MANISH KUMAR versus UNION OF INDIA AND ANOTHER

[2021] 14 S.C.R. 895

MANISH KUMAR

UNION OF INDIA AND ANOTHER

(Writ Petition (C) No.26 of 2020)

JANUARY 19, 2021

[ROHINTON FALI NARIMAN, NAVIN SINHA ANDK. M. JOSEPH, JJ.]

Insolvency and Bankruptcy Code (Amendment) Act, 2020 –s.3 –s.3 of the impugned amendment, amended s.7(1) of theInsolvency and Bankruptcy Code, 2016, incorporating threeprovisos to s.7(1) – Under the second proviso, new threshold wasdeclared for an allottee to move an application u/s.7 for trigerringthe insolvency resolution process under the Code – The secondproviso provided that for financial creditors who were allotteesunder real estate project, an application for initiating corporateinsolvency resolution process against the corporate debtor was tobe filed jointly by not less than one hundred of such allottees underthe same real estate project or not less than ten per cent of the totalnumber of such allottees under the same real estate project,whichever is less – Challenge to the second proviso to s.7(1) – Held:Not tenable – The object of the Statute, admittedly, is to ensure thatthere is critical mass of persons (allottees), who agree that thetime is ripe to invoke the Code and to submit to the inexorableprocesses under the Code, with all its attendant perils – The rationalebehind, confining allottees to the same real estate project, is topromote the object of the Code – Once the threshold requirementcan pass muster when tested in the anvil of challenge based onArts. 14, 19 and 21, then, there is both logic and reason behind thelegislative value judgment that the allottees, who must join theapplication under the impugned provisos, must be related to thesame real estate project – Allottees under real estate projects arefinancial creditors, but they possess certain characteristics, whichset them apart from generality of the financial creditors, such asnumerosity; heterogeneity; and individuality in decision making –If single allottee, as financial creditor, is allowed to move anapplication u/s.7, the interests of all the other allottees may be putin peril – In the circumstances, if the Legislature, taking into

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Aconsideration, the sheer numbers of group of creditors, viz., theallottees of real estate projects, finds this to be an intelligibledifferentia, which distinguishes the allottees from the other financialcreditors, who are not found to possess the characteristics ofnumerosity, then, it is not for this Court to sit in judgment over thewisdom of such measure – The allottee continues to be financialBcreditor – All that is envisaged is the legislative value judgment thata critical mass is indispensable for allottees to be present beforethe Code, can be activised – The purport of the critical mass ofapplicants would ensure that reasonable number of personssimilarly circumstanced, form the view that despite the remediesCavailable under the RERA or the Consumer Protection Act or civilsuit, the invoking of the Code is the only way out, in particularcase – If the Legislature felt that having regard to the consequencesof an application under the Code, when such large group ofpersons, pull at each other, an additional threshold be erected for

exercising the right u/s.7, certainly, it cannot suffer constitutionalDveto at the hands of Court exercising judicial review of legislation– This is not case where the right of the allottee is completelytaken away – All that has happened is half-way house is builtbetween extreme positions, viz., denying the right altogether to theallottee to move the application u/s.7 of the Code and giving anEunbridled license to single person to hold the real estate projectand all the stakeholders thereunder hostage to proceeding underthe Code –Insolvency and Bankruptcy Code, 2016 – s.7.Insolvency and Bankruptcy Code (Amendment) Act, 2020 –s.3 – s.3 of the impugned amendment, amended s.7(1) of theFInsolvency and Bankruptcy Code, 2016, incorporating threeprovisos to s.7(1) – The first proviso provided that for financialcreditors, referred to in clauses (a) and (b) of sub-section (6A) ofs.21, an application for initiating corporate insolvency resolutionprocess against the corporate debtor shall be filed jointly by not

less than one hundred of such creditors in the same class or not lessGthan ten per cent of the total number of such creditors in the sameclass, whichever is less – Challenge to – Held: The first proviso isinvulnerable – The legislative understanding is clear that in regardto such creditors bearing the hallmark of large numbers they arerequired to be treated differently – If they are not treated differentlyHit 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 theinsertion of the impugned proviso – Insisting on threshold in regardto these categories of creditors would lead to the halt toindiscriminate litigation which would result in an uncontrollabledocket explosion as far as the authorities which work the Code areconcerned – The debtor who is apparently stressed is relieved ofthe last straw on the camel’s back, as it were, by halting individualcreditors whose views are not shared even by reasonable numberof its peers rushing in with applications – Again, as in the case ofthe allottees, this is not situation where while treating them asfinancial creditors they are totally deprived of the right to applyunder s.7 as part of the legislative scheme – The legislative policyreflects an attempt at shielding the corporate debtor from what itconsiders would be either for frivolous or avoidable applications –All that the amendment is likely to ensure is that the filing of theapplication is preceded by consensus at least by minusculepercentage of similarly placed creditors that the time has come forundertaking legal odyssey which is beset with perils for theapplicants themselves apart from others – As far as the percentageof applicants contemplated under the proviso it is clear that it cannotbe dubbed as an arbitrary or capricious figure – Insolvency andBankruptcy Code, 2016 – s.7.

Insolvency and Bankruptcy Code (Amendment) Act, 2020 –s.4 – s.4 of the impugned amendment, incorporated an additionalExplanation in s.11 of the Code – While s.11 is about persons notentitled to make application for initiating corporate insolvencyresolution process, the additional Explanation provided that nothingin section 11 prevented corporate debtor from initiating corporateinsolvency resolution process against another corporate debtor –Held: The provisions of the impugned Explanation clearly amountto clarificatory amendment – clarificatory amendment isretrospective in nature – The Explanation merely makes the intentionof the Legislature clear beyond the pale of doubt – The argument ofthe petitioners that the amendment came into force only on28.12.2019 and, therefore, in respect to applications filed underss.7, 9 or 10, it will not have any bearing, cannot be accepted –The Explanation, in the facts of these cases, is clearly clarificatoryin nature and it will certainly apply to all pending applications also– The intention of the Legislature was always to target the corporate

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Adebtor only insofar as it purported to prohibit application by thecorporate debtor against itself, to prevent abuse of the provisionsof the Code – It could never had been the intention of the Legislatureto create an obstacle in the path of the corporate debtor, in any ofthe circumstances contained in s.11, from maximizing its assets bytrying to recover the liabilities due to it from others – Not only doesBit go against the basic commonsense view but it would frustrate thevery object of the Code, if corporate debtor is prevented frominvoking the provisions of the Code either by itself or through hisresolution professional, who at later stage, may, don the mantle ofits liquidator – Insolvency and Bankruptcy Code, 2016 – s.11,CExplanation II.

Insolvency and Bankruptcy Code (Amendment) Act, 2020 –s.10 – s.10 of the impugned amendment inserts s.32A in the Code –It was contended that but for s.32A, the properties which areacquired could be attached but that is pre-empted by s.32A – TheDpetitioners contend that immunity granted to the corporate debtorsand its assets acquired from the proceeds of crimes and any criminalliability arising from the offences of the erstwhile management forthe offences committed prior to initiation of CIRP and approval ofthe resolution plan by the adjudicating authority further jeopardizesthe interest of the allottees/creditors – Held: No case whatsoever isEmade out to seek invalidation of s.32A – The boundaries of thisCourt’s jurisdiction are clear – The wisdom of the legislation is notopen to judicial review – Having regard to the object of the Code,the experience of the working of the code, the interests of allstakeholders including most importantly the imperative need to

Fattract resolution applicants who would not shy away from offeringreasonable and fair value as part of the resolution plan if thelegislature thought that immunity be granted to the corporate debtoras also its property, it hardly furnishes ground for this Court tointerfere – The provision is carefully thought out – It is not as if the

wrongdoers are allowed to get away – They remain liable – TheGextinguishment of the criminal liability of the corporate debtor isapparently important to the new management to make clean breakwith the past and start on clean slate – The immunity is premisedon various conditions being fulfilled – There must be resolutionplan – It must be approved – There must be change in the controlHof the corporate debtor – The new management cannot be the

disguised avatar of the old management – It cannot even be therelated party of the corporate debtor – The new management cannotbe the subject matter of an investigation which has resulted inmaterial showing abetment or conspiracy for the commission of theoffence and the report or complaint filed thereto – These ingredientsare also insisted upon for claiming exemption of the bar from actionsagainst the property – Significantly every person who wasassociated with the corporate debtor in any manner and who wasdirectly or indirectly involved in the commission of the offence interms of the report submitted continues to be liable to be prosecutedand punished for the offence committed by the corporate debtor –The corporate debtor and its property in the context of the schemeof the code constitute distinct subject matter justifying the specialtreatment accorded to them – Creation of criminal offence as alsoabolishing criminal liability must ordinarily be left to the judgementof the legislature – Attaining public welfare very often needs delicatebalancing of conflicting interests – As to what priority must beaccorded to which interest must remain legislative value judgementand if seemingly the legislature in its pursuit of the greater goodappears to jettison the interests of some it cannot unless it strikinglyill squares with some constitutional mandate suffer invalidation –There is no basis at all to impugn the Section on the ground that itviolates Articles 19, 21 or 300A – Insolvency and Bankruptcy Code,2016 – s.32A.Insolvency and Bankruptcy Code (Amendment) Act, 2020 –s.3 –s.3 of the impugned amendment, amended s.7(1) of theInsolvency and Bankruptcy Code, 2016 – Amendment by s.3 of theimpugned amendment incorporated three provisos to s.7(1) – Thethird proviso provided that where an application for initiating thecorporate insolvency resolution process against corporate debtorhas been filed by financial creditor referred to in the first andsecond provisos and has not been admitted by the AdjudicatingAuthority before the commencement of the Insolvency andBankruptcy Code (Amendment) Act, 2020, such application shallbe modified to comply with the requirements of the first or secondproviso within thirty days of the commencement of the said Act,failing which the application shall be deemed to be withdrawn beforeits admission – Held: The third proviso is one-time affair – It isintended only to deal with those applications, u/s.7, which were

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Afiled prior to 28.12.2019, when, by way of the impugned Ordinance,initially, the threshold requirements came to be introduced by thefirst and the second impugned provisos – In other words, thelegislative intention was to ensure that no application u/s.7 couldbe filed after 28.12.2019, except upon complying with therequirements in the first and second provisos – The Legislature didBnot stop there – It has clearly intended that the threshold requirementit imposed, will apply to all those applications, which were filed,prior to 28.12.2019 as well, subject to the exception that theapplications, so filed, had not been admitted, u/s.7(5) – In other

words, the Legislature intended that in every application, filed underCs.7, by the creditors covered by the first proviso and by the allotteesgoverned by the second proviso, should also be embraced by thenewly imposed 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 whichstood admitted as on the date of the Ordinance – It is also clear thatDthe consequence of failure to comply with the threshold requirement,in regard to applications, which have been filed earlier, was thatthey would stand withdrawn – When applications were filed underthe unamended provisions of s.7, at any rate it would transforminto vested right – The vested right is to proceed with the actionEtill its logical and legal conclusion – No doubt, there may not be avested right as regard mere procedure and while limitation,ordinarily, belongs to the domain of procedure, should new lawshorten the existing period of limitation, such law would notoperate in regard to the right of action which is vested – Everysovereign Legislature is clothed with competence to makeFretrospective laws – It is open to the Legislature, while makingretrospective law, to take away vested rights – If vested right canbe taken away by retrospective law, there can be no reason whythe Legislature cannot modify the vested rights – The imposition ofa threshold requirement being mandatory and irreducible minimumGeven, if it is to be achieved as and after the date of the amendment,constitutes an intrusion into the substantive right of action vestedin the individual creditor – The action of the creditor was not acompleted transaction – As regards his conduct in the past, viz.,moving u/s.7, it is incomplete but the action was commenced – Butthe law (the 3[rd] proviso) impairs the past action qua the future –H

Imposing the threshold requirement under the 3[rd] proviso, is not amere matter of procedure – It impairs vested rights – Prescribing atime limit in regard to pending applications, cannot be, per se,described as arbitrary, as otherwise, it would be an endless anduncertain procedure – The applications would remain part of thedocket and also become Damocles Sword overhanging the debtorand the other stakeholders with deleterious consequences also quathe objects of the Code – Insolvency and Bankruptcy Code, 2016 –s.7.Insolvency and Bankruptcy Code, 2016 – Need of – Held:The Code was an imperative need for the nation to try and catch upwith 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 assetsof ailing concerns and also, the balancing the interests of allstakeholders.

Amendment – Clarificatory amendment – Is retrospective innature.

Legislation – Plenary Legislation – Challenge to – Grounds– Discussed.

Legislation – Plenary Legislation – Challenge to – On groundof malice – Held: While malice may furnish ground in anappropriate case to veto administrative action, malice does notfurnish ground to attack plenary law.

Dismissing the writ petitions and transferred case, the Court

HELD:1.1. The grounds on which plenary law can bechallenged are well established. law can be successfullychallenged if contrary to the division of powers, either theParliament or the State Legislature usurps power that does notfall within its domain thus, rendering it incompetent to make suchlaw. Secondly, law made contravening Fundamental Rightsguaranteed under Part III of the Constitution of India would bevisited with unconstitutionality and declared void to the extentof its contravention. Needless to say, law within the meaning ofArticle 19 of the Constitution would remain valid qua non-citizen.Thirdly, apart from Fundamental Rights, the supremacy of the

AConstitution vis-a-vis the ordinary legislation, even when the lawis plenary legislation, is preserved with view that legislationmust be in conformity with the other provisions of theConstitution. [Para 47][955-C-F]

1.2. plenary law if it is found to be manifestly arbitrary itBbecomes vulnerable. [Para 50][958-C]

1.3. law, be it the offspring of Legislature, it falls foul ofArticle 14 if it is found to be vague. [Para 51][958-E]

1.4. It has been urged that the law was created by way ofCpandering to the real estate lobby and succumbing to theirpressure or by way of placating their vested interests. Such anargument is nothing but thinly disguised attempt at questioningthe law of the Legislature based on malice. While malice mayfurnish ground in an appropriate case to veto administrativeDaction it is trite that malice does not furnish ground to attack aplenary law. [Para 52][958-G; 959-A, B-C]

1.5. supreme legislature cannot be cribbed, cabined orconfined by the doctrine of promissory estoppel or estoppel. Itacts as sovereign body. The theory of promissory estoppel, onEthe one hand, has witnessed an incredible trajectory of growthbut it is incontestable that it serves as an effective deterrent toprevent injustice from Government or its agencies which seekto resile from representation made by them, without just cause.[Para 54][959-E-G]

1.6. mere charge of either under inclusiveness or overinclusiveness which is not difficult to make hardly suffices topersuade the court to strike down law. There is wide latitudeallowed in the legislature in these matters. The examinationcannot be extended to find out whether there is mathematicalGprecision or wooden equality established. The working of thestatute may produce further issues, all of it may not be fullyperceived 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 cannotbe oblivious to the power of the legislative to respond by steppingin with necessary amendment. There is nothing like perfectlaw and as with all human institutions there are bound to beimperfections. What is significant is however for the court rulingon constitutionality, the law must present clear departure fromconstitutional limits. [Para 121][1005-E-H]

1.7. The mere difficulties in given cases, to comply with alaw can hardly furnish ground to strike it down. As to what wouldconstitute the real estate project, it must depend on the terms &conditions and scope of particular real estate project in whichallottees are part of. These are factual matters to be consideredin the facts of each case. [Para 124][1006-G-H]

2. The rationale behind, confining allottees to the same realestate project, is to promote the object of the Code. Once thethreshold requirement can pass muster when tested in the anvilof challenge based on Articles 14, 19 and 21, then, there is bothlogic and reason behind the legislative value judgment that theallottees, who must join the application under the impugnedprovisos, must be related to the same real estate project. Theconnection with the same real estate project is crucial to thedetermination of the critical mass, which Legislature has in mind,as part of its scheme, to streamline the working of the Code. Ifit is to embrace the total number of allottees of all projects, whicha Promoter of real estate project, may be having, in one sense,it will make the task of the applicant himself, more cumbersome.It becomes sword, which will cut both ways. This is for thereason that the complaints, relating to different projects, may bedifferent. With regard to one project of Promoter of real estateproject, maybe, in the advanced stage, the allottees in particularproject, may not have much of complaint. The complaint, inrelation to yet another project, may be more serious. If thecomplaint in respect of the latter, attracts the attention of criticalmass of allottees, and the proposed applicant is part of that projectin the said project, then, it may be easier for the allottees to fulfilthe statutory mantra in the impugned provisos, with the junctionof likeminded souls. If, on the other hand, the requirement was

Ato make search for allottees of different projects, as would bethe case, if the entirety of the allottees, under different projects,were to be reckoned, the task would have been much morecumbersome. The requirement of the allottees, being drawn fromthe same project, stands to reason and also does not suffer fromBany constitutional blemish. [Para 140][1013-H; 1014-A-E]

3. There can be no doubt that the requirement of thresholdunder the impugned proviso, in Section 7(1), must be fulfilled ason the date of the filing of the application. [Para 141][1014-G-H]

C4. In the matter of presentation of an application underSection 7, if the threshold requirement, under the impugnedprovisos, stands fulfilled, the requirement of the law must betreated as fulfilled. The contention, relating to the ambiguity andconsequent unworkability and the resultant arbitrariness, isclearly untenable. If an allottee is able to, in other words, satisfyDthe requirements, as on the date of the presentation, therequirement of the impugned law is fulfilled. [Para 143][1016-A-

5. It does not matter whether person has one or moreEallotments in his name or in the name of his family members. Aslong as there are independent allotments made to him or his familymembers, all of them would qualify as separate allottees and theywould count both in the calculation of the total allotments, as alsoin reckoning the figure of hundred allottees or one-tenth of theallottees, whichever is less. [Para 146][1017-F-G]F

6. The object of the Statute, admittedly, is to ensure thatthere is critical mass of persons (allottees), who agree that thetime is ripe to invoke the Code and to submit to the inexorableprocesses under the Code, with all its attendant perils. The objectof maintaining speed in the CIRP and also the balancing of interestGof all the stakeholders, would be promoted by the view that as inthe case of the Companies Acts, 1956 and 2013, that for thepurpose 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, joint allotteesof single apartment, will be treated as only one allottee. Anyother view can lead to clear abuse and defeating of the object ofthe Code. If, for instance, single apartment is taken in the nameof hundred persons, single allottee, who in turn comprise ofrelatives or family members or friends, can move an application,even though the position ante would be restored, which meansthat only the allottee qua one apartment, plot or building, is beforethe Authority and it would not really represent critical mass ofthe allottees in the real estate project concerned. [Para 147][1018-B-E]

7. The Central Government, having regard to the schemeof Companies Act, is intricately interconnected with themanagement of the companies. It had powers of investigationinto the affairs of the companies under Section 235 and Section237. The purport of Sections 397 and 398 include the conduct ofthe affairs of the company in any manner prejudicial to the publicinterest or also, no doubt, prejudicial to member or members. Insuch circumstances, clothing the Central Government with thepower to waive the requirement and permitting the applicationto be presented by even single member, is in sync with thescheme of the Companies Act. The role of the Central Governmentis different under the Code. In fact, the Central Government doesnot have any role, as such under the Code. It acts only throughthe designated Authorities under the Code. The Code is aboutinsolvency resolution and on failure liquidation. The scheme ofthe Code is unique and its objects are vividly different from thatof the Companies Act. Consequently, if the Legislature felt thatthreshold requirement representing critical mass of allottees,alone would satisfy the requirement of valid institution of anapplication under Section 7, it cannot be dubbed as eitherdiscriminatory or arbitrary. [Para 151][1019-D-G]

8. Invalidating law made by competent Legislature, onthe basis of what the Court may be induced to conclude, as abetter arrangement or morewise and even fairer system, isconstitutionally impermissible. If, the impugned provisions areotherwise not infirm, they must pass muster. [Para 157][1023-E]

A9. The law giver has created mechanism, namely, theassociation of allottees through which the allottees are expectedto gather information about the status of the allotments includingthe names and addresses of the allottees. One cannot proceedon the basis in case which involves challenge to statute thatthe information to be gathered under the statute will not beBavailable on the basis that the statute will not be worked ascontemplated by the law giver. [Para 163][1030-C-D]

10. The law does not interdict the creation of class withina class absolutely. Should there be rational basis for creating asub-class within class, then, it is not impermissible. classCwithin sub-class, is indeed not antithetical to the guarantee ofequality under Article 14. [Para 188][1046-G-H; 1047-B]

11. Allottees are, indeed, financial creditors. They dopossess certain characteristics, however, which appear to haveappealed to the Legislature as setting them apart from theDgenerality of financial creditors. These features, which set themapart, have been clearly indicated in the stand of the Union. Theyare: (i) Numerosity; (ii) Heterogeneity; and (iii) The individualityin decision making. [Para 189][1047-B-D]

12. In the case of the allottees of real estate project, it isEthe approach of the Legislature that in real estate project therewould be large number of allottees. There can be hundreds oreven thousands of allottees in project. If single allottee, as afinancial creditor, is allowed to move an application underSection 7, the interests of all the other allottees may be put inFperil. This is for the reason that as stakeholders in the real estateproject, having invested money and time and looking forward toobtaining possession of the flat or apartment and faced with thesame state of affairs as the allottee, who moves the applicationunder Section 7 of the Code, the other allottees may have adifferent take of the whole scenario. Some of them may approachGthe Authority under the RERA. Others may, instead, resort tothe For under the Consumer Protection Act, though, the remedyof civil suit is, no doubt, not ruled out. Ordinarily, the allotteewould have the remedies available under RERA or the Consumer

Protection Act, as the more effective option. In suchcircumstances, if the Legislature, taking into consideration, thesheer numbers of group of creditors, viz., the allottees of realestate projects, finds this to be an intelligible differentia, whichdistinguishes the allottees from the other financial creditors, whoare not found to possess the characteristics of numerosity, then,it is not for this Court to sit in judgment over the wisdom of sucha measure. [Para 192][1049-B-E]

13. The enquiry must not end with finding that there is anintelligible differentia, to be found in the numerosity, heterogeneityand individuality in decision-making of the allottees. The lawfurther requires that the differentia must have bear rationalnexus with the object of the law. [Para 193][1049-F]

14. The object of the law is clear. radical departure wascontemplated from the erstwhile regime, which was essentiallycontained in The Sick Industrial Companies (Special Provisions)Act, 1985, and which manifested deep malaise, which impactedthe economy itself. To put it shortly, the procedures involvedunder the Act, simply meant procrastination in matters, wherespeed and dynamic decisions were the crying need of the hour.The value of the assets of the Company in distress, was wastedaway both by the inexorable and swift passage of time and tardyrate at which the forums responded to the problem of financialdistress. The Code was an imperative need for the nation to tryand catch up with the rest of the world, be it in the matter of easeof doing business, elevating the rate of recovery of loans,maximization of the assets of ailing concerns and also, thebalancing the interests of all stakeholders. The Code purportsto achieve the object of maximization of the assets of corporatebodies, inter alia, which have slipped into insolvency. Present adefault, which, no doubt, is not barred by time (subject to thepower of the Authority under Section 5 of the Limitation Act),the Insolvency Resolution Process can be triggered. [Para194][1049-G-H; 1050-A-C]

15. Resolution Plan is intended to resuscitate an ailingcorporate debtor and keep it going as going concern. The

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Aimportance of rescuing ailing businesses in the form of infusingnew life in such concerns, cannot be understated. Its significancelies in various directions. There would be various categories ofcreditors, of which, the legislative choice appears to show somedegree of preference for the financial creditors, particularly inthe form of banks and financial institutions. One of the chief goalsBof the Code is to prevent the loss of the value of capital. If therecovery of the loan is effected at the earliest, it translates intothe availability of the recovered capital for being lent to otherentrepreneurs, and this is an aspect, which goes to the root ofthe matter. With every passing hour, not unnaturally, depreciationCwill claim its victim in the form of diminution of value of the assets.Should insolvency pass into the stage of liquidation, the loss isnot only of the concerned businesses, but it also would representa loss for the Nation. This is, undoubtedly, apart from theimpairment of the interests of all stakeholders. The stakeholderswould include the financial creditors and the operational creditors,Das well. Employees of the failed business, would take direct hit.Therefore, the Code accords the highest importance to speed inthe matter of undergoing the process of insolvency. [Para194][1050-F-H; 1051-A-B]

16. The speed, with which the processes can be conductedEand completed, is based on the volume of the litigation. TheAdjudicating Authorities and the Appellate Bodies, viz.,N.C.L.A.T., are authorities under other enactments, as well. Theyare hard-pressed for time. The matters, which are covered bythe Code, may present convoluted facts. The issues may bristleFwith complications, both in points of law and also facts. If, out of alarge body of financial creditors belonging to sub-group, as forinstance allottees of real estate project, were to be given thefreedom to activise the Code, then, the possibility of multipleindividual actions, is spectre, which the Legislature, must bepresumed to be aware of. In other words, the Legislature becameGalive to the peril of entire object of the Code, being derailed bypermitting the individual players crowding the docket of theAuthorities under the Code, and resultantly, reviving the verystate of affairs, which compelled the Legislature to script newdawn in this area of law. Instead, having regard to the numerosity,Hthe Legislature has thought it fit to adopt balanced approach by

not taking the allottee out of the fold of the financial creditorsaltogether. The allottee continues to be financial creditor. Allthat is envisaged is the legislative value judgment that criticalmass is indispensable for allottees to be present before the Code,can be activised. The purport of the critical mass of applicantswould ensure that reasonable number of persons similarlycircumstanced, form the view that despite the remedies availableunder the RERA or the Consumer Protection Act or civil suit,the invoking of the Code is the only way out, in particular case.[Para 196][1051-D-H; 1052-A-B]

17. One of the objects is the balancing of the interests ofall stakeholders. By imposing threshold limit of either hundredallottees or if the number of allottees going by the criteria ofone-tenth of the allottees is, even less than hundred, then, thesaid number of allottees must agree to invoke the Code. This isagain, based on the intelligible differentia of heterogeneity. Byheterogeneity, is meant, differences between seeminglyhomogenous group. All allottees of real estate project form aclass. All of them have stakes in the prompt and effectivecompletion of the real estate project. There is plurality ofremedies, which the law provides. More importantly, the outcomeof activising the Code, is almost like an uncertain wager. Theoutcome of invoking the Code by individual allottees would beapart from clogging the dockets of the Adjudicating Authoritieswith even more voluminous files leading to greater delay, that atthe instance of such individual allottees, what would be perceivedas an avoidable calamity, is perpetuated. In other words, while avast majority of allottees may see reason in either giving timeand reposing faith in existing management of real estate projector successfully invoking the other remedies available to them,an individual allottee, out of the heterogenous group, would throwthe spanner in the works and bring the entire real estate projectitself to possible doom. [Para 196][1052-D-H; 1053-A-B]

18. The individual allottee, with high-level of subjectivityin decision-making, may take plunge at invoking the Code,without having more global view of the consequences, whichwill follow. Any such attempt would only be dubbed as frivolous.

