is what does that

provision say? If the provision is

unambiguous and if from that provision,

the legislative intent is clear, we need

not call into aid the other rules of

construction of statutes. The other rules

of construction of statutes are called

into aid only when the legislative

intention is not clear. Ordinarily a

proviso to a section is intended to take

out a part of the main section for special

treatment. It is not expected to enlarge

the scope of the main section. But cases

have arisen in which this Court has held

that despite the fact that a provision is

called proviso, it is really a separate

provision and the so-called proviso has

substantially altered the main section.

In CIT v. Bipinchandra Maganlal & Co.

Ltd., Bombay [AIR 1961 SC 1040 : (1961)

2 SCR 493 : (1961) 41 ITR 290] this Court

held that by the fiction in Section

300

10(2)(vii) second proviso read with

Section 2(6-C) of the Indian Income Tax

Act, 1922 what is really not income is,

for the purpose of computation of

assessable income, made taxable income.

25. On the basis of the language of the

Explanation this Court held that it did

not widen the scope of clause (c). But

from what has been said in the case, it

is clear that if on a true reading of an

Explanation it appears that it has

widened the scope of the main section,

effect be given to legislative intent

notwithstanding the fact that the

Legislature named that provision as an

Explanation. In all these matters the

courts have to find out the true

intention of the Legislature.”

(Emphasis supplied)

234. Even though, in a later decision in S. Sundaram

Pillai (supra), this Court had adverted to this

Judgment when it came to culling out the propositions,

the aspect about an Explanation, widening the scope of

a provision, has not been expressly spelt out. It must

be remembered that the Legislature speaks through the

medium of the words it uses. The nomenclature, it gives

to the device, cannot control the express language,

which it employs. If, in effect, in a particular case,

an Explanation does widen the terms of the main

301

provision, it would become the duty of the Court to

give effect to the will of the Legislature.

235. In fact, with respect to the decision in S.

Sundaram Pillai (supra), it may be necessary to dissect

the provisions which fell for consideration. The Court,

in the said case, was dealing with the law relating to

restrictions on eviction of the tenant prevailing in

Tamil Nadu. The substantive provision conferred a right

on the landlord to evict a tenant, should he wilfully

fail to pay the rent. There was a proviso, however,

which empowered the Court to grant time to the tenant

subject to the limit of 30 days, should it be found

that the non-payment of the rent was not wilful. It was

to this proviso that an Explanation was added. The

Explanation, in turn, provided that if the landlord

gave a notice to the tenant to pay the rent and rent

remained unpaid for a period of two months, it would

be construed as a case of wilful default. The

arguments, which were addressed before this Court,

included the contention that even if a notice was given

within the meaning of the Explanation, it would not

control the duty of the Court to find out whether there

302

was wilful default. It was, while the Court dealt with

these arguments, inter alia, that the Court proceeded

to lay down two propositions. Firstly, in a case where

no notice was given by the landlord, within the meaning

of the Explanation, it was for the Court to find out,

on the facts and circumstances, as to whether there was

wilful default. The second proposition, which was laid

down was, even if a notice was given under the

Explanation and there was default in payment, it would

be treated as a case of wilful default unless the tenant

was able to establish that he was prevented from making

payment on account of circumstances which prevented him

from doing so. We may also notice a still later judgment

of this Court in Sonia Bhatia (supra). In the said

case, the question fell for consideration under the law

relating to land reforms. Sub-Section (6) of Section 5

of the U.P. Imposition of Ceiling on Land Holdings Act,

1960 provided that the transfer made by a person, after

a certain date, was to be ignored. There was a proviso,

which, however, excepted certain transfers. One of the

conditions to be met before a case could fall within

the proviso was that the transfer must have been made

303

for valuable consideration. To the said proviso, there

was again an Explanation I followed by Explanation II.

It reads as follows:

“Explanation I.—For the purposes of

this sub-section, the expression

“transfer of land made after the twentyfourth day of January, 1971”, includes—

(a) a declaration of a person as a cotenure-holder made after the twentyfourth day of January, 1971 in a suit

or proceeding irrespective of whether

such suit or proceeding was pending on

or was instituted after the twentyfourth day of January, 1971;

(b) any admission, acknowledgement,

relinquishment or declaration in

favour of a person to the like effect,

made in any other deed or instrument or

in any other manner.

Explanation II: The burden of proving

that a case falls within clause (b) of

the proviso shall rest with the party

claiming its benefits.”

236. The transfer in the said case was a gift which

attracted the wrath of the main provision which meant

that the transfer had to be ignored, and the land,

which was the subject matter of the gift, had to be

included in the ceiling account of the donor. This

Court appreciated the scope of the legislation to be

304

just that and rejected the argument based on the terms

of the Explanation and held as follows:

“24. In Bihta Co-operative Development

Cane Marketing Union Ltd. v. Bank of

Bihar [AIR 1967 SC 389 : (1967) 1 SCR

848 : 37 Com Cas 98] this Court was

called upon to consider the Explanation

to Section 48(1) of the Bihar and Orissa

Cooperative Societies Act, 1935.

Therein this Court observed:

“The question then arises whether the

first Explanation to the section widens

the scope of sub-section (1) of Section

48 so as to include claims by registered

societies, against non-members even if

the same are not covered by clause (c).”

237. We have made a brief survey of some of the case

law by way of expounding the true province of an

Explanation.

238. Coming to the facts of the instant case, it is

necessary to analyse the limbs of Section 11. Sections

7, 9 and 10, read with Section 5, provide for the

procedure to be adopted by the Adjudicating Authority

in dealing with applications for initiating CIRP by the

financial creditor, operational creditor and corporate

debtor. It is after that Section 11 makes its

appearance in the Code. It purports to declare that an

305

application for initiating CIRP cannot be made by

categories expressly detailed in Section 11. Section

11(a) vetoes an application by a corporate debtor,

which is itself undergoing a CIRP. An argument sought

to be addressed by the petitioner is that the purport

of the said provision is that it prohibits not only a

corporate debtor, which is undergoing a CIRP, from

initiating a CIRP against itself, which, but for the

fact, it is undergoing a CIRP, would be maintainable

under Section 10 of the Code, but it also proscribes

an application by a corporate debtor for initiating a

CIRP against another corporate debtor. It appears to

be clear to us, and this will be corroborated by the

further provisions as well, that the real intention of

the Legislature was that the prohibition was only

against the corporate debtor, which is already faced

with the CIRP filed by either a financial creditor or

operational creditor, jumping into the fray with an

application under Section 10. This appears to be clear

from the reports which have been placed before us.

306

239. Coming to Section 11(b), it again disables a

corporate debtor which has completed CIRP twelve months

preceding the date of the making of the application

from invoking the Code. It may be demystified as

follows:

On the strength of the application made under

Sections 7, 9 or 10, CIRP is initiated and it is

completed at a certain point of time. This Section

is aimed at preventing a further application not

eternally but for a period of twelve months after

the expiry of the insolvency resolution process.

Quite apart from the fact that even the petitioners

do not lay store by Section 11(b) and their case

is premised on Section 11(a) and 11(d), the

importance of Section 11(b) is that it sheds light

regarding the intention of the Legislature to be

that the corporate debtor cannot initiate CIRP

against itself under any of the limbs of Section

11, in the circumstances detailed therein. Section

11(c) again disentitles corporate debtor, apart

from a financial creditor who has violated any

terms of a resolution plan, which was approved

307

twelve months before the making of the application.

In other words, after the Adjudicating Authority

approves a resolution plan under Section 31 of the

Code, should a corporate debtor, inter alia,

transgress upon any of the terms of the resolution

plan and it still ventures to again approach the

Adjudicating Authority with an application under

Section 10 and attempt to restart the process all

over again within a period of twelve months from

the date of approval, this is declared

impermissible under Section 11(c).

240. Finally, coming to Section 11(d), it disentitles

the making of an application to initiate CIRP by a

corporate debtor in respect of whom a liquidation order

has been made. We have already noticed the scheme of

the Code. The Legislature intends to have a two-stages

approach to the problem of insolvency as regards the

corporate debtor. On the basis of an application by the

eligible person, a CIRP is initiated. If it is

admitted, a Committee of Creditors is constituted

before the curtains are wrung down on the insolvency

308

resolution process by the inexorable passage of time,

which is fixed under Section 12. If a resolution plan

finds approval at the hands of the Committee of

Creditors and also the Adjudicating Authority,

liquidation is staved off. Should there be no

resolution plan within the time limit or the resolution

plan is not approved, the curtains rise for the process

of liquidation process to be played out in terms of the

Code. The first act of the drama consists of the order

of liquidation to be passed under Section 33 of the

Code. It is this order which is referred to in Section

11(d). There is also an order of liquidation

permissible earlier, under Section 33(4). No doubt

after the introduction of the explanation to Section

33(2), an order of liquidation may be passed in terms

thereof. Once, this order is passed, the Legislature

intended that a corporate debtor, in regard to whom the

CIRP was initiated and which has culminated in the

order of liquidation being passed after no resolution

of the insolvency took place, cannot again initiate a

fresh CIRP, putting under the carpet, as it were, a

whole process in the recent past. In fact, to use the

309

words “recent past” may not be correct for unlike

Section 11(b) and 11(c), in a case, where there is an

order for liquidation under Section 33, then, an

application under Section 10, would not be

maintainable. The person disentitled under Section

11(d) would be the corporate debtor and the

disentitlement is qua itself.

241. Now, let us turn to the first Explanation. The

Explanation declares that for the purpose of Section

11, a corporate debtor includes a corporate applicant

in respect of such corporate debtor. There is an

argument raised on behalf of the petitioners which

surrounds the word “included”. The contention appears

to be that before the insertion of Explanation II,

which is challenged before us, under Section 11, not

only was an application for initiating CIRP by a

corporate debtor against itself prohibited in the

circumstances referred to in Section 11 but it also

contemplated that the CIRP could not be filed by the

corporate debtor in circumstances covered by Section

11 against another corporate debtor. Otherwise, there

was no meaning in using the word “includes”. In order

310

to appreciate this argument, it is necessary to set out

the definition of the word “corporate applicant” in the

Code.

“6(5) “corporate applicant” means--

(a) corporate debtor; or

(b) a member or partner of the

corporate debtor who is authorised

to make an application for the

corporate insolvency resolution

process under the constitutional

document of the corporate debtor;

of managing the operations and

resources of the corporate debtor;

(d) a person who has the control and

supervision over the financial

affairs of the corporate debtor;”

242. It is to be noticed that under Section 10 of the

Code, a corporate debtor can file an application for

CIRP, when there is a default by itself. The persons,

who can make application under section 10, are those

who are alluded to as in the definition of the word

“corporate applicant”. In other words, an application

by the corporate debtor for initiating a CIRP, when

311

there is a default by the corporate debtor, can be made

not only by the corporate debtor but also any of the

other three categories falling in clauses (b), (c) and

(d) of the provision which defines the word “corporate

applicant”. It is to ensure that there was clarity

regarding the question as to whether, while in Section

11, there is a prohibition against the corporate debtor

in various circumstances and it is disabled from moving

an application under Section 10 against itself, there

is no reference to the other persons who are covered

by the definition of the word “corporate applicant”.

It is hence that Explanation I was inserted. In other

words, it was to ensure that in the circumstances

contemplated in Section 11, an application under

Section 10 could not be made by any of the categories

of persons mentioned in the definition of the word

“corporate applicant”.

243. Now, let us consider finally the impugned

Explanation. The impugned Explanation came to be

inserted by the impugned amendment. Apparently,

interpreting Section 11, there appears to have been

312

some cleavage of opinion. This is apparent from the

case set up on behalf of the petitioners and the case

set up on behalf of the Union of India. The intention

of the Legislature was always to target the corporate

debtor only insofar as it purported to prohibit

application by the corporate debtor against itself, to

prevent abuse of the provisions of the Code. It could

never had been the intention of the Legislature to

create an obstacle in the path of the corporate debtor,

in any of the circumstances contained in Section 11,

from maximizing its assets by trying to recover the

liabilities due to it from others. Not only does it go

against the basic common sense view but it would

frustrate the very object of the Code, if a corporate

debtor is prevented from invoking the provisions of the

Code either by itself or through his resolution

professional, who at later stage, may, don the mantle

of its liquidator. The provisions of the impugned

Explanation, thus, clearly amount to a clarificatory

amendment. A clarificatory amendment, it is not even

in dispute, is retrospective in nature. The Explanation

merely makes the intention of the Legislature clear

313

beyond the pale of doubt. The argument of the

petitioners that the amendment came into force only on

28.12.2019 and, therefore, in respect to applications

filed under Sections 7, 9 or 10, it will not have any

bearing, cannot be accepted. The Explanation, in the

facts of these cases, is clearly clarificatory in

nature and it will certainly apply to all pending

applications also.

244. We may notice that these are petitions filed under

Article 32 of the Constitution of India, essentially,

complaining of violation of Fundamental Right under

Article 14 of the Constitution insofar as the challenge

to the Explanation is concerned, a strained effort is

made to describe this amendment as manifestly

arbitrary. To build up this argument, an attempt is

made to contend that an Explanation cannot widen the

provisions or whittle down its scope. We are afraid,

that this venture of attempting to persuade us to hold

that an Explanation would be trespassing the limits of

its province, should it widen the scope of the main

provisions, itself has no legs to stand on, as

explained earlier. We are unable to understand how it

314

could be described as being arbitrary for the

Legislature to clarify its intention through the device

of an Explanation. The further attempt to persuade us

to overturn the provision on the score that the

Explanation attempts to achieve the result of a repeal

of Sections 11(a) and 11(d), is totally meritless. We

are clear in our mind that on a proper understanding

of Sections 11(a) and 11(d), it does nothing of the

kind. Sections 11(a) and 11(d) remain intact in the

manner we have propounded.

245. We must record our understanding of the efforts of

the petitioner in the light of the application which

is pending and the appeal also which is preferred by

the petitioner in NCLAT. We are really concerned and

can be called upon only to pronounce on the vires of

the Statute on the score that it is unconstitutional

on any ground known to law. The only ground which is

urged before us is the violation of Article 14. This

ground does not merit acceptance. The challenge is

repelled.

315

IS SECTION 32A UNCONSTITUTIONAL?

246. Section 32A is challenged by allottees in Writ

Petition No.75 of 2020. The petitioners in Writ

Petition No.27 of 2020 and Writ Petition No. 579 of

2020, who are creditors (money lenders) also challenge

Section 32A.

247. The petitioners contend that immunity granted to

the corporate debtors and its assets acquired from the

proceeds of crimes and any criminal liability arising

from the offences of the erstwhile management for the

offences committed prior to initiation of CIRP and

approval of the resolution plan by the adjudicating

authority further jeopardizes the interest of the

allottees/creditors. It will cause huge losses which

is sought to be prevented under the provisions of the

Prevention of Money Laundering Act, 2002.

248. Section 32A is arbitrary, ultra vires and violative

of Article 300A and Articles 14, 19 and 21.

249. The stand of the Union, on the other hand, is as

follows:

316

Section 32A provides immunity to the corporate

debtor and its property when there is approval of

the resolution plan resulting in the change of

management of control of corporate debtor. This

is subject to the successful resolution applicant

being not involved in the commission of the

offence. Statutory basis has now given under

Section 32A to the law laid down by this Court in

the decision of Committee of Creditors of Essar

Steel(supra). This Court took the view therein

that successful resolution applicant cannot be

faced with undecided claim after its resolution

plan has been accepted. The object is to ensure

that a successful resolution applicant starts of

on a fresh slate. The relevant extracts of the

Statement of Objects and Reasons relied upon by

the Union of India are as follows:

“STATEMENT OF OBJECTS AND REASONS

xxx

2. A need was felt to give the highest

priority in repayment to last mile

funding to corporate debtors to prevent

insolvency, in case the company goes

into corporate insolvency resolution

317

process or liquidation, to prevent

potential abuse of the Code by certain

classes of financial creditors, to

provide immunity against prosecution of

the corporate debtor and action against

the property of the corporate debtor and

the successful resolution applicant

subject to fulfilment of certain

conditions, and in order to fill the

critical gaps in the corporate

insolvency 69 framework, it has become

necessary to amend certain provisions of

the Insolvency and Bankruptcy Code,

2016.

3.The Insolvency and Bankruptcy Code

(Second Amendment) Bill, 2019, inter

alia, provides for the following,

namely:—

xxx

(vii) to insert a new section 32A so as

to provide that the liability of a

corporate debtor for an offence

committed prior to the commencement of

the corporate insolvency resolution

process shall cease under certain

circumstances.”

250. Reliance is also placed on the report of the

Insolvency Law Committee. Relevant extracts which

have been relied on are as follows:

“PREFACE

v. Liability of corporate debtor for

offences committed prior to initiation

of CIRP- in order to address the issue

of liability that fall upon the

resolution applicant for offences

318

committed prior to commencement of CIRP,

it has been recommended that a new

section should be inserted which

provides that when the corporate debtor

is successfully resolved, it should not

be held liable for any offence committed

prior to the commencement of the CIRP,

unless the successful resolution

applicant was also involved in the

commission of the offence, or was a

related party, promoter or other person

in management and control of the

corporate debtor at the time of or any

time following the commission of the

offence. Notwithstanding this, those

persons who were responsible to the

corporate debtor for the conduct of its

business at the time of the commission

of such offence, should continue to be

liable for such an offence, vicariously

or 70 otherwise. The newly inserted

section as mentioned above shall also

include protection of property from

enforcement action when taken by

successful resolution applicant. Also,

it was recommended that cooperation and

assistance to authorities investigating

the offences committed prior to

commencement of CIRP shall be continued

by any person who is required to provide

such assistance under the applicable

law.

xxx

Chapter 1: Recommendations regarding the

Corporate Insolvency Resolution Process

xxx

17. LIABILITY OF CORPORATE DEBTOR FOR

OFFENCES COMMITTED PRIOR TO INITIATION

OF CIRP*

17.1. Section 17 of the Code provides

that on commencement of the CIRP, the

319

powers of management of the corporate

debtor vest with the interim resolution

professional. Further, the powers of the

Board of Directors or partners of the

corporate debtor stand suspended, and

are to be exercised by the interim

resolution professional. Thereafter,

Section 29A, read with Section 35(1)(f),

places restrictions on related parties

of the corporate debtor from proposing

a resolution plan and purchasing the

property of the corporate debtor in the

CIRP and liquidation process,

respectively. Thus, in most cases, the

provisions of the Code effectuate a

change in control of the corporate

debtor that results in a clean break of

the corporate debtor from its erstwhile

management. However, the legal form of

the corporate debtor continues in the

CIRP, and may be preserved in the

resolution plan. Additionally, while the

property of the corporate debtor may

also change hands upon resolution or

liquidation, such property also

continues to exist, either as property

of the corporate debtor, or in the hands

of the purchaser.

17.2. However, even after commencement

of CIRP or after its successful

resolution or liquidation, the corporate

debtor, along with its property, would

be susceptible to investigations or

proceedings related to criminal offences

committed by it prior to the

commencement of a CIRP, leading to the

imposition of certain liabilities and

restrictions on the corporate debtor and

its 71 properties even after they were

lawfully acquired by a resolution

applicant or a successful bidder,

respectively.

320

Liability where a Resolution Plan has

been Approved

17.3. It was brought to the Committee

that this had created apprehension

amongst potential resolution

applicants, who did not want to take on

the liability for any offences committed

prior to commencement of CIRP. In one

case, JSW Steel had specifically sought

certain reliefs and concessions, within

an annexure to the resolution plan it

had submitted for approval of the

Adjudicating Authority. Without relief

from imposition of the such liability,

the Committee noted that in the long

run, potential resolution applicants

could be disincentivised from proposing

a resolution plan. The Committee was

also concerned that resolution plans

could be priced lower on an average,

even where the corporate debtor did not

commit any offence and was not subject

to investigation, due to adverse

selection by resolution applicants who

might be apprehensive that they might be

held liable for offences that they have

not been able to detect due to

information asymmetry. Thus, the threat

of liability falling on bona fide

persons who acquire the legal entity,

could substantially lower the chances of

its successful takeover by potential

resolution applicants.

