J. Sagar Associates (JSA) advised and represented Emaar MGF Land Limited (“Emaar”) before the Supreme Court (“SC”) in a writ petition filed by homebuyers challenging the constitutional validity of the provisions inserted by the Insolvency and Bankruptcy Code (Amendment) Act, 2020 (“Amendment Act”) to the Insolvency and Bankruptcy Code, 2016 (“IBC”).
The Amendment Act inter alia provides that an application by homebuyers under Section 7 of IBC must be jointly made by atleast 100 of such homebuyers or atleast 10% of the total number of such homebuyers (whichever is less) under the same real estate project. This provision was challenged by several homebuyers before the SC.
In a significant judgment passed on January 19, 2021, the SC has upheld the constitutionality of the Amendment Act. The SC held that the provision which requires homebuyers to not only file joint application but also meet certain threshold requirements for initiation of corporate insolvency resolution process of a real estate developer is constitutional.
It held that the amendment has a rational nexus to the object of the IBC. The Amendment Act was passed as the Legislature became alive to the peril of the entire object of the IBC being derailed by permitting individual players to crowd the authorities under the IBC.
The SC further held that the requirement of homebuyers being drawn from the same real estate project stands to reason and does not suffer from any constitutional blemish as the rationale behind confining homebuyers to the same real estate project is to promote the object of the IBC..
The SC also refused to accept the contention of the homebuyers that the impugned provisions are unworkable and arbitrary. In this regard, the SC took note of various provisions under the RERA whereby a promoter is obliged to make the necessary information available.
While upholding the Amendment Act, the SC directed that if any petitioner moves an application (compliant with the new provisions) in respect of the same default within a period of 2 months, he will be exempted from the requirement of payment of court fees. Further, if the application is moved within a period of 2 months, the NCLT shall condone the delay in regard to the period during which the earlier application was pending before NCLT.
JSA team comprised of Partners – Amar Gupta and Divyam Agarwal and Associate – Pallavi Kumar on the disputes side and Partners – Shivpriya Nanda and Daksh Ahluwalia and Senior Associate – Adhiraj Gupta on the corporate side.