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AThis attempt by individual allottees would have the followingconsequences:

i. It would crowd an already heavy docket;

ii. It would consequently slow down the processes underthe Code, even with respect to matters, which may be moreBgenuine and require greater and more timely attention;iii. It will defeat the object of the balancing the interests ofall stakeholders. [Para 197][1053-E-G]

19. The law under scrutiny is an economic measure. InCdealing with the challenge on the anvil of Article 14, the Courtwill not adopt doctrinaire approach. law cannot operate in avacuum. In the concrete world, when the law is put into motion inpractical experiences, bottlenecks that would flow from itsapplication, are best envisaged by the Law Givers. Solutions tovexed problems made manifest through experience, would indeedDrequire good deal of experimentation, as long as it passesmuster in law. It is no part of court’s function to probe into whatit considers to be more wise or better way to deal with problem.In economic matters, the wider latitude given to the Law Giveris based on sound principle and tested logic over time. [ParaE199][1054-G-H; 1055-A-B]20. There cannot be any doubt that intrinsically financialcreditor and an operational creditor are distinct. An operationalcreditor is one to whom money is due on account of goods orservices supplied to the debtor. The financial creditor on the otherFhand, is so described, on account of there being the element ofborrowing. This distinction is indisputable. What is unique to thereal estate developer vis-a-vis operational debts is that thedeveloper is the debtor as an allottee funds his own apartmentby paying amounts in advance. On the other hand, in case ofoperational debt, the person who has supplied the goods andGservices, becomes the creditor and the corporate debtor is onewho has availed such services. Another distinction is that anoperational creditor has no interest or stake in the corporatedebtor. The allottee is, on the other hand, vitally concerned withthe financial health of the corporate debtor. Should financial ruinoccur, the real estate project will come to nought. Should suchH

an event take place also, the allottee would not be in positionto either claim or get compensation or even refund with interest.Thirdly, there is no consideration for the time value of money inthe operational debt. This is not so in the case of an allottee.[Para 212][1065-F-H; 1066-A-C]

21. An action under the Code by way of an application underSection 7 is an action in rem. The recovery of the amounts paid isnot what is primarily contemplated under the Code. The vires ofthe impugned provisions must be judged without turning blindeye to the distinction between the wisdom and the legislativevalue judgment behind the Statute being immune from judicialscrutiny on the one hand and hostile discrimination falling foulof the mandate of equality under Article 14, being fatal to theStatute. In this case, while it may be true that the allottees areunsecured creditors and in that regard, they are similar to theoperational creditors and it also may be true that many contractsunder real estate projects, may not involve large sums as thesubject matter of advances by banks and other financialinstitutions, the similarity between the two ends there. What isof greater importance is the distinctions and the most vital pointwhich sets them apart, in the matter of pronouncing on the viresof the provisos under Section 7 is the numerosity of the allottees,and what is more not being homogeneous in what they want in aparticular situation, since the law has indeed endowed the allotteeswith different remedies, having different implications, be it underthe Consumer Protection Act or under RERA. If the Legislaturefelt that having regard to the consequences of an application underthe Code, when such large group of persons, pull at each other,an additional threshold be erected for exercising the right underSection 7, certainly, it cannot suffer constitutional veto at thehands of Court exercising judicial review of legislation. [Para213][1066-F; 1067-B-F]

22. This is not case where the right of the allottee iscompletely taken away. All that has happened is half-way houseis built between extreme positions, viz., denying the rightaltogether to the allottee to move the application underSection 7 of the Code and giving an unbridled license to singleperson to hold the real estate project and all the stakeholders

Athereunder hostage to proceeding under the Code which mustcertainly pass inexorably within stipulated period of time shouldcircumstances exists under Section 33 into corporate death withthe unavoidable consequence of all allottees and not merely theapplicant under Section 7 being visited with payment out of theliquidation value, the amounts which are only due to the unsecuredBcreditor. The point of distinction, between financial creditor inthis case, the allottees of real estate project and the operationalcreditors, as contained in Section 7 on the one hand and Sections8 and 9 are preserved. In other words, the operational creditorstill has to cross the threshold of not being shut off from theCapplication not being processed in the teeth of the defense allowedto the corporate debtor in regard to an operational creditor. Allthat has happened is the Legislature in its wisdom has found thatthe greater good lies in conditioning an absolute right whichexisted in favour of an allottee by requirements which wouldensure some certain element of consensus among the allottees.DThe requirement is mere one-tenth of the allottees. This is anumber which goes to policy and lies exclusively within thewisdom of the Legislature. [Para 214][1067-G-H; 1068-A-D]

23. The first proviso is invulnerable. The impact of theinsertion of sub-section 3A in Section 25A is to be noticed. SectionE25A, inter alia, deals with the exercise of rights and the liabilitiesof authorised representative of creditors like debenture holdersand allottees. After the insertion of sub-section 3A in section25A, the majority of the creditors of class is permitted to callthe shots. It’s view, in other words, will hold sway. This is subjectFto the Code otherwise. The legislative understanding is clearthat in regard to such creditors bearing the hallmark of largenumbers they are required to be treated differently. If they arenot treated differently it would spell chaos and the objects of theCode would not be fulfilled. It is an extension of this basic

principle which has led to the insertion of the impugned proviso.GInsisting on threshold in regard to these categories of creditorswould lead to the halt to indiscriminate litigation which wouldresult in an uncontrollable docket explosion as far as theauthorities which work the Code are concerned. The debtor whois apparently stressed is relieved of the last straw on the camel’sH

back, as it were, by halting individual creditors whose views arenot shared even by reasonable number of its peers rushing inwith applications. Again, as in the case of the allottees, this is nota situation where while treating them as financial creditors theyare totally deprived of the right to apply under Section 7 as partof the legislative scheme. The legislative policy reflects an attemptat shielding the corporate debtor from what it considers wouldbe either for frivolous or avoidable applications. What we meanby avoidable applications is decision which would not be takenby similarly placed creditors keeping in mind the consequencesthat would ensue not only in regard to persons falling in the samecategory but also the generality of creditors and otherstakeholders. All that the amendment is likely to ensure is thatthe filing of the application is preceded by consensus at least bya minuscule percentage of similarly placed creditors that the timehas come for undertaking legal odyssey which is beset withperils for the applicants themselves apart from others. As far asthe percentage of applicants contemplated under the proviso itis clear that it cannot be dubbed as an arbitrary or capriciousfigure. The legislature is not wanting in similar requirementsunder other laws. The provisions of the Companies Act, 2013and its predecessors contained similar provisions. Allowing whatis described as ‘lone Ranger’ applications beset with extremelyserious ramifications which are at cross purposes with the objectsof the code. This is apart from it in particular spelling avoidabledoom for the interest of the creditors falling in the same categories.The object of speed in deciding CIRP proceedings would also beachieved by applying the threshold to debenture holders andsecurity holders. The dividing line between wisdom or policy ofthe legislature and limitation placed by the Constitution mustnot be overlooked. [Para 220][1071-D-H; 1072-A-E]

24. The intention of the Legislature was always to targetthe corporate debtor only insofar as it purported to prohibitapplication by the corporate debtor against itself, to prevent abuseof the provisions of the Code. It could never had been theintention of the Legislature to create an obstacle in the path ofthe corporate debtor, in any of the circumstances contained inSection 11, from maximizing its assets by trying to recover theliabilities due to it from others. Not only does it go against the

Abasic commonsense view but it would frustrate the very object ofthe Code, if corporate debtor is prevented from invoking theprovisionsof the Code either by itself or through his resolutionprofessional, who at later stage, may, don the mantle of itsliquidator. The provisions of the impugned Explanation, thus,clearly amount to clarificatory amendment. clarificatoryBamendment, it is not even in dispute, is retrospective in nature.The Explanation merely makes the intention of the Legislatureclear beyond the pale of doubt. The argument of the petitionersthat the amendment came into force only on 28.12.2019 and,therefore, in respect to applications filed under Sections 7, 9 orC10, it will not have any bearing, cannot be accepted. TheExplanation, in the facts of these cases, is clearly clarificatory innature and it will certainly apply to all pending applications also.[Para 243][1084-E-H; 1085-A]25. No case whatsoever is made out to seek invalidation ofDSection 32A. The boundaries of this Court’s jurisdiction are clear.The wisdom of the legislation is not open to judicial review. Havingregard to the object of the Code, the experience of the workingof the code, the interests of all stakeholders including mostimportantly the imperative need to attract resolution applicantswho would not shy away from offering reasonable and fair valueEas part of the resolution plan if the legislature thought thatimmunity be granted to the corporate debtor as also its property,it hardly furnishes ground for this this Court to interfere. Theprovision is carefully thought out. It is not as if the wrongdoersare allowed to get away. They remain liable. The extinguishment

Fof the criminal liability of the corporate debtor is apparentlyimportant to the new management to make clean break withthe past and start on clean slate. One must also not overlookthe principle that the impugned provision is part of an economicmeasure. As far as protection afforded to the property is concerned

there is clearly rationale behind it. Having regard to the objectGof the statute one hardly sees any manifest arbitrariness in theprovision. [Para 257][1098-B-D, F]

27. The immunity is premised on various conditions beingfulfilled. There must be resolution plan. It must be approved.There must be change in the control of the corporate debtor.H

The new management cannot be the disguised avatar of the oldmanagement. It cannot even be the related party of the corporatedebtor. The new management cannot be the subject matter of aninvestigation which has resulted in material showing abetmentor conspiracy for the commission of the offence and the report orcomplaint filed thereto. These ingredients are also insisted uponfor claiming exemption of the bar from actions against the property.Significantly every person who was associated with the corporatedebtor in any manner and who was directly or indirectly involvedin the commission of the offence in terms of the report submittedcontinues to be liable to be prosecuted and punished for theoffence committed by the corporate debtor. The corporate debtorand its property in the context of the scheme of the code constitutea distinct subject matter justifying the special treatment accordedto them. Creation of criminal offence as also abolishing criminalliability must ordinarily be left to the judgement of the legislature.Erecting bar against action against the property of the corporatedebtor when viewed in the larger context of the objectives soughtto be achieved at the forefront of which is maximisation of thevalue of the assets which again is to be achieved at the earliestpoint of time cannot become the subject of judicial veto on theground of violation of Article 14. Attaining public welfare veryoften needs delicate balancing of conflicting interests. As to whatpriority must be accorded to which interest must remain alegislative value judgement and if seemingly the legislature inits pursuit of the greater good appears to jettison the interests ofsome it cannot unless it strikingly ill squares with someconstitutional mandate suffer invalidation. There is no basis atall to impugn the Section on the ground that it violates Articles19, 21 or 300A. [Paras 258, 259][1098-F-H; 1099-A-E]

28. The third proviso is one-time affair. It is intendedonly to deal with those applications, under Section 7, which werefiled prior to 28.12.2019, when, by way of the impugnedOrdinance, initially, the threshold requirements came to beintroduced by the first and the second impugned provisos. In otherwords, the legislative intention was to ensure that no applicationunder Section 7 could be filed after 28.12.2019, except uponcomplying with the requirements in the first and second provisos.

AThe Legislature did not stop there. It has clearly intended thatthe threshold requirement it imposed, will apply to all thoseapplications, which were filed, prior to 28.12.2019 as well, subjectto the exception that the applications, so filed, had not beenadmitted, under Section 7(5). In other words, the Legislatureintended that in every application, filed under Section 7, by theBcreditors covered by the first proviso and by the allotteesgoverned by the second proviso, should also be embraced by thenewly imposed 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 applicationsCwhich stood admitted as on the date of the Ordinance. It is alsoclear that the consequence of failure to comply with the thresholdrequirement, in regard to applications, which have been filedearlier, was that they would stand withdrawn.[Para 261][1100-B-E]

D29. Every sovereign Legislature is clothed with competenceto make retrospective laws. It is open to the Legislature, whilemaking retrospective law, to take away vested rights. If vestedright can be taken away by retrospective law, there can be noreason why the Legislature cannot modify the vested rights. [Para333][1145-G-H; 1146-A]E

30. The financial creditors covered by the 3[rd] proviso wereclothed with statutory right under Section 7. This right wasavailable to be exercised by an individual creditor, by himself orjointly with others. The imposition of threshold requirementbeing mandatory and irreducible minimum even, if it is to beFachieved as and after the date of the amendment, constitutes anintrusion into the substantive right of action vested in theindividual creditor. The action of the creditor was not completedtransaction. As regards his conduct in the past, viz., moving underSection 7, it is incomplete but the action was commenced. ButGthe law (the 3[rd] proviso) impairs the past action qua the future.Imposing the threshold requirement under the 3[rd] proviso, is nota mere matter of procedure. It impairs vested rights. It hasconditioned the right instead, in the manner provided in the firstand the second proviso. This Court has already upheld the firstand second proviso, which, in fact, operates only in the future. InH

that sense, the Legislature has purported to equate persons whohad not filed applications with persons like the petitioners whohad filed the applications under the unamended law. [Para346][1149-F-H; 1150-A-B]

31. The requirement of compliance with the thresholdnumerical requirements under the first and second proviso is anintegral and inseparable part of the third proviso. [Para 347][Para348][1150-E]

32. From the standpoint of public interest, every applicationmaintained by single applicant, is perceived as veritable threatto the fulfilment of the objectives of the Code. The continuanceof the applications could not, therefore, be in public interest. Itis, as if, the Legislature intended to apply its brakes in the formof asking the applicants to obtain the consensus of minimumnumber of similar stakeholders, before the applications could befurther processed. [Para 359][1154-D-E]

33. The law in question is an economic measure. This is acase where the Law Giver has not left anything to speculation ordoubt. [Para 360][1155-B]

34. The Legislature has power to impair and take awayvested rights. The limitation that flows, however, is from bothArticle 14 and 19 read with Article 21. It flows from the Doctrinethat the action of the State must be fair and reasonable. Thequestion, as to validity of the retrospective law, is matter to bejudged on consideration of the facts, the period of time, overwhich the retrospective law operates, the impact of the law onthe vested rights, the public interest, the nature of the right,which is the subject matter of the law and the terms of the law.[Para 361][1155-D-F]35. The nature of the right involved in this case, is theright of the financial creditors to move an application underSection 7. Though, Section 7 confers right upon the financialcreditor to file the application, the proceedings are one in rem.The Legislature was faced with the situation, where it felt thatthe requirement, as to maintainability of the application underSection 7, must, in regard to pending applications, be modified inthe manner done. There is determining principle, namely, the

Aperception from experience about how the entire object of theCode would stand jeopardised if applications already filed couldgo on even when fair and reasonable number of kindred soulsare not available to support it. Once there is principle, it cannotbe capricious, excessive or disproportionate unless the timegiven under the proviso is manifestly arbitrary. vested rightBunder statute can be taken away by retrospective law. rightgiven under statute can be taken away by another statute. Therewas considerable public interest behind such law. The sheernumbers, in which applications proliferated, combined with theresults it could produce, cannot be brushed aside as an irrationalCor capricious aspect to have been guided by in making the law.Being an economic measure, the wider latitude available to theLaw Giver, cannot be lost sight of. [Para 362][1155-F-H; 1156-A-C]

36. As regards the compelled withdrawal under the thirdDproviso of the pending applications is concerned, once theLegislature intended that the pending applications must be madecompliant with the threshold requirement, consequences for notdoing so had to be provided. Otherwise, it would have createdcomplete uncertainty and the applicant would have been dealtwith in manifestly arbitrary manner. Providing for theEconsequence of withdrawal before admission does not have theconsequence of preventing the fresh filing, even in regard to thesame default, after complying, no doubt, with the requirement ofthe first or the second proviso, cannot be dubbed as arbitrary. Nodoubt, there is lack of clarity in this regard in the provision but

Fon an understanding of the law, as expounded, the provision wascapable of being understood in the manner done. [Para 365][1156-G-H; 1157-A-B]

37. In regard to the first and the second provisos, they haveonly prospective operation. The creditors covered by theseGprovisos, are not subjected to any time limit (except, no doubt,the bar under Article 137 of the Limitation Act), in the matter ofgarnering the requisite support. However, prescribing time limitin regard to pending applications, cannot be, per se, described asarbitrary, as otherwise, it would be an endless and uncertainprocedure. The applications would remain part of the docket andH

also become Damocles Sword overhanging the debtor and theother stakeholders with deleterious consequences also qua theobjects of the Code. The period could have been more fair to thepetitioners by being longer but that is where one must bear inmind, the limits of jurisdiction. Where would the Court draw theline? It is difficult to hold that within the time limit of 30 days it isimpossible to comply with the requirements. [Para 366 and369][1157-B-D; 1158-C]

38. The impugned amendments are upheld, subject todirections issued under Article 142 of the Constitution of India.[Para 372][1159-D]

The State of Gujarat and Others v. Shri Ambica MillsLtd., Ahmedabad and Others (1974) 4 SCC 656 : [1974]3 SCR 760; State of West-Bengal v. Anwar Ali AIR 1952SC 75 : [1952] SCR 284; E.P. Royappa v. State of TamilNadu and Another (1974) 4 SCC 3 : [1974] 2 SCR 348;Shayara Bano v. Union of India (2017) 9 SCC 1 :[2017] 9 SCR 797; Navtej Singh Johar and Others v.Union of India and Others (2018) 10 SCC 1 : [2018] 7SCR 379; Joseph Shine v. Union of India (2019) 3 SCC39 : [2018] 11 SCR 765; Justice K.S. Puttuswamy andOthers v. Union of India and Others (2017) 10 SCC 1: [2017] 10 SCR 569; Hindustan ConstructionCompany Ltd. and Others v. Union of India and OthersAIR 2020 SC 122; Shreya Singhal v. Union of India(2015) 5 SCC 1 : [2015] 5 SCR 963; K. Nagaraj andOthers v. State of Andhra Pradesh and Another (1985)1 SCC 523 : [1985] 2 SCR 579; State of HimachalPradesh v. Narain Singh (2009) 13 SCC 165 : [2009][10] SCR 821 – relied on.

Pioneer Urban Land and Infrastructure Ltd. andanother v. Union of India and Others (2019) 8 SCC416 : [2019] 10 SCR 381; Chitra Sharma and Othersv. Union of India and Others (2018) 18 SCC 575 :[2018] 12 SCR 1044; Motilal Padampat Sugar MillsCo. Ltd. v. State of U.P. (1979) 2 SCC 409 : [1979] 2SCR 641; Nagpur Investment Trust and Others v. Vithal

Rao and Others (1973) 1 SCC 500 : [1973] 3 SCR 39;B.K. Educational Services (P) Ltd. v. Parag Gupta &Associates (2019) 11 SCC 633 : [2018] 12 SCR 794;Swiss Ribbon Pvt. Ltd. & Ors. v. Union of India & Ors.(2019) 4 SCC 17 : [2019] 3 SCR 535; GarikapatiVeeraya v. N. Subbiah Choudhry AIR 1957 SC 540 :[1957] SCR 488; Thirumalai Chemicals Limited v. Unionof India and Others (2011) 6 SCC 739 : [2011] 4SCR 838; Delhi Metro Rail Corporation Ltd. v. TarunPal Singh and Others (2018) 14 SCC 161 : [2017] 14SCR 202; State of Karnataka and Others v. TheKarnataka Pawn Brokers Association and Others(2018) 6 SCC 363 : [2018] 10 SCR 409; Vasant GanpatPadvave (D) by LRs & Ors. v. Anant Mahadev Sawant(D) Through LRs. & Ors. 2019 (12) SCALE 572;Ameerunnissa Begum and Others v. Mahboob Begumand others [1953] SCR 404; State of Jammu andKashmir v. Triloki Nath Khosa and Others (1974) 1 SCC19 : [1974] 1 SCR 771; Murthy Match Works andothers v. Assistant Collector of Central Excise andAnother (1974) 4 SCC 428 : [1974] 3 SCR 121; AjoyKumar Banerjee and Others v. Union of India andOthers (1984) 3 SCC 127 : [1984] 3 SCR 252; AshutoshGupta v. State of Rajasthan and Others (2002) 4 SCC34 : [2002] 2 SCR 649; Indra Sawhney and Others v.Union of India and Others (1992) 3 Suppl. SCC 217 :[1992] 2 Suppl. SCR 454; Lord Krishna Sugar MillsLimited and Another v. Union of India and Another[1960] 1 SCR 39; State of Kerala and Another v. N.M.Thomas and Others (1976) 2 SCC 310 : [1976] 1SCR 906; State of West Bengal and Another v. RashBehari Sarkar and Another (1993) 1 SCC 479 : [1992]3 Suppl. SCR 351; State of Kerala v. Aravind RamakantModawdakar and Others (1999) 7 SCC 400; SansarChand Atri v. State of Punjab and Another (2002) 4SCC 154 : [2002] 2 SCR 881; Union of India andothers v. Godfrey Philips India Ltd. (1985) 4 SCC 369: [1985] 3 Suppl. SCR 123; K. Nagaraj and Others v.State of A.P. and Another (1985) 1 SCC 523 : [1985]2 SCR 579; State of Himachal Pradesh v. Narain Singh(2009) 13 SCC 165 : [2009] 10 SCR 821; Gujarat AgroIndustries Co. Ltd. v. Municipal Corporation of the Cityof Ahmedabad and Others (1999) 4 SCC 468 : [1999]2 SCR 895; Howrah Municipal Corporation andOthers v. Ganges Rope Co. Ltd. and Others (2004) 1SCC 663 : [2003] 6 Suppl. SCR 1212; ArcelormittalIndia Private Limited v. Satish Kumar Gupta and Others(2019) 2 SCC 1 : [2018] 12 SCR 362; Swiss RibbonsPrivate Limited and another v. Union of India andOthers (2019) 4 SCC 17 : [2019] 3 SCR 535; KarnailKaur and Others v. State of Punjab and Others (2015)3 SCC 206; Committee of Creditors of Essar Steel IndiaLimited Through Authorised Signatory v. Satish KumarGupta and Others (2019) SCCONLINE SC 1478; M.S.Shivananda v. Karnataka State Road TransportCorporation and Others (1980) 1 SCC 149 : [1980]1 SCR 684 ; Lalji Raja and Sons v. Hansraj Nathuram(1971) 1 SCC 721 : [1971] 3 SCR 815; Kanaya Ramand Others v. Rajender Kumar and Others (1985) 1SCC 436 ; J.P. Srivastava & Sons (P) Ltd. and Othersv. Gwalior Sugar Co. Ltd. and Others (2005) 1 SCC172 : [2004] 5 Suppl. SCR 648; Anjum Hussain andOthers v. Intellicity Business Park Private Limited andOthers (2019) 6 SCC 519 : [2019] 7 SCR 1036; Unionof India and Others v. Godfrey Philips India Ltd. (1985)4 SCC 369 : [1985] 3 Suppl. SCR 123; B.K.Educational Services Private Limited v. Parag Gupta& Associates (2019) 11 SCC 633 : [2018] 12 SCR 794;Rajahmundry Electric Supply Corporation Ltd. v.A. Nageshwara Rao and Others AIR 1956 SC 213 :[1955] SCR 1066; Chairman, Tamil Nadu HousingBoard v. T. N. Ganapathy (1990) 1 SCC 608 : [1990] 1SCR 272; Pioneer Urban Land and Infrastructure Ltd.and Another v. Union of India and Others (2019) 8SCC 416 : [2019] 10 SCR 381; Union of India v. TarsemSingh (2019) 9 SCC 304; State of Gujarat and Anotherv. Shree Ambica Mills Ltd. (1974) 4 SCC 656 : [1974] 3SCR 760; In Re The Special Courts Bill, 1978 (1979) 1

SCC 380 : [1979] 2 SCR 476; Ajoy Kumar Banerjeeand Ors. v. Union of India and Ors. (1984) 3 SCC 127: [1984] 3 SCR 252; Subramanian Swami v. Director,CBI and Ors. (2014) 8 SCC 682 : [2014] 6 SCR 873;Indira Sawney v. Union of India (1992) 3 Suppl. SCC217 : [1992] 2 Suppl. SCR 454; State of West Bengaland Ors. v. Rash Bihari Sarkar and Ors. (1993) 1 SCC479 : [1992] 3 Suppl. SCR 351; State of Kerala v.Aravind Ramakant Modawdakar and Ors. (1999) 7SCC 400; Sansar Chand Atri v. State of Punjab andAnother (2002) 4 SCC 154 : [2002] 2 SCR 881; HisHoliness Kesavananda Bharti Sripadagalvaru v. Stateof Kerala and Another (1973) 4 SCC 225 : [1973]0 Suppl. SCR 1; Innoventive Industries Limited v. ICICIBank and Another (2018) 1 SCC 407 : [2017] 8SCR 33; Vasant Ganpat Padave (D) by LRs. and Ors.v. Anant Mahadev Sawant (D) through LRs. and Ors.(2019) 12 SCALE 579; Shayara Bano v. Union of Indiaand Others (2017) 9 SCC 1 : [2017] 9 SCR 797;S. Sundaram Pillai and others v. R. Pattabiraman andOthers (1985) 1 SCC 591 : [1985] 2 SCR 643; SoniaBhatia v. State of U.P. and Others (1981) 2 SCC 585 :[1981] 3 SCR 239; Virtual Soft Systems Ltd. v.Commissioner of Income Tax, Delhi-I (2007) 9 SCC 665: [2007] 2 SCR 289; Hiralal Rattanlal and Ors. v. Stateof U.P. and another (1973) 1 SCC 216 : [1973] 2SCR 502; Hitendra Vishnu Thakur and Others v. Stateof Maharashtra and Others (1994) 4 SCC 602 : [1994]1 Suppl. SCR 360; Ambalal Sarabhai Enterprises Ltd.v. Amrit Lal & Co. and Another (2001) 8 SCC 397 :[2001] 2 Suppl. SCR 195; B.K. Educational ServicesPrivate Ltd. v. Parag Gupta and Associates (2019) 11SCC 633 : [2018] 12 SCR 794; Lalji Raja and Sons v.Hansraj Nathuram (1971) 1 SCC 721 : [1971] 3 SCR 815; Isha Valimohamed v. Haji Gulam Mohamad & HajiDada Trust (1974) 2 SCC 484 : [1975] 1 SCR 720;Bombay Stock Exchange v. V.S. Kandalgaonkar (2015)2 SCC 1 : [2014] 14 SCR 409; New India AssuranceCo. Ltd. v. Shanti Misra (1975) 2 SCC 840 : [1976]2 SCR 266; Vinod Gurudas Raikar v. NationalInsurance Co. Ltd. & Ors. (1991) 4 SCC 333 : [1991]3 SCR 912; Union of India v. Harnam Singh (1993) 2SCC 162 : [1993] 1 SCR 862; V. Dhanapal Chettiar v.Yesodai Ammal (1979) 4 SCC 214 : [1980] 1 SCR 334;D. C. Bhatia v. Union of India (1995) 1 SCC 104 :[1994] 4 Suppl. SCR 539; Mst. Bibi Sayeeda & Ors. v.State of Bihar and Others (1996) 9 SCC 516 : AIR1996 SC 1936 : [1996] 1 Suppl. SCR 799; M.S.Shivananda v. Karnataka SRTC (1980) 1 SCC 149 :[1980] 1 SCR 684; Rameshwar and Others v. Jot Ramand Another (1976) 1 SCC 194 : [1976] 1 SCR 847;Bansidhar v. State of Rajasthan (1989) 2 SCC 557 :[1989] 2 SCR 152; Mohinder Kumar and Others v. Stateof Haryana and Another (1985) 4 SCC 221 : [1985]2 Suppl. SCR 859; D. C. Bhatia and Others v. Unionof India and Another (1995) 1 SCC 104 : [1994] 4Suppl. SCR 539; Howrah Municipal Corporation andOthers v. Ganges Rope Co. Ltd. and Others (2004) 1SCC 663 : [2003] 6 Suppl. SCR 1212; ArcelormittalIndia Private Limited v. Satish Kumar Gupta & Others(2019) 2 SCC 1 : [2018] 12 SCR 362; B.K. EducationalServices Private Limited v. Parag Gupta and Associates(2019) 11 SCC 633 : [2018] 12 SCR 794; M.P. SteelCorporation v. Commissioner of Central Excise (2015)7 SCC 58; Mardia Chemicals Ltd. and Others v. Unionof India and Others (2004) 4 SCC 311 : [2004]3 SCR 982; P.D. Aggrawal & Others v. State of U.Pand Others (1987) 3 SCC 622 : [1987] 3 SCR 427;Darshan Singh v. Ram Pal Singh and Ors. (1992) 1Suppl. SCC 191 : [1990] 3 Suppl. SCR 212; K.S.Paripoornan v. State of Kerala (1994) 5 SCC 593 :[1994] 3 Suppl. SCR 405; State Bank’s Staff Union(Madras Circle) v. Union of India and Others AIR 2005SC 3446 : (2005) 7 SCC 584 : [2005] 3 Suppl.SCR 200; Delhi Transport Corpn. v. D.T.C. MazdoorCongress (1991) 1 Suppl. SCC 600 : [1990] 1 Suppl.SCR 142 and Vijay v. State of Maharashtra (2006) 6SCC 289 : [2006] 4 Suppl. SCR 81 – referred to.