17.4. This could have substantially

hampered the Code’s goal of value

maximisation, and lowered recoveries to

creditors, including financial

institutions who take recourse to the

Code for resolution of the NPAs on their

balance sheet. At the same time, the

321

Committee was also conscious that

authorities are duty bound to penalize

the commission of any offence,

especially in cases involving

substantial public interest. Thus, two

competing concerns need to be balanced.

17.5. The Committee noted that the

proceedings under the Code, which are

designed to ensure maximization of

value, generally require transfer of the

corporate debtor to bona fide persons.

In fact, Section 29A casts a wide net

that disallows any undesirable person,

related party or defaulting entity from

acquiring a corporate debtor. Further,

the Code provides for an open process,

in which transfers either require

approval of the Adjudicating Authority,

or can be challenged before it. Thus,

the CIRP typically culminates in a

change of control to 72 resolution

applicants who are unrelated to the old

management of the corporate debtor and

step in to resolve the insolvency of the

corporate debtor following the approval

of a resolution plan by the Adjudicating

Authority.

17.6. Given this, the Committee felt

that a distinction must be drawn between

the corporate debtor which may have

committed offences under the control of

its previous management, prior to the

CIRP, and the corporate debtor that is

resolved, and taken over by an

unconnected resolution applicant. While

the corporate debtor’s actions prior to

the commencement of the CIRP must be

investigated and penalised, the

liability must be affixed only upon

those who were responsible for the

corporate debtor’s actions in this

322

period. However, the new management of

the corporate debtor, which has nothing

to do with such past offences, should

not be penalised for the actions of the

erstwhile management of the corporate

debtor, unless they themselves were

involved in the commission of the

offence, or were related parties,

promoters or other persons in management

and control of the corporate debtor at

the time of or any time following the

commission of the offence, and could

acquire the corporate debtor,

notwithstanding the prohibition under

Section 29A.

17.7. Thus, the Committee agreed that a

new Section should be inserted to

provide that where the corporate debtor

is successfully resolved, it should not

be held liable for any offence committed

prior to the commencement of the CIRP,

unless the successful resolution

applicant was also involved in the

commission of the offence, or was a

related party, promoter or other person

in management and control of the

corporate debtor at the time of or any

time following the commission of the

offence. 17.8. Notwithstanding this,

those persons who were responsible to

the corporate debtor for the conduct of

its business at the time of the

commission of such offence, should

continue to be liable for such an

offence, vicariously or otherwise,

regardless of the fact that the

corporate debtor’s liability has ceased.

Actions against the Property of the

Corporate Debtor

323

17.9. The Committee also noted that in

furtherance of a criminal investigation

and prosecution, the property of a

company, which continues to exist after

the resolution or liquidation of a

corporate debtor, may have been liable

to be attached, seized or confiscated.

For instance, the property of a

corporate debtor may have been at risk

of attachment, seizure or confiscation

where there was any suspicion that such

property was derived out of proceeds of

crime in an offence of money laundering.

It was felt that taking actions against

such property, after it is acquired by

a resolution applicant, or a bidder in

liquidation, could be contrary to the

interest of value maximisation of the

corporate debtor’s assets, by

substantially reducing the chances of

finding a willing resolution applicant

or bidder in liquidation, or lowering

the price of bids, as discussed above.

17.10. Thus, the Committee agreed that

the property of a corporate debtor, when

taken over by a successful resolution

applicant, or when sold to a bona fide

bidder in liquidation under the Code,

should be protected from such

enforcement action, and the new Section

discussed in paragraph 17.7 should

provide for the same. Here too, the

Committee agreed that the protection

given to the corporate debtor’s assets

should in no way prevent the relevant

investigating authorities from taking

action against the property of persons

in the erstwhile management of the

corporate debtor, that may have been

involved in the commission of such

criminal offence.

324

17.11. By way of abundant caution, the

Committee also recognised and agreed

that in all such cases where the

resolution plan is approved, or where

the assets of the corporate debtor are

sold under liquidation, such approved

resolution plan or liquidation sale of

the assets of the corporate debtor’s

assets would have to result in a change

in control of the corporate debtor to a

person who was not a related party of

the corporate debtor at the time of

commission of the offence, and was not

involved in the commission of such

criminal offence along with the

corporate debtor.

Cooperation in Investigation

17.12. While the Committee felt that the

corporate debtor and bona fide

purchasers of the corporate debtor or

its property should not be held liable

for offences committed prior to the

commencement of insolvency, the

Committee agreed that the corporate

debtor and any person who may be

required to provide assistance under the

applicable law should continue to

provide assistance and cooperation to

the authorities investigating an offence

committed prior to the commencement of

the CIRP. Consequently, the Committee

recommended the new Section should

provide for such continued cooperation

and assistance.”

The Additional Solicitor General also places reliance

on the Sixth Report of the Standing Committee of Lok

325

Sabha made in March, 2020. The relevant portion

according to the learned ASG are as follows:

“

3.8 “The stakeholders on the above clause

furnished the following suggestion:-

“Though the Bill gives immunity to the

corporate debtor (company as a legal

entity) from prior offences, the

individuals responsible for committing

such offences on behalf of the debtor will

still be held liable. The question is

whether the debtor should be absolved of

all kinds of prior offences with such a

blanket immunity.”

3.9 The Secretary, Ministry of Corporate

Affairs during the sitting held on 15th

January, 2020 remarked:-

“If the bidder, who is coming and

participating under the court supervised

competitive process, does not get security

and is not indemnified, there may be a

problem.”

3.10 Further, the Ministry furnished the

following comment on the above suggestion:

“…this provision would only apply where

the CIRP culminates in a change in control

to a 75 completely unconnected resolution

applicant. As such, a resolution applicant

has nothing to do with the commission of

any pre-CIRP offence whatsoever, and the

corporate debtor is now fundamentally not

the same entity as the one that committed

the crime.”

3.11 The Committee are in agreement with the

intent of this amendment to safeguard the

position of the Resolution Applicant(s)

by ring-fencing them from prosecution and

326

liabilities under offences committed by

erstwhile promoters etc. The Committee

understand the need for treating the

company or the Corporate Debtor as a

cleansed entity for cases which result in

change in the management or control of the

corporate debtor to a person who was not

a promotor or in the management control

of the corporate debtor or related party

of such person, or to a person against

whom there are material evidence and

pending complaint or report by the

investigating authority filed in relation

to the criminal offence. The Committee

agree that this provision is essential to

provide the Resolution Applicant(s) a fair

chance to revive the unit which otherwise

would directly go into liquidation, which

may not be as beneficial to the economy.

The Committee believe that this ringfencing is essential to achieve revival

or resolution without imposing additional

liabilities on the Resolution Applicant,

arising from malafide acts of the previous

promoter or management.”

251. Apart from the fact that it is intended to give a

clean break to the successful resolution applicant, it

is pointed out that it is hedged in with ample

safeguards to avoid any exploitation. The same are as

follows:

“106. Section 32A was inserted to give

a clean break to successful resolution

applicants from the erstwhile management

by shielding them and immunizing them

from prosecution and liabilities for

offences that may have been committed

327

prior to the commencement of the CIRP.

Further, ample safeguards have been

incorporated in the said provision to

prevent any exploitation, namely:

i. The immunity is attracted only when

a resolution plan is approved by the

Adjudicating Authority under section 31

and the resolution plan results in the

change in management or control of the

corporate debtor.

ii. The immunity is granted only to the

corporate debtor and its property, where

such property is covered under the

resolution plan approved by the

Adjudicating Authority under section 31,

from any liability or prosecution with

regard to offences committed prior to

the commencement of the corporate

insolvency resolution process.

iii. Any person who was a promoter or

in the management or control of the

corporate debtor or a related party or

was in any manner incharge of, or

responsible to the corporate debtor for

the conduct of its business and who was

directly or indirectly involved in the

commission of such offence shall

continue to be liable to be prosecuted

and punished for such an offence

committed by the corporate debtor

notwithstanding that the corporate

debtor’s liability has ceased.

iv. Section 32A does not bar an action

against the property of any person other

than the corporate debtor against whom

such an action may be taken under such

law as may be applicable.

v. Notwithstanding the immunity given

under Section 32A, the corporate debtor

328

and any person, who may be required to

provide assistance under such law as may

be applicable to such corporate debtor

or person, shall extend all assistance

and co-operation to any authority

investigating an offence committed prior

to the commencement of the corporate

insolvency resolution process.”

252. Section 32A has been divided into three parts

consisting of sub-Sections (1) to (3). Under

sub-Section (1), notwithstanding anything contained,

either in the Code or in any other law, liability of a

corporate debtor, for an offence committed prior to the

commencement of the CIRP, shall cease. Further, the

corporate debtor shall not be liable to be prosecuted

for such an offence. Both, these immunities are subject

to the following conditions:

i. A Resolution Plan, in regard to the corporate

debtor, must be approved by the Adjudicating

Authority under Section 31 of the Code;

ii. The Resolution Plan, so approved, must result in

the change in the management or control of the

corporate debtor;

329

iii. The change in the management or control, under

the approved Resolution Plan, must not be in

favour of a person, who was a promoter, or in the

management and control of the corporate debtor,

or in favour of a related party of the corporate

debtor;

iv. The change in the management or control of the

corporate debtor must not be in favour of a

person, with regard to whom the relevant

Investigating Authority has material which leads

it to entertain the reason to believe that he had

abetted or conspired for the commission of the

offence and has submitted or filed a Report before

the relevant Authority or the Court. This last

limb may require a little more demystification.

The person, who comes to acquire the management

and control of the corporate person, must not be

a person who has abetted or conspired for the

commission of the offence committed by the

corporate debtor prior to the commencement of the

CIRP. Therefore, abetting or conspiracy by the

person, who acquires management and control of

330

the corporate debtor, under a Resolution Plan,

which is approved under Section 31 of the Code

and the filing of the report, would remove the

protective umbrella or immunity erected by

Section 32A in regard to an offence committed by

the corporate debtor before the commencement of

the CIRP. To make it even more clear, if either

of the conditions, namely abetting or conspiring

followed by the report, which have been mentioned

as aforesaid, are present, then, the liability of

the corporate debtor, for an offence committed

prior to the commencement of the CIRP, will remain

unaffected.;

253. The first proviso in sub-Section (1) declares that

if there is approval of a Resolution Plan under Section

31 and a prosecution has been instituted during the

CIRP against the corporate debtor, the corporate debtor

will stand discharged. This is, however, subject to the

condition that the requirements in sub-Section (1),

which have been elaborated by us, have been fulfilled.

In other words, if under the approved Resolution plan,

331

there is a change in the management and control of the

corporate debtor, to a person, who is not a promoter,

or in the management and control of the corporate

debtor, or a related party of the corporate debtor, or

the person who acquires control or management of the

corporate debtor, has neither abetted nor conspired in

the commission of the offence, then, the prosecution,

if it is instituted after the commencement of the CIRP

and during its pendency, will stand discharged against

the corporate debtor. Under the second proviso to subSection (1), however, the designated partner in respect

of the liability partnership or the Officer in default,

as defined under Section 2(60) of the Companies Act,

2013, or every person, who was, in any manner, incharge or responsible to the corporate debtor for the

conduct of its business, will continue to be liable to

be prosecuted and punished for the offence committed

by the corporate debtor. This is despite the

extinguishment of the criminal liability of the

corporate debtor under sub-Section (1). Still further,

every person, who was associated with the corporate

debtor in any manner, and, who was directly or

332

indirectly involved in the commission of such offence,

in terms of the Report submitted and Report filed by

the Investigating Authority, will continue to be liable

to be prosecuted and punished for the offence committed

by the corporate debtor. Thus, the combined reading of

the various limbs of sub-Section (1) would show that

while, on the one hand, the corporate debtor is freed

from the liability for any offence committed before the

commencement of the CIRP, the statutory immunity from

the consequences of the commission of the offence by

the corporate debtor is not available and the criminal

liability will continue to haunt the persons, who were

in in-charge of the assets of the corporate debtor, or

who were responsible for the conduct of its business

or those who were associated with the corporate debtor

in any manner, and who were directly or indirectly

involved in the commission of the offence, and they

will continue to be liable.

254. Coming to sub-Section (2) of Section 32A, it

declares a bar against taking any action against

property of the corporate debtor. This bar also

contemplates the connection between the offence

333

committed by the corporate debtor before the

commencement of the CIRP and the property of the

corporate debtor. This bar is conditional to the

property being covered under the Resolution Plan. The

further requirement is that a Resolution Plan must be

approved by the Adjudicating Authority and, finally,

the approved plan, must result in a change in control

of the corporate debtor not to a person, who is already

identified and described in sub-Section (1). In other

words, the requirements for invoking the bar against

proceeding against the property of the corporate debtor

in relation to an offence committed before the

commencement of the CIRP, are as follows:

(i)There must be Resolution Plan, which is

approved by the Adjudication Authority under

Section 31 of the Code;

(ii) The approved Resolution Plan must result

in the change in control of the corporate

debtor to a person, who was not – (a) a

promoter; (b) in the management or control of

the corporate debtor or (c) a related party of

334

the corporate debtor; (d) a person with regard

to whom the investigating authority, had, on

the basis of the material, reason to believe

that he has abetted or conspired for the

commission of the offence and has submitted a

Report or a complaint. If all these aforesaid

conditions are fulfilled then the Law Giver has

provided that no action can be taken against

the property of the corporate debtor in

connection with the offence;

The Explanation to sub-Section (2) has

clarified that the words “an action against the

property of the corporate debtor in relation

to an offence”, would include the attachment,

seizure, retention or confiscation of such

property under the law applicable to the

corporate debtor. Since the word “include” is

used under sub-clause (i) of the Explanation,

the word “action” against the property of the

corporate debtor is intended to have the widest

possible amplitude. There is a clear nexus with

the object of the Code. The other part of the

335

clarification, under the Explanation, is found

in the second sub-clause of the Explanation

(ii). Under the second limb of the Explanation,

the Law Giver has clearly articulated the point

that as far as the property of any person,

other than the corporate debtor or any person

who had acquired the property of the corporate

debtor through the CIRP or liquidation process

under the Code and who otherwise fulfil the

requirement under Section 32A, action can be

taken against the property of such other

person. Thus, reading sub-Section (1) and subSection(2) together, two results emerge – (i)

subject to the requirements embedded in subSection (1), the liability of the corporate,

debtor for the offence committed under the

CIRP, will cease; (ii) The property of the

corporate debtor is protected from any legal

action again subject to the safeguards, which

we have indicated. The bar against action

against the property, is available, not only

to the corporate debtor but also to any person

336

who acquires property of the corporate debtor

under the CIRP or the liquidation process. The

bar against action against the property of the

corporate debtor is also available in the case

of a person subject to the same limitation as

prescribed in sub-Section (1) and also in subSection (2), if he has purchased the property

of the corporate debtor in the proceedings for

the liquidation of the corporate debtor.

255. The last segment of Section 32A makes it obligatory

on the part of the corporate debtor or any person, to

whom immunity is provided under Section 32A, to provide

all assistance to the Investigating Officer qua any

offence committed prior to the commencement of the

CIRP.

256. The contentions of the petitioners appear to be

that this provision is constitutionally anathema as it

confers an undeserved immunity for the property which

would be acquired with the proceeds of a crime. The

provisions of the Prevention of Money-Laundering Act,

2002 (for short, the PMLA) are pressed before us. It

337

is contended that the prohibition against proceeding

against the property, affects the interest of

stakeholders like the petitioners who may be allottees

or other creditors. In short, it appears to be their

contention that the provisions cannot stand the

scrutiny of the Court when tested on the anvil of

Article 14 of the Constitution of India. The provision

is projected as being manifestly arbitrary. To screen

valuable properties from being proceeded against,

result in the gravest prejudice to the home buyers and

other creditors. The stand of the Union of India is

clear. The provision is born out of experience. The

Code was enacted in the year 2016. In the course of its

working, the experience it has produced, is that,

resolution applicants are reticent in putting up a

Resolution Plan, and even if it is forthcoming, it is

not fair to the interest of the corporate debtor and

the other stake holders.

257. We are of the clear view that no case whatsoever

is made out to seek invalidation of Section 32A. The

boundaries of this Court’s jurisdiction are clear. The

wisdom of the legislation is not open to judicial

338

review. Having regard to the object of the Code, the

experience of the working of the code, the interests

of all stakeholders including most importantly the

imperative need to attract resolution applicants who

would not shy away from offering reasonable and fair

value as part of the resolution plan if the legislature

thought that immunity be granted to the corporate

debtor as also its property, it hardly furnishes a

ground for this this Court to interfere. The provision

is carefully thought out. It is not as if the wrongdoers

are allowed to get away. They remain liable. The

extinguishment of the criminal liability of the

corporate debtor is apparently important to the new

management to make a clean break with the past and

start on a clean slate. We must also not overlook the

principle that the impugned provision is part of an

economic measure. The reverence courts justifiably hold

such laws in cannot but be applicable in the instant

case as well. The provision deals with reference to

offences committed prior to the commencement of the

CIRP. With the admission of the application the

management of the corporate debtor passes into the

339

hands of the Interim Resolution Professional and

thereafter into the hands of the Resolution

Professional subject undoubtedly to the control by the

Committee of Creditors. As far as protection afforded

to the property is concerned there is clearly a

rationale behind it. Having regard to the object of the

statute we hardly see any manifest arbitrariness in the

provision.

258. It must be remembered that the immunity is premised

on various conditions being fulfilled. There must be a

resolution plan. It must be approved. There must be a

change in the control of the corporate debtor. The new

management cannot be the disguised avatar of the old

management. It cannot even be the related party of the

corporate debtor. The new management cannot be the

subject matter of an investigation which has resulted

in material showing abetment or conspiracy for the

commission of the offence and the report or complaint

filed thereto. These ingredients are also insisted upon

for claiming exemption of the bar from actions against

the property. Significantly every person who was

associated with the corporate debtor in any manner and

340

who was directly or indirectly involved in the

commission of the offence in terms of the report

submitted continues to be liable to be prosecuted and

punished for the offence committed by the corporate

debtor. The corporate debtor and its property in the

context of the scheme of the code constitute a distinct

subject matter justifying the special treatment

accorded to them. Creation of a criminal offence as

also abolishing criminal liability must ordinarily be

left to the judgement of the legislature. Erecting a

bar against action against the property of the

corporate debtor when viewed in the larger context of

the objectives sought to be achieved at the forefront

of which is maximisation of the value of the assets

which again is to be achieved at the earliest point of

time cannot become the subject of judicial veto on the

ground of violation of Article 14. We would be remiss

if we did not remind ourselves that attaining public

welfare very often needs delicate balancing of

conflicting interests. As to what priority must be

accorded to which interest must remain a legislative

value judgement and if seemingly the legislature in its

341

pursuit of the greater good appears to jettison the

interests of some it cannot unless it strikingly ill

squares with some constitutional mandate suffer

invalidation.

259. There is no basis at all to impugn the Section on

the ground that it violates Articles 19, 21 or 300A.

VESTED RIGHT; RETROSPECTIVITY; THE 3rd PROVISO IN

SECTION 7

260. We will recapitulate the third proviso, at this

juncture.

“7(1) xxx xxx xxx

Explanation xxx xxx

xxx xxx xxx xxx

Provided also that where an

application for initiating the corporate

insolvency resolution process against a

corporate debtor has been filed by a

financial creditor referred to in the

first and second provisos and has not

been admitted by the Adjudicating

Authority before the commencement of the

Insolvency and Bankruptcy Code

(Amendment) Act, 2020, such application

shall be modified to comply with the

requirements of the first or second

proviso within thirty days of the

commencement of the said Act, failing

342

which the application shall be deemed to

be withdrawn before its admission."

