Plea In SC Challenges Provisions Of IBC Ordinance 2019 Imposing Conditions On Homebuyers' Right [Read Petition]

A writ petition has been filed in Supreme Court challenging Section 3 of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 (Ordinance). The said provision, which adds certain provisos to Section 7 of the Insolvency and Bankruptcy Code (IBC) and purports to set out new conditions for real estate allottees to approach the NCLT, is alleged to be ultra vires the Constitution of India and in violation of Articles 14 and 21.

As per the Ordinance, there should be at least one hundred real estate allottees or ten percentage of the total number of allottees, which ever is lesser, to maintain an insolvency petition in respect of a real estate project.

The petitioner, a home buyer, who has approached the NCLT under S.7 of IBC, states that his case might have to be withdrawn if he fails to comply with the new requirement according to the provision.

According to the petition, "Financial Creditors" are already a recognised "class" under the category of "Creditors" under the IBC and the "Ordinance dissects Financial Creditor further and imposes a condition on that newly created class. This condition hinders them from reaping the benefits available to others under the Code." The Code is a beneficial piece of legislation, according to the petitioner, who argues that it amounts to the creation of a "class within a class" which is "unconstitutional and manifestly arbitrary". In light of this submission it is urged that the "object of the Ordinance ought to be made clearer. It appears that the present Ordinance may have been brought to prevent home buyers from misusing the Code."

Referring to the case of Shayara Bano v Union of India, the petitioner states that the Ordinance is in violation of the test on manifest arbitrariness as laid down thus:

"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."

Moving on, the petitioner alleges that "the Ordinance having been brought in such a hurried manner, there appears to be a sinister move to over-turn a law laid down by this Hon'ble Court."

Another ground raised that, on the face of it, there appears to be no intelligible differentia in the Ordinance, without any reasonable nexus to the object sought to be achieved.

Calling the desire to have a home for a family a basic human yearning, it has been urged that the top court recognised the same as a part of one's right to life. "The present Ordinance when denies homebuyers their right of approaching NCLT, actually denies them accessing their Fundamental Rights", submits the petitioner.

Finally, the petitioner argues that the Ordinance has been given retrospective effect, which adversely affects allottees. They have lost their money, home and the right to move NCLT, for which they have paid ₹25,000 as court fee. "Even those whose cases are listed for the final arguments before the NCLT, will have to comply with this condition within one month or else their cases will be considered as withdrawn."

Reference is also made to the recent SC decision in Pioneer Urban Land and Infrastructure case, which upheld the right of a homebuyer to move insolvency petition against a defaulting builder.

In light of these grounds, the petition, filed by Advocate Akash Vajpai, has prayed for the section to be struck down.

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