924SUPREME COURT REPORTS

AGopeshur Pal v. Jiban Chandra Chandra and OthersAIR 1914 Calcutta 806 – referred to.

West v. Gwynne (1910) WLR 976; In Re: PulboroughParish School Board Election, Bourke v. Nutt (1894) 1QB 725; Abbott and Minister of Lands (1895) AC 425;BHamilton Gell v. White (1922) 2 K.B. 422; OdgenIndustries Pty. Ltd. v. Haider Doreen Lucas 3 WLR 75/(1969) (1) All England Reports 121; Director of PublicWorks and Another v. Ho Po Sang and Others [1961] 3WLR 39 and L’Office Cherifien Des Phosphates andanother And Yamashita-Shinnihon Steamship Co. Ltd.C(1994) 1 All ER 20 – referred to.

MANISH KUMAR v. UNION OF INDIA AND ANOTHER

926SUPREME COURT REPORTS

[2021] 14 S.C.R.

MANISH KUMAR v. UNION OF INDIA AND ANOTHER

CIVIL ORIGINAL JURISDICTION: Writ Petition (Civil) No.26 of 2020.

Under Article 32 of The Constitution of IndiaWith

AWrit Petition (C) No. 53, 28, 47, 27, 73, 328, 210, 191, 164, 163,166, 173, 182, 176, 177, 257, 341, 267, 333, 337, 388, 402, 390, 393, 783,579, 806, 714, 642, 805, 19, 33, 75, 165, 850, 374, 229, 228, 209 Of 2020And Transferred Case (c) No. 228/2020

Ms. Madhavi Diwan, ASG, Tushar Mehta, SG, Sajan Poovayya,BRana Mukherjee, Neeraj Kishan Kaul, Sr. Advs., Krishnamohan K.Menon, Chaitanyashil Priyadarshi, Ms. Dania Nayyar, Ms. ParulSachdeva, Akash Vajpayee, Vaibhav Manu Srivastava, Bhanu Pant, NamitSaxena, Piyush Singh, Aditya Parolia, Akshay Srivastava, NithinChandran, Rajesh Kumar, Gaurav Goel, Srijan Sinha, Himanshu Chaubey,Ashwarya Sinha, Santosh Kumar, Ayushmaan Vatsyayana, Ms. HemlataCRawat, Deepak Anand, Mareesh Pravir Sahay, Ms. Tasheem Ahmadi,Sudhir Kumar Gupta, Manish Gupta, Shikhil Suri, Shiv Kumar Suri, Ms.Madhu Suri, Ms. Shilpa Saini, Ms. Nikita Thapar, Ms. Vinishma Kaul,Ms. Priyanjali Singh, Ms. Rashi Bansal, Dinesh Chandra Pandey, DhruvGupta, Harshil Gupta, Arjun Singh Bhati, Annam D. N. Rao, AnnamDVenkatesh, Rahul Mishra, Sidharth Joshi, Gopal Singh Chauhan, SaurabhTrivedi, Mahesh Agarwal, Himanshu Satija, Raheel Patel, Ajitesh Soni,Rohan Talwar, Ramchandra Madan, Akash Lamba, E. C. Agrawala,Ms. Shivali, Nilotpal Shyam, Ms. Bharti Tyagi, Rajesh Goyal, SumitGehlawat, Tervender Singh, Abhishek Bharadwaj, Pai Amit, Ms. PankhuriBhardwaj, Rakesh Taneja, Parshuram A.L., Kumar Vaibhav, AnkitEAgrawal, Rahat Bansal, A.D.N. Rao, Annam Venkatesh,Chandrashekhar A. Chakalabbi, Shivanshu Kumar, Shiv Kumar Pandey,Awanish Kumar, Anshul Rai for M/s Dharmaprabhas Law Associates,Mayank Pandey, Ms. Misha Rohatgi Mohta, Johnson Subba, Ms. PurtiMarwaha Gupta, Dr. Anindita Pujari, Arvind Kumar Gupta, Ms. HennaFGeorge, Ms. Twisha Issar, Ms. Deval Singh, Om Narayan, Pallav Mongia,Kanu Agarwal, Ms. Sunita Sharma, Rajeev Ranjan, Ms. Sansriti Pathak,Arvind Kumar Sharma, Ms. Charu Ambwani, Hirendranath, SantanamSwaminadhan, Ms. Prakruti Golechha, Ms. Abhilasha Shrawat,Mrs. Aarthi Rajan, Amar Gupta, Divyam Agarwal, Daksh Ahluwalia,Ms. Pallavi Kumar, Adhiraj Gupta, Pratibhanu Singh, Shikhar Maniar,GMs. Raksha Aggarwal, Keshav Mohan, R.K. Awasthi, Prashant Kumar,Piyush Vats, Ms. Ritu Arora, Santosh Kumar - I, Rajesh P., KaranRajpurohit, Krishna Dev Jagarlamudi, Vikram Hegde, Rahul Kumar, Advs.for the appearing parties.

Respondent-in-personH

The Judgment of the Court was delivered by

K. M. JOSEPH, J.

1. The petitioners have approached this Court under Article 32 ofthe Constitution of India. They call in question Sections 3, 4 and 10 ofthe Insolvency and Bankruptcy Code (Amendment) Act 2020 (hereinafterreferred to as ‘the impugned amendments’, for short). Section 3 of theimpugned amendment, amends Section 7(1) of the Insolvency andBankruptcy Code, 2016 (hereinafter referred to as ‘the Code’, for short).Section 4 of the impugned amendment, incorporates an additionalExplanation in Section 11 of the Code. Section 10 of the impugnedamendment 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 financialcreditor:

(1) financial creditor either by itself or jointly with other financialcreditors, or any other person on behalf of the financial creditor,as may be notified by the Central Government, may file anapplication for initiating corporate insolvency resolution processagainst corporate debtor before the Adjudicating Authoritywhen default has occurred.”

Explanation- For the purposes of this sub section, default includesa default in respect of financial debt owed not only to the applicantfinancial creditor but to any other financial creditor of the corporatedebtor.

The amendment to the same by Section 3 of the impugnedamendment 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 forinitiating corporate insolvency resolution process against thecorporate debtor shall be filed jointly by not less than one hundredof such creditors in the same class or not less than ten per cent.of the total number of such creditors in the same class, whicheveris less:

Provided further that for financial creditors who are allottees undera real estate project, an application for initiating corporate

Ainsolvency resolution process against the corporate debtor shallbe filed jointly by not less than one hundred of such allottees underthe same real estate project or not less than ten per cent. of thetotal number of such allottees under the same real estate project,whichever is less:BProvided also that where an application for initiating the corporateinsolvency resolution process against corporate debtor has beenfiled by financial creditor referred to in the first and secondprovisos and has not been admitted by the Adjudicating Authoritybefore the commencement of the Insolvency and Bankruptcy Code(Amendment) Act, 2020, such application shall be modified toCcomply with the requirements of the first or second proviso withinthirty days of the commencement of the said Act, failing whichthe application shall be deemed to be withdrawn before itsadmission.”

3. Section 11 before the amendment read as follows:D

“11. Persons not entitled to make application. - The followingpersons shall not be entitled to make an application to initiatecorporate insolvency resolution process under this Chapter,namely:-

E(a) corporate debtor undergoing corporate insolvency resolutionprocess; or

(b) corporate debtor having completed corporate insolvencyresolution process twelve months preceding the date of makingof the application; or

F(c) corporate debtor or financial creditor who has violated anyof the terms of resolution plan which was approved twelve monthsbefore the date of making of an application under this Chapter; or

(d) corporate debtor in respect of whom liquidation order hasbeen made. Explanation 1 [I]. - For the purposes of this section, aGcorporate debtor includes corporate applicant in respect of suchcorporate debtor.”

The explanation which was inserted through the impugnedamendment reads as follows:

“Explanation II.- For the purposes of this section, it is herebyclarified that nothing in this section shall prevent corporate debtorreferred to in clauses (a) to (d) from initiating corporate insolvencyresolution process against another corporate debtor.”

4. Section 32A inserted through the impugned amendment readsas follows:

“32A. (1) Notwithstanding anything to the contrary contained inthis Code or any other law for the time being in force, the liabilityof corporate debtor for an offence committed prior to thecommencement of the corporate insolvency resolution processshall cease, and the corporate debtor shall not be prosecuted forsuch an offence from the date the resolution plan has beenapproved by the Adjudicating Authority under section 31, if theresolution plan results in the change in the management or controlof the corporate debtor to person who was not—

(a) promoter or in the management or control of the corporatedebtor or related party of such person; or

(b) person with regard to whom the relevant investigatingauthority has, on the basis of material in its possession, reason tobelieve that he had abetted or conspired for the commission ofthe offence, and has submitted or filed report or complaint tothe relevant statutory authority or Court:

Provided that if prosecution had been instituted during thecorporate insolvency resolution process against such corporatedebtor, it shall stand discharged from the date of approval of theresolution plan subject to requirements of this sub-section havingbeen fulfilled:

Provided further that every person who was “designated partner”as defined in clause (j) of section 2 of the Limited LiabilityPartnership Act, 2008, or an “officer who is in default”, as definedin clause (60) of section 2 of the Companies Act, 2013, or was inany manner incharge of, or responsible to the corporate debtorfor the conduct of its business or associated with the corporatedebtor in any manner and who was directly or indirectly involvedin the commission of such offence as per the report submitted orcomplaint filed by the investigating authority, shall continue to beliable to be prosecuted and punished for such an offence committed

Aby the corporate debtor notwithstanding that the corporate debtor’sliability has ceased under this sub-section.

(2) No action shall be taken against the property of the corporatedebtor in relation to an offence committed prior to thecommencement of the corporate insolvency resolution process ofBthe corporate debtor, where such property is covered under aresolution plan approved by the Adjudicating Authority undersection 31, which results in the change in control of the corporatedebtor to person, or sale of liquidation assets under the provisionsof Chapter III of Part II of this Code to person, who was not—

(i) promoter or in the management or control of the corporatedebtor or related party of such person; or

(ii) person with regard to whom the relevant investigating authorityhas, on the basis of material in its possession reason to believethat he had abetted or conspired for the commission of the offence,Dand has submitted or filed report or complaint to the relevantstatutory authority or Court.

Explanation.—For the purposes of this sub-section, it is herebyclarified that,—

(i)an action against the property of the corporate debtor inErelation to an offence shall include the attachment, seizure,retention or confiscation of such property under such law asmay be applicable to the corporate debtor;

(ii)nothing in this sub-section shall be construed to bar an actionagainst the property of any person, other than the corporateFdebtor or person who has acquired such property throughcorporate insolvency resolution process or liquidation processunder this Code and fulfils the requirements specified in thissection, against whom such an action may be taken undersuch law as may be applicable.

G(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 toprovide assistance under such law as may be applicable tosuch corporate debtor or person, shall extend all assistanceand co-operation to any authority investigating an offenceH

committed prior to the commencement of the corporateinsolvency resolution process.”

WHO ARE THE PETITIONERS?

5. More than the lion’s share of the petitioners are allottees underreal estate projects and hereinafter referred to as allotees. They havetrained the constitutional gun at the impugned provisos.

6. Under the second proviso, new threshold has been declaredfor an allottee to move an application under Section 7 for triggering theinsolvency resolution process under the Code. The threshold is therequirement that there should be at least 100 allottees to support theapplication 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 evena single allottee to move an application under Section 7 filed petitionssingly or with less than the number required under the proviso and theyare visited with the provisions of the third proviso as per which such ofthose applications under section 7 which had not been admitted wouldstand withdrawn within 30 days, if the newly declared threshold of 100allottees or 10 per cent of the allottee whichever is lower was not garneredby the applicant/applicants.

7. In some of the petitions, the petitioners are money lenders, thatis, they have stepped in to provide finance for the real estate projects.They are also visited with the requirement which is imposed upon themunder the first impugned proviso which is on similar lines as thosecomprised in the second proviso.

8. Then, there is, no doubt, Section 32A, which stands impugnedby the creditors and allottees.

THE CODE

9. The Code was enacted in the year 2016. It is one of the mostimportant economic measures contemplated by the State to preventinsolvency, to provide last mile funding to revive ailing businesses,maximise value of assets of the entrepreneurs, balance the interest of allthe stakeholders and even to alter the order of priority of payment ofGovernment dues. The Code is divided into five parts. The first part isshortest portion. Part II deals with what we are concerned with in thesecases and it purports to deal with insolvency resolution and liquidation

Afor corporate persons. ‘Corporate person’ has been defined in Section3(7) as follows:

“3(7). “corporate person” means company as defined in clause(20) of section 2 of the Companies Act, 2013, limited liabilitypartnership, as defined in clause (n) of sub-section (1) of sectionB2 of the Limited Liability Partnership Act, 2008, or any other personincorporated with limited liability under any law for the time beingin force but shall not include any financial service provider.”

10. Section 3(8) defines ‘corporate debtor’ which provides that acorporate debtor means person who owes debt to any person.

11. We may notice that Chapter II of Part II which consists ofSections 6 to 32 deal with the corporate insolvency resolution process.Chapter III deals with ordinary liquidation process in regard to corporateperson. Chapter IV of Part II consisting of four sections deal with fast-track insolvency resolution process. Chapter V which consists of SectionD59 only deals with voluntary liquidation of corporate person. Chapter VIdeals with miscellaneous aspects. Chapter VII Part II deals with Penalties.

12. Part III deals with insolvency resolution and bankruptcy codefor individuals and partnership firms. It may be noticed at once thatpartnership firms with limited liability as defined in the Limited LiabilityEPartnership Act, 2008 fall within the definition of the word ‘Corporateperson’ and insolvency and liquidation process in regard to the same isfound in Part II of the Code. It is in regard to Insolvency resolution andbankruptcy for the other partnership firms which one has to look to theprovisions of Part III. Part III begins with Section 78 and ends withSection 187. The further provisions relate to the regulation of insolvencyFprofessional agencies and information utilities. They are all keyinstrumentalities for the effective working of the Code. Equally, it maybe 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 orGappeals before the Adjudicating Authority, the National CompanyLaw Appellate Tribunal, the Debt Recovery Tribunal or the DebtRecovery 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 submissionsHbefore us:

The impugned amendment clearly falls foul of the mandateof Articles 14, 19 (1)(g), 21 and 300A of the Constitution. Theamendment by virtue of section 3 of the Amendment Actintroducing the second proviso in Section 7(1) of the Code makesa 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 thresholdrestriction is afflicted with the vice of palpable and hostilediscrimination qua operational creditors. The purported protectionsought to be accorded to the real estate developer, cannot formthe premise for inflicting violation of constitutionally protectedfreedom under Article 19(1)(g) just as much as it also constitutesan insupportable invasion of the grand mandate of equality. Next,he would submit that there are inherent leakages in the impugnedprovisions which would make it unworkable. Thereafter, learnedcounsel would submit that the impugned amendment is also bad inlaw for the reason that it is manifestly arbitrary. Yet anotherargument addressed by Shri Krishna Mohan Menon, learnedcounsel is that the amendment has the legally pernicious effect ofcreating class within class, result, which is frowned upon bythe law.14. Learned counsel would expatiate and submit that under theCode, the law provides for period of 14 days for the AdjudicatingAuthority to decide whether an application under Section 7 should beadmitted. Section 12 declares an inflexible time limit for the insolvencyresolution process to be terminated. The whole purport of the provisionsof the Code and the manner in which it is structured is geared to achievea laudable object. The Code aims at improving the ranking of India in thematter of ease of doing business. It is an economic measure which isintended to transform India into country which would attract capitaland investment. The Code has indeed resulted in transformation ofattitudes of the key players, in that it has come to be perceived as lawnot merely on paper but one with teeth to it. He would point out that thisCourt in its decision in the Pioneer’s Case Pioneer Urban Land andInfrastructure Ltd. and another v. Union of India and others1 haselaborately dealt with the apprehension that allowing the home buyerslike the petitioners who finance the builder’s activities to invoke the CIRPprocess will lead to misuse of the provisions and allayed the unfounded

1 (2019) 8 SCC 416

ABC

Afears. Yet the legislature has ventured to place unjustifiable clogs on theright of one category of financial creditors alone which is impermissible.The spectre of speculative investor running riot and playing havoc hasbeen adequately addressed by this Court. There is no worthwhile dataof misuse by home buyers. He points out the judgments passed by NCLATwhere the financial creditors, who are home buyers, approach the TribunalBand the cases reflect gross and inordinate delay of nearly five yearsjustifying the approach made by the home buyers under the Code. Inother words, there were genuine cases where the debtor had becomeinsolvent and hence the home buyer had complete justification in knockingat the doors of the competent Tribunal under the Code. He took usCthrough the reports of the Parliamentary Committee and complainedthat no reasons are discernible to justify the amendments. Equally, hecommended for our acceptance the observations in the dissent notesand contended that they fortify the submissions.

15. In regard to the comparison sought to be made, with similarDrequirements in Sections 397, 398 read with 399 of the Companies Act,1956 and Section 241 and 244 of the Companies Act, 2013, he wouldsubmit that there are significant distinctions.

16. Firstly, he would submit that in the case of shareholdersapproaching the Tribunal under the Companies Act, they would be armedEwith the details regarding shareholding which are always available havingregard to the scheme of the Companies Act. On the other hand, hepoints that in regard to home buyers who have sunk their hard-earnedmoney in real estate projects there is no system under which they couldobtain data or information regarding the persons similarly circumstancedand whose co-operation and support is necessary under the impugnedFamendment to activise the Code.

17. Secondly, he would submit that having regard to the explanationin Section 244 of the companies Act, 2013, it brings about clarity inregard to the situation where there is joint holding. The absence of anysuch similar provision in Section 7 of the Code is emphasised in an attemptGat persuading the court to overturn the law. He would further point outthe practical difficulties in the working of the amended law. He submitsthat the date of default of various home buyers may be different.Therefore, to forge common complaint impelling group of home buyersto come together is impracticable and not workable’. He would submitHthat legislature cannot be permitted to take away through one hand whatit has given by the other.18. Learned Counsel would further contended that as far as thethird proviso is concerned while accepting the position that the 14 daysperiod for disposal of the matter under the Code has been understood tobe directory and not mandatory, at the same time, it cannot be the lawthat case should grace the docket endlessly and never witness an endand the retrospectivity which it reflects clearly renders it arbitrary.

19. Shri Shikhil Suri, learned Counsel for the petitioner in WritPetition (Civil) No. 191 of 2020 would submit that the impugnedamendment is arbitrary being in the teeth of the principles laid down inPioneer (supra). The object of the law would stand defeated he contends.The Ordinance would not only deprive the petitioner of her right underSection 7 but it also violates Article 14 of the Constitution of India. Thethreshold limit is unreasonable and arbitrary. It is excessive and irrational.It is not in public interest. He also points out that there exists adequateshield against single allottee misusing the Code. The threshold is thrustupon only on the home buyer and is not applicable across the board forother financial creditors. It is discriminatory. There is no rationale. Ittreats equals unequally and unequals as equals. There is no intelligibledifferentia. The law does not permit classes among financial creditors.There is breach of the guarantee of equal protection of law. The thresholdin Section 4, namely, default of Rupees One crore is the one whichapplies to all creditors. It is inexplicable as to how only in regard to homebuyers, different threshold should be insisted upon. The remedy of thehome buyer is defeated. The Ordinance was brought in haste withoutproper discussion and debate. The amendment takes away the vestedright of the home buyers. There is no intelligible differentia bearing anexus with the object and purpose of the Act. He also emphasised thepractical difficulties involved in arranging the necessary numerical strengthunder the impugned provision.

20. Shri Piyush Singh, learned counsel for the petitioners wouldsubmit that once the right is conferred to make an application, then itcannot come conditioned with threshold limit as is provided in the impugnedprovisos. Secondly, he would point out that there is manifest arbitrariness.That apart, he would also contend that there is hostile discrimination quaother corporate debtor. The builder who is corporate debtor, in otherwords, is given more favourable treatment than other corporate debtorswhich is afflicted with the vice of hostile discrimination. He alsocomplained of both under and over inclusiveness in the impugned

Aprovisions. Next, learned counsel submits that the very object isdiscriminatory. Drawing our attention to bothChitra Sharma and othersv. Union of India and others2 and Pioneer(supra), he would highlightthat having regard to the background in which the rights of the homebuyer was recognised as being one of that of financial creditor, theamendment is clearly impermissible. He would also submit that havingBregard to the stand taken by the Government in the case before thisCourt, in particular,Pioneer(supra), the principles of promissory estoppelwill apply and prevent enactment of the impugned provisions. He wouldexpatiate and submit that the conditions which have been imposed renderthe remedy illusory. He drew our attention to Order 1 Rule 8 of theCCode of Civil Procedure and also took us to the explanation therein. Hewould 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, thenumerical stipulation in the impugned Provisos is not insisted upon. Oncepersons having same interest institute civil suit, after following theprocedure all persons having the same interest become involved andDwhat is more would be bound by the decision. Section 12 of the ConsumerProtection Act which also captures and embodies the principle of Order1 Rule 8 ensures the protection of class interest and also protect classinterest without putting stiff barriers as threshold limits as done by theimpugned amendment. He pointed out that the real estate owners do notEtake any loan from financial institutions. They raise capital exclusivelyfrom the allottees virtually. In such circumstances, to put this thresholdlimit is clearly impermissible. He drew our attention to the judgment ofthe Court in Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P3.,to buttress his submission regarding availability of principles of promissoryestoppel. There is manifest arbitrariness in the provisions. He complainedFthat the RERA has not been constituted in all the States. He also madean attempt at pointing out the perception that the amendment is to conferan unmerited advantage on the builder. This he purported to do by drawingour attention to an article in newspaper. He essentially projected thisargument as thinly disguised argument of malice against the law giver.GHe also sought to draw support from the judgment of this Court inNagpur Investment Trust and others v. Vithal Rao and others4. Hereiterated the principle of hostile discrimination. He drew our attention

2 (2018) 18 SCC 5753 (1979) 2 SCC 409H4 (1973) 1 SCC 500

to the definition of the word ‘allottee’ in RERA. It is here that hecomplained of the provision being under inclusive and over inclusive.The legislature, he points out should have waited and at best could haveacted if there is impeachable and empirical evidence warranting such adrastic incursion into the vested right of the home buyer. He also highlightsthat in law there can only be one default. home buyer who before theamendment could by himself set the law into motion, is now left at themercy of similarly circumstanced persons which itself is renderedimpossible by the absence of an information generating mechanism whichis accessible. He would also point out that the dates of the agreementsof different home buyers would be different. Depending on the dates ofthe agreements being different, it is incontrovertible, he points out thatthe date of default would be different. He would pose the question as tohow in such circumstances the law could insist upon home buyerassembling together other homebuyers and that too one hundred in numberor one-tenth of the total number of allottees. Allottees are spread allover the world. It is inconceivable as to how the provision can be workedin reasonable and fair manner.21. Shri Rahul Rathore, learned Counsel for the petitioners in someof the writ petition would apart adopting the contentions, contend thatinsolvency has been predicated project wise. He would submit that underthe impugned amendment, the allottees are to be culled out from amonga particular project. In other words, the requirement under the provisionis that the applicants must be 100 allottees or one-tenth of the allotteesof particular real estate project. He would point out that corporatebody may be having different projects. If that be so, there is no rationalein insisting that the said corporate body has become insolvent, qua theparticular project in which the applicants are interested. Insolvency, inother words, would be financial malaise, which afflicts the corporatebody as whole, qua all its projects. If the allottees can be drawn fromother projects undertaken by the company then maybe it may haverendered the provisions more reasonable appears to be the argument ofthe petitioner. But this is not so. The provisions are irrational. The homebuyer is person who invests his life time savings. He is in weakposition already. Instead of conferring protection on him, the homebuyeris being saddled with more oppressive and burdensome conditions. Thereis no platform for the exchange and availability of information with detailsregarding the allottees. The Limitation Act applies as held by this Court.He would also appear to rely on the theory of single default. The

Aconditions are impossible to fulfil. The home buyer is being shut out atthe very threshold.

22. Shri Dinesh C. Pandey, learned Counsel would also contendthat Section 6 of the General Clauses Act would protect all the pendingapplications.B

23. Shri Dhruv Gupta, learned Counsel appearing in W.P. (C)No.177 of 2020 complained against retrospectivity spelt out by theimpugned provisions. The right which was vested right was substantivein nature. The law could only be prospective. He draws our attention tothe judgment of this Court in B.K. Educational Services (P) Ltd. v.CParag Gupta & Associates5. He also lays store by the principles laiddown 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.DLearned counsel would make submissions qua section 32A which is yetanother provision which is challenged. She drew our attention to Section2(u) and 20 of the Prevention of Money Laundering Act, 2002. Shewould submit but for Section 32A, the properties which are acquiredcould be attached but that is pre-empted by Section 32A. The civilremedies open are taken away in regard to acts of crime. Section 14 ofEthe Act which deals with Moratorium is referred to in this regard.

25. Shri A.D.N. Rao, learned Counsel would submit that asubstantive right cannot be taken away by procedural requirement.The home buyers have been conferred the substantive right to invokethe code by moving an application under Section 7. This right cannot beFtaken away by providing for procedure and what is more which isimpossible to attain. He drew our attention to the decision of this Courtin Garikapati Veeraya v. N. Subbiah Choudhry7. He would submitthat the law as on the date of initiation should prevail and it cannot betaken away by the amendment which is made subsequently. Apparently,Gthe learned counsel is making his submission qua the 3[rd] proviso insertedin Section 7(1) of the Code. He seeks to drawn support from judgmentof this court in Thirumalai Chemicals Limited v. Union of India and

5 (2019) 11 SCC 633

6 (2019) 4 SCC 17

H7 AIR 1957 SC 540 / 1957 SCR 488

others8. He also contends that proviso cannot override the mainprovision. In this regard, he relied upon the judgment of this court in9Delhi Metro Rail Corporation Ltd. v. Tarun Pal Singh and others.He would in fact point out with reference to facts that the orders werereserved in the application under Section 7 in November, 2019. Theproviso came to be inserted on 28[th] December 2019. Resultantly, whenthe order came to be pronounced regarding admission of the applicationunder Section 7, the authorities stood overtaken by the amendment. Allof this is for no fault of the litigant who at the time when the applicationwas moved was governed by different regime which did not containthe harsh and arbitrary provisions. He would also point out practicaldifficulty in finding out other allottees.