261. A perusal of the same, makes it clear that the

third proviso is a one-time affair. It is intended only

to deal with those applications, under Section 7, which

were filed prior to 28.12.2019, when, by way of the

impugned Ordinance, initially, the threshold

requirements came to be introduced by the first and the

second impugned provisos. In other words, the

legislative intention was to ensure that no application

under Section 7 could be filed after 28.12.2019, except

upon complying with the requirements in the first and

second provisos. The Legislature did not stop there.

It has clearly intended that the threshold requirement

it imposed, will apply to all those applications, which

were filed, prior to 28.12.2019 as well, subject to the

exception that the applications, so filed, had not been

admitted, under Section 7(5). In other words, the

Legislature intended that in every application, filed

under Section 7, by the creditors covered by the first

proviso and by the allottees governed by the second

proviso, should also be embraced by the newly imposed

343

threshold requirement for which, it was intended,

should be complied within 30 days from the date of the

Ordinance. However, this restriction was not to apply

to those applications which stood admitted as on the

date of the Ordinance. It is also clear that the

consequence of failure to comply with the threshold

requirement, in regard to applications, which have been

filed earlier, was that they would stand withdrawn.

262. In this regard, several contentions are raised.

It is pointed out by the learned Counsel for the

petitioners, apart from the plea of discrimination,

which is alleged against the first and second provisos,

that the third proviso, makes a clear incursion into a

vested right. The impugned third proviso is afflicted

with the vice of manifest arbitrariness. It is

contended that the petitioners, who had moved an

application under the erstwhile regime, were legally

entitled to make such an application, whether it is by

a single allottee or jointly. This was a substantive

right. Availing such substantive right, under a

Statute, when the application stood instituted, they

had the right to continue with the proceeding

344

unimpaired and unhindered by the new threshold

requirement, which cannot be made applicable in their

cases. It is contended that when there is a repeal of

a Statute, the existing rights are saved. In this case,

there was an existing right with the petitioners to

institute the application under Section 7 and,

therefore, this right cannot be imperilled by enacting

the amendment. It is pointed out that the statutory

time limit to decide an application, was fourteen days.

This Court, in Pioneer (supra), also stressed the

importance of disposing matters, within the period,

even though, it may have laid down that the period is

not inflexibly mandatory and that it is directory. In

the case of the petitioners, the applications were

pending for more than a year. Classifying the

applications under the same head, is arbitrary and

irrational. The petitioners have spent substantial sums

towards court fee, legal and other expenses, in

addition to considerable time. There is no provision

to ameliorate their losses. Withdrawals and fresh

filing would derail the insolvency process. Our

attention is draw to the judgment of this Court in

345

Hitendra Vishnu Thakur and others v. State of

Maharashtra and others71, wherein this Court laid down

that Statute, which affects substantive right, is

presumed to be prospective, unless made retrospective

expressly or by necessary intendment. Every litigant

has a vested right in substantive matters but no such

right exists in procedural law. The law relating to

right of action and right of appeal, even though

remedial, is substantive in nature. A procedural

Statute should not, generally speaking, be applied

retrospectively, where the result would be to create

new disabilities or obligations or to impose new duties

in respect of accomplished transactions. Reliance is

placed similarly on the judgment of this Court in

Ambalal Sarabhai Enterprises Ltd. v. Amrit Lal & Co.

and another72. The period of 30 days is far too short

and that too, under an amendment, which is itself

impossible to comply with. In this regard, also

judgment of this Court in B.K. Educational Services

Private Ltd. v. Parag Gupta and Associates73, is

71 (1994) 4 SCC 602

72 (2001) 8 SCC 397

73 (2019) 11 SCC 633/ 2018 1 IBJ (JP) 649 SC

346

referred to. The proviso cannot be applied

retrospectively. The proviso is penal, arbitrary,

unjust and unfair. Reliance is placed on In Re:

Pulborough Parish School Board Election, Bourke v.

Nutt74.

263. Per contra, the stand of the respondents in this

regard, is as follows:

The third proviso does not affect any rights

of the creditors in question. By merely filing an

application under Section 7, no absolute right is

created. In this regard, reliance is placed on

judgments of this Court in (2004) 1 SCC 663, (2019)

2 SCC 1, (2019) 4 SCC 17, (2015) 3 SCC 206, (2019)

SCCONLINE SC 1478. It is further contended that

the mere right to take advantage of a statue is

not a vested right. And in this regard out

attention is drawn to following Judgments – (1961)

Vol. 2 All Eng. 721, (1980) 1 SCC 149; Lalji Raja

and Sons (supra), (1985) 1 SCC 436. The impugned

third proviso is intended to protect the collective

74 (1894) 1 QB 725

347

interest of others in a class of creditors. Before

admission of an application, there is no vested

right. Therefore, it does not have retrospective

application, in a manner that impairs vested right.

This requirement would ensure that there is no

needless multiplicity and no single allottee would

be able to achieve admission and its consequences

without having a certain minimum number of

compatriots on board. Even vested right can be

taken away by the Legislature [(1957 SCR 488].

264. The first question, which we would have to answer,

is whether the right under the unamended Section 7 was

a vested right of the financial creditors or allottees

covered by the provisos 1 and 2, respectively. This

brings us squarely to the question as to what

constitutes a vested right. Learned ASG contends that

there is no vested right till the application is

admitted. It is also contended that the right was only

one to take advantage of a Statute. In Salmond on

Jurisprudence, the following characteristics have been

found indispensable to constitute a right:

348

“41. The characteristics of a legal

right

Every legal right has the five

following characteristics: -

(1) It is vested in a person who may be

distinguished as the owner of the right,

the subject of it, the person entitled,

or the person of inherence.

(2) It avails against a person, upon

whom lies the correlative duty. He may

be distinguished as the person bound,

or as the subject of the duty, or as the

person of incidence.

(3) It obliges the person bound to an

act or omission in favour of the person

entitled. This may be termed the content

of the right.

(4) The act or omission relates to some

thing (in the widest sense of that

word), which may be termed the object

or subject-matter of the right.

(5) Every legal right has a title, that

is to say, certain facts or event by

reason of which the right has become

vested in its owner.”

265. Legal rights are, in a wider sense, of four

distinct kinds. They are rights, liberties, powers and

immunities. Duty is the correlative of a right, while,

no rights correspond to liberties. Liabilities have a

nexus with the power exercised by another person, with

regard to whom, the liability exists in another party.

When somebody has an immunity against another, it

disables the latter, and thus, it constitutes a

349

disability for him. Salmond notes further that the term

right is often used in the wide sense to include liberty

by which it is meant to have one left free to do as he

pleases.

266. We may notice the following discussion relating to

powers and liabilities:

“2. Powers and liabilities. Yet

another class of legal rights consists

of those which are termed powers.

Examples of such are the following: the

right to make a will, or to alienate

property; the power of sale vested in a

mortgagee; a landlord’s right of reentry; the right to marry one’s deceased

wife’s sister; the power to sue and to

prosecute; the right to rescind a

contract for fraud; a power of

appointment; a power of appointment;

the right of issuing execution on a

judgment; the various powers vested in

judges and other officials for the due

fulfilment of their functions. All

these are legal rights-they are legally

recognized interests-they are

advantages conferred by the law-but

they are rights of a different species

from the two classes which we have

already considered. …… My right to make

a will corresponds to no duty in any one

else. A mortgagee’s power of sale is not

the correlative of any duty imposed upon

the mortgagor;

xxx xxx xxx xxx

A power may be defined as ability

conferred upon a person by law to alter,

350

by his own will directed to that end,

the rights, duties, liabilities or

other legal relations, either of

himself or of other persons. …”

(Emphasis supplied)

267. It may be asked whether a right of action is a

right or a power. Is there a duty with anyone in the

case of a right to an action? We need not probe this

further as a power is also a right in the wider sense.

The right to sue and right to appeal has been so

recognized as we will notice.

268. As far as the distinct kind of legal rights are

concerned, in the classification made by Salmond75 which

counts nine distinct legal classifications of legal

rights, we notice the following discussion of

classification between vested and contingent rights.

To quote:

“Vested and contingent rights. A

right vests when all the facts have

occurred which must by law occur in

order for the person in question to have

the right. A right is contingent when

some but not all of the vestive facts,

as they are termed, have occurred. A

grant of land to A in fee simple will

75 See “Salmond on Jurisprudence, 12th Edition, P J Fitzgerald”

351

give A a vested right of ownership. A

grant to A for life and then to B in fee

simple if he survives A, gives B a

contingent right. It is contingent

because some of the vestive facts have

not yet taken place, and indeed may neve

do so: B may not survive A. if he does,

his formerly contingent right now

becomes vested. A contingent right then

is a right that is incomplete.

A contingent right is different,

however from a mere hope of spes. If A

leaves B a legacy in his will, B has no

right to this during A’s lifetime. He

has no more than a hope that he will

obtain a legacy; he certainly does not

have an incomplete right, since it is

open to A at any time to alter his

will.”

269. In Garikapati Veeraya (supra), the suit was filed

on 22.04.1949. The High Court decreed the suit in an

appeal by the plaintiff on 04.03.1955. The petitioner

before this Court contended that since the valuation

of the suit was more than Rs. 10,000, in terms of the

clause 39 of the Letters Patent, 1865, an appeal was

maintainable before the Supreme Court. No doubt this

involved the argument that the appeal in fact lay to

the Federal Court as all appeals would lie to the

Federal Court in view of the abolition of the Privy

352

Council in 1949. Since, the Federal Court was replaced

by Supreme Court, the appeal lay before this Court.

270. After consideration of the case law we notice the

following principles which have been laid down by this

Court.

“23(i) That the legal pursuit of a

remedy, suit, appeal and second appeal

are really but steps in a series of

proceedings all connected by an

intrinsic unity and are to be regarded

as one legal proceeding.

(ii) The right of appeal is not a mere

matter of procedure but is a substantive

right.

(iii) The institution of the suit

carries with it the implication that all

rights of appeal then in force are

preserved to the parties thereto till

the rest of the career of the suit.

(iv) The right of appeal is a vested

right and such a right to enter the

superior court accrues to the litigant

and exists as on and from the date the

lis commences and although it may be

actually exercised when the adverse

judgment is pronounced such right is to

be governed by the law prevailing at the

date of the institution of the suit or

proceeding and not by the law that

prevails at the date of its decision or

at the date of the filing of the appeal.

(v) This vested right of appeal can be

taken away only by a subsequent

353

enactment, if it so provides expressly

or by necessary intendment and not

otherwise.

(Emphasis supplied)

271. It is clear that the institution of a suit leads

to the inference that the right of appeal is preserved.

There is a vested right of appeal. The vested right of

appeal accrues to the litigant and exists from the day

of the institution of the lis (suit). Therefore, while

the remedy of an appeal may be provided under the

statute that right becomes a vested right only from the

point of time that the suit is filed either by the

appellant or the opposite party. All of this

undoubtedly is subject to a subsequent enactment not

interfering with the right of an appeal.

272. In Lalji Raja and Sons v. Hansraj Nathuram76, this

court inter alia held as follows:

“16. That a provision to preserve the

right accrued under a repealed Act “was not

intended to preserve the abstract rights

conferred by the repealed Act.... It only

applies to specific rights given to an

individual upon happening of one or the

other of the events specified in statute

see” — Lord Atkin's observations

76 (1971) 1 SCC 721

354

in Hamilton Cell v. White. [(1922) 2 KB

422] The mere right, existing at the date

of spealing statute, to take advantage of

provisions of the statute repealed is not

a “right accrued” within the meaning of the

usual saving clause — see Abbot v. Minister

for Lands [(1895) AC 425] and G. Ogden

Industries Pvt. Ltd. v. Lucas. [(1969) 1

All ER 121]”

273. It is apposite to notice the context in which the

said observations were made. There was an ex parte

decree passed by a Court in West-Bengal in 1949. It was

transferred to a Court (Morena) in Old Madhya Bharat

State. The Execution Petition was dismissed on the

ground that it was an ex parte Decree by a foreign

court. This Court noted that Sections 38 and 39 of the

Code of Civil Procedure did not apply on the day in

question, and therefore, the transfer orders was

without jurisdiction. On 1st April, 1951 the CPC was

extended to former state of Madhya Bharat. The decree

holders sought a fresh transfer of the decree to the

very same court as earlier namely Morena which had

become part of State of Madhya Pradesh to which CPC

applied. The High Court upheld the contention of the

judgment debtor that the decree could not be executed

355

as being of the foreign court. This Court reversed the

High Court judgment. The argument which was raised,

was based on Section 20 of the Code of Civil Procedure

(Amendment) Act, 1951, by which the Code was extended

to Madhya Bharat. There was a repeal of the law that

prevailed in the State when the amendment to the CPC

in 1951 was made applicable. There was, however, also

a proviso which saved rights privileges, obligations

and liabilities acquired, accrued or incurred. The

contention therefore of the judgment debtor was that

the judgment debtor’s right to resist was preserved

under the saving clause. It was found by this Court

that the provisions of CPC enforced in Madhya Bharat

did not confer the right claimed by the judgment

debtor. All that happened as a result of the extension

of the Code to the whole of India in 1951, was that the

decrees which could have been executed in the British

India could now be executed in the whole of India. It

is, therefore, in the context of a repeal and as to

whether right to take advantage of the repealed law

constituted a right accrued under the usual saving

356

clause that the observations made in paragraph 16 are

to be understood.

274. This Court made reference to a few decisions

(paragraph-16) including Abbott and Minister of

Lands77. We think, it is appropriate that we advert to

the issues which were involved in the said cases.

275. In Abbott (supra), the Privy Council had to deal

with the following factual matrix, in short:

The appellant effected a conditional purchase

under Section 22 of the Crown Lands Alienation Act,

1861, adjoining the land which he had acquired in

fee simple. He made certain applications, seeking

to make further additional conditional purchases

of certain adjoining lands as also seeking a lease.

The questions which arose for the opinion of the

court were three in number. Firstly, the question

arose whether the conditional purchase which the

appellant had made, constituted him the holder of

an original conditional purchase, under Section 42

77 (1895) AC 425

357

of the Act of 1884. Still further, the question

fell for decision as to whether Section 22 of the

Crown Lands Act of 1884 reserved the right for the

appellant the right to purchase additional

conditional purchases of adjoining crown lands,

which were allowed to the full area of 648 acres

allowed by the repealed Act. Thirdly, the question

arose, as to whether supposing him to be entitled

to the additional conditional purchase, was he

entitled to the conditional lease which he had

applied for? Section 22 of the 1861 Act was

repealed and in the later Act, there was no

corresponding provision to Section 22 but there

was a saving proviso which enabled the appellant,

according to him, to make an additional conditional

purchase, as if Section 22 remained in force. The

saving clause saved all the accrued rights and

liabilities. Noticing the change in the condition

of residence, which had been earlier imposed, being

done away with, the Court went on to hold as

follows:

358

“It has been very common in the

case of repealing statues to save all

rights accrued. If it were held that

the effect of this was to leave it

open to any one who could have taken

advantage of them, the result would

be very far-reaching.

It may be, as Windeyer J.

observes, that the power to take

advantage of an enactment may without

impropriety be termed a “right”. But

the question is whether it is a

“right accrued” within the meaning

of the enactment which has to be

construed.

Their Lordships think not, and

they are confirmed in this opinion

by the fact that the words relied on

are found in conjunction with the

words “obligations incurred or

imposed”. They think that the mere

right (assuming it to be properly so

called existing in the members of the

community or any class of them to

take advantage of an enactment,

without any act done by an individual

towards availing himself of that

right, cannot properly be deemed a

“right accrued” within the meaning

of the enactment.”

276. In Hamilton Gell v. White78, upon a quit notice

given by the landlord, the tenant sought to avail the

benefit of Section 11 of the Agricultural Holdings Act,

1914 by successfully complying with one out of the two

78(1922) 2 K.B. 422

359

conditions for seeking the compensation. Before the

tenant could comply with the further condition, which

was that he should move the action within two months,

after quitting the holding, Section 11 was repealed.

He subsequently made his claim within three months, as

limited by the repealed Section. The matter went to an

Arbitrator. The Arbitrator stated a special case. He

raised two questions. Firstly, whether the tenant was

entitled to claim compensation under the repealing Act

of 1920 and, secondly, whether he could claim under the

repealed Act notwithstanding the repeal. The first

question was answered against the tenant, with which,

the Court of Appeal agreed. As regards the second

question, the Court was of the view that the tenant was

entitled to succeed. The following is the reasoning,

in short:

“SCRUTTON L.J. … But it is not

suggested by the appellant that his right

to compensation was acquired by his

giving notice of intention to claim it,

what gave him the right was the fact of

the landlord having given a notice to

quit in view of a sale. The conditions

imposed by s. 11 were conditions, not of

the acquisition of the right, but of its

enforcement. Sect. 38 says that repeal of

360

an Act shall not (c) “affect any right ….

acquired …. under any enactment so

repealed,” or (e) “affect any

investigation, legal proceeding, or

remedy in respect of any such right.” As

soon as the tenant had given notice of

his intention to claim compensation under

s. 11 he was entitled to have that claim

investigated by an arbitrator. In the

course of that arbitration he would no

doubt have to prove that that right in

fact existed, that is to say that the

notice to quit was given in view of a

sale, and he would also have to prove the

measure of his loss. But he was entitled

to have that investigation, which had

been begun, continue, for s. 38 expressly

provides that the investigation shall not

be affected by the repeal. I should like

to add that the arbitrator would be well

advised to make his award complete. If he

had continued his investigation and said:

If it is found that the tenant had a right

I assess the compensation at so much

under the Act of 1908 and so much under

the Act of 1920 we should have been able

to give our final judgment.”

(Emphasis supplied)

277. The decision thus turned on the point of time at

which the right arose.

278. Atkin LJ., as he then was, agreed that the Appeal

should be allowed and went on to hold as follows:

361

“ATKIN L.J. …. It is obvious that that

provision was not intended to preserve

the abstract rights conferred by the

repealed Act, such for instance as the

right of compensation for disturbance

conferred upon tenants generally under

the Act of 1908, for if it were the

repealing Act would be altogether

inoperative. It only applies to the

specific rights given to an individual

upon the happening of one or other of the

events specified in the statute. Here the

necessary event has happened, because the

landlord has, in view of a sale of the

property, given the tenant notice to

quit. Under those circumstances the

tenant has “acquired a right,” which

would “accrue” when he has quitted his

holding, to receive compensation. …”

279. In Odgen Industries Pty. Ltd. v. Haider Doreen

Lucas79,the following facts in a case which originated

in Australia may be noticed. An employee of the

appellant died on 7th July, 1965. His death was

materially contributed by injuries, which, in turn,

arose out of and in the course of his employment with

the appellants. The employee was hospitalized in March,

1965 for treatment and he again came to be hospitalized

in 19th June, 1965 and, thereafter, he died on

79 3 WLR 75 / (1969) (1) All England Reports 121

362

07.07.1965. He left behind him the respondent, his

widow and two children under the age of 16, who were

wholly dependent on the employee’s earnings. The amount

of compensation for the dependents would have been

calculated under the Workers Compensation Act, 1958.

The Act, however, was amended by the Workers

Compensation (Amendment) Act, 1965. The Amendment Act,

came into force for 01.07.1965. The Amendment Act

increased the benefits payable to the dependents. The

High Court of Australia dismissed the appeal of the

employer and affirmed the award of the Workman’s

compensation board paying the increased compensation

under the Amending Act. The Privy Council was called

upon to decide two questions. Firstly, the question was

whether, as the Amendment Act came into operation after

the original injury to the employee, his dependents

were entitled to the increased rates prescribed by the

amending Act. Secondly, did the deceased, after the

30.06.1965, suffer a further injury or aggravation,

which gave him new title for the purpose of the

Amendment Act. The Court, went on to hold as inter-alia

follows:

363

“Under the Act of 1958 the widow did not

have to prove that she was in

fact dependent upon the earnings of her

husband though under the Amendment Act she

has to do so. Nevertheless, it is quite

clear as a matter of law that no single

person can say under either Act the moment

before the death “I shall be a dependant at

the death if I so long live.” First, it must

be established that the death was caused or

contributed to by the accident, secondly

that the widow will be the deceased's widow

at the date of death and not dead or married

to some other man, and the children must

show that they are under sixteen. None of

these things can be ascertained (let alone

proved) until after the moment of death of

the worker.

In their Lordships' opinion in section 7

(2)(c) the rights, privileges and

obligations acquired or accrued on the one

side and the liabilities incurred on the

other side referred to in that paragraph

are mutual and correlative.

… The object and intent of the

Interpretation Act is to preserve rights

and privileges acquired or accrued on the

one side and the corresponding obligation

or liability incurred by the person bound

to observe or perform those rights or

privileges on the other side; so that when

a subsequent Act repeals or amends those

rights, privileges and liabilities for the

future that would not affect the preexisting mutual rights and liabilities of

the parties. …. But in the view that their

Lordships take there is for the purposes

of the Interpretation Act no right in the

dependants and no correlative liability

upon the worker's employers until the

364

moment of death. Therefore apart altogether

from authority their Lordships are of

opinion that the Acts Interpretation Act

has no application and the rights of the

dependants and the corresponding liability

of the employer must be tested and

ascertained at the date of the death; at

that time there was an obligation upon the

employer under and by virtue of the Act of

1958 as amended by the Amendment Act to

compensate the dependants in accordance

with its provisions. That was the ground of

decision of the majority of the High Court

in their very careful judgments with which

their Lordships agree. …”

(Emphasis supplied)

280. It will be, at once, noticed that the saving clause

in the repealing Act, was not the basis for the judgment

rendered in favour of the employee. The compensation

was ordered based on the law prevalent at the time of

death.

281. Now, it is necessary to refer to the judgment of

this Court in Isha Valimohamed v. Haji Gulam Mohamad &

Haji Dada Trust80. The facts in the said case are to be

noticed in some detail for it may have bearing on the

questions to be answered by us. The Respondent landlord

80 (1974) 2 SCC 484

365

purported to terminate the tenancy in relation to a

building by a notice dated 12.02.1964 on the ground

inter alia of subletting. It must be noticed that at

the time the subletting took place the building was

covered by Saurashtra Rent Control Act, 1951. The said

Act provided that the landlord shall be entitled to

recover possession in the case of subletting by the

tenant. It is while this Act was in force that the

tenant sublet the premises. However, the Saurashtra Act

came to be repealed by the Bombay Rents, Hotels and

Lodging Houses Rates Control Act, 1947 on 31.12.1963.

Section 51 of the Bombay Act, inter alia, contained the

saving clause that the repeal would not affect any

right, privilege, obligation, liability accrued or

incurred under any law so repealed. The notice,

terminating tenancy was issued on 12.02.1964 after the

repeal of the ‘Saurashtra Act’. The High court took the

view that the landlord had an accrued right under

saving clause of the Bombay Act. The suit was brought

after the repeal.

282. This Court adopted the following reasoning:

366

If the notice under the Transfer of Property was

necessary to determine the tenancy on the ground of

subletting, then the High Court would not be correct

that the respondent landlord had an accrued right

before issue of notice. Thereafter, the Court went

on to consider ‘Hamilton’ (supra) and ‘Abbott’

(supra) inter alia.

Thereafter, the Court went on to consider the

argument as to whether the landlord had a privilege

under the saving clause.

Thereafter, what is relevant is that this Court

went on to find that the High Court was not right

in proceeding on the basis of that notice was

necessary under Transfer of Property Act to

terminate on the ground that the appellant had

sublet the premises.

283. It is apposite to notice the reasoning in

paragraph-16:

“16. Under the Transfer of Property

Act, mere sub-letting, by a tenant,

unless the contract of tenancy so

provides, is no ground for terminating

the tenancy. Under that Act a landlord

367

cannot terminate a tenancy on the ground

that the tenant had sub-let the premises

unless the contract of tenancy

prohibits him from doing so. The

respondent-landlord therefore could not

have issued a notice under any of the

provisions of the Transfer of Property

Act to determine the tenancy, as the

contract of tenancy did not prohibit

sub-letting by the tenant. To put it,

differently, under the Transfer of

Property Act, it is only if the contract

of tenancy prohibits sub-letting by

tenant that a landlord can forfeit the

tenancy on the ground that the tenant

has sub-let the premises and recover

possession of the same after issuing a

notice. Section 111 of the Transfer of

Property Act provides that a lease may

be determined by forfeiture if the

tenant commits breach of any of the

conditions of the contract of tenancy

which entails a forfeiture of the

tenancy. If sub-letting is not

prohibited under the contract of

tenancy, sub-letting would not be a

breach of any condition in the contract

of tenancy which would enable the landlord to forfeit the tenancy on that

score by issuing a notice. If that be

so, there was no question of the

respondent landlord terminating the

tenancy under the Transfer of Property

Act on the ground that the tenant had

sub-let the premises. It is only under

Section 13(1)(e) of the Saurashtra Act

that a landlord was entitled to recover

possession of the property on the basis

that the tenant had sub-let the

premises; and, that is because, Section

15 of that Act unconditionally

prohibited a tenant from sub-letting.

The Saurashtra Act nowhere insists that

368

the landlord should issue a notice and

terminate the tenancy before

instituting a suit for recovery of

possession under Section 13(1)(e) on

the ground that the tenant had sub-let

the premises. The position, therefore,

was that the landlord was entitled to

recover possession of the premises

under Section 13(1) of the Saurashtra

Act on the ground that the tenant sublet

the premises. It would follow that a

right accrued to the landlord to recover

possession under Section 13(1) of the

Saurashtra Act when the tenant sub-let

the premises during the currency of that

Act and the right survived the repeal

of that Act under proviso (2) to Section

51 of the Bombay Act and, therefore, the

suit for recovery of possession of the

premises under Section 13(1) read with

clause (e) of the Saurashtra Act after

the repeal of that Act on the basis of

the sub-letting during the currency of

the Saurashtra Act was maintainable. In

this view, we think that the judgment

of the High Court must be upheld and we

do so.”

284. Thus, what is relevant, this Court went on to find

under the Saurashtra Act, there was no requirement of

any notice to terminate the tenancy. It was found that

the landlord was entitled to recover the possession

under the said Act, if there was subletting. In other

words, the Court went on to hold that a right accrued

to the landlord under the Saurashtra Act upon the

369

appellant subletting the premises. It was during the

pendency of the Saurashtra Act. This right survived the

repeal of the Saurashtra Act and thus the suit under

the Saurashtra Act was maintainable.

285. Apparently, the Court drew support from the

principle in Hamilton (supra). We have already noticed

the facts of Hamilton (supra). The question in short

would appear to be as to when the right comes into

existence? If, the right comes into existence then the

remedy can be pursued by the party entitled.

286. This again would necessarily depend upon the terms

of the repealing enactments as also the terms of the

saving clause. In the absence of a saving clause, no

doubt a party can also fall back on the Section 6 of

the General Clauses Act, 1897. This is again subject

to what is held about the scope of a saving clause in

(1989) 2 SCC 557 as will be noticed later on.

287. What is further significant to be noticed is that

the decision involved a case where, though styled as a

suit, the proceeding under the Saurashtra Act was a

370

proceeding under a Statute and the right was one

created by the statute and what gave the right to the

landlord was an act of subletting. The said right was

what was not wiped out by the repeal. As already noticed

the suit itself was filed after the repeal. The

discussion on the distinction between a privilege and

an accrued right in the said decision has been relied

upon recently in a judgement by one of us (Justice R.F.

Nariman) in Bombay Stock Exchange v. V.S.

Kandalgaonkar81.

288. In New India Assurance Co. Ltd. v. Shanti Misra82,

the husband of the first respondent died as a result

of a motor accident. The suit could be brought under

Article 82 of the Limitation Act 1963 within two years

of the accident. On 18.03.1867, the Government of Uttar

Pradesh constituted the claim Tribunal under Section

110 of the Motor Vehicle Act. The application of the

respondents before the Tribunal was objected to by the

appellant insurer. While deciding in favour of the

81(2015) 2 SCC 1

82(1975) 2 SCC 840

371

respondents and holding that the application was

maintainable before the Tribunal, this court, interalia, held as follows:

“… If action, before Civil Court was alive

where no suit had been filed “In such

cases the vested right of action was not

meant to be extinguished. The remedy of

either application under Section 110A or

a civil suit must be available; surely

not both.”

289. Thereafter, it was held, inter-alia, as follows:

“5. On the plain language of Sections

110-A and 110-F there should be no

difficulty in taking the view that the

change in law was merely a change of forum

i.e. a change of adjectival or procedural

law and not of substantive law. It is a

well-established proposition that such a

change of law operates retrospectively

and the person has to go to the new forum

even if his cause of action or right of

action accrued prior to the change of

forum. He will have a vested right of

action but not a vested right of forum.

If by express words the new forum is made

available only to causes of action

arising after the creation of the forum,

then the retrospective operation of the

law is taken away. Otherwise the general

rule is to make it retrospective. The

expressions “arising out of an accident”

occurring in sub-section (1) and “over

the area in which the accident occurred”,

mentioned in sub-section (2) clearly show

that the change of forum was meant to be

372

operative retrospectively irrespective of

the fact as to when the accident occurred.

To that extent there was no difficulty in

giving the answer in a simple way.”

(Emphasis supplied)

290. We may also notice that in regard to the question

as to whether a new law of Limitation could extinguish

vested right of action, it was held, inter-alia, as

follows:

“7. (2) Even though by and large the law

of limitation has been held to be a

procedural law, there are exceptions to

this principle. Generally the law of

limitation which is in vogue on the date

of the commencement of the action governs

it. But there are certain exceptions to

this principle. The new law of limitation

providing a longer period cannot revive a

dead remedy. Nor can it suddenly

extinguish a vested right of action by

providing for a shorter period of

limitation.”

It is important to notice paragraph-9:

“9. In Gopeshwar Pal v. Jiban Chandra

Chandra [ILR 51 Cal 1125] Jenkins, C.J.

delivering the judgment on behalf of the

majority of the Full Bench said at p.

1141:

“Here the plaintiff at the time when the

amending Act was passed had a vested right

of suit, and we see nothing in the Act as

373

amended that demands the construction

that the plaintiff was thereby deprived

of a right of suit vested in him at the

date of the passing of the amending Act.

It is not (in our opinion) even a fair

reading of Section 184 and the third

Schedule of the Bengal Tenancy Act, as

amended, to hold that it was intended to

impose an impossible condition under pain

of the forfeiture of a vested right, and

we can only construe the amendment as not

applying to cases where its provisions

cannot be obeyed.”

The majority of the Full Bench of the

Madras High Court in Rajah Sahib

Meharban-i-Doston Sri Raja Row V.K.M.

Surya Row Bahadur, Sirdar, Rajahmundry

Sircar and Rajah of Pittapur v. G.

Venkata Subba Row [ILR 34 Mad 645] has

taken the same view following the Full

Bench decision in Gopeshwar Pal case at

p. 650. Amendment of the law of limitation

could not destroy the plaintiff's right

of action which was in existence when the

Act came into force. We are conscious of

the distinction which was sought to be

made in the application of these

principles. It was said that the right

could not be destroyed but recourse to

suit would be available under the old law

of limitation. We, however, think that

giving retrospective effect to the change

of law in relation to the forum, in the

context of the object of the change, is

imperative. That being so the principles

aforesaid for overcoming the bar of

limitation will be applicable.”

374

291. This judgment has been followed in Vinod Gurudas

Raikar v. National Insurance Co. Ltd. & ors83 and also

in Union of India v. Harnam Singh84 and recently also

by this Court in B.K. Educational Services (supra).

292. In V. Dhanapal Chettiar v. Yesodai Ammal85, a Bench

of seven learned Judges while taking the view that a

notice to quit under section 106 of the TP Act 1882 was

not necessary for an Eviction Petition under any of

the State Rent Acts observed in regard to Isha

Valimohamed (supra) that the view taken in the said

case that the landlord could not have issued notice to

determine the tenancy on the ground of subletting under

any of the provisions of Transfer of Property Act was

not correct as a notice issued under Section 111 (h)

does not require any ground to be made out for

termination of the tenancy. It was further held that

the view taken in Isha Valimohamed (supra), in this

regard, would be taken only under Section 111 (g).

83 (1991) 4 SCC 333

84 (1993) 2 SCC 162

85(1979) 4 SCC 214

375

293. In D. C. Bhatia v. Union of India86, the Delhi Rent

Control Act came to be amended with effect from

01.12.1988, by which amendment, the Act was not to

apply to any premises, the monthly rent of which

exceeded Rs.3500/-. Dealing with the tenants’

contention that he had a vested right this Court took

the view that if the tenant is sought to be evicted

before the amendment, they could have taken advantage

of the provisions of the Act to resist such eviction.

But this was nothing more than the right to take

advantage of the law and the tenant had statutory

protection only as long as the law remains in force.

We may only notice paragraph-53. It read as under:

“53. The provisions of a repealed

statute cannot be relied upon after it

has been repealed. But, what has been

acquired under the Repealed Act cannot

be disturbed. But, if any new or further

step is needed to be taken under the Act,

that cannot be taken even after the Act

is repealed.”

(Emphasis supplied)

86 (1995) 1 SCC 104

376

294. In Mst. Bibi Sayeeda & Ors. v. State of Bihar and

Others87, the Court was to dealing with the meaning of

the word `Bazar’ in the Bihar Land Reforms Act, 1950

(Bihar Act 30 of 1950). In the course, of the said

judgement the Court went on to hold that the right of

the proprietor of a State to hold a `Mela’ on its own

land is a right in the estate being appurtenant to the

ownership of his land. In the context, of property

rights undoubtedly the Court went on to make the

following observations:

“17. The word ‘vested’ is defined

in Black's Law Dictionary (6th Edn.) at

p. 1563 as:

“Vested; fixed; accrued; settled;

absolute; complete. Having the

character or given the rights of

absolute ownership; not contingent;

not subject to be defeated by a

condition precedent.”

Rights are ‘vested’ when right to

enjoyment, present or prospective, has

become property of some particular person

or persons as present interest; mere

expectancy of future benefits, or

contingent interest in property founded

on anticipated continuance of existing

laws, does not constitute vested rights.

87 (1996) 9 SCC 516/AIR 1996 SC 1936

377

In Webster's Comprehensive Dictionary,

(International Edn.) at p. 1397 ‘vested’ is

defined as:

“[L]aw held by a tenure subject to no

contingency; complete; established by

law as a permanent right; vested

interests.”

295. Though this is a case which dealt with vested right

qua property there is indeed authority for the

proposition that the concept of vested right is not

confined to a property right. In this regard we may

profitably refer to the special bench of judgement of

High Court of Calcutta reported in Gopeshur Pal v.

Jiban Chandra Chandra and others88, referred to by this

Court in AIR 1976 SC 237 (supra) when it was, inter

alia, held:

3.“On the contrary, the essential

conditions of the two cases are so

distinct that in our opinion it cannot be

said that the earlier decision is, in

relation to the circumstances of this

case, affected by the judgment of the

Privy Council. It is an established axiom

of construction that though procedure may

be regulated by the Act for the time being

in force, still, the intention to take

88 AIR 1914 Calcutta 806

378

away a vested right without compensation

or any saving, is not to be imputed to

the Legislature, unless it be expressed

in unequivocal terms [cf. The

Commissioner of Public

Works v. Logan [L.R. 1903 A.C. 355.]].

That this view is not limited to those

cases where rights of property in the

limited sense are involved, is shown by

the Colonial Sugar Refining

Co. v. Irving [L.R. 1905 A.C. 369.],

where it was held that an Act ought not

to be so construed as to deprive a suitor

of an appeal in a pending action, which

belonged to him as of right at the date

of the passing of the Act. Equally is a

right of suit a vested right, and

in Jackson v. Woolley [8 Ell. and Bl. 784

(1859).], the Court of Exchequer Chamber

declined, in the absence of something

putting the matter beyond doubt, to put

on an Act a construction that would

deprive any person of a right of action

vested in him at the time of the passing

of the Act.

4.William, J. said: “It would require

words of no ordinary strength in the

statute to induce us to say that it takes

away such a vested right.”

296. In M.S. Shivananda v. Karnataka SRTC89, under an

ordinance, employees of the erstwhile State Carriage

Operators were to be absorbed by State Road Transport

corporation subject to certain conditions. The ratio

89 (1980) 1 SCC 149

379

was provided. The ordinance was replaced by an Act. The

ratio, however, stood altered. This affected the

chances of absorption of the workers. This led to writ

petitions. The question which fell to be decided with

reference to the effect of repeal and what constituted

a right. The court held inter-alia as follows:

“15. The distinction between what is, and

what is not a right preserved by the

provisions of Section 6 of the General

clauses Act is often one of great

fineness. What is unaffected by the

repeal of a statute is a right acquired

or accrued under it and not a mere “hope

or expectation of”, or liberty to apply

for, acquiring a right. In Director of

Public Works v. Ho Po Sang [(1961) 2 All

ER 721, 731 (PC)] Lord Morris speaking

for the Privy Council, observed:

“It may be, therefore, that under some

repealed enactment, a right has been

given but that, in respect of it, some

investigation or legal proceeding is

necessary. The right is then unaffected

and preserved. It will be preserved even

if a process of quantification is

necessary. But there is a manifest

distinction between an investigation in

respect of a right and an investigation

which is to decide whether some right

should be or should not be given. On a

repeal, the former is preserved by the

Interpretation Act. The latter is

not.”(emphasis supplied)

380

It must be mentioned that the object of

Section 31(2)(i) is to preserve only the

things done and action taken under the

repealed Ordinance, and not the rights

and privileges acquired and accrued on

the one side, and the corresponding

obligation or liability incurred on the

other side, so that if no right acquired

under the repealed Ordinance was

preserved, there is no question of any

liability being enforced.

16. Further, it is significant to notice

that the saving clause that we are

considering in Section 31(2)(i) of the

Act, saved things done while the

Ordinance was in force; it does not

purport to preserve a right acquired

under the repealed Ordinance. It is

unlike the usual saving clauses which

preserve unaffected by the repeal, not

only things done under the repealed

enactment but also the rights acquired

thereunder. It is also clear that even

Section 6 of the General clauses Act, the

applicability of which is excluded, is

not intended to preserve the abstract

rights conferred by the repealed

Ordinance. It only applies to specific

rights given to an individual upon the

happening of one or other of the events

specified in the statute.”

297. In Kanaya Ram (supra) the predecessor in interest

of the appellants had applied for purchase of the

tenancy right under the Punjab Security of Land Tenures

Act 1953. During the pendency of the proceedings

before the Assistant Collector, certain persons were

381

impleaded as respondents on the basis that they were

the legal heirs of the landlord. Thereafter, their

names were struck off as unnecessary. On the same day,

the application of the predecessor in interest of the

appellants was allowed. Thereafter, there was certain

oral sales by the original land owner. The contention

which apparently was taken by the legal heirs of

landlord upon his death was that the original landlord

died during the pendency of the proceedings, and there

was change in the status of the land owners against

whom the application under Section 18(1) of the Act was

made as on that date as his legal heirs became small

land owners. The Financial Commissioner before whom

the matter reached, however, was of the view that the

application made by the appellants predecessor being

competent on the date it was filed, the rights of the

parties had to be adjudicated on that basis. The

learned Single Judge of the High Court took the view,

however, that the changed situation brought about by

the death of the big land owner had to be taken into

account in determining the right of the tenant.

Respondents 3 to 14 who were the legal heirs of the

382

landlord instituted a suit against the transferees from

the landlord on the basis that they were mere

benmaidars of the land owner and no title passed to

them as the alleged sales were not effected by

registered instruments under section 54 which had been

extended by the Government of Punjab with effect from

st April 1955 to the State. The suit came to be

decreed. They sought impleadment before the High Court

on the ground that the Collector had in determining the

surplus area of the land of the land owners held that

the sales in favour of respondents 1 and 2 were benami.