26. Smt. Tasleem Ahmadi, learned Counsel would submit that anamendment as impugned in this case has the effect of setting at noughtthe directions and decision of this court. She would complain that anamendment has been engrafted without removing the premise on whichPioneer was decided. She drew our attention to the judgment of thisCourt in State of Karnataka and others v. The Karnataka PawnBrokers Association and others10 (paragraphs-16, 20, 23 and 24).

27. Shri Aditya Parolia, learned Counsel would submit that whilethe legislature has the freedom to experiment the power does not existbeyond certain limits. It cannot create provisions which are arbitrary.Unequals are treated equally. The objections of the home buyers werenot discussed. The draft was not discussed. In this regard he points tothe dissent of Shri TK Rangarajan. There is no intelligible differentia todistinguish the home buyers from the other creditors. The class actionunder the Consumer Protection Act is denied under the code. Even adecree holder under the aegis of RERA is denied relief. He also pointsout the lack of information required to properly work the statute. Allotteesare spread across the globe. The real estate investor siphons off majoramounts. The default is in rem.

28. Shri Pallav Mongia, learned Counsel would point out that homebuyers would continue to be financial creditors. The proviso cannot takeaway the said right. Unequals are being made equal. Information regardingallottees is not available. He refers to the report of the Parliamentary

8 (2011) 6 SCC 7399 (2018) 14 SCC 16110 (2018) 6 SCC 363

ACommittee. He also complains about the absence of undisputeddocuments. As regards information relating to allottees he would makethe point that the Code itself does not provide for mechanism for ahome buyer to glean information. He is being called upon to collectinformation with reference to another enactment namely RERA. Thisshould be treated as fatal to the constitutionality of the impugnedBamendments. He would further submit that the provision is bad for itbeing vague. The argument of vagueness is addressed with reference tothe following:

1. The date of default.

C2. The court fee payable when there is more than one applicant.3. The threshold amount of default stipulated under section 4namely Rs. One crore at present.

4. He also would complain against the retrospectivity involved.

D29. Shri Rana Mukherjee, learned Senior Counsel appears in writpetition where first proviso is called in question, he represents the causeof money lenders. He drew our attention to paragraph-43 of the Pioneer(supra). He pointed out that the requirement that the applicants must beof the same class and there must be 100 of them rendered the provisionsunachievable. He drew our attention to Sections 244 and 245 of theECompanies Act, 2013. He pointed out that the threshold under the saidAct could be relaxed whereas under the code the law giver has inflictedthe requirement as an inflexible mandate. He also complained of therebeing no information qua the requirement of 10 percent. He drew ourattention to Rule 8A. He would submit that actually Parliament had inFmind the home buyer. The insertion of the 1[st] proviso betrays mistakenroping in of the category of creditors represented by his clients. Hesought to draw considerable support from the judgment of this Court inVasant Ganpat Padvave (D) by LRs & Ors. v. Anant Mahadev Sawant(D) Through LRs. & Ors.11 of his compilation. He commended for ouracceptance the principle that the law must be considered having regardGto consequences it produces. He requested that the court may bear inmind the requirement that the law in its application must produce fairresults.

30. Per contra, the stand of the Union, as projected through Smt.Madhavi Divan, learned ASG, and through the Written Submissionssubmitted, can be summed-up as follows:

The impugned amendments are perfectly valid. Theamendments are part of an economic measure. There was aReport of an Expert Committee. The Expert Committeerecommended imposing threshold amendment in respect ofcertain classes of financial creditors. It is modelled on theCompanies Act. There are other statutory examples of suchthreshold requirements. The impugned provisions conform to theprinciple of reasonable classification. Intelligible differentiadistinguishes the allottees and debenture holders and securityholders covered by the provisos from the other financial creditors.The amendments were necessitated from experience. There is arational nexus between the differentia and the objects. Theamendment, as far as the impugned provisos are concerned, areessentially an extension of Sections 21(6A) and Section 25A ofthe 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), thedefault qua any financial creditor, even if, he is not an applicant,can be made use of by other allottees or debenture holders andsecurity holders.

31. It is pointed out further that the constitutional validity of Sections21(6A) and 25A of the Code, was upheld by this Court inPioneer (supra).In this regard, attention is also drawn to the observations of this Court inparagraph-43 of Pioneer (supra). On the strength of the saidobservations, it is contended that this court has recognized that allottees/home buyers are not homogenous group. This Court also recognized, itis pointed out, that the deposit-holders and security-holders form sub-class/class of financial creditors, who are treated little differently, onaccount of the sheer number of such creditors coupled with theheterogeneity within the group that may cause difficulties in the decision-making process. The provisions were introduced for ironing out thelogistical/procedural complications that may arise on account of thepeculiar nature of these groups. The provisions impugned in the presentlitigation merely supplement Sections 21(6A) and Section 25A of the

ABC

ACode. The rationale in the said judgment should be applied in this casealso. It is further pointed out that the challenge in Pioneer (supra) wasmounted by the developers and the home buyers accepted the provisions,as being necessary to iron out the creases. The ASG drew support fromjudgments of this Court which are as follows:

Bi.Ameerunnissa Begum and others v. Mahboob Begum andothers[12];

ii.State of Jammu and Kashmir v. Triloki Nath Khosa andothers[13];

iii.Murthy Match Works and others v. Assistant CollectorCof Central Excise and another[14];

iv.Ajoy Kumar Banerjee and others v. Union of India andothers[15];

v.Ashutosh Gupta v. State of Rajasthan and others[16];D32. It is contended that there is rational nexus with the objectsof the Code insofar as the impugned provisos are concerned and theclassification is permissible under Article 14 of the Constitution. Shedrew our attention to the Statements of Objects and Reasons appendedto the amendment Bill to the Code, 2019, which introduced sub-Section3A in Section 25A. It reads as follows:E

2. The Preamble to the Code lays down the objects of theCode to include “the insolvency resolution” in time bound mannerfor maximisation of value of assets in order to balance the interestsFof all the stakeholders. Concerns have been raised that in somecases extensive litigation is causing undue delays, which mayhamper the value maximisation. There is need to ensure that allcreditors are treated fairly, without unduly burdening theAdjudicating Authority whose role is to ensure that the resolutionplan complies with the provisions of the Code. Various stakeholdersGhave suggested that if the creditors were treated on an equal

12 (1953) SCR 40413 (1974) 1 SCC 1914 (1974) 4 SCC 42815 (1984) 3 SCC 127H16 (2002) 4 SCC 34

footing, when they have different preinsolvency entitlements, itwould adversely impact the cost and availability of credit. Further,views have also been obtained so as to bring clarity on the votingpattern of financial creditors represented by the authorisedrepresentative.

(d) to insert sub-section (3A) in section 25A of the Code to providethat an authorised representative under sub-section (6A) of section21 will cast the vote for all financial creditors he represents inaccordance with the decision taken by vote of more than fiftyper cent. of the voting share of the financial creditors he represents,who have cast their vote, in order to facilitate decision making inthe committee of creditors, especially when financial creditorsare large and heterogeneous group;”

33. Thus, the Statement of Objects and Reasons recognizes theheterogeneity within the class and the need to streamline, smoothen andfacilitate the process so as to avoid unnecessary delay. There is also aconcern about extensive litigation causing delays and hampering themaximization of value, it is pointed out. Multiple applications by membersof this large class of financial creditors, in such class, would also addto the burden of the Adjudicating Authority, choke-up its docket anddelay the process. This would be counterproductive to the object of theCode which seeks to ensure time-bound Resolution Process for themaximization of total value of assets. Reference is made to the Reportof the Insolvency Law Committee, dated February, 2020, whichrecommended the insertion of minimum number of financial creditorsin class. It reads as follows:“ii. Application for Initiation of CIRP by Class of Creditors- AsCIRP can be initiated by single financial creditor, such as ahomebuyer or deposit holder, that belongs to certain class ofcreditors following minor dispute, it might exert undue pressureon the corporate debtor and might jeopardize the interests of theother creditors in the class who are not in favor of such initiation.It is being recommended that there should be requirement for aminimum threshold number of certain financial creditors in classfor initiation of the CIRP. So, an amendment to section 7(1) toprovide that for class of creditors falling within clause (a) or (b)

of Section 21(6A), the CIRP may only be initiated by at least ahundred such creditors or 10 percent of the total number of suchcreditors in class.

4. APPLICATION FOR INITIATION OF CIRP BYCLASSES OF CREDITORS

4.1. Section 7 of the Code allows financial creditor to initiate aCIRP against 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 financialcreditors referred to in sub-clauses (a) and (b) of Section 21(6A)of the Code - such as deposit holders, bondholders and homebuyers- there was concern that the CIRP can be initiated by only oneor few such financial creditors following minor disputes. This mayexert undue pressure on the corporate debtor, and has the potentialto jeopardise the interests of the other creditors in the class whoare not in favour of the initiation of CIRP. This may also imposeadditional burden upon the Adjudicating Authority to hearobjections to heavily disputed applications. The Committee notedthat this may be antithetical to the value of time-bound resolutionprocess, as the already over-burdened Adjudicating Authoritiesare unable to list and admit all such cases filed before them.

4.3. The Committee discussed that classes of creditors such ashomebuyers and deposit holders have every right as financialcreditors to initiate CIRP against corporate debtor that hasdefaulted in the repayment of its dues. However, it wasacknowledged that initiation of CIRP by classes of similarlyFsituated creditors should be done in manner that represents theircollective interests. It was felt that CIRP should be initiatedonly where there is enough number of such creditors in classforming critical mass that indicates that there is in fact largescaleagreement that the issues against corporate entity need to beGresolved by way of CIRP under the Code. This may well be amore streamlined way of allowing well-defined class of creditorsto agree upon initiating what is collective process of resolutionunder the Code.

4.4. In this regard, and specific to the interests of homebuyers,the Committee also noted that in cases where homebuyer cannot

file an application for initiation of CIRP for having failed to reachthe aforesaid critical mass, she would still have access to alternativefora under the RERA and under consumer protection laws. Forinstance, as recognised by the Supreme Court in the case ofPioneer Urban Land and Infrastructure Limited and Ors. v Unionof India, the remedies under the Code and under the RERAoperate in completely different spheres. The Code deals withproceedings in rem, under which homebuyers may want thecorporate debtor’s management to be removed and replaced sothat the corporate debtor can be rehabilitated. On the other hand,the RERA protects the interests of the individual investor in realestate projects by ensuring that homebuyers are not left in thelurch, and get either compensation or delivery of their homes.Thus, if there is failure to reach critical mass for initiation ofCIRP, it may indicate that in such cases another remedy may bemore suitable.

4.5. Accordingly, it was agreed that there should be requirementto have the support of threshold number of financial creditors ina class for initiation of CIRP.

4.6. In this regard, the Committee considered if cue may betaken from the requirements for filing of class actions suits asprovided under the Companies Act, 2013. Class action suits mayinter alia be filed by hundred members or depositors or by atleast 5 per cent of the total number of members or depositors ofthe company.14 Similar to this requirement, and keeping with theextant situation of classes of creditors under the Code, it wassuggested that Section 7 of the Code could be amended in respectof such classes of creditors to allow initiation by collective numberof at least hundred such creditors or at least ten percent of thetotal number of such creditors forming part of the same class.Thus, the Committee agreed that Section 7(1) of the Code maybe amended to provide that for classes of creditors falling withinclauses (a) and (b) of Section 21(6A), the CIRP may only beinitiated by at least hundred such creditors, or ten percent of thetotal number of such creditors in class.

4.7. The Committee also noted that the collective number ofhomebuyers that form the threshold amount for initiation of CIRP,should belong to the same real estate project. This would allow

Ahomebuyers that have commonality of interests, i.e. allottees underthe same real estate project, to come together to take action forinitiating CIRP against real estate developer. Thus, in such cases,the CIRP may be initiated by at least hundred such allottees orten percent of the total number of such allottees belonging to thesame real estate project.B

4.8. However, to ensure that there is no prejudice to the interestsof any such creditor in class whose application has already beenfiled but not admitted by the Adjudicating Authority, the Committeeagreed that certain grace period may be provided within whichsuch creditor in class may modify and file its application inCaccordance with the above-stated threshold requirements.However, if the creditor is unable to fulfil the threshold requirementsto 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 SecondAmendment Bill, 2019, promulgated as an Ordinance, and thereafter, asthe impugned Act, it was, inter alia, stated that it was necessitated toprevent potential abuse of the Code by certain classes of financialcreditors, inter alia. This was necessary to prevent the derailing of theEtime-bound CIRP, which was designed to secure the maximization ofvalue of the assets. The provision only supplements the protection underSections 65 and 75 of the Code. The intelligible differentia is projectedas follows:

i.Numerosity;F

ii. Heterogeneity;

iii. Lack of special expertise and individuality in decision making.It is sought to be contrasted with institutional decision-makingwhich is associated with banks and financial institutions;

Giv. Typicality in determination of default. In other words, in thecase of banks and financial institutions, records of public utilities,would show default. In the case of allottees, records must beaccessed through data publicly available under RERA;

35. The object and rationale of the impugned provisions are statedHto be as follows:

i.Preventing multiple individual applications, which has the effectAof not only crowding the docket of the Adjudicating Authorityand further holding up process in which time is of theessence;

ii.Safeguarding the interest of hundreds or even thousands ofallottees who may oppose the application of single home-Bbuyer;

iii. Balancing the interest of members of the same sub-Class asalso other financial creditors and other operational creditors.The availability of remedies to the members of the sub-classunder RERA, in the case of allottees;

iv. Lastly, the process becomes smoother and cost-effective.Unnecessary financial bleeding of the corporate debtor whois already in difficulty, is avoided.

36. Time is of the essence of the Code. Proceedings are in thenature of proceedings in rem. It impacts the rights of creditors, includingsimilarly placed creditors. It is therefore, reasonable and logical to placethe threshold. The minimum threshold is minimum requirement. Thethreshold is kept low and reasonable. This Court has upheldsubclassification provided there is rational basis. She drew supportfrom the following decisions;

i.Indra Sawhney and others v. Union of India and others17;

ii.Lord Krishna Sugar Mills Limited and another v. Union18of India and another;

iii. State of Kerala and another v. N.M. Thomas and others19;

iv. State of West Bengal and another v. Rash Behari Sarkarand another20;

v.State of Kerala v. Aravind Ramakant Modawdakar and21others.

17 1992 Supp.(3) SCC 21718 (1960) 1 SCR 3919 (1976) 2 SCC 31020 (1993) 1 SCC 47921 (1999) 7 SCC 400

A37. She sought to distinguish the judgment of this Court inSansarChand Atri v. State of Punjab and another22, which was relied on bythe petitioners on the basis that this Court in the said case, only frownedupon creating class within class without rational basis. In this case,there was rational basis for creating sub-class. Differential treatmentis also contemplated under UNCITRAL Legislative Guide and theBGuidelines.

38. There is no basis in the contention that the amendments goagainst the law laid down inPioneer(supra). The question involved inthe said case was not whether there can be different treatment to thereal estate allottees for the purpose of initiating CIRP. Secondly, it isCpointed out that the Legislature is free to make laws to deal with problemsthat manifest with experience. The numerical threshold was felt necessarywith experience and recommendations of an Expert Committee. Therehas been manifold increase of claim petitions filed by single or handfulof allottees resulting in an already overburdened Adjudicating AuthoritiesDbeing flooded with such petitions. The amendment is consistent with thePioneer(supra) judgment. The uniqueness of the allottees as class offinancial creditors, has been recognized in Pioneer(supra). The factthat they constituted distinct and separate class of financial creditorsmeriting distinct treatment, has been approved in Pioneer(supra). Theminimum threshold requirement is procedural requirement. There isEno deviation from Pioneer (supra) in manner which is irreconcilablewith it. The legislation, being an economic measure, free play in thejoints, must be accorded to the Legislature. The impugned amendmentis reasonable, minimal and proportionate. The data gathered by therespondent discloses that between June, 2016 and 5th June, 2018, thereFwere 253 cases filed by allottees in the N.C.L.T.. However, between 6thJune, 2018 and 28thDecember, 2019, as many as 2201 cases were filedby the allottees. Thereafter, pursuant to the Ordinance betweenDecember 29th, 2019 and August 26th, 2020, there is sharp fall, as,nearly in eight months, only 130 cases were filed.It is pointed out thatthe argument, based on estoppel and malice against the Legislature, isGuntenable. There can be no estoppel against the Legislature and thedecision of this Court in Union of India and others v. Godfrey PhilipsIndia Ltd.23, is relied on. The concept of transferred malice is alien inthe field of legislation. In this regard, reference is placed on decisions of22 (2002) 4 SCC 154H23 (1985) 4 SCC 369

this Court in K. Nagaraj and others v. State of A.P. and another2425and State of Himachal Pradesh v. Narain Singh.

39. The right to file an application under Section 7 is statutoryright and it can be conditioned. Reliance is placed on judgment of thisCourt in Gujarat Agro Industries Co. Ltd. v. Municipal Corporationof the City of Ahmedabad and others26. There is no inherent or absoluteright to file an application under Section 7 of the Code. The Legislatureis well within its power to impose conditions for the exercise of suchstatutory rights. It is further contended that the third proviso inserted inSection 7(1) does not affect any vested right of the creditors who havealready filed applications for initiating CIRP. vested right has been thesubject matter of several decisions. In this regard reliance is placed onthe following judgments:

i.Howrah Municipal Corporation and others v. Ganges27Rope Co. Ltd. and others;

ii.Arcelormittal India Private Limited v. Satish Kumar GuptaDand others28;

iii.Swiss Ribbons Private Limited and another v. Union ofIndia and others29;

iv.Karnail Kaur and others v. State of Punjab and others30;

v.Committee of Creditors of Essar Steel India LimitedThrough Authorised Signatory v. Satish Kumar Gupta and31Others.

40. Mere right to take advantage of statute is not vested right.In this regard, the following case law is relied upon:

i.Director of Public Works and another v. Ho Po Sangand Others32;

24 (1985) 1 SCC 52325 (2009) 13 SCC 16526 (1999) 4 SCC 46827 (2004) 1 SCC 66328 (2019) 2 SCC 129 (2019) 4 SCC 1730 (2015) 3 SCC 20631 (2019) SCCONLINE SC 147832 [1961]3 WLR 39

Aii.M.S. Shivananda v. Karnataka State Road Transport33Corporation and others;

iii.Lalji Raja and Sons v. Hansraj Nathuram34;

iv.Kanaya Ram and others v. Rajender Kumar and others35;

B41. The third proviso is enacted to protect the collective interestsof others in class of creditors. Before admission of the application forinsolvency, no vested right accrues in favour of the allottee. Theamendment, therefore, cannot be said to have retrospective applicationin manner that impairs vested rights. Prior to admission, there is novested right. Insistence on compliance with the new provisos cannot beCregarded as having retrospective operation taking away vested rights. Itis done to avoid needless multiplicity and to ensure that no single allotteewould be able to achieve admission and its consequences, without havinga threshold of his compatriots on board.42. Placing reliance on judgment of this Court, in GarikapatiDVeeraya(supra), it is contended that even vested right can be takenaway by the Legislature, if subsequent enactment so expressly providesor if it so by necessary implication. minimum threshold requirement isa common feature of class action litigation. There are several legislationswhich provide for minimum threshold in order to initiate class action.ESection 245 of the Companies Act, 2013 and 241 of the said Act arerelied upon. Sections 397 and 398 of the Companies Act, 1956, readwith Section 399, contemplated minimum threshold requirement forseeking relief under Sections 397 and 398. Reference is placed on theBhabha Committee Report (Company Law Committee) in 1952. So also,is support, sought to be drawn from the judgment of this Court in J.P.FSrivastava & Sons (P) Ltd. and others v. Gwalior Sugar Co. Ltd.and others36. Under the Consumer Protection Act, this Court, renderedthe judgment in Anjum Hussain and others v. Intellicity Business ParkPrivate Limited and others37. minimum threshold adds, authenticityand weightage to the claim in class action, proving it to be commonGgrievance and not mere obstruction in the work of the opposite party.Reference is made to Rule 23 of Federal Rules of Civil Procedure in the

33 (1980) 1 SCC 14934 (1971) 1 SCC 72135 (1985) 1 SCC 43636 (2005) 1 SCC 172H37 (2019) 6 SCC 519

United States, which provide for class action suits. The said Rulescontemplate numerosity, commonality, typicality and adequacy ofrepresentation. It is pointed out that joint filing was not only not alien toSection 7 but it was interwoven into its very DNA. Even as originallyenacted, Section 7 contemplated joint filing by financial creditors.Uniqueness of the Code lies in the fact that the financial creditors mayfile an application based on default that occurred in respect of thethird-party financial creditor, who may choose not to file an applicationitself. At the triggering stage, an application under Section 7 partakesthe character of an application in rem proceeding rather than in personamone. The impugned amendment merely extends the same rationale.

43. It is further pointed out that Debenture Trustees are definedin Section 2(bb)of the Securities and Exchange Board of India DebentureTrustees Regulations, 1993, as Trustee of trust deed for securing anyissue of debentures of body corporate. Debenture is long-term bondissued by company or an unsecured loan that company issues withouta pledge of assets, as for example, interest bearing bond. DebentureTrustees are registered under Chapter 2 of the said Regulations. TheRegulations provide for responsibilities and duties of Debenture Trustees.In the case of debenture-holder and other security-holder, there is aDebenture Trustee to protect their interest from the inception under SEBI.

44. As far as absence of information, so far as debenture holdersare concerned, necessary information regarding them is available in thepublic domain, under Section 88(1)(b) and Section 88(1)(c) of theCompanies Act, 2013, which obliges every company to maintain registerof its debenture holders and security holders. penalty for non-compliance is contemplated under Section 88(5). Section 95 of theCompanies Act, 2013 provides that registers, required to be maintainedby the Company under Section 88, shall be kept in the registered office.Without payment of fees, the register is open to inspection by any member,debenture holder or other security holder. Extracts and copies of suchregistered can be obtained. Reference is also made to Rule 4 of theCompanies (Management and Administration) Rules, 2014, whichcontemplates 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 reservoir of information available forcomplying with the requirement under the first proviso.

A45. As regards the allottees are concerned, the submission, is asfollows:

Reference is made to Section 19 of RERA. Thereunder,Section 19(9) obliges every allottee of real estate project toparticipate towards the Association of Allottees. Section 11 (4)(e)Bof RERA also obliges the Promoter to enable the formation ofsuch an Association. RERA compels the constitution of such anAssociation, prior to the allotment. This is for the reason that anAssociation plays an important role during the development of theproject. It is pointed out that under Section 8 of RERA, uponlapse of or revocation of the registration, the Authority is obligedCto take such action, as it may deem fit, including the carrying outof the remaining development works. The Association of allotteeshave been given the right of first refusal for carrying out theremaining development works. Section 11(4) contemplates theobligations to be discharged by the Promoter towards theDAssociation. Reference is also made to Section 4(2)(c) of RERA.Under Section 17 of the RERA, the Promoter is to execute aregistered conveyance in regard to the undivided proportionatetitle in the common areas to the Association of the allottees.Physical possession of the common areas is to be handed over tothe Association of the Allottees. Under Section 31 of RERA, theEAssociation can file complaint with the Authority. Apart from this,it is also pointed out that under Section 11(1)(b), the Promoter isbound to create webpage on the website of the RERA Authorityand enter thereon the quarterly up-to-date list of the number andthe types of the plots/apartments as may be booked.F46. Shri Sajan Poovayya, learned senior Counsel who appears onbehalf of respondent no. 4 in Writ Petition No. 191 of 2020, which is abuilder, also supported the Union. The second proviso, he contends is alogical and legitimate method to strike fair balance between allstakeholders. It makes the Code workable. The object of the AmendmentGAct is to prevent the use of the Code for an extraneous purpose and notto shield and protect an errant real estate developer. He has referred tothe facts pertaining to his client by way of an example of the misusewhich has happened under the earlier regime.

He drew support from paragraph-41 of the judgment in PioneerH(supra). Second proviso is an independent provision to made the Code

workable. He drew our attention to paragraph-43 of this court in 1985 1SCC 591. As regards the information, he also pointed out Section 11 ofRERA, pointing to the information which is available in public domain.Illustratively, he drew our attention to the Haryana Real Estate RegulatoryAuthority, (Gurugram, Quarterly Progress Report Regulations), 2018,under which the format provides various details which include the namesof the allottees and the date of booking, inter alia. He also points outthat there is no unfair discrimination.

CHALLENGE TO PLENARY LEGISLATION;GROUNDS

47. The grounds on which plenary law can be challenged are wellestablished. In the first two decades decisions of this Court unerringlypoint to three grounds which render legislation vulnerable. law can besuccessfully challenged if contrary to the division of powers, either theParliament or the State Legislature usurps power that does not fall withinits domain thus, rendering it incompetent to make such law. Secondly, alaw made contravening Fundamental Rights guaranteed under Part IIIof the Constitution of India would be visited with unconstitutionality anddeclared void to the extent of its contravention. Needless to say, lawwithin the meaning of Article 19 of the Constitution would remain validqua non-citizen (see in this regard The State of Gujarat and others v.Shri Ambica Mills Ltd., Ahmedabad and Others38). Thirdly, apart fromFundamental Rights, the supremacy of the Constitution vis-a-vis theordinary legislation, even when the law is plenary legislation, is preservedwith view that legislation must be in conformity with the other provisionsof the Constitution.48. While on breaches of the Fundamental Right, furnishing aplank of attack against plenary law, it is necessary to notice challengeto law under Article 14, was essentially confined to the law, being classlegislation. In other words, law, if it manifested reasonable classificationfor treating different persons or things differently, the law would passmuster. Interestingly, even while the theory of reasonable classificationhad come to be proclaimed in the first year of the Republic, and what ismore followed in State ofWest-Bengal v. Anwar Ali39, the followingdoubts were expressed by Justice Vivian Bose:

38 (1974) 4 SCC 65639 AIR 1952 SC 75

“82. I can conceive of cases where there is the utmost good faithand where the classification is scientific and rational and yet whichwould offend this law. Let us take an imaginary cases in which aState legislature considers that all accused persons whose skullmeasurements are below certain standard, or who cannot passa given series of intelligence tests, shall be tried summarilywhatever the offence on the ground that the less complicated thetrial the fairer it is to their sub-standard of intelligence. Here isclassification. It is scientific and systematic. The intention andmotive are good. There is no question of favouritism, and yet Ican hardly believe that such law would be allowed to stand. Butwhat would be the true basis of the decision? Surely simply thisthat the judges would not consider that fair and proper. Howevermuch the real ground of decision may be hidden behind screenof words like ‘reasonable’, ‘substantial’, ‘rational’ and ‘arbitrary’the fact would remain that judges are substituting their ownjudgment of what is right and proper and reasonable and just forthat of the legislature; and up to point that, I think, is inevitablewhen judge is called upon to crystallise vague generality likearticle 14 into concrete concept. Even in England, whereParliament is supreme, that is inevitable, for, as Dicey tells us inhis Law of the Constitution:

“Parliament is the supreme legislator, but from, the momentParliament has uttered its will as law-giver, that will becomessubject to the interpretation put upon it by the judges of the land,and the judges, who are influenced by the feelings of magistratesno less than by the general spirit of the common law, are disposed

to construe statutory exceptions to common law principles in amode which would not commend itself either to body of officials,or the Houses of Parliament, if the Houses were called upon tointerpret their own enactments.”