The Collector found that on the death of the original

land owners, respondents 3 to 14 became small land

owners. The Division Bench took the view that no oral

sale could be made, and therefore, the transfers made

in favour of respondents 1 and 2 did not pass any title.

This Court, apart from noticing the fact that as the

special leave had been refused against the main

judgment the appeal was no longer tenable it, held that

the original land owner was not impleaded by the

predecessor in interest of the appellants in his

application even though respondents 3 to 14 were

383

impleaded and they were subsequently deleted on

appellant’s objection that they were not necessary

parties. This Court went on to distinguish the

judgment in Rameshwar and Others v. Jot Ram and

Another90 as it was a case where the tenants after

making the requisite application had made the necessary

deposit of the first instalment of the purchase price.

It was in such circumstances noted that the tenants had

acquired a vested right to purchase the land and the

case had gone beyond the stage of mere application

under section 18(1). This Court noted that the

observation of the Court that the rights of the parties

are determined “by the facts as they exist on the date

of the action” must be held in the context in which

they were made. What is relevant is the following

statement is the judgment in Kanaya Ram (supra):

“10. ……In the present case, Harditta

Ram, the predecessor-in-title of the

appellants, when he made the

application for purchase under

Section 18(1) of the Act, had a mere

“hope or expectation of, or liberty

to apply for, acquiring a right” and

not a “right acquired or accrued”

under Section 18(1). It has been held

90 (1976) 1 SCC 194

384

ever since the leading case

of Abbott v. Minister for

Lands [1895 AC 425 : 64 LJPC 167 : 72

LT 402 (PC)] [1895 AC 425 : 64 LJPC

167 : 72 LT 402 (PC)] that a mere

right to take advantage of the

provisions of an Act is not an accrued

right. Abbott case [1895 AC 425: 64

LJPC 167 : 72 LT 402 (PC)] has been

followed by this Court in a number of

decisions. In such a situation, the

Court is bound to take into

consideration the subsequent events

and mould the relief accordingly. The

decision in Rameshwar case [(1976) 1

SCC 194 : AIR 1976 SC 49 : (1976) 1

SCR 847] clearly turned on the legal

fiction contained in Section 18 (4)

(b) of the Act and the death of the

large landholder Teja during the

pendency of the appeal before the

Financial Commissioner on which

inheritance opened and his legal

heirs became small landholders, could

not impair the vested rights acquired

by the tenants by virtue of the order

passed by the Prescribed Authority

and the deposit by them of the first

instalment of the purchase price as

required under Section 18 (4)(a).”

(Emphasis supplied)

298. While on the ambit of the saving clause we may

notice Bansidhar v. State of Rajasthan91 while

dealing with the fact of saving clause in a

repealing statute the court held as follows:

91 (1989) 2 SCC 557

385

“28. A saving provision in a repealing

statute is not exhaustive of the rights

and obligations so saved or the rights

that survive the repeal. It is observed

by this Court in IT Commissioner v. Shah

Sadiq & Sons [(1987) 3 SCC 516 : 1987

SCC (Tax) 270 : AIR 1987 SC 1217, 1221]

: (SCC p. 524, para 15)

“... In other words whatever rights

are expressly saved by the ‘savings’

provision stand saved. But, that does

not mean that rights which are not

saved by the ‘savings’ provision are

extinguished or stand ipso facto

terminated by the mere fact that a

new statute repealing the old statute

is enacted. Rights which have accrued

are saved unless they are taken away

expressly. This is the principle

behind Section 6(c), General Clauses

Act, 1897....”

We agree with the High Court that the

scheme of the 1973 Act does not manifest

an intention contrary to, and

inconsistent with, the saving of the

repealed provisions of Section 5(6-A)

and Chapter III-B of “1955 Act” so far

as pending cases are concerned and that

the rights accrued and liabilities

incurred under the old law are not

effaced. Appellant's contention (a) is,

in our opinion, insubstantial.

Re Contention (b)”

386

299. Petitioners also rely on the judgment of this Court

Hitendra Vishnu Thakur (supra) and Ambalal Sarabhai

Enterprises Ltd. (supra).

300. In Hitendra Vishnu Thakur (supra), the case arose

under the Terrorist and Disruptive Activities

(Prevention) Act, 1987 (TADA Act). Section 20(4) of

TADA Act, made Section 167 of the CrPC applicable with

certain modifications. Clause (b) provided for a longer

period, as the period for which remand could be

ordered. By an amendment, w.e.f. 22.05.1993, the period

was reduced. Thereafter, however, another clause, viz.,

clause (bb) was added, which contained a proviso. The

proviso mandated that if it was not possible to

complete the investigation within a period of 180 days

on the Report of the Public Prosecutor, indicating the

progress of the investigation and the specific reasons

for detention beyond 180 days, the designated court

should extend the period upto one year. It was in the

context of this provision that this Court, after noting

that the amendment was retrospective and apply to

pending cases, in which, the investigation was not

complete on the date of the Amending Act and the challan

387

had not been filed in the Court, the Court culled-out

the following principles:

“26. xxx xxx xxx xxx

(i) A statute which affects substantive

rights is presumed to be prospective in

operation unless made retrospective,

either expressly or by necessary

intendment, whereas a statute which

merely affects procedure, unless such a

construction is textually impossible, is

presumed to be retrospective in its

application, should not be given an

extended meaning and should be strictly

confined to its clearly defined limits.

(ii) Law relating to forum and

limitation is procedural in nature,

whereas law relating to right of action

and right of appeal even though remedial

is substantive in nature.

(iii) Every litigant has a vested right

in substantive law but no such right

exists in procedural law.

(iv) A procedural statute should not

generally speaking be applied

retrospectively where the result would be

to create new disabilities or obligations

or to impose new duties in respect of

transactions already accomplished.

(v) A statute which not only changes

the procedure but also creates new rights

and liabilities shall be construed to be

prospective in operation, unless

otherwise provided, either expressly or

by necessary implication.”

301. Thereafter, the Court also went on to hold,

however, that both the amendment clauses (b) and (bb)

388

would apply retrospectively to all pending cases. Thus,

it was found that the Amending Act was retrospective

and both the clauses would apply to cases which were

pending investigation on the date when the amendment

came into force and where challan had not been filed

till then.

302. In Ambalal Sarabhai Enterprises Ltd. (supra), by

an amendment to the Delhi Rent Control Act, while a

petition for eviction by the respondent landlord was

pending on the ground of subletting, exclusion of the

jurisdiction of the Rent Controller with respect of

tenancies fetching monthly rent exceeding Rs.3,500/-

was brought into force. The question arose, inter alia,

as to whether the ground of illegal subletting was a

vested right. It also fell for decision as to whether

there was merit in the contention of the appellant

tenant that after the amendment, the civil court alone

had jurisdiction. It was the contention of the tenant

that he had no vested right and the amendment was not

retrospective in operation, and therefore, the civil

court alone would have jurisdiction. The landlord

contended that in view of Section 6 of the General

389

Clauses Act, 1897, the pending proceedings before the

Rent Controller should at any rate continue even if his

contention based on vested right was repelled. This

Court went on to hold that the tenant had no vested

right by relying on the judgment of this court in

Mohinder Kumar and others v. State of Haryana and

another92 and also in D. C. Bhatia and others v. Union

of India and another93 (the latter of which decisions

is relied upon by the respondent-Union for the

proposition that a right to take advantage of an

enactment, would not create a vested right).

Thereafter, this Court went on to hold that the

landlord also did not have a vested right for seeking

on the ground of eviction under Section 14 of the Delhi

Rent Control Act. It was found that Section 14 was only

a protective right for a tenant and the various clauses

which constituted a proviso to the protection from

eviction by a landlord could not be construed as a

vested right in favour of the landlord. Having so held,

this Court went on to consider the effect of a repeal

92 (1985) 4 SCC 221

93 (1995) 1 SCC 104

390

of Section 6 of the General Clauses Act. Therein, this

Court went on to hold that the respondent-landlord had

a right to continue the proceedings before the Rent

Control Board under Section 6 of the General Clauses

Act. It would be an accrued right in terms of

Section 6. We need only notice paragraphs-26, 35 and

36 of Ambalal Sarabhai Enterprises Ltd.(supra):

“26. As a general rule, in view of

Section 6, the repeal of a statute, which

is not retrospective in operation, does

not prima facie affect the pending

proceedings which may be continued as if

the repealed enactment were still in

force. In other words, such repeal does

not affect the pending cases which would

continue to be concluded as if the

enactment has not been repealed. In fact

when a lis commences, all rights and

obligations of the parties get

crystallised on that date. The mandate of

Section 6 of the General Clauses Act is

simply to leave the pending proceedings

unaffected which commenced under the

unrepealed provisions unless contrary

intention is expressed. We find clause

right, privilege, obligation

… acquired or accrued” under the

repealed statute would not be affected by

the repealing statute. We may hasten to

391

clarify here, mere existence of a right

not being “acquired” or “accrued” on the

date of the repeal would not get

protection of Section 6 of the General

Clauses Act.

xxx xxx xxx xxx

35. In cases where Section 6 is not

applicable, the courts have to scrutinise

and find whether a person under a

repealed statute had any vested right. In

case he had, then pending proceedings

would be saved. However, in cases where

Section 6 is applicable, it is not merely

a vested right but all those covered

under various clauses from (a) to (e) of

Section 6. We have already clarified that

right and privilege under it is limited

to that which is “acquired” and

“accrued”. In such cases pending

proceedings is to be continued as if the

statute has not been repealed.

36. In view of the aforesaid legal

principle emerging, we come to the

conclusion that since proceeding for the

eviction of the tenant was pending when

the repealing Act came into operation,

Section 6 of the General Clauses Act

would be applicable in the present case,

as it is the landlord's accrued right in

terms of Section 6. Clause (c) of Section

6 refers to “any right” which may not be

limited as a vested right but is limited

to be an accrued right. The words “any

right accrued” in Section 6(c) are wide

enough to include the landlord's right to

392

evict a tenant in case proceeding was

pending when repeal came in. Thus a

pending proceeding before the Rent

Controller for the eviction of a tenant

on the date when the repealing Act came

into force would not be affected by the

repealing statute and will be continued

and concluded in accordance with the law

as existed under the repealed statute.”

303. In Howrah Municipal Corporation and Others v.

Ganges Rope Co. Ltd. and Others94 the first respondent

company had applied for sanction for construction of

its complex of seven floors. By order dated 23.12.1993

the High Court directed sanction to be accorded for the

plan up to the 4th floor provided other requirements

are complied with. It was also observed that the

company would be at liberty to seek further sanction

if it was permissible. Sanction was given and

construction completed as regards the four floors.

Relying on the High Court order, sanction was sought

for the remaining floors. The High Court passed an

order expressing the expectation that the order would

be passed within a period of four weeks relying upon

94 (2004) 1 SCC 663

393

the earlier order. There was correspondence between

the parties. While the matter was so pending, the

building rules were amended restricting the height of

buildings, inter alia. The height being restricted,

the application for sanction of additional three floors

was rejected. The High Court took the view that the

unamended rules and regulations on the date of

submission of the application seeking sanction for

further construction would govern the matter. This

Court on a conspectus of the rules found that the rules

did not contemplate `deemed sanction’ or `deemed

refusal’, and therefore, without express sanction there

could not be construction. The contention however, was

that the order of the High court fixing a period to

decide its pending application be treated as creating

vested right in favour of the respondent. This court

held as follows:

“37. The argument advanced on the basis of

so-called creation of vested right for

obtaining sanction on the basis of the

Building Rules (unamended) as they were on

the date of submission of the application

and the order of the High Court fixing a

period for decision of the same, is

misconceived. The word “vest” is normally

used where an immediate fixed right in

394

present or future enjoyment in respect of

a property is created. With the long usage

the said word “vest” has also acquired a

meaning as “an absolute or indefeasible

right” [see K.J. Aiyer’s Judicial

Dictionary (A Complete Law Lexicon), 13th

Edn.]. The context in which the respondent

Company claims a vested right for sanction

and which has been accepted by the Division

Bench of the High Court, is not a right in

relation to “ownership or possession of any

property” for which the expression “vest”

is generally used. What we can understand

from the claim of a “vested right” set up

by the respondent Company is that on the

basis of the Building Rules, as applicable

to their case on the date of making an

application for sanction and the fixed

period allotted by the Court for its

consideration, it had a “legitimate” or

“settled expectation” to obtain the

sanction. In our considered opinion, such

“settled expectation”, if any, did not

create any vested right to obtain sanction.

True it is, that the respondent Company

which can have no control over the manner

of processing of application for sanction

by the Corporation cannot be blamed for

delay but during pendency of its

application for sanction, if the State

Government, in exercise of its rule-making

power, amended the Building Rules and

imposed restrictions on the heights of

buildings on G.T. Road and other wards,

such “settled expectation” has been

rendered impossible of fulfilment due to

change in law. The claim based on the

alleged “vested right” or “settled

expectation” cannot be set up against

statutory provisions which were brought

into force by the State Government by

amending the Building Rules and not by the

Corporation against whom such “vested

395

right” or “settled expectation” is being

sought to be enforced. The “vested right”

or “settled expectation” has been nullified

not only by the Corporation but also by the

State by amending the Building Rules.

Besides this, such a “settled expectation”

or the so-called “vested right” cannot be

countenanced against public interest and

convenience which are sought to be served

by amendment of the Building Rules and the

resolution of the Corporation issued

thereupon.”

304. In Arcelormittal India Private Limited v. Satish

Kumar Gupta & Others95, a judgment rendered by one of

us (R.F. Nariman, J.), this Court dealt with the very

Code with which we are concerned. It concerned the

scope of Section 29A of the Code declaring

ineligibility of certain categories of persons to be

resolution applicants. In this context, this Court

inter alia, while dealing with the scope of the Code

as also the principle of piercing of corporate veil,

and after an exhaustive survey of the Code and

reiterating the principle that it is settled law that

a statute is designed to be workable, a question was

posed whether a resolution plan being turned down under

95 (2019) 2 SCC 1

396

Section 30(2) could be challenged. Answering this

question, the Court held as follows:

“79. Given the timeline referred to

above, and given the fact that a

resolution applicant has no vested

right that his resolution plan be

considered, it is clear that no

challenge can be preferred to the

adjudicating authority at this stage. A

writ petition under Article 226 filed

before a High Court would also be turned

down on the ground that no right, much

less a fundamental right, is affected

at this stage. This is also made clear

by the first proviso to Section 30(4),

whereby a Resolution Professional may

only invite fresh resolution plans if

no other resolution plan has passed

muster.

xxx xxx xxx xxx

82. Take the next stage under Section

30. A Resolution Professional has

presented a resolution plan to the

Committee of Creditors for its approval,

but the Committee of Creditors does not

approve such plan after considering its

feasibility and viability, as the

requisite vote of not less than 66% of

the voting share of the financial

creditors is not obtained. As has been

mentioned hereinabove, the first

proviso to Section 30(4) furnishes the

answer, which is that all that can

397

happen at this stage is to require the

Resolution Professional to invite a

fresh resolution plan within the timelimits specified where no other

resolution plan is available with him.

It is clear that at this stage again no

application before the adjudicating

authority could be entertained as there

is no vested right or fundamental right

in the resolution applicant to have its

resolution plan approved, and as no

adjudication has yet taken place.

305. In Swiss Ribbons (supra), while dealing with

constitutional validity of Section 29A of the Code

declaring certain persons not to be eligible as

resolution applicants, after referring to the decision

in Arcelormittal India Private Ltd. (supra), this Court

held as follows:

“97. It is settled law that a statute

is not retrospective merely because it

affects existing rights; nor is it

retrospective merely because a part of

the requisites for its action is drawn

from a time antecedent to its passing

[see State Bank's Staff Union (Madras

Circle) v. Union of India [State Bank's

Staff Union (Madras Circle) v. Union of

India, (2005) 7 SCC 584 : 2005 SCC (L&S)

994] (at para 21)].

In ArcelorMittal [ArcelorMittal

(India) (P) Ltd. v. Satish Kumar Gupta,

398

(2019) 2 SCC 1] , this Court has

observed that a resolution applicant

has no vested right for consideration

or approval of its resolution plan as

follows: (SCC p. 87, para 82)

“82. Take the next stage under

Section 30. A Resolution Professional

has presented a resolution plan to the

Committee of Creditors for its

approval, but the Committee of

Creditors does not approve such plan

after considering its feasibility and

viability, as the requisite vote of

not less than 66% of the voting share

of the financial creditors is not

obtained. As has been mentioned

hereinabove, the first proviso to

Section 30(4) furnishes the answer,

which is that all that can happen at

this stage is to require the

Resolution Professional to invite a

fresh resolution plan within the timelimits specified where no other

resolution plan is available with him.

It is clear that at this stage again

no application before the adjudicating

authority could be entertained as

there is no vested right or

fundamental right in the resolution

applicant to have its resolution plan

approved, and as no adjudication has

yet taken place.”

98. This being the case, it is clear

that no vested right is taken away by

application of Section 29-A. However,

Shri Viswanathan pointed out the

judgments in Ritesh

399

Agarwal v. SEBI [Ritesh

Agarwal v. SEBI, (2008) 8 SCC 205] (at

para 25), K.S. Paripoornan v. State of

Kerala [K.S. Paripoornan v. State of

Kerala, (1994) 5 SCC 593] (at paras 60-

66), Darshan Singh v. Ram Pal

Singh [Darshan Singh v. Ram Pal Singh,

1992 Supp (1) SCC 191] (at para

35), Pyare Lal Sharma v. Jammu &

Kashmir Industries Ltd. [Pyare Lal

Sharma v. Jammu & Kashmir Industries

Ltd., (1989) 3 SCC 448 : 1989 SCC (L&S)

484] (at para 21), P.D.

Aggarwal v. State of U.P. [P.D.

Aggarwal v. State of U.P., (1987) 3 SCC

622 : 1987 SCC (L&S) 310] (at para 18),

and Govind Das v. CIT [Govind

Das v. CIT, (1976) 1 SCC 906 : 1976 SCC

(Tax) 133] (at paras 6 and 11), to argue

that if a section operates on an

antecedent set of facts, but affects a

vested right, it can be held to be

retrospective, and unless the

legislature clearly intends such

retrospectivity, the section should not

be construed as such. Each of these

judgments deals with different

situations in which penal and other

enactments interfere with vested

rights, as a result of which, they were

held to be prospective in nature.

However, in our judgment

in ArcelorMittal [ArcelorMittal (India)

(P) Ltd. v. Satish Kumar Gupta, (2019)

2 SCC 1], we have already held that

resolution applicants have no vested

right to be considered as such in the

resolution process. Shri Mukul Rohatgi,

400

however, argued that this judgment is

distinguishable as no question of

constitutional validity arose in this

case, and no issue as to the vested

right of a promoter fell for

consideration. We are of the view that

the observations made

in ArcelorMittal [ArcelorMittal (India)

(P) Ltd. v. Satish Kumar Gupta, (2019)

2 SCC 1] directly arose on the facts of

the case in order to oust the Ruias as

promoters from the pale of consideration

of their resolution plan, in which

context, this Court held that they had

no vested right to be considered as

resolution applicants. Accordingly, we

follow the aforesaid judgment. Since a

resolution applicant who applies under

Section 29-A(c) has no vested right to

apply for being considered as a

resolution applicant, this point is of

no avail.”