But the following caveat by the learned Judge is worth noticing:

“83. This, however, does not mean that judges are todetermine what is for the good of the people and substitute theirindividual and personal opinions for that of the government of theday, or that they may usurp the functions of the legislature.Thatis not their province and though there must always be narrowmargin within which judges, who are human, will always be

influenced by subjective factors, their training and their traditionmakes the main body of their decisions speak with the same voiceand reach impersonal results whatever their personal predilectionsor their individual backgrounds. It is the function of the legislaturealone, headed by the government of the day, to determine what is,and what is not, good and proper for the people of the land andthey must be given the widest latitude to exercise their functionswithin the ambit of their powers, else all progress us barred. But,because of the Constitution, there are limits beyond which theycannot go and even though it falls to the lot of judges to determinewhere those limits, lie, the basis of their decision cannot be whetherthe Court thinks the law is for the benefit of the people of not.Cases of this type must be decided solely on the basis whetherthe Constitution forbids it.”

(Emphasis supplied)

49. The seed of this idea had muted growth. It was in the decisionof this Court in E.P. Royappa v. State of Tamil Nadu and Another40that this Court laid bare new dimension in the majestic provisions ofArticle 14. This Court took the view that arbitrariness and fairness aresworn enemies. The guarantee of Article 14 is not confined in otherwords to it being prohibition against equals being discriminated againstor unequals being treated alike. State action must be fair and not arbitraryif it is to be pass muster in court of law. It is essentially following thedicta laid down as aforesaid that this Court in the case of ShayaraBano 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 Constitution Bench of this Courtin Indian Express Newspapers (Bombay) (P) Ltd. v. Union ofIndia [Indian Express Newspapers (Bombay) (P) Ltd. v. Unionof India, (1985) 1 SCC 641 : 1985 SCC (Tax) 121] stated that itwas settled law that subordinate legislation can be challenged onany of the grounds available for challenge against plenarylegislation. This being the case, there is no rational distinctionbetween the two types of legislation when it comes to this groundof challenge under Article 14. The test of manifest arbitrariness,therefore, as laid down in the aforesaid judgments would apply to

40 (1974) 4 SCC 3

41 (2017) 9 SCC 1

Ainvalidate legislation as well as subordinate legislation under Article14. Manifest arbitrariness, therefore, must be something done bythe legislature capriciously, irrationally and/or without adequatedetermining principle. Also, when something is done which isexcessive and disproportionate, such legislation would be manifestlyarbitrary. We are, therefore, of the view that arbitrariness in theBsense of manifest arbitrariness as pointed out by us above wouldapply to negate legislation as well under Article 14.”

(Emphasis supplied)

50. This view, namely, that be it plenary law if it is found to beCmanifestly arbitrary it become vulnerable has been followed in thefollowing decisions, among other judgments:

(1) Navtej Singh Johar and Others v. Union of India andOthers42;

43(2) Joseph Shine v. Union of India;

D(3) Justice K.S. Puttuswamy and Others v. Union of India44and Others.

(4) Hindustan Construction Company Ltd. and Others v. Union45of India and Others.

E51. Yet another ground recognised by this Court is that law, be itthe offspring of Legislature, it falls foul of Article 14 if it is found to bevague – (see in this regard Shreya Singhal v. Union of India46). Itmust be elaborated and we must remember that the case involvedoverturning Section 66A of the Information Technology Act whichpurported to create criminal offence, the ingredients of which wereFfound to be vague.

52. While, on the basis, furnished under law, for impugning theplenary legislation, we may notice two grounds, which have been urgedbefore us by some of the petitioners. It has been urged that the law wascreated by way of pandering to the real estate lobby and succumbing toGtheir pressure or by way of placating their vested interests. Such an

42 (2018) 10 SCC 143 (2019) 3 SCC 3944 (2017) 10 SCC 145 AIR 2020 SC 122H46 (2015) 5 SCC 1

argument is nothing but thinly disguised attempt at questioning the lawof the Legislature based on malice. law is made by body of electedrepresentatives of the people. When they act in their legislative capacity,what is being rolled out is ordinary law. Should the same legislators sit toamend the Constitution, they would be acting as members of theConstituent Assembly. Whether it is ordinary legislation or an amendmentto the Constitution, the activity is one of making the law. While malicemay furnish ground in an appropriate case to veto administrative actionit is trite that malice does not furnish ground to attack plenary law[See in this regard K. Nagaraj and othersv. State of Andhra Pradeshand another47 and State of Himachal Pradesh v. Narain Singh48].

53. Yet another ground which has been urged in these cases isthat when this Court decidedPioneer (supra) the Union of India defendedthe amendment to the Code which included the insertion of the explanationto Section 5(8)(f) of the Code. It was this explanation which made itclear that home buyers would be financial creditors. All grounds urgedby the financial creditors were fiercely countered by the very sameUnion of India by contending that the home buyers are financial creditorsand what is more, there existed sufficient safeguards against abuse ofpower by the individual home buyers. What is contended before us bysome of the petitioners is that the supreme legislature is in suchcircumstances estopped by the principle of promissory estoppel fromenacting the impugned enactment.

54. supreme legislature cannot be cribbed, cabined or confinedby the doctrine of promissory estoppel or estoppel. It acts as sovereignbody. The theory of promissory estoppel, on the one hand, has witnessedan incredible trajectory of growth but it is incontestable that it serves asan effective deterrent to prevent injustice from Government or itsagencies which seek to resile from representation made by them, withoutjust cause [See in this regard Union of India and others v. GodfreyPhilips India Ltd.49 – Paragraph-13].

47 (1985) 1 SCC 523

48 (2009) 13 SCC 16549 (1985) 4 SCC 369

AUNRAVELLING THE WORKING OF THE CODE ASREGARDS 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 asthe Central Government was to appoint. The provisions of the Codestand enforced from 2017.B

56. Part II of the code applies to matters relating to Insolvencyand Liquidation of Corporate Debtors where the minimum amount ofdefault is Rupees One crore as it stands [Section 4]. Under Section 6 ofthe Code when any corporate debtor commits default, financialcreditor, an operational creditor or the corporate debtor itself is permittedCto initiate the corporate insolvency resolution process (hereinafter referredto as CIRP) in respect of the corporate debtor in the manner providedunder Chapter II. Chapter II consists of Section 6 to Section 32A.Section 7 (1) provides that financial creditor by himself or joining withother financial creditors or any other person on behalf of the financialcreditor as may be notified by the Central Government may file anDapplication under Section 7 for initiating the CIRP before the adjudicatingauthority when default has occurred. The adjudicating authority definedin Section 5(1) of the Code is the NCLT constituted under Section 408of the Companies Act 2013. The unamended Section 7(1) read as follows:“7. (1) financial creditor either by itself or jointly with otherEfinancial creditors may file an application for initiating corporateinsolvency resolution process against corporate debtor beforethe Adjudicating Authority when default has occurred.”

Explanation - For the purposes of this sub-section, defaultincludes default in respect of financial debt owed not only toFthe applicant financial creditor but to any other financial creditorof the corporate debtor.”

57. The three impugned provisos which we have already notedand which have been inserted vide the impugned amendment have beensandwitched in between the provisions of sub-section (1) and theexplanation. Sub- section 2 of Section 7 provides that the financial creditorGshall make the application which shall be in such manner and form andaccompanied by such fee as may be prescribed.

58. Section 3(26) defines the word ‘prescribed’ as meaningprescribed by rules made by the Central Government. Section 239, interalia, confers power on the Central Government to make rules for carryingHout the provisions of the Code. Accordingly, the Insolvency and

Bankruptcy (Application to Adjudicating Authority) Rules, 2016 came tobe made and were enforced from 1.12.2016. Rule 4 reads as under:

“4. Application by financial creditor.—(1) financial creditor, eitherby itself or jointly, shall make an application for initiating thecorporate insolvency resolution process against corporate debtorunder section 7 of the Code in Form 1, accompanied withdocuments and records required therein and as specified in theInsolvency and Bankruptcy Board of India (Insolvency ResolutionProcess for Corporate Persons) Regulations, 2016.

(2) Where the applicant under sub-rule (1) is an assignee ortransferee of financial contract, the application shall beaccompanied with copy of the assignment or transfer agreementand other relevant documentation to demonstrate the assignmentor transfer.

(3) The applicant shall dispatch forthwith, copy of the applicationfiled with the Adjudicating Authority, by registered post or speedpost 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 asfollows:

“8. Withdrawal of application —

The Adjudicating Authority may permit withdrawal of theapplication made under rules 4, 6 or 7, as the case may be, on arequest made by the applicant before its admission.”

60. It must be noticed that Rules 6 and 7 deal with applications byoperational 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 proceedingsunder the Code are notified, the application made under sub-section(1) of section 7, sub-section (1) of section 9 or sub-section (1) ofsection 10 of the Code shall be filed before the AdjudicatingAuthority in accordance with rules 20, 21, 22, 23, 24 and 26 ofPart III of the National Company Law Tribunal Rules, 2016.

962SUPREME COURT REPORTS

A(2) An applicant under these rules shall immediately after becomingaware, notify the Adjudicating Authority of any winding-up petitionpresented against the corporate debtor.

(3) The application shall be accompanied by such fee as specifiedin the Schedule.”

61. Form 1 is the application prescribed in relation to an applicationto be filed by the financial creditor. It reads as follows:

“FORM 1

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

CAPPLICATION BY FINANCIAL CREDITOR(S) TOINITIATE CORPORATE INSOLVENCY RESOLUTIONPROCESS UNDER CHAPTER II OF PART II UNDERCHAPTER 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]

The National Company Law Tribunal

[Address]

From,

F[Names and addresses of the registered officers of thefinancial creditors]

In the matter of [name of the corporate debtor]

Subject: Application to initiate corporate insolvency resolutionprocess in the matter of [name of the corporate debtor] underthe Insolvency and Bankruptcy Code, 2016.

Madam/ Sir,

[Names of the financial creditor(s)], hereby submit thisapplication to initiate corporate insolvency resolution process in

the matter of [name of corporate debtor]. The details for thepurpose of this application are set out below:

Part-I

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)

BCDEFG

964SUPREME COURT REPORTS[2021] 14 S.C.R.APart-IIIBPart-IVCPart-VPARTICULARS OF FINANCIAL DEBT [DOCUMENTS, RECORDS AND EVIDENCE OF DDEFAULT] 1. PARTICULARS OF SECURITY HELD, IF ANY, THE DATE OF ITS CREATION, ITS ESTIMATED VALUE AS PER THE CREDITOR. ATTACH COPY OF CERTIFICATE OF REGISTRATION OF CHARGE ISSUED BY THE REGISTRAR OF COMPANIES (IF THE CORPORATE DEBTOR IS COMPANY) E2. PARTICULARS OF AN ORDER OF COURT, TRIBUNAL OR ARBITRAL PANEL ADJUDICATING ON THE DEFAULT, IF ANY (ATTACH COPY OF THE ORDER) 3. RECORD OF DEFAULT WITH THE INFORMATION UTILITY, IF ANY (ATTACH COPY OF SUCH RECORD) 4. DETAILS OF SUCCESSION CERTIFICATE, OR PROBATE OF WILL, OR LETTER OF ADMINISTRATION, OR COURT DECREE (AS MAY BE APPLICABLE), UNDER THE INDIAN SUCCESSION ACT, 1925 (10 OF 1925) (ATTACH COPY) F5. THE LATEST AND COMPLETE COPY OF THE FINANCIAL CONTRACT REFLECTING ALL AMENDMENTS AND WAIVERS TO DATE (ATTACH COPY) 6. RECORD OF DEFAULT AS AVAILABLE WITH ANY CREDIT INFORMATION COMPANY (ATTACH COPY) 7. COPIES OF ENTRIES IN BANKERS BOOK IN ACCORDANCE WITH THE BANKERS BOOKS EVIDENCE ACT, 1891 (18 OF 1891) (ATTACH COPY) G8. 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 ofproposed insolvency professional], is fully qualified and

permitted to act as an insolvency professional in accordance withthe Insolvency and Bankruptcy Code, 2016 and the associatedrules and regulations.

[Name of the financial creditor] has paid the requisite fee forthis application through [state means of payment] on [date].

Yours sincerely,

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 resolutionprofessional 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 particularsspecified in this form shall be furnished in respect of all the jointapplicants along with copy of authorisation to the financial creditorto file and act on this application on behalf of all the applicants.”

62. The schedule prescribes the fees which is contemplated underRule 10(3). It, inter alia, provides that for an application by financialcreditor (whether solely or jointly sum of Rupees Twenty-five thousand).Sub-section 3 of Section 7 provides that financial creditor along with theapplication shall furnish record of the default recorded by the informationutility or all such other record or evidence before as may be specified.The word ‘specified’ has been defined in Section 3 (32) as meaningspecified by regulations made by the Board and the term ‘specify’ is tobe construed accordingly.

63. Section 7(3) (b) requires the financial creditor who makes theapplication to furnish the name of the Resolution Professional proposedas an Interim Resolution Professional (hereafter referred to as “RP”and “IRP” respectively). Section 5(27) defines the word ‘ResolutionProfessional’ for the purpose of Part 2 to mean an insolvency professional

Aappointed to conduct the CIRP and includes an interim resolutionprofessional. In turn Section 3(19) defines ‘insolvency professional’ asthe person enrolled under Section 206 with an insolvency professionalagency as its member and registered with the Board as an insolvencyprofessional under Section 207. Sub-Section (5) of Section 7 proclaimsthat when adjudicating authority is satisfied that default has occurredBand the application under sub-section is complete and that there is nodisciplinary proceedings pending against the proposed resolutionprofessional, it may by order admit an application. Inter alia on the groundthat default has not occurred, it is open to adjudicating authority to rejectthe application. If rejection is intended, the proviso obliges the adjudicatingCauthority to issue notice to rectify any defect in the application (this isfor the reason that under sub-Section 5 apart from there being no default,if there is any disciplinary action against the proposed resolutionprofessional, the application is liable to be rejected) This is apart fromthe application being otherwise defective. The application is to containother information as may be specified under regulations by the Code.DThe adjudicating authority is required by the letter of the law and indeedwe may say so, in accordance with the spirit to ascertain within 14 daysof the receipt of the application if there is any default from the recordsof information utility or on the basis of other evidence made available bythe financial creditor under sub-section (3) [InPioneer(supra), the periodEhas been understood as directory]. ‘Information utility’ has been definedin Section 3(21), as person who is registered with the Board asinformation utility under Section 210. The word ‘Board’ has been definedin Section 3(1) to be the ‘Insolvency and Bankruptcy Board of India’which is established under sub-Section (1) of Section 188.

F64. Section 7(6) declares that the CIRP shall commence from thedate of admission of the application under sub-section (5).

65. Section 8 read with Section 9 deal with application for initiationof the CIRP by an operational creditor. Section 10 deals with anapplication by the corporate applicant. The word Corporate applicant isGdefined to refer to the corporate debtor and other entities associatedwith it. More about it at later stage. It is thereafter that law giver hasin Section 11 proscribed applications which should otherwise bemaintainable. This is provision in which we will devote more time lateron in this judgement. Section 12 places the time limit. Section 12 has amarginal note which is to the following effect:H

“12. Time-limit for completion of insolvency resolution process.-

(1) Subject to sub-section (2), the corporate insolvency resolutionprocess shall be completed within period of one hundred andeighty days from the date of admission of the application to initiatesuch process.

(2) The resolution professional shall file an application to theAdjudicating Authority to extend the period of the corporateinsolvency resolution process beyond one hundred and eighty days,if instructed to do so by resolution passed at meeting of thecommittee of creditors by vote of seventy-five per cent. of thevoting shares.

(3) On receipt of an application under sub-section (2), ifthe Adjudicating Authority is satisfied that the subject matter ofthe case is such that corporate insolvency resolution process cannotbe completed within one hundred and eighty days, it may by orderextend the duration of such process beyond one hundred and eightydays by such further period as it thinks fit, but not exceeding ninetydays:

Provided that any extension of the period of corporate insolvencyresolution process under this section shall not be granted morethan once.

Provided further that the corporate insolvency resolution processshall mandatorily be completed within period of three hundredand thirty days from the insolvency commencement date, includingany extension of the period of corporate insolvency resolutionprocess granted under this section and the time taken in legalproceedings in relation to such resolution process of the corporatedebtor:

Provided also that where the insolvency resolution process of acorporate debtor is pending and has not been completed withinthe period referred to in the second proviso, such resolution processshall be completed within period of ninety days from the date ofcommencement of the Insolvency and Bankruptcy Code(Amendment) Act, 2019.”

66. Coming to sub-Section 2, the CIRP is to be completed within180 days from the date of admission of the application to initiate the

Aprocess. As far as an application by 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 voteof 66 per cent of the voting share instructs the RP to extend the periodof CIRP beyond 180 days, the RP is bound to file an application. Theadjudicating authority on receipt of the application can extend the periodBof 180 days for maximum period of 90 days. Such extension can begranted only once. With effect from 16.8.2019, two provisos have beeninserted. The provisos were added in fact as noted in paragraph-74 ofthe Essar Steel (supra) to overcome what was laid down in (2019) 2SCC 1decided by this Court 04.10.2018. In the latter decision inCArcellormittal(supra), this Court purported to hold that the time takenin legal proceedings must be excluded. Under the first proviso, the CIRPhas to be mandatorily completed within period of 330 days from theinsolvency commencement date. This period of 330 days is to includeany extension granted under sub-Section (3) by the Adjudicating Authorityand also the time taken in legal proceedings in relation to the resolutionDprocess of the corporate debtor. However, in Committee Creditors ofEssar Steel (supra), this Court struck down the word ‘mandatorily’ asbeing manifestly arbitrary and in violation of Article 19 (1)(g) andproceeded to hold as follows:

“…The effect of this declaration is that ordinarily the time takenEin relation to the corporate resolution process of the corporatedebtor must be completed within the outer limit of 330 days fromthe insolvency commencement date, including extensions and thetime taken in legal proceedings. However, on the facts of givencase, if it can be shown to the Adjudicating Authority and/orFAppellate Tribunal under the Code that only short period is leftfor completion of the insolvency resolution process beyond 330days, and that it would be in the interest of all stakeholders thatthe corporate 10-12-2020 (Page 69 of 85) debtor be put back onits feet instead of being sent into liquidation and that the timetaken in legal proceedings is largely due to factors owing to whichGthe fault cannot be ascribed to the litigants before the AdjudicatingAuthority and/or Appellate Tribunal, the delay or large partthereof being attributable to the tardy process of the AdjudicatingAuthority and/or the Appellate Tribunal itself, it may be open insuch cases for the Adjudicating Authority and/or Appellate TribunalHto extend time beyond 330 days. Likewise, even under the newly

added proviso to Section 12, if by reason of all the aforesaid factorsthe grace period of 90 days from the date of commencement ofthe Amending Act of 2019 is exceeded, there again discretioncan be exercised by the Adjudicating Authority and/or AppellateTribunal to further extend time keeping the aforesaid parametersin mind. It is only in such exceptional cases that time can beextended, the general Rule being that 330 days is the outer limitwithin which resolution of the stressed assets of the corporatedebtor must take place beyond which the corporate debtor is tobe driven into liquidation.”

67. At this juncture, it must be noted that under the first provisoinserted by the amendment dated 16.08.2019, reference to the period of330 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 dateof admission of an application for initiating corporate insolvencyresolution process by the Adjudicating Authority under sections 7,9 or section 10, as the case may be.”

There was proviso but it stands omitted by Act 1/2020 (witheffect from 28/12/2019).

68. In this regard, it is to be noticed that the scheme appears to bethat the name of the RP to act as the IRP is to be indicated in theapplication. While admitting the application under Section 7(5), theadjudicating authority is to appoint the proposed resolution professional.In fact, Section 16(2) of the Code contemplates such appointment. Wemay 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 or10. – The Adjudicating Authority may allow the withdrawal ofapplication admitted under section 7 or section 9 or section 10, onan application made by the applicant with the approval of ninetyper cent voting share of the committee of creditors, in such manneras may be specified.”

69. The above provision dealing with withdrawal of applicationafter admission may be contrasted with Rule (8) which apparently dealswith withdrawal before admission.

A70. Section 16 of the Code, however, indicates that the adjudicatingauthority shall appoint an interim resolution professional within 14 daysfrom the insolvency commencement date. We have already noted thedefinition of the words ‘insolvency commencement date’ as the date ofadmission. Section 13 contemplates steps to be taken upon admissionunder Section 7, inter alia.B

1. moratorium contemplated under Section 14 is to be declared.

2. Public announcement of the initiation of the CIRP and invitingclaims against the corporate debtor is to be made.

3. The appointment of the IRP- the appointment is to be done inCthe manner as provided in Section 16. The announcement is tobe made immediately after the appointment of resolutionprofessional.

71. Section 14 deals with moratorium.

“14. Moratorium. - (1) Subject to provisions of sub-sections(2) and (3), on the insolvency commencement date, theAdjudicating Authority shall by order declare moratorium forprohibiting all of the following, namely: -

(a) the institution of suits or continuation of pending suits orproceedings against the corporate debtor including executionEof any judgement, decree or order in any court of law, tribunal,arbitration panel or other authority;

(b) transferring, encumbering, alienating or disposing off bythe 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 beneficialinterest therein;

(c) any action to foreclose, recover or enforce any securityinterest created by the corporate debtor in respect of its propertyincluding any action under the Securitisation and Reconstructionof Financial Assets and Enforcement of Security Interest Act,2002 (54 of 2002); (d)the recovery of any property by an owneror lessor where such property is occupied by or in thepossession of the corporate debtor.

Explanation.-For the purposes of this sub-section, it is herebyclarified that notwithstanding anything contained in any other

law for the time being in force, licence, permit, registration,quota, concession, clearance or similar grant or right givenby the Central Government, State Government, local authority,sectoral regulator or any other authority constituted under anyother law for the time being in force, shall not be suspended orterminated on the grounds of insolvency, subject to the conditionthat there is no default in payment of current dues arising forthe use or continuation of the license, permit, registration, quota,concession, clearances or similar grant or right during themoratorium period.

(2) The supply of essential goods or services to the corporatedebtor as may be specified shall not be terminated or suspendedor interrupted during moratorium period.

(2A) Where the interim resolution professional or resolutionprofessional, as the case may be, considers the supply of goodsor services critical to protect and preserve the value of thecorporate debtor and manage the operations of such corporatedebtor as going concern, then the supply of such goods orservices shall not be terminated, suspended or interrupted duringthe period of moratorium, except where such corporate debtorhas not paid dues arising from such supply during themoratorium period or in such circumstances as may bespecified.

(3) The provisions of sub-section (1) shall not apply to

(a) such transactions, agreements or other arrangement as maybe notified by the Central Government in consultation with anyfinancial sector regulator or any other authority;

(b) surety in contract of guarantee to corporate debtor.

(4) The order of moratorium shall have effect from the date ofsuch order till the completion of the corporate insolvencyresolution process:

Provided that where at any time during the corporate insolvencyresolution process period, if the Adjudicating Authority approvesthe resolution plan under sub-section (1) of section 31 or passesan order for liquidation of corporate debtor under section 33,the moratorium shall cease to have effect from the date ofsuch approval or liquidation order, as the case may be.”

A72. It will be noticed that while Section 6 read with Section 7contemplates that financial creditor may move the applicationindividually, he may also move the application jointly with other financialcreditors. Even if single financial creditor was to be the applicant,after the appointment of the interim resolution professional, the applicantceases to be in seisin of the lis. The provisions of Section 17 is to beBnoticed. It reads as follows:

“17. Management of affairs of corporate debtor by interimresolution professional. - (1) From the date of appointment of theinterim resolution professional, -

C(a) the management of the affairs of the corporate debtor shallvest in the interim resolution professional;

(b) the powers of the board of directors or the partners of thecorporate debtor, as the case may be, shall stand suspendedand be exercised by the interim resolution professional;

(c) the officers and managers of the corporate debtor shallreport to the interim resolution professional and provide accessto such documents and records of the corporate debtor as maybe required by the interim resolution professional;

(d) the financial institutions maintaining accounts of theEcorporate debtor shall act on the instructions of the interimresolution professional in relation to such accounts and furnishall information relating to the corporate debtor available withthem to the interim resolution professional.

(2) The interim resolution professional vested with the managementFof the corporate debtor, shall-

(a) act and execute in the name and on behalf of the corporatedebtor 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;

(c) have the authority to access the electronic records of corporatedebtor from information utility having financial information of thecorporate debtor;

(d) have the authority to access the books of accounts, recordsand other relevant documents of corporate debtor available with

government authorities, statutory auditors, accountants and suchother persons as may be specified; and

(e) 2 [be responsible for complying with the requirements underany law for the time being in force on behalf of the corporatedebtor.”

73. Section 17 contemplates that the management of the affairsof the corporate debtor will vest with the IRP. This takes effect from thedate of the appointment of the interim resolution professional.Furthermore, the powers of the Board of Directors who are partners ofthe corporate debtors shall stand suspended.

74. Virtually, the entire control of the management including allthe acts and authority indicated in sub-section 2 is to be carried out byinterim resolution professional and authority exercised by him. Section18 details the duties of the IRP. It reads as follows:

“18. Duties of interim resolution professional. –

The interim resolution professional shall perform the followingduties, namely: -

(a) collect all information relating to the assets, finances andoperations of the corporate debtor for determining the financialposition of the corporate debtor, including information relating to–

(i) business operations for the previous two years;

(ii) financial and operational payments for the previous twoyears;

(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 tohim, pursuant to the public announcement made under sections13 and 15;

(c) constitute committee of creditors;

(d) monitor the assets of the corporate debtor and manage itsoperations until resolution professional is appointed by thecommittee of creditors;

A(e) file information collected with the information utility, ifnecessary; and

(f) take control and custody of any asset over which the corporatedebtor has ownership rights as recorded in the balance sheet ofthe corporate debtor, or with information utility or the depositoryBof securities or any other registry that records the ownership ofassets including –

(i) assets over which the corporate debtor has ownership rightswhich may be located in foreign country;

(ii) assets that may or may not be in possession of the corporateCdebtor;

(iii) tangible assets, whether movable or immovable;

(iv) intangible assets including intellectual property;

(v) securities including shares held in any subsidiary of theDcorporate debtor, financial instruments, insurance policies;

(vi) assets subject to the determination of ownership by courtor authority:

(g) to perform such other duties as may be specified by the Board.

EExplanation. – For the purposes of this 1 section, the term “assets”shall not include the following, namely: -

(a) assets owned by third party in possession of the corporatedebtor held under trust or under contractual arrangements includingbailment;

F(b) assets of any Indian or foreign subsidiary of the corporatedebtor; and

(c) such other assets as may be notified by the Central Governmentin consultation with any financial sector regulator.”

75. It will be noticed that amongst his duties, is the duty to constituteGa Committee of Creditors. The constitution of the committee of creditorsand the method of voting and the extent of the same are found detailedinter alia in Section 21. Since much may turn on the said provision werefer to the same:

“21. Committee of creditors. –H

(1) The interim resolution professional shall after collation of allclaims received against the corporate debtor and determinationof the financial position of the corporate debtor, constitute acommittee of creditors.

(2) The committee of creditors shall comprise all financial creditorsof the corporate debtor:

Provided that financial creditor or the authorised representativeof the financial creditor referred to in sub-section (6) or sub-section(6A) or sub-section (5) of section 24, if it is related party of thecorporate debtor, shall not have any right of representation,participation or voting in meeting of the committee of creditors:

Provided further that the first proviso shall not apply to financialcreditor, regulated by financial sector regulator, if it is relatedparty of the corporate debtor solely on account of conversion orsubstitution of debt into equity shares or instruments convertibleinto equity shares or completion of such transactions as may beprescribed], prior to the insolvency commencement date.