306. We may observe that the decisions of this Court in

Arcelormittal India Pvt. Ltd. (supra) and Swiss

Robbins (supra) are inappropriate to the context of the

cases before us. We may also notice the decision of

the Court of Appeal in West vs. Gwynne96. The plaintiff

in the said case who was the landlord of the property

wrote to the defendant, his tenant for his consent for

96 (1910) WLR 976

401

the proposed underlease. The defendant insisted however

on receiving for himself one half of the surplus rental

as a condition for the consent. The suit filed by the

plaintiff was for a declaration that the defendant

could not impose such a condition and that he could

give the underlease without any further consent of the

defendant. In the year 1892 (after the lease), section

3 of the Conveyancing Act 1892 was enacted. The

question which arose was whether it would apply to

existing leases as well as and was of general

application or it should be confined to leases after

the commencement of the Act. The said section provided

that in all leases containing a covenant against

assigning or under letting without license or consent

such covenant should unless the lease contain an

express provision to the contrary be deemed subject to

the proviso that no fine shall be payable for or in

respect of such license or consent. The court took the

view that the words of the section was clear. In fact,

we may profitably notice the words of Joyce, J. whose

judgment was the subject matter of the appeal “the

section with which we have to deal with in this case

402

is quite plain to everyone but a lawyer”. The court

of appeal took the view that the provision was a general

enactment based on ground of public policy, Cozens

Hardy M.R. while agreeing with the general proposition

that a statute is presumed not to have retrospective

operation unless a contrary intention appears by

express words or by necessary implication held as

follows:

“Retrospective operation is an inaccurate

term. Almost every statute affects right

which would have been existed but for the

statute.

307. Buckley, L.J. went on to hold as follows:

“…To my mind the word “retrospective” is

inappropriate, and the question is not

whether the section is retrospective.

Retrospective operation is one matter.

Interference with existing rights is

another. If an Act provides that as at a

past date the law shall be taken to have

been that which it was not, that Act I

understand to be retrospective. That is

not this case. The question here is whether

a certain provision as to the contents of

leases is addressed to the case of all

leases or only of some, namely, leases

executed after the passing of the Act. The

question is as to the ambit and scope of

the Act, and not as to the date as from

which the new law, as enacted by the Act,

is to be taken to have been the law.”

403

308. Reliance has been placed on the judgment of this

court in B.K. Educational Services Private Limited v.

Parag Gupta and Associates97 which was rendered by one

of us (R.F. Nariman, J.). By an amendment to the Code

with effect from 6.6.2018 Section 238A was inserted by

which the Limitation Act, 1963, was made applicable to

the proceedings and appeals before the authorities

including the appellate tribunal. The question which

fell for decision was whether the Limitation Act 1963

would also apply in respect of application under

Section 7 inter alia on and from the commencement of

the Code on 1.12.2016 till the date of the amendment

that is 6.6.2018. In answering this question, this

court went on to hold that the CIRP can only be

initiated either by a financial or operational creditor

in relation to debts which have not become time barred.

In the course of its judgment, this Court referred to

the earlier judgment of this Court including the recent

judgment of this Court in M.P. Steel Corporation v.

97 (2019)11 SCC 633

404

Commissioner of Central Excise98. In the said decision,

this Court has relied upon the earlier judgment

reported in Smt. Shanti Misra (supra) wherein it was

laid down inter alia as follows:

“(2) Even though by and large the law of

limitation has been held to be a

procedural law, there are exceptions to

this principle. Generally, the law of

limitation which is in vogue on the date

of the commencement of the action governs

it. But there are certain exceptions to

this principle. The new law of limitation

providing a longer period cannot revive

a dead remedy. Nor can it suddenly

extinguish vested right of action by

providing for a shorter period of

limitation.”

309. This Court also held that the application filed in

2016 or 2017 cannot suddenly revive a debt which is no

longer due as it is time barred. Apparently, the

petitioners are seeking to lay store by the principle

that a new law cannot extinguish a vested right of

action even if it be pertaining to the period of

limitation.

310. A right of appeal is a vested right, as noticed.

However, it becomes vested not because the right is

98 (2015) 7 SCC 58

405

created under the Statute alone. It becomes vested, as

noticed by this Court in Garikapati Veeraya (supra),

from the date of institution of the suit. What about a

right to sue? In the case of a right to file a civil

suit, equally there is a vested right to file a suit

but the question would be as to when does it arise.

From the line of argument pursued on behalf of the

Union that in the case of the right to take advantage

of an existing Statute, there is no accrued right,

which means also that there is no vested right, should

we proceed on the basis that the concept of a vested

right qua a civil suit, can be recognized only after

the civil suit is filed, at a time when there is no

law, ousting or barring a civil suit and a law is

passed, during the pendency of a civil suit, which

again does not expressly bar the suits, which had

already been filed? Since we are in the regions of

vested rights, and every right must have a title to the

right, and since every civil suit is based on a cause

of action, could it not be said that the right to sue

becomes vested from the point of time when the cause

of action arises? Since, for every civil suit, there

406

is a period of limitation prescribed, could it not be

said that since a period of limitation has been

prescribed for instituting a suit, the right to sue

becomes vested from the first day when the period of

limitation starts to run?

311. Order VII Rule 11 of the Code of Civil Procedure

contemplates rejection of a plaint, if it does not

disclose a cause of action. The cause of action in a

suit, will consist of the facts, which, if not

traversed by the defendant, will entitle the plaintiff

to a Decree. The Schedule to the Limitation Act, 1963,

consisting of three columns. The third column, provides

for the time, from which, the period begins to run for

different suits. Article 19 provides for money payable

for money lent. The period of three years, prescribed

as period of limitation, begins to run from the point

of time, when the loan is made. This means that, at any

point of time, after the loan is made, but within three

years, ordinarily, a civil suit is to be filed. In the

example, we have given, if a suit is filed towards the

end of the three-year period, would it be said that the

right to sue was not available from the first day, when

407

the period of limitation began to run? We will take

another example. Article 73 provides for a period of

one year for a suit for compensation for false

imprisonment. The time, from which the period begins

to run, is when the imprisonment ends. Can it not be

said that the prisoner, upon his incarceration coming

to an end, is clothed with a vested right to sue? We

would think, that he is given a right, which is vested

in him, when the imprisonment ends. In fact, it is the

illegal imprisonment which is really creates the vested

right but the period of limitation begins on sound

policy only after his release. Article 113 of the

Limitation Act, provides for suits for which there is

no period provided in the schedule. The period of 03

years provided begins to run when the right to sue

accrues. If the right to sue ‘accrued’ within the

meaning of Article 113, can it still be said, that for

the purpose of deciding, the effect of a law purporting

to impact the right, there is no vested right or accrued

right till the suit is filed? We will give another

example and that is Article 30, which gives a right to

sue on the bond subject to a condition. The period of

408

limitation is three years. The time begins to run when

the condition is broken. The right to sue clearly could

be said to arise, immediately upon the condition being

broken. We may, in this context also, notice that one

of the five characteristics for a legal right to exist,

is that every legal right has a title. It is further

stated, in Salmond on Jurisprudence that every legal

right has a title, which are apparently the facts or

events by reason of which the right has become vested

in its owner. Now, it must be noticed also, at this

stage that the Limitation Act, in fact, contemplates

the time, within which the suit must be brought,

beginning necessarily on the supposition, that at

least, on the very first day of the period of time,

from which a plaintiff can sue, the right is already

vested in him. This would reinforce us in our view that

a vested right to sue could be said to accrue, and it

would always precede the institution of the suit. At

any rate, it could be said to exist from the very first

day, on which the time begins to run, under the

Limitation Act. Thus, a vested right to sue could be

tested with reference not to the date on which the suit

409

is filed as would be the case where a question arises,

whether a right of appeal exists.

312. However, we must consider whether a right of suit

is conferred by a statute. In this regard, we may notice

the decision of this Court in Mardia Chemicals Ltd. and

others v. Union of India and others99. Therein the

validity of certain provisions of the SARFAESI Act

2002, was questioned. Of relevance to us, in these

cases is the discussion of this Court relating to the

vires of Section 17(2). The said provision contemplated

a pre-deposit of 75 per cent of the amount by the

applicant under Section 17 before the Tribunal. This

Court found the condition of pre-deposit arbitrary and

unreasonable. In this context, this court also noted

the distinction between a civil suit and an appeal and

it was found that an application maintained under

section 17 was in the nature of a suit, it is apposite

that we notice the following:

99 (2004) 4 SCC 311

410

“59.We may like to observe that

proceedings under Section 17 of the Act,

in fact, are not appellate proceedings.

It seems to be a misnomer. In fact it is

the initial action which is brought

before a forum as prescribed under the

Act, raising grievance against the action

or measures taken by one of the parties

to the contract. It is the stage of

initial proceeding like filing a suit in

civil court. As a matter of fact

proceedings under Section 17 of the Act

are in lieu of a civil suit which remedy

is ordinarily available but for the bar

under Section 34 of the Act in the present

case. We may refer to a decision of this

Court in Ganga Bai v. Vijay

Kumar [(1974) 2 SCC 393] where in respect

of original and appellate proceedings a

distinction has been drawn as follows:

(SCC p. 397, para 15)

“There is a basic distinction

between the right of suit and the

right of appeal. There is an

inherent right in every person to

bring a suit of civil nature and

unless the suit is barred by

statute one may, at one's peril,

bring a suit of one's choice. It is

no answer to a suit, howsoever

frivolous to claim, that the law

confers no such right to sue. A

suit for its maintainability

requires no authority of law and it

is enough that no statute bars the

suit. But the position in regard to

appeals is quite the opposite. The

right of appeal inheres in no one

411

and therefore an appeal for its

maintainability must have the clear

authority of law. That explains why

the right of appeal is described as

a creature of statute.”

60. The requirement of pre-deposit of

any amount at the first instance of

proceedings is not to be found in any of

the decisions cited on behalf of the

respondent. All these cases relate to

appeals. The amount of deposit of 75% of

the demand, at the initial proceeding

itself sounds unreasonable and

oppressive, more particularly when the

secured assets/the management thereof

along with the right to transfer such

interest has been taken over by the

secured creditor or in some cases

property is also sold. Requirement of

deposit of such a heavy amount on the

basis of a one-sided claim alone, cannot

be said to be a reasonable condition at

the first instance itself before start of

adjudication of the dispute. Merely

giving power to the Tribunal to waive or

reduce the amount, does not cure the

inherent infirmity leaning one-sidedly in

favour of the party, who, so far has alone

been the party to decide the amount and

the fact of default and classifying the

dues as NPAs without

participation/association of the

borrower in the process. Such an onerous

and oppressive condition should not be

left operative in expectation of

reasonable exercise of discretion by the

authority concerned. Placed in a

412

situation as indicated above, where it

may not be possible for the borrower to

raise any amount to make the deposit, his

secured assets having already been taken

possession of or sold, such a rider to

approach the Tribunal at the first

instance of proceedings, captioned as

appeal, renders the remedy illusory and

nugatory.

xxx xxx xxx xxx

64. The condition of pre-deposit in the

present case is bad rendering the remedy

illusory on the grounds that: (i) it is

imposed while approaching the

adjudicating authority of the first

instance, not in appeal, (ii) there is no

determination of the amount due as yet,

(iii) the secured assets or their

management with transferable interest is

already taken over and under control of

the secured creditor, (iv) no special

reason for double security in respect of

an amount yet to be determined and

settled, (v) 75% of the amount claimed by

no means would be a meagre amount, and

(vi) it will leave the borrower in a

position where it would not be possible

for him to raise any funds to make deposit

of 75% of the undetermined demand. Such

conditions are not alone onerous and

oppressive but also unreasonable and

arbitrary. Therefore, in our view, subsection (2) of Section 17 of the Act is

unreasonable, arbitrary and violative of

Article 14 of the Constitution.”

(Emphasis supplied)

413

313. Thus, a right to sue is not created by the statute.

It is an inherent right unless is barred by some law.

Therefore, the principle that a right to take advantage

of a statute not being an accrued right may not apply.

We may also use this occasion to repel the argument

based on Mardia Chemicals (supra) that the application

under Section 7 is akin to a civil suit. The context

of the application under Section 17 of SARFAESI Act is

completely different from that of the code. The

application under Section 17 of the SARFAESI was found

to be in lieu of a suit. The allottee has other remedies

unlike the applicant under Section 17. All the assets

of the debtor are taken over. The situation cannot be

compared. No doubt, the argument of the learned ASG

is based on the right under Section 7 of the Code being

a mere right to take advantage of a statute. In Abbott

(supra), in the context of a saving enactment, the

Court observed that a mere right assuming it to exist

in the members of the public or any class, then, to

take advantage of an enactment, without any act done

by the individual, towards availing himself of that

right, could not be treated as an accrued right under

414

the enactment. Therefore, the stand appears to be that

the right under Section 7 is a mere right to take

advantage of an enactment. It is the further case of

the Union, apparently that, only upon an application

being filed and what is more, it is admitted under

Section 7(5), that a vested right would accrue.

314. We do not think that the principles which have been

laid down, may apply in the case of a vested right of

action. We take the view that a plaintiff has a vested

right, depending on whether there is a cause of action

and a period of limitation, which has begun to run,

which necessarily involves, the existence of a vested

right. In the case of an application under Section 7

of the Code, we may notice that it is a valuable right,

no doubt, statutory in nature. It cannot be the law

that a Statute cannot create vested rights. Should the

ingredients which the Legislature contemplate exist in

favour of a person as an action in law, it can also be

described as a vested right. The application, under

Section 7, is an application, which attracts the period

of limitation, which has already been noticed. It

415

commences from the time when the right to sue accrues.

In every case, where the period of limitation began to

run, in respect of debt prior to the Code coming into

being, the right to sue would have arisen earlier. In

this regard we may refer to Isha Valimohamed (supra).

315. In regard to the effect of this finding on the

challenge to the first and the second provisos in

Section 7, we must immediately observe that the

impugned first and second provisos have only

prospective operation. We have already found that the

provisos first and second are valid. They can survive,

even if the third proviso is struck down. The third

proviso is on the other hand dependant on the first and

second provisos and cannot survive their invalidation.

The vested right cannot exist merely by reason of

Section 7. It must depend upon the vestitive facts

which would create the right in conjunction with

Section 7. We need not probe the matter further in

those cases where only the first and second provisos

can be questioned. This is so in two writ petitions,

W.P. No. 228 of 2020 and W.P. No. 850 of 2020, where,

416

though there are no applications filed under Section 7

before the amendment, the third proviso is also

challenged, which cannot be countenanced.

316. There is, in our view, a right which is vested in

the cases where, the petitioners have filed

application, fulfilling the requirements under

unamended Section 7 of the Code. The very act of filing

the application, even satisfies the apparent test

propounded by the Additional Solicitor General, that

the right under Section 7 is only one to take advantage

of the statute and unless advantage is actually availed

it does not create an accrued right. When applications

were filed under the unamended provisions of Section

7, at any rate it would transform into a vested right.

The vested right is to proceed with the action till its

logical and legal conclusion. We are unable to accept

the stand of the learned ASG, that a vested right to

emerge still require an order under Section 7(5) of the

Code. It is no doubt a stage, when the authority finds

there is default and takes the matter forward including

appointing to begin with the IRP and ordering a

417

moratorium. In this regard, it is to be noted that in

the scheme of the Code, what takes place before

admission, is that the applicant tries to establish the

debt and default. This is akin to the stage of a trial

in a suit. No doubt, this happens only if the

application is free from defects. But this is a far cry

from saying that a vested right of action did not inhere

even on the version of the ASG upon the act of the

creditor invoking the Code.

317. In P.D. Aggrawal & others v. State of U.P and

others.100, the Court was dealing with a challenge to

statutory rules, inter alia, by which temporary

Assistant Engineers who were working continuously since

the date of their appointment in the cadre of Assistant

Engineer were deprived of their services from the date

of substantial appointment to the temporary post for

the purpose of seniority. This Court in the context

of rules and the impact it had held as follows:

“18. It has been held by this Court

in E.P. Royappa v. State of Tamil

Nadu [AIR 1974 SC 555, 583 : (1974) 4 SCC

3 : 1974 SCC (L&S) 165] , Maneka

100 (1987) 3 SCC 622

418

Gandhi v. Union of India [AIR 1978 SC

597, 624 : (1978) 1 SCC 248] that there

should not be arbitrariness in State

action and the State action must ensure

fairness and equality of treatment. It is

open to judicial review whether any rule

or provision of any Act has violated the

principles of equality and nonarbitrariness and thereby invaded the

rights of citizens guaranteed under

Articles 14 and 16 of the Constitution….”

It was also after noting the facts stated as

follows:

“..Thus the 1969 and 1971 amendments in

effect take away from the officers

appointed to the temporary posts in the

cadre through Public Service Commission

i.e. after selection by Public Service

Commission, the substantive character of

their appointment. These amendments are

not only disadvantageous to the future

recruits against temporary vacancies but

they were made applicable retrospectively

from March 1, 1962 even to existing

officers recruited against temporary

vacancies through Public Service

Commission. As has been stated

hereinbefore that the Government has

power to make retrospective amendments to

the Rules but if the Rules purport to take

away the vested rights and are arbitrary

and not reasonable then such

retrospective amendments are subject to

judicial scrutiny if they have infringed

Articles 14 and 16 of the Constitution.”

419

318. We may notice two aspects. Firstly, it was a

challenge to a statutory rule. The Court went on to

observe that it could be the overturned if it is

arbitrary. We have already taken note that in regard

to the challenge to a law made by the legislature under

Article 14 that what is required is that a law must be

manifestly arbitrary. The said concept has been

explained in Shayara Bano (supra) (paragraph-101).

319. In Darshan Singh v. Ram Pal Singh and Ors.101, the

appellants challenged certain alienations as being

contrary to custom under the State law of the year

1920. The matter was at the appellate stage in suits

filed by the appellants.

320. In 1973, the law was amended. On the basis of

same, the High Court dismissed the suit on the basis

of that, after the amending Act came into force there

could not be a challenge to the transfer. The

contentions of the appellants was that the amending Act

101 1992(Suppl)1 SCC 191

420

could not be read as retrospective. The original

enactment permitted challenging the transfer on the

ground that the transfer was contrary to custom. It was

this right which was sought to be subjected to certain

conditions.

321. We may notice that this case did not involve a

challenge to the amendment. In the course of the

judgement, the Court took the view what was taken away

was the basic right to `contest’, the transfer

irrespective of whether it was in a suit or appeal. The

Court concluded that by the amending Act the custom was

done away with.

322. In K.S. Paripoornan v. State of Kerala102, the

Constitution Bench had to consider whether Section 23

(I-A) and introduced by the amending Act 1984 was

retrospective. In the majority judgement by S. C.

Agrawal, J., we notice the following:

“64. A statute dealing with substantive

rights differs from a statute which

relates to procedure or evidence or is

102 (1994) 5 SCC 593

421

declaratory in nature inasmuch as while a

statute dealing with substantive rights

is prima facie prospective unless it is

expressly or by necessary implication

made to have retrospective effect, a

statute concerned mainly with matters of

procedure or evidence or which is

declaratory in nature has to be construed

as retrospective unless there is a clear

indication that such was not the

intention of the legislature. A statute

is regarded retrospective if it operates

on cases or facts coming into existence

before its commencement in the sense that

it affects, even if for the future only,

the character or consequences of

transactions previously entered into or

of other past conduct. By virtue of the

presumption against retrospective

applicability of laws dealing with

substantive rights transactions are

neither invalidated by reason of their

failure to comply with formal

requirements subsequently imposed, nor

open to attack under powers of avoidance

subsequently conferred. They are also not

rendered valid by subsequent relaxations

of the law, whether relating to form or

to substance. Similarly, provisions in

which a contrary intention does not

appear neither impose new liabilities in

respect of events taking place before

their commencement, nor relieve persons

from liabilities then existing, and the

view that existing obligations were not

intended to be affected has been taken in

varying degrees even of provisions

expressly prohibiting proceedings. (See:

Halsbury's Laws of England, 4th Edn. Vol.

44, paras 921, 922, 925 and 926).”

(Emphasis supplied)

422

323. In State Bank's Staff Union (Madras Circle) v.

Union of India and others103, an award was passed by the

Industrial Tribunal, which was impugned before the High

Court. When the matter was so pending, the State Bank

of India Act came to be amended. The contention of the

appellants was that the amendment was intended to

nullify the decision of the High Court, which was

repelled. The Court also considered the power of the

sovereign Legislature to make retrospective

legislation. The Court held as follows:

“21. Every sovereign legislature

possesses the right to make retrospective

legislation. The power to make laws

includes the power to give it

retrospective effect. Craies on Statute

Law (7th Edn.) at p. 387 defines

retrospective statutes in the following

words:

“A statute is to be deemed to be

retrospective, which takes away or

impairs any vested right acquired

under existing laws, or creates a new

obligation, or imposes a new duty, or

attaches a new disability in respect

to transactions or considerations

already past.”

103 AIR 2005 SC 3446 / (2005) 7 SCC 584

423

22.Judicial Dictionary (13th Edn.) by

K.J. Aiyar, Butterworth, p. 857, states

that the word “retrospective” when used

with reference to an enactment may mean

(i) affecting an existing contract; or

(ii) reopening up of past, closed and

completed transaction; or (iii) affecting

accrued rights and remedies; or (iv)

affecting procedure. Words and Phrases,

Permanent Edn., Vol. 37-A, pp. 224-25,

defines a “retrospective or retroactive

law” as one which takes away or impairs

vested or accrued rights acquired under

existing laws. A retroactive law takes

away or impairs vested rights acquired

under existing laws, or creates a new

obligation, imposes a new duty, or

attaches a new disability, in respect to

transactions or considerations already

past.

23. In Advanced Law Lexicon by P.

Ramanath Aiyar (3rd Edn., 2005) the

expressions “retroactive” and

“retrospective” have been defined as

follows at p. 4124, Vol. 4:

“Retroactive. — Acting backward;

affecting what is past.

(Of a statute, ruling, etc.) extending

in scope or effect to matters that have

occurred in the past. — Also termed

retrospective. (Black's Law Dictionary,

7th Edn., 1999)

‘ “Retroactivity” is a term often used

by lawyers but rarely defined. On analysis

it soon becomes apparent, moreover, that

it is used to cover at least two distinct

concepts. The first, which may be called

424

“true retroactivity”, consists in the

application of a new rule of law to an act

or transaction which was completed before

the rule was promulgated. The second

concept, which will be referred to as

“quasi-retroactivity”, occurs when a new

rule of law is applied to an act or

transaction in the process of

completion…. The foundation of these

concepts is the distinction between

completed and pending transactions….’

T.C. Hartley, Foundations of European

Community Law, p. 129 (1981).

Retrospective. — Looking back;

contemplating what is past.

Having operation from a past time.

‘Retrospective’ is somewhat ambiguous

and that good deal of confusion has been

caused by the fact that it is used in more

senses than one. In general, however, the

courts regard as retrospective any

statute which operates on cases or facts

coming into existence before its

commencement in the sense that it affects,

even if for the future only, the character

or consequences of transactions

previously entered into or of other past

conduct. Thus, a statute is not

retrospective merely because it affects

existing rights; nor is it retrospective

merely because a part of the requisite for

its action is drawn from a time antecedent

to its passing.” (Vol. 44, Halsbury's

Laws of England, 4th Edn., p. 570, para

921.)

425

xxx xxx xxx xxx

25. In Harvard Law Review, Vol. 73, p.

692 it was observed that:

“It is necessary that the

legislature should be able to cure

inadvertent defects in statutes or

their administration by making what

has been aptly called ‘small

repairs’. Moreover, the individual

who claims that a vested right has

arisen from the defect is seeking a

windfall since had the legislature's

or administrator's action had the

effect it was intended to and could

have had, no such right would have

arisen. Thus the interest in the

retroactive curing of such a defect

in the administration of the

Government outweighs the individual's

interest in benefiting from the

defect.”

26. The above passage was quoted with

approval by the Constitution Bench of this

Court in the case of Asstt. Commr. of

Urban Land Tax v. Buckingham and Carnatic

Co. Ltd. [(1969) 2 SCC 55] In considering

the question as to whether the legislative

power to amend a provision with

retrospective operation has been

reasonably exercised or not, various

factors have to be considered. It was

observed in the case of Stott v. Stott

Realty Co. [284 NW 635] as noted in Words

426

and Phrases, Permanent Edn., Vol. 37-A,

p. 2250 that:

“The constitutional prohibition of

the passage of ‘retroactive laws’

refers only to retroactive laws that

injuriously affect some substantial

or vested right, and does not refer

to those remedies adopted by a

legislative body for the purpose of

providing a rule to secure for its

citizens the enjoyment of some

natural right, equitable and just in

itself, but which they were not able

to enforce on account of defects in

the law or its omission to provide

the relief necessary to secure such

right.”

27.Craies on Statute Law (7th Edn.) at

p. 396 observes that:

“If a statute is passed for the

purpose of protecting the public

against some evil or abuse, it may be

allowed to operate retrospectively,

although by such operation it will

deprive some person or persons of a

vested right.”

(Emphasis supplied)

324. The Court also repelled the argument that vested

rights cannot be taken away by the Legislature by way

of retrospective legislation. In paragraph-35, the

Court held as follows:

427

“31. Learned counsel for the appellant

submitted that vested rights cannot be

taken away by the legislature by way of

retrospective legislation. The plea is

without substance. Whenever any

amendment is brought in force

retrospectively or any provision of the

Act is deleted retrospectively, in this

process rights of some are bound to be

affected one way or the other. In every

case the exercise by the legislature by

introducing a new provision or deleting

an existing provision with

retrospective effect per se does not

amount to violation of Article 14 of the

Constitution. The legislature can

change, as observed by this Court

in Cauvery Water Disputes Tribunal,

Re [1993 Supp (1) SCC 96 (2)] the basis

on which a decision is given by the

Court and thus change the law in

general, which will affect a class of

persons and events at large. It cannot,

however, set aside an individual

decision inter partes and affect their

rights and liabilities alone. Such an

act on the part of the legislature

amounts to exercising the judicial

power by the State and to function as

an appellate court or tribunal, which

is against the concept of separation of

powers.”

(Emphasis supplied)

SECTION 6 OF GENERAL CLAUSES ACT, 1897

325. In this regard, no support can be drawn from

Section 6 of the General Clauses Act, 1897. Section 6

428

makes it clear that the rights or privileges which may

be asserted are subject to the law not being couched

contrary to such rights/privileges. In this case it

is precisely because the 3rd proviso covers the

applications filed prior to the amendment which had not

been admitted, that the petitioners have challenged the

provision.

READING DOWN

326. Further, the appeal to invoke the principle of

reading down the proviso is untenable. In his judgment

for the majority Sawant, J. in Delhi Transport Corpn.

v. D.T.C. Mazdoor Congress104 held as follows:

“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

104 (1991) Suppl.(1) SCC 600

429

its violation of any of the provisions

of the Constitution. The second

situation which summons its aid is where

the provisions of the statute are vague

and ambiguous and it is possible to

gather the intentions of the

legislature from the object of the

statute, the context in which the

provision occurs and the purpose for

which it is made. However, when the

provision is cast in a definite and

unambiguous language and its intention

is clear, it is not permissible either

to mend or bend it even if such

recasting is in accord with good reason

and conscience. In such circumstances,

it is not possible for the court to

remake the statute. Its only duty is to

strike it down and leave it to the

legislature if it so desires, to amend

it. What is further, if the remaking of

the statute by the courts is to lead to

its distortion that course is to be

scrupulously avoided. One of the

situations further where the doctrine

can never be called into play is where

the statute requires extensive

additions and deletions. Not only it is

no part of the court's duty to undertake

such exercise, but it is beyond its

jurisdiction to do so.”

327. Now, the terms of the proviso are clear. It does

not admit of more than one interpretation at least in

terms of the matter covered by it. The only area left

is the impact of the withdrawal which is to happen.

430

328. We may also notice the judgment of this Court in

Vijay v. State of Maharashtra105. The appellant was

elected as a member of the Panchayat in 2000 and elected

as the Sarpanch. He was further elected as Councillor

of the Zila Parishad. An amendment was made with

effect from 8.8.2003. Under the marginal note

Disqualifications, Section 14, inter alia, disentitled

a person from continuing as a Panchayat Member if he

was elected a Councillor of the Zila Parishad. This

Court found that it was a disqualifying law intended

to have retrospective effect. We may notice para 12

which reads as follows:

“12. The appellant was elected in terms

of the provisions of a statute. The

right to be elected was created by a

statute and, thus, can be taken away by

a statute. It is now well settled that

when a literal reading of the provision

giving retrospective effect does not

produce absurdity or anomaly, the same

would not be construed to be only

prospective. The negation is not a rigid

rule and varies with the intention and

purport of the legislature, but to apply

it in such a case is a doctrine of

fairness. When a law is enacted for the

benefit of the community as a whole,

even in the absence of a provision, the

105 (2006) 6 SCC 289

431

statute may be held to be retrospective

in nature. The appellant does not and

cannot question the competence of the

legislature in this behalf.”

The case did not involve a challenge to the law.

What is significant is the statement that the right

created by a Statute, can be taken away by a statute.

329. We find that qua the financial creditors covered

by the third proviso, having invoked, at any rate

unamended Section 7, they had a vested right.

330. They had undoubtedly a vested right to have their

actions carried to its logical and legal end. No doubt,

the question of admission of the application arises

under Section 7(5) of the Code. It is open to the

Adjudication Authority to reject the application but

that does not mean that the applicants had no vested

right of action. The possibility of a plaint being

rejected under Order VII Rule 11 or an appeal being

dismissed under Order XLI Rule 11 without notice being

issued to the respondent or the fact that the suit can

be dismissed at later stages, cannot detract from the

right of the plaintiff or the appellant, being a

432

substantive right. The same principle should suffice

to reject the contention, based on admission under

Section 7(5) alone, giving rise to the vested right in

regard to an applicant under Section 7 of the Code.

331. A vested right is not limited to property rights.

A right of action should conditions otherwise exist,

can also be a vested right. Such a right can be created

by a Statute and even on a repeal of such a Statute,

should conditions otherwise exist, giving a right under

the repealed Statute, the right would remain an accrued

right [See Isha Valimohamed (supra)].

332. No doubt, there may not be a vested right as regard

mere procedure and while limitation, ordinarily,

belongs to the domain of procedure, should new law

shorten the existing period of limitation, such a law

would not operate in regard to the right of action

which is vested [See Shanti Misra (supra)]. A party may

not have a vested right of Forum as distinct from the

vested right of action [See Shanti Misra (supra)].

333. Every sovereign Legislature is clothed with

competence to make retrospective laws. It is open to

the Legislature, while making retrospective law, to

433

take away vested rights. If a vested right can be taken

away by a retrospective law, there can be no reason why

the Legislature cannot modify the vested rights [See

State Bank's Staff Union (Madras Circle) (supra)].

334. In an action, where the law is not challenged, the

Court would ordinarily proceed as follows. It will

presume that a law, which affects substantive rights,

are meant to have prospective operation only. In the

same way, as regards procedural laws or the laws

relating to a mere matter of procedure or of Forum,

they carry retrospective impact.

335. A Statute is not retrospective merely because it

affects existing rights. This is, however, in regard

to the future operation of law qua the existing rights.

If the existing right is modified or take away and it

is to have operation only from the date of new law, it

would obviously have only prospective operation and it

would not be a retrospective law.

336. Declaratory, clarificatory or curative Statutes

are allowed to hold sway in the past. The very nature

of the said laws involve the aspect of public interest

which requires sovereign Legislature to remove defects,

434

clarify aspects which create doubt. The declaratory law

again has the effect of the legislative intention being

made clear. It may not be apposite in the case of these

Statutes to paint them with the taint of

retrospectivity.

337. What then is retrospectivity? It is ordinarily the

new law being applied to cases or facts, which came

into existence prior to the enacting of the law. A

retrospective law, in other words, either supplants an

existing law or creates a new one and the Legislature

contemplates that the new law would apply in respect

of a completed transaction. It may amount to reopening,

in other words, what is accomplished under the earlier

law, if there was one, or creating a new law, which

applies to a past transaction.

338. “A Statute is to be deemed to be retrospective,

which takes away or impairs any vested right acquired

under any existing laws or creates a new obligation or

imposes a new duty or attaches a new disability in

respect to transactions or considerations already

passed”. [See Craies on State Law, 7th Edition, Page387].

435

339. In Halsbury’s Laws of England, 4th Edition, Page570, paragraph-921, it is, inter alia, stated as

follows - “In general, however, court regarded as

retrospective, any Statute, which operates on cases or

facts, coming into existence, before its commencement,

in the sense that it affects even if for the future

only, the character or consequences of transactions,

previously entered into or of other past conduct”.

340. When a Statute made by the sovereign Legislature

is found to have retrospective operation and the

challenge is made under Article 14 of the Constitution,

(i) the Court must consider whether the law, in its

retrospectivity, manifests forbidden classification.

(ii) Whether the law, in its retrospectivity, produces

manifests arbitrariness, (iii) if a law is alleged to

be violative of Article 19(1)(g), firstly, the Court,

in an action by a citizen, would, in the first place,

find whether the right claimed, falls, within the ambit

of Article 19(1)(g). The Court will further enquire as

to whether such a law is made, inter alia, by way of

placing reasonable restrictions by looking into the

436

public interest. In the case of law, which is found to

be not unfair, it would also not fall foul of Article

21.

341. Where the law is challenged on the ground that it

is violative of Fundamental Rights under Article 14,

necessarily the Court must enquire whether it is a

capricious, irrational, disproportionate, excessive

and, finally, without any determining principle. [see

Shayara Bano case (supra)] The right of a citizen, or

for that matter, any person under Article 14, is a

right which is personal to him.

342. The golden thread which runs through the grounds

making up the Doctrine of Manifest arbitrariness

Injustice, undoubtedly, consists of total absence of

public interest, of which the sovereign Legislature as

the supreme law giver, is the undoubted custodian.

Though made in the context of the power of the Court

in England, in regard to taking into consideration the

concept of fairness, while deciding upon the issue of

retrospectivity, we would think the following passage

in the Principles of Statutory Interpretation by

Justice G.P. Singh, made relying upon the Judgment of

437

the House of Lords in L’Office Cherifien Des Phosphates

and another And Yamashita-Shinnihon Steamship Co.

Ltd.106, would furnish a safe and fairly comprehensive

guide, even in the matter of determining the

constitutionality of a retrospective law. Hence, we

refer to the same and would approve of the same.

“… It was observed that the question of

fairness will have to be answered in

respect of a particular statute by

taking into account various factors

viz., value of the rights which the

statute affects; extent to which that

value is diminished or extinguished by

the suggested retrospective effect of

the statute; unfairness of adversely

affecting the rights; clarity of the

language used by Parliament and the

circumstances in which the legislation

was created. “All these factors must be

weighed together to provide a direct

answer to the question whether the

consequences of reading the statue with

the suggested degree of retrospectivity

is so unfair that the words used by

Parliament cannot have been intended to

mean what they might appear to say.”

(Emphasis supplied)

343. Having laid down the principles, we shall now apply

the same to the facts of the present cases before us.

106 (1994) 1 AllER 20

438

As far as the nature of the right in question is

concerned, which would include the value of the rights,

it is a right of action. The right of action is,

undoubtedly, a vested right. The role of the applicant

essentially fades out after the admission of the

application is made under Section 7(5). The scheme of

the Code has been unraveled by us. The right, which is

given, is a right in rem. It is not a mere personal

right, in the sense that it is right in rem. The

applicant is not even required to plead the default qua

him as the default to any financial creditor, in the

requisite sum, provided it is not barred under Article

137, suffices. The consequences of the application

would be that it may land the applicant and also all

the stakeholders, in liquidation of the corporate

debtor.

344. As far as, the manner, in which, the value of the

right is affected or if we may use the word ‘impaired’,

it is another most significant aspect, to be borne in

mind. The manner, in which, a particular Statute

carrying retrospective effect, will impair, the rights

will depend on the facts of each case. We have, for

439

instance, noticed the clear unfairness, which, the Rule

in question carried qua a set of employees in regard

to their vested right, in P.D. Aggrawal (supra). The

vested right, in fact, consisted of the right to have

certain period reckoned for the purpose of seniority.

As far as the clarity of the language used, there does

not appear to be any ambiguity, and what Parliament

intended is, completely free from doubt. The only area

where any ambiguity can be said to exist – is the effect

of the application being treated as withdrawn. The

further aspect, which is to be borne in mind, is the

circumstances in which the legislation is created. It

is here that the mischief rule and the aspect of public

interest looms large. At the end of the day, the tussle

is between the individual right versus the public

interest. Now, public interest is a concept, which is

capable of embracing, within its scope, the interest

of different sections of the public. This would include

the sections of the public to which the applicant

himself belongs. Public interest would, undoubtedly,

also encompass, the economy of the country, which can

be understood in terms of all the objects, for which

440

the Code was enacted. They would include the speed with

which the Code is worked. It would include, also,

safeguarding the interests of all the stakeholders.

This may necessarily include the corporate debtor as a

stakeholder, being protected from applications, which

are perceived as frivolous or not representing a

critical mass.

345. We have noticed the statistics which has been made

available by the Union. On the eve of the ordinance on

the 27.12.2019, it would appear that 2201 applications,

came to be moved, during a period of nearly eighteen

months as in comparison to 253 applications during the

preceding period representing a nearly 10-fold

increase.

346. Now, the third proviso, thus, indeed, does not say

that as on the date of filing of the applications, the

law was what is contained in the first and the second

provisos. In that sense, it could be said that it was

not retrospective. We have found that when invoking

the unamended Section 7 applications stood moved, they

evinced creation of vested rights to continue with the

proceeding. The applications were, no doubt, at the

441

stage, prior to the admission under Section 7(5). It

is at this stage that through the device of the third

proviso, the Parliament has applied the principle of

first and second proviso of threshold requirement, in

respect of pending applications, which is made to

appear as it would have operation in the future. Now

here we must address an argument of the 3rd proviso

going to mere procedure. The financial creditors

covered by the 3rd proviso were clothed with a statutory

right under Section 7. This right was available to be

exercised by an individual creditor, by himself or

jointly with others. The imposition of a threshold

requirement being a mandatory and irreducible minimum

even, if it is to be achieved as and after the date of

the amendment, constitutes an intrusion into the

substantive right of action vested in the individual

creditor. The action of the creditor was not a

completed transaction. As regards his conduct in

the past, viz., moving under Section 7, it is

incomplete but the action was commenced. But the law

(the 3rd proviso) impairs the past action qua the

future. We would find as follows. Imposing the

442

threshold requirement under the 3rd proviso, is not a

mere matter of procedure. It impairs vested rights.

It has conditioned the right instead, in the manner

provided in the first and the second proviso. We have

already upheld the first and second proviso, which, in

fact, operates only in the future. In that sense, the

Legislature has purported to equate persons who had not

filed applications with persons like the petitioners

who had filed the applications under the unamended law.

347. At this point, we must notice one argument, which

is that, the Law Giver has discriminated between

applicants under Section 7, which were pending at

different stages. We may notice, in this regard,

however, that all the applicants share the common

characteristic of being applicants in applications

which were not admitted. In fact, most of the

applications would appear to have been filed in the

year 2019. Enquiring further into the different stages

in these applications, would go against the principle

that the Court does not look to mathematical nicety or

443

perfection in the law. The Court also bears in mind,

the principle that the law is an economic measure.

CLARITY REGARDING ‘WITHDRAWAL’ UNDER THE THIRD PROVISO

348. One of the aspects to be considered is the clarity

of a retrospective law. The requirement of compliance

with the threshold numerical requirements under the

first and second proviso is an integral and inseparable

part of the third proviso. Let us have a look at the

consequences that follow if the numerical strength

cannot be cobbled up by the applicant. The proviso

declares that in such an eventuality the application

will be treated as withdrawn before admission. Rule 8,

as noticed by us, provides for power with the Tribunal

to allow withdrawal before admission. Does it mean that

an applicant can file a fresh application after

gathering together the requisite numbers? What is the

impact of withdrawal under provisions under the general

law? What is the impact of the law relating to the

Limitation Act in respect of the application which has

been withdrawn?