(3) Subject to sub-sections (6) and (6A), where thecorporate debtor owes financial debts to two or more financialcreditors as part of consortium or agreement, each such financialcreditor shall be part of the committee of creditors and their votingshare shall be determined on the basis of the financial debts owedto them.

(4) Where any person is financial creditor as well as anoperational creditor –

(a) such person shall be financial creditor to the extent of thefinancial debt owed by the corporate debtor, and shall be includedin the committee of creditors, with voting share proportionate tothe extent of financial debts owed to such creditor;

(b) such person shall be considered to be an operational creditorto the extent of the operational debt owed by the corporate debtorto such creditor.

(5) Where an operational creditor has assigned or legallytransferred any operational debt to financial creditor, theassignee or transferee shall be considered as an operational creditorto the extent of such assignment or legal transfer.

(6) Where the terms of the financial debt extended as part of aconsortium arrangement or syndicated facility provide for singletrustee or agent to act for all financial creditors, each financialcreditor may-

(a) authorise the trustee or agent to act on his behalf in thecommittee of creditors to the extent of his voting share;

(b) represent himself in the committee of creditors to the extentof his voting share;

(c) appoint an insolvency professional (other than the resolutionprofessional) at his own cost to represent himself in the committeeof creditors to the extent of his voting share; or

(d) exercise his right to vote to the extent of his voting share withone or more financial creditors jointly or severally.

(6A) Where financial debt—

(a) is in the form of securities or deposits and the terms of theDfinancial debt provide for appointment of trustee or agent to actas authorised representative for all the financial creditors, suchtrustee or agent shall act on behalf of such financial creditors;

(b) is owed to class of creditors exceeding the number as maybe specified, other than the creditors covered under clause (a) orEsub-section (6), the interim resolution professional shall make anapplication to the Adjudicating Authority along with the list of allfinancial creditors, containing the name of an insolvencyprofessional, other than the interim resolution professional, to actas their authorised representative who shall be appointed by theAdjudicating Authority prior to the first meeting of the committeeFof creditors;

(c) is represented by guardian, executor or administrator, suchperson shall act as authorised representative on behalf of suchfinancial creditors, and such authorised representative under clause(a) or clause (b) or clause (c) shall attend the meetings of theGcommittee of creditors, and vote on behalf of each financialcreditor to the extent of his voting share.

(6B) The remuneration payable to the authorised representative-(i) under clauses (a) and (c) of sub-section (6A), if any, shall beas per the terms of the financial debt or the relevant documentation;Hand

(ii) under clause (b) of sub-section (6A) shall be as specified whichshall be form part of the insolvency resolution process costs.

(7) The Board may specify the manner of voting and thedetermining of the voting share in respect of financial debts coveredunder sub-sections (6) and (6A).

(8) Save as otherwise provided in this Code, all decisions ofthe committee of creditors shall be taken by vote of not lessthan fifty-one per cent. of voting share of the financial creditors:

Provided that where corporate debtor does not have any financialcreditors, the committee of creditors shall be constituted and shallcomprise of such persons to exercise such functions in suchmanner as may be specified.

(9) The committee of creditors shall have the right to requirethe resolution professional to furnish any financial information inrelation to the corporate debtor at any time during the corporateinsolvency resolution process.

(10) The resolution professional shall make available any financialinformation so required by the committee of creditors under sub-section (9) within 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 beheld within seven days of the constitution of the committee ofcreditors.

(2) The committee of creditors, may, in the first meeting, by amajority vote of not less than sixty-six per cent of the votingshare of the financial creditors, either resolve to appoint theinterim resolution professional as resolution professional orto replace the interim resolution professional by anotherresolution professional.”

Section 23 reads as follows:

“23. Resolution professional to conduct corporate insolvencyresolution process.–

(1) Subject to section 27, the resolution professional shall conductthe entire corporate insolvency resolution process and manage

the operations of the corporate debtor during the corporateinsolvency resolution process period:

Provided that the resolution professional shall continue to managethe operations of the corporate debtor after the expiry of thecorporate insolvency resolution process period, until an orderBapproving the resolution plan under sub-section (1) of section 31or appointing liquidator under section 34 is passed by theAdjudicating Authority.

(2) The resolution professional shall exercise powers andperform duties as are vested or conferred on the interim resolutionCprofessional under this Chapter.

(3) In case of any appointment of resolution professional undersub-sections (4) of section 22, the interim resolution professionalshall provide all the information, documents and records pertainingto the corporate debtor in his possession and knowledge to theDresolution professional.”

76. Section 24 deals with the meeting of committee of creditors.Now that resolution professional has been appointed, as contemplatedunder Section 22, Section 24(2) declares that all the meetings of thecommittee of creditors shall be convened by resolution professional.ESection 25 speaks about the duties of the resolution professional. Section25(2),(h) and (i) read as follows:

“25(2) (h) invite prospective resolution applicants, who fulfil suchcriteria as may be laid down by him with the approval of committeeof creditors, having regard to the complexity and scale of operationsFof the business of the corporate debtor and such other conditionsas may be specified by the Board, to submit resolution plan orplans.

(i) present all resolution plans at the meetings of the committee ofcreditors.”

G77. Section 25A, which was inserted with effect from 06.06.2018will be separately dealt with. No doubt, Section 27 contemplates that acommittee of creditors may at any time during the CIRP replace theresolution professional as provided in the section. Section 28, no doubt,constrains the resolution professional in regard to the matters providedtherein. The approval of the committee of creditors is required in suchH

matters. It includes making any change in the management of corporatedebtor and its subsidiary (Section 28(j)). Section 30 contemplates thatresolution applicant may submit resolution plan. The ‘resolutionapplicant’ has been defined in sub-section 25 of Section 5 which readsas follows:

“5(25) “resolution applicant” means person, who individually orjointly with any other person, submits resolution plan to theresolution 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 samereads as under:

“5(26) “resolution plan” means plan proposed by resolutionapplicant for insolvency resolution of the corporate debtor as agoing concern in accordance with Part II.

Explanation.- For removal of doubts, it is hereby clarified that aresolution plan may include provisions for the restructuring of thecorporate debtor, including by way of merger, amalgamation anddemerger.”

78. The resolution professional has to examine each resolutionplan received by him on the basis of the invitation made by the resolutionprofessional under Section 25(h) and ascertain whether the plan is inconformity with the various criteria mentioned in Section 30(2) of theCode. The matter is thereafter put up by the resolution professionalbefore the committee of creditors. All resolution plans which conformwith the conditions in sub-section (2) of Section 30 are, in fact, to beplaced before the committee of creditors. The committee of creditorsmay approve the resolution plan after considering its feasibility andviability, the manner of distribution proposed, which may take into accountthe hurdles, priority amongst creditors as laid down in sub-section(1) ofSection 53 including the priority and the value of security interest ofsecured creditors and such other requirements as may be specified bythe Board. There are other details with which we are not concerned inSection 30. Section 31 requires approval of the resolution plan by theadjudicating authority. It reads inter-alia as follows:

“31. Approval of resolution plan. –

A(1) If the Adjudicating Authority is satisfied that the resolutionplan 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 resolutionplan which shall be binding on the corporate debtor and itsemployees, members, creditors, including the Central Government,Bany State Government or any local authority to whom debt inrespect of the payment of dues arising under any law for the timebeing in force, such as authorities to whom statutory dues areowed, guarantors and other stakeholders involved in the resolutionplan:

CProvided that the Adjudicating Authority shall, before passing anorder for approval of resolution plan under this sub-section, satisfythat the resolution plan has provisions for its effectiveimplementation.”

The scope of these provisions have been dealt with in the decisionDof this Court in Essar Steel India Limited vs. Satish Kumar Gupta andOrs. 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 authorityto reject the resolution plan. Section 31 (3) contemplates that after theEapproval of the resolution plan that the moratorium order passed by theadjudicating authority under Section 14 shall cease to have effect. Section32A will be separately dealt with.

80. Section 33, which is in Chapter III in Part II, compelsannouncing the death knell of the corporate debtor. That is if, before theFexpiry of insolvency resolution process period or the maximum periodpermitted which is CIRP under Section 12, inter alia, resolution planis not received or though received is rejected by the adjudicating authority,then under Section 33, order is to be passed. The curtains are wrungdown on the insolvency resolution process. The corporate debtor goesGinto liquidation. The adjudicating authority is bound to pass an orderrequiring corporate debtor to be liquidated as provided in chapter IIIPart II. Section 33(2) contemplates that before the confirmation of theresolution plan if the committee of creditors so approved by not less than66% of the voting decide to liquidate the corporate debtor, the adjudicatingauthority is to pass the liquidation order. Section 33(5) may be noticed atHthis stage:“33 (5) Subject to section 52, when liquidation order has beenpassed, no suit or other legal proceeding shall be instituted by oragainst the corporate debtor:

Provided that suit or other legal proceeding may be instituted bythe liquidator, on behalf of the corporate debtor, with the priorapproval of the Adjudicating Authority.

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

“Explanation - For the purpose of this sub-section, it is herebydeclared that the committee of creditors may take the decision toliquidate the corporate debtor, any time after constitution undersub-section (1) of Section 21 and before the confirmation of theresolution plan, including at any time before the preparation of theinformation memorandum.”

THE REAL ESTATE (REGULATION ANDDEVELOPMENT) ACT, 2016 AND ITS SCHEME(HEREINAFTER REFERRED TO AS ‘RERA’, FORSHORT).

81. The Real Estate Regulation and Development Bill wasintroduced in the Rajya Sabha in 2013. Noticing the fact that though theConsumer Protection Act, 1986 is available as Forum in the real estatemarket for the buyers, the recourse is only curative and is not adequateto address all the concerns of the buyers and promoters in the said sector,it was felt that there should be central legislation in the interest ofeffective consumer protection, uniformity and standardization of businesspractices and transactions in the real estate sector. The Bill was passedby both the Houses of Parliament and received the assent of the Presidentof India on the 25.03.2016. By 01.05.2017, the provisions of the Actcame into force, even though, certain Sections have come into forceearlier on 01.05.2016.

82. We may advert to the following definition clauses. Section2(b) defines ‘advertisement’, as follows:

“2(b) “advertisement” means any document described or issuedas advertisement through any medium and includes any notice,circular or other documents or publicity in any form, informingpersons about real estate project, or offering for sale of plot,building or apartment or inviting persons to purchase in any manner

Asuch plot, building or apartment or to make advances or depositsfor such purposes;”

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

“2(c) “agreement for sale” means an agreement entered intobetween 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 real estate project, means the personto whom plot, apartment or building, as the case may be, hasCbeen allotted, sold (whether as freehold or leasehold) or otherwisetransferred by the promoter, and includes the person whosubsequently acquires the said allotment through sale, transfer orotherwise but does not include person to whom such plot,apartment or building, as the case may be, is given on rent;”

D85. As can be seen, the word ‘allottee’ includes, plot, apartmentor building. The words ‘apartment’ and ‘building’ are defined. Section2(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 separate and self-containedEpart of any immovable property, including one or more rooms orenclosed spaces, located on one or more floors or any part thereof,in building or on plot of land, used or intended to be used forany residential or commercial use such as residence, office, shop,showroom or godown or for carrying on any business, occupation,Fprofession or trade, or for any other type of use ancillary to thepurpose 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 astructure or erection which is intended to be used for residential,Gcommercial 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 cognateexpressions, means carrying out the development of immovable

property, engineering or other operations in, on, over or under theland or the making of any material change in any immovableproperty or land and includes redevelopment;’’

‘Development works’ is defined in Section 2(t) and it reads asfollows:

“2(t) “development works” means the external development worksand 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 anindependent building or building consisting of apartments,or converts an existing building or part thereof intoapartments, for the purpose of selling all or some of theapartments to other persons and includes his assignees;or

(ii)a person who develops land into project, whether ornot the person also constructs structures on any of theplots, for the purpose of selling to other persons all orsome of the plots in the said project, whether with orwithout structures thereon; or

(iii)any development authority or any other public body inrespect of allottees of— (a) buildings or apartments, asthe case may be, constructed by such authority or bodyon lands owned by them or placed at their disposal bythe Government; or (b) plots owned by such authority orbody or placed at their disposal by the Government, forthe purpose of selling all or some of the apartments orplots; or

(iv)an apex State level co-operative housing finance societyand primary co-operative housing society whichconstructs apartments or buildings for its Members or inrespect of the allottees of such apartments or buildings;or

(v)any other person who acts himself as builder, coloniser,contractor, developer, estate developer or by any other

name or claims to be acting as the holder of power ofattorney from the owner of the land on which the buildingor apartment is constructed or plot is developed for sale;or

(vi)such other person who constructs any building orBapartment for sale to the general public.

Explanation.—For the purposes of this clause, where theperson who constructs or converts building into apartments ordevelops plot for sale and the person who sells apartments orplots are different person, both of them shall be deemed to be theCpromoters and shall be jointly liable as such for the functions andresponsibilities specified under this Act or the rules and regulationsmade thereunder;”

Section 2(zn) defines ‘real estate project’, it reads as follows:

“2(zn) “real estate project” means the development of buildingDor building consisting of apartments, or converting an existingbuilding or part thereof into apartments, or the development ofland into plots or apartments, as the case may be, for the purposeof selling all or some of the said apartments or plots or building, asthe case may be, and includes the common areas, the developmentEworks, all improvements and structures thereon, and all easement,rights and appurtenances belonging thereto;”

87. Section 3 prohibits any promoter from advertising, marketing,etc. or even inviting persons to purchase any plot, apartment or buildingin any real estate project or part of it without there being registration.FSub-Section (2), however, exempts certain projects from the requirementof registration and it reads as follows:

“3(2) Notwithstanding anything contained in sub-section (1), noregistration of the real estate project shall be required—

(a) where the area of land proposed to be developed does notexceed five hundred square meters or the number of apartmentsproposed to be developed does not exceed eight inclusive ofall phases:

Provided that, if the appropriate Government considersit necessary, it may, reduce the threshold below five hundred

square meters or eight apartments, as the case may be, inclusiveof all phases, for exemption from registration under this Act;

(b) where the promoter has received completioncertificate for real estate project prior to commencement ofthis Act;

(c) for the purpose of renovation or repair or re-development which does not involve marketing, advertisingselling or new allotment of any apartment, plot or building, asthe case may be, under the real estate project.

Explanation.—For the purpose of this section, wherethe real estate project is to be developed in phases, every suchphase shall be considered stand alone real estate project,and the promoter shall obtain registration under this Act foreach phase separately.”

Section 7 contemplates revocation of registration. It is relevantto note Section 7(1), which reads as follows:

“7(1) The Authority may, on receipt of complaint or suomotu inthis behalf or on the recommendation of the competent authority,revoke the registration granted under section 5, after being satisfiedthat—

(a) the promoter makes default in doing anything required by orunder this Act or the rules or the regulations made thereunder;

(b) the promoter violates any of the terms or conditions of theapproval given by the competent authority;

(c) the promoter is involved in any kind of unfair practice orirregularities.

Explanation.—For the purposes of this clause, the term“unfair practice means” practice which, for the purpose ofpromoting the sale or development of any real estate project adoptsany unfair method or unfair or deceptive practice including any ofthe following practices, namely:—

(A) The practice of making any statement, whether in writing orby visible representation which,—

(i)falsely represents that the services are of particularstandard or grade;

(ii)represents that the promoter has approval or affiliation whichsuch promoter does not have;

(iii)makes false or misleading representation concerning theservices;

(B) the promoter permits the publication of any advertisement orprospectus whether in any newspaper or otherwise of servicesthat are not intended to be offered;

(d) the promoter indulges in any fraudulent practices.”

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

“7(3) The Authority may, instead of revoking the registration undersub-section (1), permit it to remain in force subject to such furtherterms and conditions as it thinks fit to impose in the interest of theallottees, and any such terms and conditions so imposed shall bebinding 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 onrevocation of registration.—Upon lapse of the registration or onrevocation of the registration under this Act, the Authority, mayconsult the appropriate Government to take such action as it maydeem fit including the carrying out of the remaining developmentworks by competent authority or by the association of allottees orin any other manner, as may be determined by the Authority:

Provided that no direction, decision or order of the Authorityunder this section shall take effect until the expiry of the period ofappeal provided under the provisions of this Act:

Provided further that in case of revocation of registrationof project under this Act, the association of allottees shall havethe first right of refusal for carrying out of the remainingdevelopment works.”

88. Section 11 deals with the functions and duties of promoterand 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) ofsub-section (1) or under sub-section (2) of section 5, as the case

may be, create his web page on the website of the Authority andenter all details of the proposed project as provided under sub-section (2) of section 4, in all the fields as provided, for publicviewing, including—

(a)details of the registration granted by the Authority;

(b)quarterly up-to-date the list of number and types ofapartments or plots, as the case may be, booked;

(c)quarterly up-to-date the list of number of garagesbooked;

(d)quarterly up-to-date the list of approvals taken and theapprovals which are pending subsequent tocommencement certificate;

(e)quarterly up-to-date status of the project; and

(f)such other information and documents as may bespecified by the regulations made by the Authority.

(2) The advertisement or prospectus issued or published by thepromoter shall mention prominently the website address of theAuthority, wherein all details of the registered project have beenentered and include the registration number obtained from theAuthority and such other matters incidental thereto.

(3) The promoter, at the time of the booking and issue of allotmentletter shall be responsible to make available to the allottee, thefollowing information, namely:—

(a) sanctioned plans, layout plans, along with specifications,approved by the competent authority, by display at the siteor such other place as may be specified by the regulationsmade 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 andfunctions under the provisions of this Act or the rules andregulations made thereunder or to the allottees as per the

agreement for sale, or to the association of allottees, asthe case may be, till the conveyance of all the apartments,plots or buildings, as the case may be, to the allottees, orthe common areas to the association of allottees or thecompetent authority, as the case may be: Provided thatthe responsibility of the promoter, with respect to thestructural defect or any other defect for such period as isreferred to in sub-section (3) of section 14, shall continueeven after the conveyance deed of all the apartments, plotsor buildings, as the case may be, to the allottees areexecuted.

(b) be responsible to obtain the completion certificate or theoccupancy certificate, or both, as applicable, from therelevant competent authority as per local laws or otherlaws for the time being in force and to make it available tothe allottees individually or to the association of allottees,as the case may be;

(c) be responsible to obtain the lease certificate, where thereal estate project is developed on leasehold land,specifying the period of lease, and certifying that all duesand charges in regard to the leasehold land has been paid,and to make the lease certificate available to the associationof allottees;

(d) be responsible for providing and maintaining the essentialservices, on reasonable charges, till the taking over of themaintenance of the project by the association of theallottees;

(e) enable the formation of an association or society or co-operative society, as the case may be, of the allottees, or afederation of the same, under the laws applicable: Providedthat in the absence of local laws, the association of allottees,by whatever name called, shall be formed within periodof three months of the majority of allottees having bookedtheir plot or apartment or building, as the case may be, inthe project;

(f) execute 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 commonareas to the association of allottees or competent authority,as the case may be, as provided under section 17 of thisAct;

(g) pay all outgoings until he transfers the physical possessionof the real estate project to the allottee or the associationsof allottees, as the case may be, which he has collectedfrom the allottees, for the payment of outgoings (includingland cost, ground rent, municipal or other local taxes,charges for water or electricity, maintenance charges,including mortgage loan and interest on mortgages or otherencumbrances and such other liabilities payable tocompetent authorities, banks and financial institutions,which are related to the project):

Provided that where any promoter fails to pay all or any ofthe outgoings collected by him from the allottees or any liability,mortgage loan and interest thereon before transferring the realestate project to such allottees, or the association of the allottees,as the case may be, the promoter shall continue to be liable, evenafter the transfer of the property, to pay such outgoings and penalcharges, if any, to the authority or person to whom they are payableand be liable for the cost of any legal proceedings which may betaken 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 createa charge on such apartment, plot or building, as the casemay be, and if any such mortgage or charge is made orcreated then notwithstanding anything contained in anyother law for the time being in force, it shall not affect theright and interest of the allottee who has taken or agreedto take such apartment, plot or building, as the case maybe;

(5) The promoter may cancel the allotment only in terms ofthe agreement for sale:

Provided that the allottee may approach the Authority forrelief, if he is aggrieved by such cancellation and such cancellationis 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 otherdetails as may be specified, from time to time, by regulations madeby the Authority.”

89. Section 14 declares that the proposed project shall bedeveloped and completed by the promoter in accordance with thesanctioned plans, layout plans and specifications, as approved by theCompetent Authorities.

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

“14. (2) Notwithstanding anything contained in any law, contractor agreement, after the sanctioned plans, layout plans andspecifications and the nature of the fixtures, fittings, amenitiesand common areas, of the 16 apartment, plot or building, as thecase may be, as approved by the competent authority, are disclosedor furnished to the person who agree to take one or more of thesaid apartment, plot or building, as the case may be, the promotershall not make—

(i) any additions and alterations in the sanctioned plans, layoutplans and specifications and the nature of fixtures, fittings andamenities described therein in respect of the apartment, plot orbuilding, 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 minoradditions or alterations as may be required by the allottee, orsuch minor changes or alterations as may be necessary due toarchitectural and structural reasons duly recommended andverified by an authorised Architect or Engineer after properdeclaration and intimation to the allottee.

Explanation.—For the purpose of this clause, “minoradditions or alterations” excludes structural change includingan addition to the area or change in height, or the removal ofpart of building, or any change to the structure, such as theconstruction or removal or cutting into of any wall or part ofa wall, partition, column, beam, joist, floor including mezzaninefloor or other support, or change to or closing of any requiredmeans of access ingress or egress or change to the fixturesor equipment, etc.

(ii) any other alterations or additions in the sanctioned plans,layout plans and specifications of the buildings or the commonareas within the project without the previous written consentof at least two-thirds 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 casemay be, booked by him or booked in the name of his family, or inthe case of other persons such as companies or firms or anyassociation of individuals, etc., by whatever name called, bookedin its name or booked in the name of its associated entities orrelated enterprises, shall be considered as one allottee only.”

91. similar Explanation, as found in Section 14, regarding whatthe word allottee means for the purpose of section 15 is found in Section15. Section 15 deals with obligations of promoter in the case of transferof real estate project to third party and Section 15(1) reads as follow:

“15. Obligations of promoter in case of transfer of real estateproject to third party.—(1) The promoter shall not transfer orassign his majority rights and liabilities in respect of real estateproject to third party without obtaining prior written consentfrom two-third allottees, except the promoter, and without the priorwritten approval of the Authority: Provided that such transfer orassignment shall not affect the allotment or sale of the apartments,plots or buildings as the case may be, in the real estate projectmade by the erstwhile promoter. …”

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

“17. Transfer of title.—(1) The promoter shall execute registeredconveyance deed in favour of the allottee along with the undividedproportionate title in the common areas to the association of theallottees or the competent authority, as the case may be, and handover the physical possession of the plot, apartment of building, asthe case may be, to the allottees and the common areas to theassociation of the allottees or the competent authority, as the casemay be, in real estate project, and the other title documentspertaining thereto within specified period as per sanctioned plansas provided under the local laws:

Provided that, in the absence of any local law, conveyancedeed in favour of the allottee or the association of the allottees orthe competent authority, as the case may be, under this sectionshall be carried out by the promoter within three months fromdate of issue of occupancy certificate”

92. Section 18 deals with the right of the allottee to obtain theamount given by the allottee and even compensation. It reads as follows:

“18. Return of amount and compensation.—(1) If thepromoter fails to complete or is unable to give possession of anapartment, plot or building,—

(a) in accordance with the terms of the agreement for saleor, as the case may be, duly completed by the date specified therein;or

(b) due to discontinuance of his business as developer onaccount of suspension or revocation of the registration under thisAct or for any other reason, he shall be liable on demand to theallottees, in case the allottee wishes to withdraw from the project,without prejudice to any other remedy available, to return theamount received by him in respect of that apartment, plot, building,as the case may be, with interest at such rate as may be prescribedin this behalf including compensation in the manner as providedunder this Act:

Provided that where an allottee does not intend to withdrawfrom the project, he shall be paid, by the promoter, interest forevery month of delay, till the handing over of the possession, atsuch rate as may be prescribed.

(2) The promoter shall compensate the allottees in case ofany loss caused to him due to defective title of the land, on whichthe project is being developed or has been developed, in the manneras provided under this Act, and the claim for compensation underthis subsection shall not be barred by limitation provided underany law for the time being in force.

(3) If the promoter fails to discharge any other obligationsimposed on him under this Act or the rules or regulations madethereunder or in accordance with the terms and conditions of theagreement for sale, he shall be liable to pay such compensation tothe allottees, in the manner as provided under this Act.”

Finally, Section 19 deals with the rights and obligations of an allotteeand it reads as follows:

“19. Rights and duties of allottees.—(1) The allottee shall beentitled to obtain the information relating to sanctioned plans, layoutplans along with the specifications, approved by the competentauthority and such other information as provided in this Act or therules and regulations made thereunder or the agreement for salesigned with the promoter.

(2) The allottee shall be entitled to know stage-wise time scheduleof completion of the project, including the provisions for water,sanitation, electricity and other amenities and services as agreedto between the promoter and the allottee in accordance with theterms and conditions of the agreement for sale.

(3) The allottee shall be entitled to claim the possession ofapartment, plot or building, as the case may be, and the associationof allottees shall be entitled to claim the possession of the commonareas, as per the declaration given by the promoter under sub-clause (C) of clause (l) of sub-section (2) of section 4.

(4) The allottee shall be entitled to claim the refund of amountpaid along with interest at such rate as may be prescribed andcompensation in the manner as provided under this Act, from thepromoter, if the promoter fails to comply or is unable to givepossession of the apartment, plot or building, as the case may be,in accordance with the terms of agreement for sale or due todiscontinuance of his business as developer on account ofsuspension or revocation of his registration under the provisionsof this Act or the rules or regulations made thereunder.

(5) The allottee shall be entitled to have the necessary documentsand plans, including that of common areas, after handing over thephysical possession of the apartment or plot or building as thecase may be, by the promoter.

(6) Every allottee, who has entered into an agreement for sale totake an apartment, plot or building as the case may be, undersection 13, shall be responsible to make necessary payments inthe manner and within the time as specified in the said agreementfor sale and shall pay at the proper time and place, the share ofthe registration charges, municipal taxes, water and electricity

Acharges, maintenance charges, ground rent, and other charges, ifany.

(7) The allottee shall be liable to pay interest, at such rate as maybe prescribed, for any delay in payment towards any amount orcharges to be paid under sub-section (6).

(8) The obligations of the allottee under sub-section (6) and theliability towards interest under sub-section (7) may be reducedwhen mutually agreed to between the promoter and such allottee.

(9) Every allottee of the apartment, plot or building as the casemay be, shall participate towards the formation of an associationCor society or cooperative society of the allottees, or federationof the same.

(10) Every allottee shall take physical possession of the apartment,plot or building as the case may be, within period of two monthsof the occupancy certificate issued for the said apartment, plot orDbuilding, as the case may be.

(11) Every allottee shall participate towards registration of theconveyance deed of the apartment, plot or building, as the casemay be, as provided under sub-section (1) of section 17 of thisAct.”

93. The Act contemplates setting-up of Real Estate RegulatoryAuthority, Central Advisory Council and the Real Estate AppellateTribunal. Offences and penalties are provided for to give teeth to theAct. Section 71 gives the power of adjudication of compensation. Section72 provides for the factors to be taken into consideration for adjudgingFthe quantum of compensation or interest under Section 71. Section 79enacts bar of jurisdiction of the civil court in regard to any matter inwhich the Authority, the Adjudicating Officer or the Appellate Tribunalis empowered by the Act to determine. An injunction cannot be issuedby any court or other Authority in respect of any action taken or to betaken in pursuance of the power conferred by or under the Act underGthe RERA.

94. Section 85 deals with the power to make regulations. Section85(2) reads as follows inter alia:

“85(2) In particular, and without prejudice to the generality of theforegoing power, such regulations may provide for all or any ofthe following matters, namely —

xxxxxx

xxx

(c) such other information and documents required under clause(f) of sub-section (1) of section 11;

(d) display of sanctioned plans, layout plans along withspecifications, approved by the competent authority, for displayunder clause (a) of sub-section (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 thisAct shall be in addition to, and not in derogation of, the provisionsof any other law for the time being in force.”

It is also important to notice, at once, Section 89 and it reads asfollows:

“89. Act to have overriding effect — The provisions of this Actshall have effect, notwithstanding anything inconsistent therewithcontained 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. perusal of Section 88 reveals, on the one hand, that theprovisions of the RERA, are in addition to and not in derogation of theprovisions 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 inconsistentlaw. The result is that while all cognate laws, which are not inconsistentwith RERA will continue to operate within their own sphere, the provisions,which are, however, inconsistent with RERA, will not survive after RERAhas come into force.

A97. In this regard, we may notice, the Delhi Apartment OwnershipAct, 1986. Section 2 deals with the application of the Act and it reads asfollows:

“2. Application — The provisions of this Act shall apply to everyapartment in multi-storeyed building which was constructedBmainly for residential or commercial or such other purposes asmay 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 free holdland, or lease hold land, if the lease for such land is for periodof thirty years or more:

Provided that, where building constructed, whether beforeor after the commencement of this Act, on any land contains onlyDtwo or three apartments, the owner of such building may, by adeclaration duly executed and registered under the provisions ofthe Registration Act, 1908 (16 of 1908), indicate his intention tomake the provisions of this Act applicable to such building, and onsuch declaration being made, such owner shall execute and registera Deed of Apartment in accordance with the provisions of thisEAct, as if such owner were the promoter in relation to suchbuilding.”

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

“3(b) “allottee”, in relation to an apartment, means the person towhom such apartment has been allotted, sold or otherwiseFtransferred by the promoter;”

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

“3(c) “apartment” means part of any property, intended for anytype of independent use, including one or more rooms or enclosedspaces located on one or more floors or any part or parts thereof,in multi-storeyed building to be used for residence or office orfor the practice of any profession, or for the carrying on of anyoccupation, trade or business or for such other type of independentuse as may be prescribed, and with direct exit to public street,road or highway, or to common area leading to such street, road

or highway, and includes any garage or room (whether or notadjacent to the multi-storeyed building in which such apartment islocated) provided by the promoter for use by the 4 owner of suchapartment for parking any vehicle or, as the case may be, for theresidence of any domestic aide employed in such apartment;”

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

“3(d) “apartment number” means the number, letter or combinationthereof, designating an apartment;

101. Section 3(f) defines ‘association of apartment owners’ asfollows:

“3(e) “apartment owner” means the person or persons owning anapartment and an undivided interest in the common areas andfacilities appurtenant to such apartment in the percentage specifiedin the Deed of Apartment;

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

“4. Ownership of apartments.—(1) Every person to whom anyapartment is allotted, sold or otherwise transferred by the promoter,on or after the commencement of this Act, shall, save as otherwiseprovided in section 6, and subject to the other provisions of thisAct, be entitled to the exclusive ownership and possession of theapartment so allotted, sold or otherwise transferred to him.

(2) Every person to whom any apartment was allotted, sold orotherwise transferred by the promoter before the commencementof this Act shall, save as otherwise provided under section 6 andsubject to the other provisions of this Act, be entitled, on and fromsuch commencement, to the exclusive ownership and possessionof the apartment so allotted, sold or otherwise transferred to him.

(3) Every person who becomes entitled to the exclusive ownershipand possession of an apartment under sub-section (1) or sub-section (2) shall be entitled to such percentage of undivided interestin the common areas and facilities as may be specified in theDeed of Apartment and such percentage shall be computed bytaking, as basis, the value of the apartment in relation to thevalue of the property.

xxx xxx xxx”

A103. 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 ofBapartment owners in relation to the apartment and property pertainingthereto and for the management of common areas and facilities. Modelbyelaws are to be framed by the Administrator and the Association ofApartment Owners can make departure from the model byelaws onlywith the prior approval of the Administrator.

106. There are similar laws made in the States which relate to theright of the apartment owners. We will revert back to the specificquestions which have been raised by the petitioners.

THE CONTENTIONS

D107. The contention which is raised is that under the impugnedprovisos inserted in Section 7(1) of the Code, an application by an allottee,can be made only if there are hundred allottees or number representingone-tenth of the total number of allottees, whichever is less, with furtherrider that the allottees must be part of the same real estate project. It iscontended that the word ‘allottee’ is to be understood in the sense inEwhich the word has been defined in the RERA. If that is so, it is contendedthat the impugned amendment would be inflicted with the vice ofvagueness and it is arbitrary.

108. What is to be meaning of the word ‘allottees’? The followingquestions are posed:F

i.Is the total number of the allottees, to be calculated qua theUnits promised?

ii. Is it to be based on the number of units constructed or is it toGbe the number of units allotted or units where the agreementto sell is entered into?

109. There is an information asymmetry. There is no publisheddata available of status of allotted units. No builder shares the information.It is impossible for the buyers to obtain the information. Ten per cent ofHallotted units, even it is assumed to be qua letter of allotment, is dynamic

figure and keeps changing. buyer may calculate ten per cent of thehundred units allotted by morning and it may become 110 by nightrendering the filing impossible.

110. Further, it is complained that it is not clear as to whether indetermining allottees, in real estate project, whether it is tower? theentire colonization? Or SPV? Ten per cent of real estate allotteescould mean ten per cent of the allotted units or ten per cent of the totallegal persons, who have bought into the project, particularly, in cases ofmultiple ownership of the same property. The provision, in fact, rendersgroup members prone to corruption by cash settlement by the builder.The coram will be disrupted, if one or two members are bought of oreven legally settled. This will necessitate fresh filing.

FINDINGS

111. We have referred to the definition of the word allottee andreal estate project and Section 3 of the Act which requires priorregistration. We have also referred to the definition of real estate project.In all these definition clauses, the words ‘as the case may be’ is foundafter the words plot, apartment or building. Thus, the Act is meant toregulate the dealings in plots, apartments and buildings. real estateproject, in other words, as defined, is the development of building orapartments or the development of land into plots or apartments. Thedevelopment is contemplated as being towards selling apartments, plotsor buildings. It would also necessarily include common areas. Theexpression ‘apartment’, as defined in RERA, is very comprehensiveone. It takes in, blocks, chamber, dwelling unit, flat, office, showroom,shop, godown, premises, suite, tenement, unit or by any other name andwhich is separate and self-contained part of any immovable property.It includes any one or more rooms or enclosed spaces located on one ormore floors or any part thereof, in building or on plot of land. It maybe used or intended to be used for any residential or commercial usesuch as residence, office, shop, showroom or godown or for carrying onany business, occupation, profession, trade or any other type of use,which his ancillary.

112. ‘Building’ has been defined as including any structure orerection or part of any structure and intended to be used for residentialor commercial purposes, inter alia. Thus, an allotment under RERAcan be in relation to plot, an apartment or building. In other words,

Aproject, would be in relation to plots, apartments or buildings. It couldalso be for composite one for plots and apartments or for plots andbuildings. We have noticed the expansive definition of the word apartmentand flats are comprehended within the definition of the word apartment.We have also noticed in this regard, the definition of the word apartment,in the Delhi Apartment Ownership Act, 1986. We have also seen thatBunder the Delhi Apartment Ownership Act, allottee has been defined inrelation to an apartment to mean the person to whom such apartmenthas been allotted, sold or otherwise transferred by the promoter.

113. For appreciating the meaning of the word ‘allottee’, for thepurpose of the Code, undoubtedly, it is necessary to travel to SectionC2(d) and 2(zn)of RERA for the reason that in Section 5(8)(f) of theCode, 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) xxxxxxxxxDExplanation.—For the purposes of this sub-clause,—

(i) any amount raised from an allottee under real estate projectshall be deemed to be an amount having the commercial effect ofa borrowing; and

E(ii) the expressions, “allottee” and “real estate project” shall havethe meanings respectively assigned to them 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 buildingsFor 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 purposeof the provisos in question, we must necessarily seek light only from theexpression ‘allottee’ defined in Section 2(d) of RERA.

G115. If we breakdown Section 2(d), it yields the followingcomponent parts:

i.An allottee may be an allottee of plot or an apartment or abuilding. real estate project may relate to plots or apartmentsor buildings; or plots/buildings or plots/apartments.H

ii.An allottee, in the case of an apartment, which expressionincludes flats, among other structures, would include thefollowing categories of persons. It would include person towhom the apartment is allotted. It would also include personto whom the apartment is sold, whether as freehold orleasehold.

iii. Thirdly, it would include person to whom the promoter hastransferred the apartment, otherwise than by way of sale;

iv. Lastly, it would include persons who have acquired theallotment through sale, transfer or otherwise, with the caveatthat it will not include person to whom the apartment isCgiven on rent. Whatever we have mentioned about apartments,is equally true qua allotment of plots or buildings.

MISCELLANY OF CONTENTIONS REGARDINGALLOTTEES

116. The definition of the word ‘promoter’ in RERA may benoticed in this regard. It includes person who constructs or causes tobe constructed an independent building or apartments or convert anexisting building or part thereof into apartments for the purpose ofselling or some of the apartments to other persons. In regard to such aperson, it is clear that there is no allotment of any plot as such. It may beanother matter that the contract may contemplate the assignment of theundivided interest in the land upon which the construction is made to theallottee but the allottee is the allottee of the building or the apartment asdefined in the Act. Coming to clause (ii) of Section 2(zk) defining‘promoter’, it contemplates developer who develops land into project.The promoter in such case may also put up construction on any of theplots for the purpose of sale either with or without structures thereon.Therefore, this category of promoter and therefore real estate projectwould be hybrid project which involves the development of the landinto plots sale of plots aloneafter development or sale of the plot with theconstruction thereon. Coming to clause (iii) of the definition of ‘promoter’it includes any public body or development authority in respect of allotteesof building or apartments constructed by such authority or body on landsowned by them or placed at their disposal by the Government. Theremay be such promoters who are development authorities or public bodies,if they own plots or have plots at their disposal by the Government which

Ais then, allotted. The allotment must be for the purpose of selling. Theplots and the apartments must be intended for sale. In regard to ApexLevel Co-operative Housing Society or Primary Co-operative HousingSociety, they are treated as promoters in regard to apartments or buildingsfor its purpose or in respect of allottees, apartments or buildings. Thisnecessarily mean that in regard to such societies the allottees could beBthe members or non-members. Clause V also includes person who actsas builder, colonizer, contractor, developer, estate developer or any othername or claiming to be the Power of Attorney of the holder of the landon which the building, apartment constructed or the plot developed forsale. This must be further understood in the light of the definition of theCreal estate project in Section 2 (zn). It defines as meaning the variousactivities. It consists of the following:

1. Development of the building

2. building which consists of apartments

D3. Converting an existing building or part thereof into apartment4. The development of land into plots or apartments as the casemay be.

117. The aforesaid activities must be for the purpose of sale of allor some of the apartments, plot or building along with the common areasEand other work and rights. The task of ascertaining who will be an allotteeas also the question as to what will be the total number of allottees andtherefore what would constitute one-tenth of total number of allotteesmust depend upon the nature of the real estate project in question. It willdepend on what is offered by the promoter under the project. It may beFreal estate project which seeks to develop building and sale of thebuilding. It may be project for the construction of apartments with theagreements to convey the undivided interest of land also. It may be aproject which envisages converting an existing building or part into anapartment. It may be project for merely development of land into plotsand sale of the plotted land as such. It may be also that the same personGmay also develop either apartments or building to be sold. In this regardwe may remember the explanation in Section 2(zk) (vi) defining theword ‘promoter’. The said section reads as under:

“(zk) “promoter” means,—

(i) xxxH

xxx

(vi) such other person who constructs any building or apartmentfor sale to the general public.

Explanation.—For the purposes of this clause, where the personwho constructs or converts building into apartments or developsa plot for sale and the person who sells apartments or plots aredifferent person, both of them shall be deemed to be the promotersand shall be jointly liable as such for the functions andresponsibilities specified under this Act or the rules and regulationsmade thereunder;”

118. Therefore, conspectus of the provisions would show thathaving regard to the legislative intention the term ‘allottees’ as defined inSection 2(d) must be understood undoubtedly on its own termspredominantly. But at the same time the other provisions which formpart of the Act and therefore the scheme must also be borne in mind.The Argument that the definition of ‘allottee’ suffers from overinclusiveness and under inclusiveness needs to be considered. Underinclusiveness and over inclusiveness are aspects of the guarantee underArticle 14. Equals must be treated equally. Unequals must not be treatedequally. What constitutes reasonable classification must depend uponthe facts of each case, the context provided by the statute, the existenceof intelligible differentia which has led to the grouping of the persons orthings as class and the leaving out of those who do not share theintelligible differentia. No doubt it must bear rational nexus to the objectssought to be achieved.

119. Coming to the definition of the word ‘allottee’ it appears tobe split up into three categories broadly, they are- plot, apartment andbuildings. In the context of the impugned proviso, it must be rememberedthat if an applicant is able to garner magical figure of 100 allottees,then he can present the application under Section 7 of the Code. This isfor the reason that the further requirement of one-tenth of total numberof allottees is meant to apply in situation only if one-tenth of the totalnumber of allottees is less than 100. This is for the reason that the word

A‘whichever‘ has been used. No doubt in the context of one-tenth of theallottees, the greater the number of total number of allottees, the greaterwill be the number of one-tenth. In other words, if the total number ofallottees is less, then, one-tenth of the total number will be less, and if insuch circumstances, it is lesser than hundred, such number of allotteescan make application under Section 7 under the impugned provisos.BTherefore, in calculating the total number of allottees in one sense is adouble-edged sword as the more is the numerator, the more will be theresultant figure required under the proviso.

120. Be that as it may, as we have noticed the question must bedecided with reference to real nature of the real estate project in whichCthe applicant is an allottee. If it is in the case of an apartment, thennecessarily all persons to whom allotment had been made would betreated as allottees for calculating the figure mentioned in the impugnedproviso. The word ‘allotment’ does mean allotment in the sense ofdocumented booking as is mentioned in Section 11(1)(b) in regard toDapartment or plot with which we are largely concerned. Such detailregarding the quarterly up-to-date list of the number and the types ofapartments are to be uploaded as provided in Section 11. It is thisinformation incidentally, which is the reservoir of data which the legislatureintends that the allottees can use even though it is not necessarily confinedto them. The allottee would also include person who acquires theEallotment either through sale, transfer or otherwise. The transferee ofthe allotment is contemplated. There can be no difficulty in includingsuch assignee of the allotment as also the allottee for the purpose ofcomplying with the threshold requirement under the impugned proviso.Thus, all allottees and all assignees of allotment would qualify both to beFconsidered for the purpose of calculating the total number of allotteesbut confined to the particular real estate project and therefore for arrivingat the figure of 100 allottees or one-tenth of the allottees as the casemay be. Then, there is third category, which is introduced by theexpression ‘sold’ (whether as ‘leasehold’ or ‘freehold’ or otherwise

transferred by the Promoter). Here question may arise, if the wordG‘sold’ is applied to the expression ‘plot’, then undoubtedly the transfereewould be an allottee. If the sale is to the allottee in real estate projectwhich is hybrid project consisting of development of land into plots andalso development of buildings as is contemplated under Section 2(zk)then the transferee of the plot undoubtedly would be an allottee. He mayHhave 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 building is concerned,once an apartment or building is sold, it presupposes that the constructionof the building or the apartment is complete ordinarily. No doubt, he mayalso have complaints against the promoter which may be addressed underthe RERA. For the purpose of the proviso in question, going by thedefinition, undoubtedly, such transferee of an apartment or building, is tobe treated as an allottee. Let us take an example. Promoter constructsseveral apartments. An apartment is defined so as to include ‘flat’. Itcan be residential or commercial. Assume that the Promoter hasconstructed 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 isgiven only on the completion of the project. He assigns and transfers theapartment to those allottees to whom he allotted the apartment when hehas completed the construction. Such transferees would be allotteesunder the RERA. The question, however, may arise from the point ofview of the impugned proviso as to what is the common feature betweensuch an allottee to whom the constructed apartment is already handedover after sale and the allottee of the remaining floors where there is noconstruction or only construction which is pronouncedly lagging behindthe schedule. The question may arise whether banding together suchallottees under the definition clause make out the case of over inclusiveclassification. Are unequals being treated equally?

121. mere charge of either under inclusiveness or overinclusiveness which is not difficult to make hardly suffices to persuadethe court to strike down law. There is wide latitude allowed in thelegislature in these matters. The examination cannot be extended to findout whether there is mathematical precision or wooden equalityestablished. The working of the statute may produce further issues, allof it may not be fully perceived as which may not be wholly foreseen bythe law giver. The freedom to experiment must be conceded to thelegislature, particularly, in economic laws. If problems emerge in theworking of law and which require legislative intervention, the court cannotbe oblivious to the power of the legislative to respond by stepping in withnecessary amendment. There is nothing like perfect law and as withall human institutions there are bound to be imperfections. What issignificant is however for the court ruling on constitutionality, the lawmust present clear departure from constitutional limits.

ABC

A122. In the example of an apartment which is sold where theproject is not complete, we bear in mind the following features:

In such cases if there is insolvency, the project would remainincomplete. Common areas/common facilities would not becomeavailable. The feature which attract buyer is the whole project whichBis completed. The apartment owner may very well refuse to acceptdelivery as he may insist upon the completion of the project with all itspromised facilities. Section 17 of RERA contemplates the transfer oftitle to the common areas to the association of allottees. Obviously, sucha thing would not be possible ordinarily unless the construction iscomplete. In other words, unlike an allottee of different project underCthe same promoter the different allottees as contained in the definitionof the word ‘allottee’ would have room for common complaints. realisticand pragmatic approach is not to be eschewed or abandoned. Thus, wecannot see merit in the contention.

123. We have noticed Section 11 (1) (b) of RERA. It contemplatesDdetails of booking qua apartments and plots. This is sufficient to rejectthe argument that it could be based on total number of the units promised.What is required is allotment and not promised flats as per brochure. Itis also not the total constructed units. This is as what is relevant underthe impugned provisos read with Section 5(8)(f) explanation and sectionE2 (d) of RERA read with Section 11(1)(b) and the rules made thereunderis the ‘booking’ of apartments or plots. What is allotted or booked maybe more than what is constructed if there is mismatch at any givenpoint of time. It is the number of units allotted. Now, the allotment andthe agreement to sell are not irreconcilable with each other and maysignify the same.F

124. The further contention that 10 percent is dynamic and whatis 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 (Section153-C), Section 399 of the Companies Act, 1956 and Section 244 of theCompanies Act, 2013 contain similar provisions. The mere difficulties inGgiven cases, to comply with law can hardly furnish ground to strike itdown. As to what would constitute the real estate project, it must dependon the terms & conditions and scope of particular real estate project inwhich allottees are part of. These are factual matters to be consideredin the facts of each case.

THE PROBLEM OF DEFAULT AND LIMITATION

125. It is urged on behalf of the petitioners that the provisosrequiring support of one hundred persons or one-tenth of the allottees,whichever is lower, is unworkable and arbitrary having regard to theprovisions of the Code. There can only be one default in complaint, itis contended. When the required number of allottees may have to bedrawn from allottees who may have entered into agreements with thebuilder on different dates, the date of default would be different. Thiswould adversely impinge on the absolute right which otherwise existwith an allottee to make an application under Section 7 of the Code.

126. Per contra, the learned Additional Solicitor General woulddraw attention to Explanation to Section 7(1). She would further contendthat as long as there is default which need not be qua the applicant orapplicants, an application would be maintainable and there is no merit inthis contention.

127. In this context, it is necessary to recapture Section 4 of theCode. It reads as follows:

“4. (1) This Part shall apply to matters relating to the insolvencyand liquidation of corporate debtors where the minimum amountof the default is one lakh rupees:

Provided that the Central Government may, by notification, specifythe minimum amount of default of higher value which shall not bemore than one crore rupees.”

The amount is now fixed at Rs.1 crore.

128. It is thereafter that Section 6 declares that where anycorporate debtor commits default, financial creditor, an operationalcreditor or corporate debtor may itself initiate CIRP in the mannerprovided in Chapter 2.

129. Section 7 continues to declare that financial creditor eitherby itself or jointly by other creditors or any other central governmentnotified person, file an application before the Adjudicating Authority, whena default has occurred. It is thereafter that the following Explanation ispresent, no doubt, after the impugned provisions, after the amendment:

“7. (1) xxxxxx

xxx

AExplanation.—For the purposes of this sub-section, defaultincludes default in respect of financial debt owed not only tothe applicant financial creditor but to any other financial creditorof the corporate debtor.”

130. The Explanation makes it clear that financial debt, which isBowed to any other financial creditor of the corporate debtor would sufficeto make an application on the basis that the default has occurred. Defaulthas been defined in Section 3(12) of the Code as follows:

“3(12) “default” means non-payment of debt when whole or anypart or instalment of the amount of debt has become due andCpayable and is not repaid by the debtor or the corporate debtor, asthe case may be;”

131. Interpreting these provisions and the Rules as well, this Courtin Innoventive (supra), held as follows:

“28. When it comes to financial creditor triggering the process,DSection 7 becomes relevant. Under the Explanation to Section7(1), default is in respect of financial debt owed to any financialcreditor of the corporate debtor — it need not be debt owed tothe applicant financial creditor.Under Section 7(2), an applicationis to be made under sub-section (1) in such form and manner as isEprescribed, which takes us to the Insolvency and Bankruptcy(Application to Adjudicating Authority) Rules, 2016. Under Rule4, the application is made by financial creditor in Form 1accompanied by documents and records required therein. Form 1is detailed form in 5 parts, which requires particulars of theapplicant in Part I, particulars of the corporate debtor in Part II,Fparticulars of the proposed interim resolution professional in PartIII, particulars of the financial debt in Part IV and documents,records and evidence of default in Part V. Under Rule 4(3), theapplicant is to dispatch copy of the application filed with theadjudicating authority by registered post or speed post to theGregistered office of the corporate debtor. The speed, within whichthe adjudicating authority is to ascertain the existence of defaultfrom the records of the information utility or on the basis of evidencefurnished by the financial creditor, is important. This it must dowithin 14 days of the receipt of the application. It is at the stage ofSection 7(5), where the adjudicating authority is to be satisfied

that default has occurred, that the corporate debtor is entitled topoint out that default has not occurred in the sense that the“debt”, which may also include disputed claim, is not due. Adebt may not be due if it is not payable in law or in fact. Themoment the adjudicating authority is satisfied that default hasoccurred, the application must be admitted unless it is incomplete,in which case it may give notice to the applicant to rectify thedefect within 7 days of receipt of notice from the adjudicatingauthority. Under sub-section (7), the adjudicating authority shallthen communicate the order passed to the financial creditor andcorporate debtor within 7 days of admission or rejection of suchapplication, as the case may be.”

(Emphasis supplied)

132. It is true that Section 238A (inserted with effect from06.06.2018) of the Code provides that the provisions of the LimitationAct shall be applicable as far as may be to the proceedings or appealsbefore 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 Limited(supra), has held that Article 137in Schedule I of the Limitation Act, 1963, will apply in regard to anapplication under Sections 7 and 9 of the Code. This Court held, interalia, as follows:

“42. It is thus clear that since the Limitation Act is applicable toapplications filed under Sections 7 and 9 of the Code from theinception of the Code, Article 137 of the Limitation Act getsattracted. “The right to sue”, therefore, accrues when defaultoccurs. If the default has occurred over three years prior to thedate of filing of the application, the application would be barredunder Article 137 of the Limitation Act, save and except in thosecases 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 itsjudgment, gives an example of debt which is due since 1990 and whichhas become barred but which is sought to be revived through the mediumof Section 7 of the Code which law came into being in 2016. It is toavoid such situations that this Court noted that even if Section 238A wasinserted after the original enactment, the Limitation Act, 1963, would,

Aindeed apply, right from the inception of the Code. It is to be noticed thatthis Court has applied Article 137, and also, at the same time,countenanced the applicability of Section 5 of the Limitation Act, providingfor condonation of delay in appropriate cases.

134. It is, therefore, clear that the requirement of the Code inBregard to an application by financial creditor does not mandate that thefinancial debt is owed to the applicant in terms of the Explanation. Thisis for the reason that apparently that the CIRP and which, if unsuccessful,is followed by the liquidation procedure is in all proceeding, in rem. TheLaw Giver has envisaged in the Code, an action, merely for setting inmotion the process initially. The litmus test on the anvil of which, theCAdjudicating Authority will scrutinize the matter, is only the existence ofthe default, as defined in Section 4 of the Code. As on date, the amountof default is pegged at Rs.1 crore. Present financial debt which hasnot been paid, the doors are thrown open for the processes under theCode to flow in and overwhelm the corporate debtor. The further barrierDis limitation, no doubt, as noticed in B.K. Educational Services PrivateLimited v. Parag Gupta & Associates50. As with anything in life, notonly will imperfections stand out and mathematical nicety be flouted, alaw may end up seemingly trampling upon the interests of few or evenmany. Since, the Code undoubtedly bears the brand of an economicmeasure upon its face, and in true spirit, being one of the most significantEand dynamic economic experiments indulged in by the Law Giver, notby becoming servile to Parliament, but by way of time hallowed deferenceto the sovereign body experimenting in such matters, this Court will leanheavily in favour of such law. The complaint of the petitioners that anincrease in the required strength of applicants, will create legal knotsFwhich do not admit of solution, do not appeal to us and we intend laybare how the law can indeed be worked, even with the extra burdenwhich is cast on the persons covered by the provisos.

135. It is indisputable that in order to successfully move anapplication under Section 7 that there must be default which must be inGa sum of Rs.1 crore. It is equally clear that the amount of Rs.1 croreneed not be owed by the corporate debtor in favour of the applicant. Itmust be noted that the Explanation existed even prior to the provisosbeing inserted. It is open to financial creditor, to move an application inthe company of another financial creditor or more than one other financial

H50 (2019) 11 SCC 633

creditor. In fact, perusal of the Rules, which we have already extracted,would indicate that irrespective of the number of applicants the CourtFee would remain Rs. 25,000/-. This answers the alleged vaguenessabout court fees where the provisos are given effect to. Thus, dehorsthe impugned provisos in terms of the Explanation in sub-Section 7(1), afinancial debt need not be owed to the applicant and as joint applicationby more than one applicant was and is contemplated, the resultantposition would be that any number of applicants, without any amountbeing due to them, could move an application under Section 7, providedthat they are financial creditors and there is default in sum of Rs.1crore even if the said amount is owed to none of the applicants but toany another financial creditor. This position has not undergone any changeeven with the insertion of the provisos. In other words, even though theprovisos require that in the case of real estate project, being conductedby corporate debtor, an application can be filed by either one hundredallottees or allottees constituting one-tenth of the allottees, whichever isless, if they are able to establish default in regard to financial creditorand 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 canpossibly be worked.136. In practice, it may be unlikely, however, that persons wouldcome together as applicants under the Code, if they are real estateallottees, particularly knowing what the admission of application underSection 7 entails, and the destiny of an application which has reachedthe stage of compulsory winding up under Section 33. However, takinga more likely example, viz., of the corporate debtor operating in the realestate sector and an allottee moving an application upon there beingamounts due to him, prior to the amendment, undoubtedly, single allotteecould set the ball in motion and all he had to satisfy is default to him orany other financial creditor. The change that is brought about is only thatapart from establishing the factum of default, he must present theapplication endorsed by the requisite number introduced by the proviso.Since, default can be qua any of the applicants, and even person, whois not an applicant, and the action is, one which is understood to be inrem, in that, the procedures, under the Code, would bind the entire set ofstakeholders, including the whole of the allottees, we can see no merit inthe contention of the petitioner based on the theory of default, renderingthe provisions unworkable and arbitrary.