444

349. In the context of a Civil suit, Order XXIII deals

with withdrawal and adjustment of suit. Order XXIII

(1)(4b) prohibits a fresh suit in respect of the same

subject matter (cause of action), if a suit is

withdrawn without permission of the Court under Order

XXIII(1)(3).

350. In the facts of the case before us the third

proviso does not indicate as to whether a fresh

application after complying with the requirement of the

ingredients of the first and second proviso is

maintainable. It does not also indicate what would be

the position even if such application is maintainable

by the same applicant, with regard to the periods spent

in the context of ruling of this Court that the

Limitation Act applies and the relevant Article is

Article 137 and therefore, any application filed beyond

the period of three years from the date of the default

is barred.

351. The other way of looking at these issues is that

Order XXIII(1) applies only in the case of a civil

suit. In regard to the application under Article 137

which is what an application under Section 7 of the

445

Code is, it could it be said that Order XXIII(1) is

inapplicable. Secondly, could it not be said that it

is not a case of a voluntary withdrawal by the applicant

and the withdrawal of the application is declared by

the Legislature, and therefore, Order XXIII(1) would

not apply.

352. Section 14 of the Limitation Act, 1963 reads as

follows:

“14.Exclusion of time of proceeding bona

fide in court without jurisdiction. —

(1) In computing the period of

limitation for any suit the time during

which the plaintiff has been prosecuting

with due diligence another civil

proceeding, whether in a court of first

instance or of appeal or revision,

against the defendant shall be excluded,

where the proceeding relates to the same

matter in issue and is prosecuted in

good faith in a court which, from defect

of jurisdiction or other cause of a like

nature, is unable to entertain it.

(2) In computing the period of

limitation for any application, the time

during which the applicant has been

prosecuting with due diligence another

civil proceeding, whether in a court of

first instance or of appeal or revision,

against the same party for the same

relief shall be excluded, where such

proceeding is prosecuted in good faith

in a court which, from defect of

jurisdiction or other cause of a like

nature, is unable to entertain it.

446

(3) Notwithstanding anything contained

in rule 2 of Order XXIII of the Code of

Civil Procedure, 1908 (5 of 1908), the

provisions of sub-section (1) shall

apply in relation to a fresh suit

instituted on permission granted by the

court under rule 1 of that Order where

such permission is granted on the ground

that the first suit must fail by reason

of a defect in the jurisdiction of the

court or other cause of a like nature.

Explanation.— For the purposes of this

section,—

(a) in excluding the time during which

a former civil proceeding was pending,

the day on which that proceeding was

instituted and the day on which it ended

shall both be counted;

(b) a plaintiff or an applicant

resisting an appeal shall be deemed to

be prosecuting a proceeding;

action shall be deemed to be a cause of a

like nature with defect of jurisdiction.”

353. A perusal of 14(1) shows that it is intended to

exclude time in regard to a civil suit. Section 14(2)

covers cases relating to the applications for which

period of limitation is fixed. It contemplates that if

such applicant comes to Court late with a time barred

application but is able to show that he has been

prosecuting with due diligence another civil

proceeding, for the same relief, the period, when he

447

was so prosecuting the other proceeding, can be

excluded where the proceeding was prosecuted in good

faith in a Court which from defect of jurisdiction or

other cause of like nature is unable to entertain it.

It will be noticed that sub-Section (3) of Section 14

deals only with the case falling under sub section (1).

In other words, it relates to civil suits. It enables

a plaintiff in a subsequent suit to exclude the period

which was consumed in prosecuting an earlier civil suit

which latter suit stood withdrawn with permission

granted by the Court. Therefore, in regard to

applications, including applications under Article

137, it appears, the Law Giver has not contemplated

expressly excluding the time spent in pursuing another

proceeding which stood withdrawn.

354. In regard to power of withdrawal as already noticed

Rule 8 of the Insolvency and Bankruptcy (Application

of Adjudicating Authority Rule), 2016 reads as follows:

“Rule (8) withdrawal of application the

adjudicating authority may permit

withdrawal of the application may not

Rule 4,6,7 as the case may be on a

request made by the applicant before its

admission.”

448

355. The application made under Rule 4 is the

application under Section 7 by the financial creditor.

However, rule 8 is silent as to any similar prohibition

as is contained in Order XXIII(1)4(b). Unless the

principle of Order XXIII Rule 1 which is based on public

policy, is applied, a fresh application, compliant with

the first two provisos in Section 7, may not be barred.

In this regard, since under the Explanation in Section

7(1), default occurs when default qua any financial

creditor is made out, the cause of action can become

different, in which case, even the principle of Order

XXIII Rule 1, may not apply.

356. In this regard, since withdrawal is ordained by

the third proviso, it would not be a withdrawal under

Rule 8 on request. Secondly, even for the principle

based on public policy to apply to a withdrawal under

Rule 8, there must be a request and withdrawal. We do

not pronounce on the effect of the same, viz.,

withdrawal on request. Suffice it to conclude and hold

that the withdrawal under the third proviso would not

bar a fresh application by the same party after

449

complying with the provision of the first or second

proviso as the case may be on the same default.

357. As far as Limitation is concerned, however, on the

terms of Section 14, since 14(1) read with 14(3),

contemplates withdrawal of a suit with permission under

Order XXIII Rule 1(4)(b) to enable exclusion of the

period spent in a suit which is withdrawn and Section

14(2) is what applies to applications including one

under, Article 137, the period spent in the application

when it is withdrawn under the 3rd proviso cannot be

excluded under Section 14 (3) of the Limitation Act.

However, it may be open to point out that application

is not being entertained within the meaning of Section

14(2) on account of the law that mandates its

withdrawal on account of the non-compliance of

conditions for maintaining the application it would be.

However, we need not pronounce on it, as we feel that

having regard to the Explanation in Section 7, it will

always be open to the applicant to set up a different

default to any financial creditor and move afresh. This

unique feature of the Code is highly relevant in

determining the validity of the Amendment. The

450

application under Section 7 is not meant to be a

recovery mechanism. The Code, as is clear from its

title, deals with insolvency resolution, to begin with.

If there is insolvency, the application, with reference

to any of the large number of creditors, suffices.

358. Thus, withdrawal under the third proviso would not

be bar a fresh application even on the same cause of

action. It can, at any rate, be condoned under Section

5 of the Limitation Act. It is here we would also

exercise our power under Article 142 to direct that if

fresh applications are filed by the petitioners after

complying with the first and second proviso, then on

applications being filed under Section 5, of the

Limitation Act, in regard to the period of pendency of

applications, the authority shall condone the delay.

As far as the period after the withdrawal under the

proviso, in view of the power again under Section 5 of

the Limitation Act, certainly we see no reason as to

why the periods spent cannot be explained in terms of

B.K. Educational Services (P) Ltd. (supra). In the

above manner, we would interpret the implications of

withdrawal.

451

359. We would consider the aspect of public interest,

which can be gathered from the conditions obtaining,

when the impugned amendment was made. Under the

existing law, Section 7 of the Code permitted filing

of applications by single applicants. It has been

realised by the Legislature that there is dire need to

condition the absolute right in respect of certain

classes of financial creditors. We have already upheld

the classification enacted in the first and the second

provisos. From the standpoint of public interest, every

application maintained by a single applicant, is

perceived as a veritable threat to the fulfilment of

the objectives of the Code. The continuance of the

applications could not, therefore, be in public

interest. It is, as if, the Legislature intended to

apply its brakes in the form of asking the applicants

to obtain the consensus of a minimum number of similar

stakeholders, before the applications could be further

processed.

360. Let us consider the impugned proviso with a

different wording. What, if the proviso provided for a

longer period of time to comply with the requirement

452

under the first and second provisos.? In such a

scenario, once the numerical strength, contained in the

first and second provisos, in regard to the persons

covered by the same, has been found to be valid by us,

the blemish that would remain is, no doubt, the

Legislature is interfering with the vested right, in

the manner done under the provisos read together. That

a vested right can be the subject matter of

retrospective law, cannot be doubted. Since, the law

made, under the Constitution, must pass muster, under

Articles 14, 19, 21 and 300A of the Constitution, the

issue really boils down to, whether or not, it is

manifestly arbitrary. The further question would arise,

under Article 19, as to whether, the law would amount

to a reasonable restriction of the Right under Article

19(1)(g). The Doctrine of Fairness, indeed, has been

present in the mind of the courts, whenever a law,

described as retrospective, comes up for interpretation

with or without a challenge to the law. In the context

of a challenge, on the ground of manifest

arbitrariness, the test to be applied has been

articulated as to whether it is capricious, irrational,

453

does not disclose any principle, betrays absence of

proportionality or whether it is excessive. We must

also not lose sight of the fact that the law in question

is an economic measure. This is a case where the Law

Giver has not left anything to speculation or doubt.

We have already indicated about the effect of the

proviso mandating the compulsory withdrawal of the

application. We are of the view that this is a case,

where the law, in question, is retrospective, in that,

contrary to the requirement in the law, at the time,

when the application was filed, a new requirement is

placed, even though, it is sought to be done by

superimposing this condition, not at the time, when the

application was filed, which really is the relevant

time to determine the question of maintainability of

the application, with reference to what the law

provided in regard to who can move the application but

at the stage of the new law.

361. However, we cannot also lose sight of the fact that

the Legislature has power to impair and take away

vested rights. The limitation that flows, however, is

from both Article 14 and 19 read with Article 21. It

454

flows from the Doctrine that the action of the State

must be fair and reasonable. The question, as to

validity of the retrospective law, is a matter to be

judged on a consideration of the facts, the period of

time, over which the retrospective law operates, the

impact of the law on the vested rights, the public

interest, the nature of the right, which is the subject

matter of the law and the terms of the law.

362. The nature of the right involved in this case, is

the right of the financial creditors to move an

application under Section 7. Though, Section 7 confers

a right upon the financial creditor to file the

application, the proceedings are one in rem. We have

already dealt with the scope of the Code and the

consequences it can produce on the stakeholders and

also the real estate project. The Legislature was faced

with the situation, where it felt that the requirement,

as to maintainability of the application under Section

7, must, in regard to pending applications, be modified

in the manner done. There is a determining principle,

namely, the perception from experience about how the

entire object of the Code would stand jeopardised if

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applications already filed could go on even when a fair

and reasonable number of kindred souls are not

available to support it. Once there is a principle,

it cannot be capricious, excessive or disproportionate

unless we find the time given under the proviso is

manifestly arbitrary. A vested right under a statute

can be taken away by a retrospective law. A right

given under a statute can be taken away by another

statute. We cannot ignore the fact that there was

considerable public interest behind such a law. The

sheer numbers, in which applications proliferated,

combined with the results it could produce, cannot be

brushed aside as an irrational or capricious aspect to

have been guided by in making the law. Being an economic

measure, the wider latitude available to the Law Giver,

cannot be lost sight of.

363. The issue, which, however remains, is the period

of 30 days made available. Is it reasonable to expect

that a single applicant could, under the aegis of the

laws’ collect information, and furthermore, gather the

support of fellow travellers, also inclined to support

the applicant, as required? The third proviso does not

456

provide for the applicant applying before the Tribunal

and seeking extension of the period. It could be also

argued that by granting such extensions, no harm is

caused to the stakeholders, insofar as, all this is

done before the admission of the application, with

which alone, the consequences, including the

appointment of the Interim Resolution Professional and

the passing of an Order of Moratorium, would arise. But

here again we would be foraying into areas of

legislative value judgement and be proceeding on the

basis of what would be a fairer law.

364. We have to take the law, therefore, as it is and

deal with it on the touchstone of, whether the law is

manifestly arbitrary. We have already, no doubt, found

that by virtue of the statutory mechanism, there

appears to be an information grid available under the

law. Undoubtedly, we would have felt more reassured,

if the period had been longer than it is. The law came

as a bolt from the blue as it were.

365. As regards the compelled withdrawal under the third

proviso of the pending applications is concerned, we

hold as follows. Once the Legislature intended that the

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pending applications must be made compliant with the

threshold requirement, consequences for not doing so

had to be provided. Otherwise, it would have created

complete uncertainty and the applicant would have been

dealt with in a manifestly arbitrary manner. Providing

for the consequence of withdrawal before admission,

which we have explained, does not have the consequence

of preventing the fresh filing, even in regard to the

same default, after complying, no doubt, with the

requirement of the first or the second proviso, cannot

be dubbed as arbitrary. No doubt, there is lack of

clarity in this regard in the provision but on an

understanding of the law, as we have expounded, the

provision was capable of being understood in the manner

done.

366. In regard to the first and the second provisos,

they have only prospective operation. The creditors

covered by these provisos, are not subjected to any

time limit (except, no doubt, the bar under Article 137

of the Limitation Act), in the matter of garnering the

requisite support. However, prescribing a time limit

in regard to pending applications, cannot be, per se,

458

described as arbitrary, as otherwise, it would be an

endless and uncertain procedure. The applications would

remain part of the docket and also become a Damocles

Sword overhanging the debtor and the other stakeholders

with deleterious consequences also qua the objects of

the Code.

367. Finally, the actual time provided. Is it manifestly

unfair? Would not six weeks, two months or even more

lengthier periods, be more fair? Undoubtedly, it would

be, from the point of view of the applicants. Another

way to approach the problem is, was it impossible for

the creditor/creditors to seek information, get into

touch with the other creditors and persuade them to

join him/them. As far as court fees is concerned, there

is no extra liability as the amount remains the same,

viz., Rs.25,000/-, irrespective of the number of

applicants. If the condition in the third proviso was

impossible to comply with, then, it would also be

manifestly arbitrary. As far as availability of

information is concerned, be it the mechanism of an

Association of Allottees contemplated under the RERA

or the requirement under the said Act to post details

459

of the allotment, at least, in law, the Legislature was

not making a capricious command. So also, is the case

with the creditors covered by the first proviso, having

regard to the clear requirement of Section 88 of the

Companies Act, 2013. There are registers, which can be

perused and information gathered.

368. Another aspect of the matter is, if there is

insolvency and it affects creditors, ordinarily, selfinterest would guide them into following the best

course available to them. We have also seen the

presence of plural remedies. No doubt, calculation of

one-tenth in a case, may, undoubtedly, require the

quantification of total number of creditors. This would

be necessary, no doubt, only if hundred creditors

cannot be found to support the application.

369. We have noted the consequences of the deemed

withdrawal, the nature of the right, the Explanation

to Section 7, the objects of the Code, the factual

matrix reflecting a ten-fold increase in the

applications, the pressure on the dockets of the

bodies, which are charged with the imperative duty to

deal with matters with the highest speed, the impact

460

on similar stakeholders in the category and the sheer

largeness of the class of creditors. The period could

have been more fair to the petitioners by being longer

but that is where we must bear in mind, the limits of

our jurisdiction. Where would the Court draw the line?

We find it difficult to hold that within the time limit

of 30 days it is impossible to comply with the

requirements.

370. We have dealt with the aspect relating to the

impact of the statutory withdrawal of the application.

Secondly, we must also bear in mind that the Code was

enacted in the year 2016. The period of the

retrospective operation, would appear to be, spread

over for a period of two years and for the most part,

it relates to a period of one year. We have already

found that the withdrawal under the third proviso, will

not stand in the way of the applicant, invoking the

same default and filing the application and even the

principle of Order XXIII Rule 1 of the CPC will not

apply and will not bar such application. As far as

limitation is concerned, we have explained as to what

is to be the impact. The nature of the vested right and

461

the impact of the law, the public interest, the sublime

objects, which would be fulfilled, would, in the facts

of this case, constrain us from interfering, even

though, this Court may have a different view about the

period of time, which is allowed to the applicant.

371. Lastly, there remains a question of court fees. As

far as court fees is concerned, it is true that in the

circumstances of the case, there is compelled

withdrawal of the applications. The other side of the

picture is, even, according to the petitioners, the

applications engaged the Adjudicating Authority and

time was spent on the applications. In the

circumstances of these cases, we would resort to our

power under Article 142 of the Constitution to order

as follows. We would direct that in case applications

are moved by the applicants, who are petitioner before

us, in regard to the very same corporate debtor, in the

same real estate project, as far as allottees are

concerned, the applicants shall be exempted from the

requirement of paying court fee. This would obviously

be a one-time affair. We, however, further make it

clear that exemption from paying court fee, in the case

462

of joint applicants, will be limited only to once, to

a single application in future, in relation to the same

subject matter, as per the application. To make it

clear, in a case where there are more than one

applicants in the pending application in respect of

real estate project, if they combine in future

application, they would stand exempted. Secondly, in

case, any of the applicants, if they were to move

jointly with the requisite number under the second

proviso, the exemption will be limited only to once.

Meaning thereby, if exemption has been availed of by

any one out of the joint applicants, in conjunction

with others, then, the other joint applicants cannot

claim exemption. If there are any applicants, falling

under the first proviso, and who are among the

petitioners, in regard to the same corporate debtor,

they would also be entitled to the exemption from

payment of the court fee.

RELIEF

372. We uphold the impugned amendments. However, this

is subject to the following directions, which we issue

under Article 142 of the Constitution of India:

463

i. If any of the petitioners move applications in

respect of the same default, as alleged in their

applications, within a period of two months from

today, also compliant with either the first or the

second proviso under Section 7(1), as the case may

be, then, they will be exempted from the requirement

of payment of court fees, in the manner, which we

have detailed in the paragraph just herein before.

ii. Secondly, we direct that if applications are moved

under Section 7 by the petitioners, within a period

of two months from today, in compliance with either

of the provisos, as the case may be, and the

application would be barred under Article 137 of

the Limitation Act, on the default alleged in the

applications, which were already filed, if the

petitioner file applications under Section 5 of the

Limitation Act, 1963, the period of time spent

before the Adjudicating Authority, the Adjudicating

Authority shall allow the applications and the

period of delay shall be condoned in regard to the

period, during which, the earlier applications filed

by them, which is the subject matter of the third

464

proviso, was pending before the Adjudicating

Authority.

iii. We make it clear that the time limit of two months

is fixed only for conferring the benefits of

exemption from court fees and for condonation of

the delay caused by the applications pending before

the Adjudicating Authority. In other words, it is

always open to the petitioners to file applications,

even after the period of two months and seek the

benefit of condonation of delay under Section 5 of

the Limitation Act, in regard to the period, during

which, the applications were pending before the

Adjudicating Authority, which were filed under the

unamended Section 7, as also thereafter.

373. The Writ Petitions and the Transferred Case will

stand dismissed subject to the aforesaid directions and

the observations contained in the Judgment, and we only

make it clear that the benefits of the directions,

under Article 142, will be available also to the

petitioners in the Transferred Case.

374. The intervention application (I.A.No.67473 of 2020

in WP (C)No.26 of 2020) is filed by allottees who have

465

filed application under Section 7 on 20.9.2019. I.A.

No.32863 of 2020 in WP(C) No.53 of 2020 is filed by

the allottee for impleadment. He has filed application

under Section 7 of the Code on 19.12.2019. I.A.

No.32869 of 2020 WP(C) No.53 of 2020 is filed by the

allottees who have filed the same for impleadment.

They have filed application under Section 7 on

17.9.2019. I.A.No. 15425 of 2018 in WP (C)No.26 of

2020 is filed by a corporate debtor for impleadment.

All the above IAs are disposed of in terms of the

judgment as aforesaid. We however make it clear that

the directions we have issued under Article 142

regarding court fees and about condonation of delay

will apply to the applicants who are allottees.

.......................J.

(ROHINTON FALI NARIMAN)

.......................J.

(NAVIN SINHA)

.......................J.

(K.M. JOSEPH)

NEW DELHI,

DATED;JANUARY 19,2021

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