A137. In this regard, it is necessary to notice Form 1, in which, anapplication is to be maintained under Section 7 of the Code read withRule 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 amountclaimed to be in default and the date on which the default occurred (theBapplicant is required to attach the workings for computation of the amountand days of default in tabular form). Part V deals with particulars of thefinancial debt (documents, records and evidence of default). The applicantis 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 theCexistence of the default, as can be seen from clause 8 of Part V.

138. In this regard, question may arise as to how the applicationwould have to be filled-up, if there are hundred allottees in given caseto 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 aDsituation is looked at, it cannot be called into question, having regard toone aspect in particular. Even before the amendment, and what is morealso, after the amendment, joint application is permissible (though notmandated) in respect of all classes of financial creditors. This means,even in the case of any application filed by more than one applicant, ifthe requirements of the Code are otherwise fulfilled, there can be casesEwhere the applicants can file single application by giving the detailswhich we have adverted to. Secondly, we must bear in mind again, thatthe application is contemplated to be an application in rem. One or morefinancial creditors activises the Code with reference to the thresholdfigure of Rs.1 crore, being in default. The Authority is alerted. He verifiesFthis aspect, finding that the debt is established under Section 7(5), andfurther that it is not barred by limitation or if he invokes the power underSection 5 of the Limitation Act, to condone the delay [as contemplatedin B.K. Educational Services Private Limited(supra)], the curtains areraised 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 claimedGas sum in default in terms of the Explanation in Section 7(1).Undoubtedly, the record of default, as contemplated in the Code, whichneed not be the record of default with the information utility alone, has tobe furnished. If the default is qua all the applicants, then also, as long asthe statutory requirements regarding the amount, and it not being barred,Hare fulfilled, it will be open to the applicants to plead the same.

Undoubtedly, if the debt, in sum of Rs.1 crore, happens to be set up,which is barred, then, unless Section 5 of the Limitation Act is successfullyinvoked, the applicants would risk rejection of the application, whichcannot be stated to be unfair as it is in accordance with law. What weare indicating is that in view of the special provision, contained in theExplanation to Section 7(1), the arguments appear to be farfetched. Wemust bear in mind that when we reasonably contemplate, state ofinsolvency, while in law, the corporate debtor, being in default to singlefinancial creditor in sum of Rs. 1 crore, is sufficient, it is highly unlikelythat the corporate debtor would not be similarly financially in dire straitstowards the other creditors (allottees). Another aspect, which is raised,is that in the example of hundred allottees, if they have agreements,under which, the date of default is different, how is the application to bedrafted and processed? What, if the debt is barred qua some of theapplicants, whereas, it is not so in regard to the other applicants. Takinga 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 notbarred as the cause of action. In other words, if law contemplates thatthe default in 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 againstsome of the financial creditors, who are applicants, whereas, theapplication by some others, or even one who have moved jointly, fulfillthe requirement of default, both in terms of the sum and it not beingbarred, the application would still lie.

ALLOTTEES TO BE FROM SAME REAL ESTATEPROJECT: IS IT UNCONSTITUTIONAL?

139. We have referred to the definition of the word ‘allotee’ inSection 2(d) of the RERA. In regard to real estate project, all persons,who are treated as allottees, as per the definition of allottee would beentitled to be treated as allottees, for the purpose of Section 5(8)(f)(Explanation) and also, for the purpose of the impugned provisos. Allthat is required is that the allottees must relate to same real estate project.In other words, if Promoter has different real estate project, be it inrelation to apartments, in the case an application under Section7, thosewould not be reckoned in computing one-tenth as well as the totalallotments.

140. The rationale behind, confining allottees to the same realestate project, is to promote the object of the Code. Once the threshold

Arequirement can pass muster when tested in the anvil of challengebased on Articles 14, 19 and 21, then, there is both logic and reasonbehind the legislative value judgment that the allottees, who must join theapplication under the impugned provisos, must be related to the samereal estate project. The connection with the same real estate project iscrucial to the determination of the critical mass, which Legislature has inBmind, as part of its scheme, to streamline the working of the Code. Ifit is to embrace the total number of allottees of all projects, which aPromoter of real estate project, may be having, in one sense, it willmake the task of the applicant himself, more cumbersome. It becomes asword, which will cut both ways. This is for the reason that the complaints,Crelating to different projects, may be different. With regard to one projectof Promoter of real estate project, maybe, in the advanced stage, theallottees in particular project, may not have much of complaint. Thecomplaint, in relation to yet another project, may be more serious. If thecomplaint in respect of the latter, attracts the attention of critical massof allottees, and the proposed applicant is part of that project in the saidDproject, then, it may be easier for the allottees to fulfil the statutorymantra in the impugned provisos, with the junction of likeminded souls.If, on the other hand, the requirement was to make search for allotteesof different projects, as would be the case, if the entirety of the allottees,under different projects, were to be reckoned, the task would have beenEmuch more cumbersome. The requirement of the allottees, being drawnfrom the same project, stands to reason and also does not suffer fromany constitutional blemish, as pointed out.THE POINT OF TIME TO COMPLY WITH THETHRESHHOLD REQUIREMENTS

141. The question, then arises, as to the alleged lack of clarityabout the point of time, at which the requirements of the impugnedprovisos, are to be met. Is it sufficient, if the required number of allotteesjoin together and file an application under Section 7 and fulfil therequirements, at the time of presentation? Or, is it necessary that theGapplication must conform the numerical strength, under the new proviso,even after filing of the application, and till the date, the application isadmitted under Section 7(5)? There can be no doubt that the requirementof threshold under the impugned proviso, in Section 7(1), must befulfilled as on the date of the filing of the application. In this regard, wefind support from an early judgment of this Court, which was renderedH

under Section 153-C of the Companies Act, 1913. Section 153-C is thepredecessor to Sections 397 and 398 read with Section 399 of theCompanies Act, 1956. Its most recent avatar is contained in Sections241 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 company are entitled to makean application in virtue of sub-section (1), any one or more ofthem having obtained the consent in writing of the rest, may makethe application on behalf and for the benefit of all of them.”

142. In the decision of this Court in Rajahmundry Electric SupplyCorporation Ltd. v. A. Nageshwara Rao and others51, the provision inquestion, viz., Section 153-C of Companies Act, 1913 dealt with thepower of the Court to Act, when the Company acts in prejudicialmanner or oppresses any part of its members. It, inter alia, providedthat no application could be made by any member, in the case of companyhaving share capital unless the member has obtained consent, in writing,of not less than one hundred in number of the members of the companyor not less than one-tenth in number of the members, whichever is less.There was also an alternate requirement, to which, resort could be madein regard to company, not having share capital. There was another modeof fulfilling the threshold requirement. In the facts of the said case, thenumber of the members of the company were 603. Sixty-five membersconsented to the application. The problem, however, arose as it wascontended that 13 of the members who had consented, had, subsequentto the presentation of the application, withdrawn their consent. This Courtwent on to hold as follows:

We have no hesitation in rejecting this contention. Thevalidity of petition must be judged on the facts as they were atthe time of its presentation, and petition which was valid whenpresented cannot, in the absence of provision to that effect inthe statute, cease to be maintainable by reason of eventssubsequent to its presentation. In our opinion, the withdrawal ofconsent by 13 of the members, even if true, cannot affect eitherthe right of the applicant to proceed with the application or thejurisdiction of the court to dispose of it on its own merits.”

A143. In the matter of presentation of an application under Section7, if the threshold requirement, under the impugned provisos, standsfulfilled, the requirement of the law must be treated as fulfilled. Thecontention, relating to the ambiguity and consequent unworkability andthe resultant arbitrariness, is clearly untenable and does not appeal to us.If an allottee is able to, in other words, satisfy the requirements, as onBthe date of the presentation, the requirement of the impugned law isfulfilled.

HOLDINGS BY FAMILY MEMBERS ETC. AND JOINTHOLDINGS OF UNIT; SINGLE ALLOTTEE?

C144. One of the contentions, which is raised is that in Section 399(2) of the Companies Act, 1956, it was provided that in applying thethreshold test of requisite number of members, to join in an applicationunder Sections 397 and 398, where any share or shares are held by twoor more persons, they shall be counted only as one member. Section 244of the Companies Act, 2013, corresponds to Section 399 of theDCompanies Act, 1956. The Explanation in Section 241(1) contains anidentical provision as in Section 399(2). It is, however, pointed out by thepetitioners that in the matter of an allotment, being made to more thanone person, of an apartment or other real estate property, it is not laiddown as to how the matter is to be dealt with. It is vague. It is arbitrary.EIt is true that in the impugned proviso, introduced in Section 7(1), thereis no indication as to how the number of allottees are to be reckoned inthe case of more than one person. It will be of interest to note that inSection 14 of the RERA, the Promoter is forbidden from making anyadditions and alterations in the sanctioned plans, layout plans andspecifications, the nature of the fixtures, fittings and amenities, whichFare agreed to be undertaken, without the consent of that person. Ofcourse, minor additions or alterations, in circumstances provided in theproviso, can be carried out.145. Thereafter, Section 14(2)(ii) contemplates that any otheralterations in the sanctioned plans, layout plans and specifications or theGcommon area within the project, cannot be carried out except with theprevious written consent of at least two-thirds of the allottees, otherthan the Promoter, who had agreed to take the apartments in such building.In this context, there is an Explanation. The Explanation purports todeclare that if an allottee has taken more than one apartment or plot inHhis name or in the name of his family, it will be treated as single allotment.

In the case of persons, such as companies or firms or association ofindividuals, bookings in its name or in the name of associated entities orrelated enterprises, are to be treated as single allotment.

146. Similarly, Section 15 of RERA interdicts transfer or assignmentof his majority rights and liabilities to third party, without obtaining theprior written consent of two-thirds of the allottees and also without theprior written approval of the Authority. similar Explanation, as is foundin Section 14, which we have already described, is to be found in Section15. 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 Sections14 and 15, is apparent. It is to avoid defeating the object, which wouldoccur, if members of the same family, monopolises project or associatedand related concerns of company, firm or association, corner theallotments. It is also possible that they may be hand-in-glove with thePromoter, which would result in defeating the rights of the other allottees,as the figure of two-thirds, would cease to represent the interest of theactual two-third majority, which is intended by the Legislature, be it in amatter 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 regardto his majority rights, by transfer or assignment. These Explanations areintended to hold the Promoter responsible to the sanctioned plans as alsoto prevent the Promoter from wriggling out of his majority rights, withouta real majority, as would be represented by two-thirds of the separateallottees, agreeing to the same. We cannot read the Explanations inSections 14 and 15 into the definition of ‘allotee’ in Section 2(d), as, inSections 14 and 15, perusal of Explanations, makes it clear that theyare enacted for the purpose of Sections 14 and 15, respectively. Wewould have to take the definition of the ‘allottee’ from Section 2(d), as itis. Therefore, it does not matter whether person has one or moreallotments in his name or in the name of his family members. As long asthere are independent allotments made to him or his family members, allof them would qualify as separate allottees and they would count both inthe calculation of the total allotments, as also in reckoning the figure ofhundred allottees or one-tenth of the allottees, whichever is less.

147. As far as the situation projected about, there being no clarityregarding whether, if there is joint allotment of an apartment to morethan one person, is it to be taken as only one allottee or as many allotteesas there are joint allottees, it would appear to us, on proper understanding

Aof the definition of the word ‘allottee’ in Section 2(d) and the object, forwhich 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 joint allotment of an apartment, plot or building tomore than one person, the allotment can only be treated as singleBallotment. This for the reason that the object of the Statute, admittedly, isto ensure that there is critical mass of persons (allottees), who agreethat the time is ripe to invoke the Code and to submit to the inexorableprocesses under the Code, with all its attendant perils. The object ofmaintaining speed in the CIRP and also the balancing of interest of allCthe stakeholders, would be promoted by the view that as in the case ofthe Companies Acts, 1956 and 2013, that for the purpose of complyingwith the impugned provisos in Section 7(1), while the allottee can be ofany of the categories, fulfilling the description of an allottee in Section2(d) of RERA, as interpreted earlier by us joint allottees of singleapartment, will be treated as only one allottee. Any other view can leadDto clear abuse and defeating of the object of the Code. If, for instance, asingle apartment is taken in the name of hundred persons, single allottee,who in turn comprise of relatives or family members or friends, canmove an application, even though the position ante would be restored,which means that only the allottee qua one apartment, plot or building, isEbefore the Authority and it would not really represent critical mass ofthe allottees in the real estate project concerned. Therefore, we have nohesitation in rejecting the contentions of the petitioner on having madethe said interpretation.

THE POWER OF WAIVER, BEING DENIED, UNLIKEFTHE COMPANIES ACTS

148. There is another argument, which is pressed before us asone, which distinguishes the impugned provisions from those containedin the Companies Act. Section 399(4) of the Companies Act, 1956, readas follows:G“399.(4) The Central Government may, if in its opinioncircumstances exist which make it just and equitable so to do,authorise any member or members of the company to apply tothe Tribunal under section 397 or 398, notwithstanding that therequirements of clause (a) or clause (b), as the case may be, ofHsub-section (1) are not fulfilled.”

149. It is, therefore, contended that the said provision renderedthe threshold requirement in Section 399(1), fair one. This is for thereason that where it was found just and equitable by the CentralGovernment, it could authorize any member or members to apply underSection 397 or Section 398, even though the numerical strength ofmembers, as required in Section 399(1), did not come forward to presentthe application.

150. We are called upon to pronounce on the constitutionality ofthe law. Having regard to the salutary object and the distinguishing features,which clearly distinguish the allottees and also the creditors falling in thefirst proviso from the other creditors, both financial and operational, wesee no merit in the contention. It is another matter that we may entertainthe belief that it would have been more wise on the part of the Legislatureto have incorporated safety valve to provide for situations where withoutcomplying with threshold requirement, single allottee could move theapplication. In this regard, we should also bear in mind the scope of anapplication under Sections 397 and 398.151. The Central Government, having regard to the scheme ofCompanies Act, is intricately interconnected with the management ofthe companies. It had powers of investigation into the affairs of thecompanies under Section 235 and Section 237. The purport of Sections397 and 398 include the conduct of the affairs of the company in anymanner prejudicial to the public interest or also, no doubt, prejudicial tomember or members. In such circumstances, clothing the CentralGovernment with the power to waive the requirement and permittingthe application to be presented by even single member, is in sync withthe scheme of the Companies Act. The role of the Central Governmentis different under the Code. In fact, the Central Government does nothave any role, as such under the Code. It acts only through the designatedAuthorities under the Code. The Code is about insolvency resolutionand on failure liquidation. The scheme of the Code is unique and itsobjects are vividly different from that of the Companies Act.Consequently, if the Legislature felt that threshold requirementrepresenting critical mass of allottees, alone would satisfy therequirement of valid institution of an application under Section 7, itcannot be dubbed as either discriminatory or arbitrary.

LOOK AT ORDER I RULE 8 OF THE CODE OF CIVILPROCEDURE, 1908 (THE CPC) AND SECTION 12 OF THE

ACONSUMER PROTECTION ACT, 1986 and the contentionsbased on the same.

152. The argument of the petitioners is that under Order I Rule 8of the CPC, where there are numerous persons having the same interestin one suit, one or more such persons can, with the permission of theBcourt, sue or be sued or may defend such suit on behalf of or for thebenefit of all persons so interested, at the instance of single personwith whom numerous persons share the same interest. The court, aftergiving permission, is to give notice of the institution of the suit as provided.Thereupon, any person, on whose behalf or for whose benefit the suit isinstituted or defended, can apply to the court, to be made party. Finally,CSub-Rule (6) of Order I Rule 8 declares that the Decree passed in thesuit under Order I Rule 8, shall be binding on all persons, on whosebehalf or for whose benefit, the suit is instituted or defended, as the casemay be. The Explanation in Order I Rule 8 of CPC, reads as follows:

“Explanation.— For the purpose of determining whether theDpersons who sue or are sued, or defend, have the same interest inone suit, it is not necessary to establish that such persons have thesame cause of action as the persons on whose behalf, or for whosebenefit, they sue or are sued, or defend the suit, as the case maybe.”

E153. This provision is sought to be contrasted with the provisosinserted by the impugned amendment. It was sought to be contendedthat the procedure contemplated in Order I Rule 8, on the one hand,countenances the setting in motion of civil suit by single person, nodoubt with the permission of the Court and after Notice is given, asprovided therein, any of the persons, who have the same interest, canFcome forward and seek to be made party. By the device, embedded inOrder I Rule 8, the interest of all the persons, who are having the sameinterests, 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 thePlaintiff, it is equally open to him to adopt such course. At the end ofGthe proceedings, when the Decree is passed, it shall be binding on all thepersons, for whose benefit or on whose behalf, the suit is laid even by asingle person. On the other hand, for reasons, which are entirely arbitrary,it is pointed out that most cumbersome and unachievable thresholdrequirement is thrust upon class of the financial creditors alone, byrequiring that should an allottee wish to invoke Section 7 of the Code, heHshould muster the support of at least 99 other allottees or one-tenth ofthe total number of allottees, whichever is lower. Again, it is emphasizedthat matters are made worse by insisting that the allottees must be drawnfrom the same project. It is, similarly, submitted that the ConsumerProtection Act also has embraced the principle of Order I Rule 8 of theCPC, as can be seen from Section 12 of the Consumer Protection Act.The definition of the word ‘complainant’, in Section 2(b)(iv) of theConsumer Protection Act, 1986, includes one or more consumer, wherethere are numerous persons having the same interest. Section 12 providesfor the manner in which complaint is to be made. Section 12(1)(c)reads as follows:

“12(1)(c). One or more consumers, where there are numerousconsumers having the same interest, with the permission of theDistrict Forum, on behalf of, or for the benefit of, all consumersso interested; or

154. The last provision, in string of provisions, which providethe scheme in regard to an action modelled on Order 1 Rule 8 of theCPC, is found in Section 13(6) of the Consumer Protection Act, 1986. Itreads as follows:

“13(6) Where the complainant is consumer referred to in sub-clause (iv) of clause (b) of sub-section (1) of section 2, theprovisions of rule 8 of Order I of the First Schedule to the Code ofCivil Procedure, 1908 (5 of 1908) shall apply subject to themodification that every reference therein to suit or decree shallbe construed as reference to complaint or the order of theDistrict Forum thereon.”

155. Thus, the procedure, under Order I Rule 8, is squarely madeapplicable to the proceedings under the Consumer Protection Act, in asituation, where, there are more than one consumer, having the sameinterest. It is true that the words “same interest”, has been understood inthe light of the Explanation under Order 1 Rule 8 of the CPC andtherefore, it is not necessary that all the numerous persons, within themeaning of the Consumer Protection Act or in civil suit, need establishthat they have the same cause of action. What is essential is that theyhave the same interest. Interpreting the words “same interest”, it is stillfurther true that this Court, in Chairman, Tamil Nadu Housing Boardv.T. N. Ganapathy52, has held that what is required is only community of

52 (1990) 1 SCC 608

Ainterest. This was case where suit was filed by allottees of plots oflow-income groups against the appellant-Housing Board seekinginjunction from demanding and collecting any additional price and thesuit was held maintainable under Order I Rule 8, even though separatedemand notices were issued to each allottees.

B156. In appreciating this argument, it is important to not be obliviousto the scheme of the Code and to distinguish it from civil suit laidinvoking order I Rule 8 or the consumer complaint presented by oneconsumer, sharing the same interest with numerous others, again invokingOrder I Rule 8. It is true that once Order I Rule 8 is made applicable, asingle plaintiff or consumer, in civil suit or consumer complaintCrespectively, can set the ball rolling. All the persons, having the sameinterest, are free to join in the proceedings. Irrespective of whether theyjoin or not, Decree or order, which is pronounced, will bind all thepersons having the same interest. The procedure, under Order I Rule 8,if it had been made applicable in regard to an application by the allotteeDof real estate project, would indeed have made it very easy for singleallottee to invoke Section 7 of the Code and it would also havecountenanced the participation of the other allottees, should they wishedto be made parties upon the publication of the Notice contemplated inOrder I Rule 8(2).E157. So far so good. Now, we will examine the other side of thestory 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 underSection 7, the stage is set for resolving the insolvency. The Resolution ofthe Insolvency may be attained by replacing the existing management.The Law Giver has contemplated last mile funding. It has, however,Ffixed time limit, as contemplated in Section 12 of the Code, no doubt asexplained by this Court. Once, the application is admitted under Section7(5), initially, the Interim Resolution Profession (IRP) would supplantthe very management by virtue of the suspension of the powers of themanagement, as contemplated in the Code. The IRP may or may notGcontinue as the Resolution Professional (RP) but RP is, undoubtedly,to be appointed under the scheme of the Code. The management passesinto the hands of the RP. Thereafter, depending upon the receipt of theResolution Plan and its acceptability to the Committee of Creditors andfinally the approval by the Adjudicating Authority of the Resolution Plan,

which is approved by the Committee of Creditors, depends the Resolutionof the Insolvency. All of this is to be completed within period of 330days again subject to the limit not being ‘mandatory’ as explained by thisCourt in Essar Steel(supra). Should this not happen, the AdjudicatingAuthority is obliged, under Section 33, to pass an Order for winding upof the Corporate Debtor. Section 53 provides for the priority in the matterof payment of the amounts which are collected by way of liquidationvalue. The allottees would rank as unsecured creditors. The inevitableconclusion is that unlike in an ordinary civil suit or in consumer complaint,the drastic consequences, as the inexorable liquidation of the corporatedebtor, contemplated under the Code, is the inevitable consequence, ofthe application reaching the stage of Section 33 of the Code. Liquidationcould take place even earlier under Section 33(4). As to whether theprocedure contemplated in Order I Rule 8 is suitable, more appropriateand even more fair, is matter, entirely in the realm of legislative choiceand policy. Having regard to the scheme of the Code, which we havedetailed above, there cannot be scintilla of doubt that what the petitionersare seeking to persuade us to hold, is to make foray into the forbiddenterritory of legislative value judgment. This is all the more so, when thedangers lurking behind full play to Order I Rule 8 being given appear tobe fairly clear. We have, therefore, no hesitation in rejecting this contention,which no doubt, at first blush, may appear attractive. We only need addthat invalidating law made by competent Legislature, on the basis ofwhat the Court may be induced to conclude, as better arrangement ora 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’ inPioneer Urban Land and Infrastructure Ltd. and another v. Union ofIndia and others53, certain amendments to the Code were challenged.The challenged provisions included the Explanation added to Section5(8)(f).

159. The challenge was made in batch of Writ Petitions filed bya group of Real Estate Developers. This Court was invited to adjudicateupon the constitutionality on wide range of grounds. It is important tocull out the findings rendered by the Court in the said decision as muchreliance has been placed by the Petitioners on the decision:

Ai.The Code is Legislation which deals with economic mattersand, therefore, the Legislature must be given free play inthe joints;

ii.The legislative judgment in economic choices must be givena certain degree of deference by the Courts;

iii.The amendment by which the explanation was inserted inSection 5(8) was clarificatory in nature and allottees/homebuyers were included in the main provision, i.e., Section5(8)(f) from the inception of the Code;

iv.The amending Act did not infringe Articles 14, 19(1)(g) readCwith Article 19(6) or 300A of the Constitution of India;

v.RERA and the Code must be held to co-exist, and in theevent of clash, RERA must give way to the Code. TheCode and RERA operate in completely different spheres.

vi.Paragragraph-30 of the judgment in Pioneer Urban Landand Infrastructure Ltd.(supra) reads as follows:

“30. As matter of fact, the Code and RERA operate in completelydifferent spheres. The Code deals with proceeding in rem inwhich the focus is the rehabilitation of the corporate debtor. Thisis to take place by replacing the management of the corporateEdebtor by means of resolution plan which must be accepted by66% of the Committee of Creditors, which is now put at the helmof affairs, in deciding the fate of the corporate debtor. Suchresolution plan then puts the same or another management in thesaddle, subject to the provisions of the Code, so that the corporateFdebtor may be pulled out of the woods and may continue as agoing concern, thus benefitting all stakeholders involved. It is onlyas last resort that winding up of the corporate debtor is resortedto, so that its assets may be liquidated and paid out in the mannerprovided by Section 53 of the Code. On the other hand, RERAprotects the interests of the individual investor in real estateGprojects by requiring the promoter to strictly adhere to its provisions.The object of RERA is to see that real estate projects come tofruition within the stated period and to see that allottees of suchprojects are not left in the lurch and are finally able to realise theirdream of home, or be paid compensation if such dream isHshattered, or at least get back monies that they had advanced

towards the project with interest. At the same time, recalcitrantallottees are not to be tolerated, as they must also perform theirpart of the bargain, namely, to pay instalments as and when theybecome due and payable. Given the different spheres within whichthese two enactments operate, different parallel remedies are givento allottees under RERA to see that their flat/apartment isconstructed and delivered to them in time, barring whichcompensation for the same and/or refund of amounts paid togetherwith interest at the very least comes their way. If, however, theallottee wants that the corporate debtor’s management itself beremoved and replaced, so that the corporate debtor can berehabilitated, he may prefer Section 7 application under the Code.That another parallel remedy is available is recognised by RERAitself in the proviso to Section 71(1), by which an allottee maycontinue with an application already filed before the ConsumerProtection Fora, he being given the choice to withdraw suchcomplaint and file an application before the adjudicating officerunder RERA read with Section 88. In similar circumstances, thisCourt in Swaraj Infrastructure (P) Ltd. v. Kotak MahindraBank Ltd. [Swaraj Infrastructure (P) Ltd. v. Kotak MahindraBank Ltd., (2019) 3 SCC 620 : (2019) 2 SCC (Civ) 136] has heldthat the Debts Recovery Tribunal proceedings under the Recoveryof Debts Due to Banks and Financial Institutions Act, 1993 andwinding-up proceedings under the Companies Act, 1956 can carryon in parallel streams (see paras 21 and 22 therein).”

[para 30]

vii. It is apposite to advert to paragraph-41 in the nature of thecontentions raised in this case. To quote:

“41. It is also important to remember that the Code is notmeant to be debt recovery mechanism (see para 28 of SwissRibbons [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4SCC 17]). It is 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 underSection 7 of the Code takes the risk of his flat/apartment notbeing completed in the near future, in the event of there being abreach on the part of the developer. Under the Code, he maynever get refund of the entire principal, let alone interest. This is

because, the moment petition is admitted under Section 7, theresolution professional must first advertise for and find resolutionplan by somebody, usually another developer, which has then topass muster under the Code i.e. that it must be approved by atleast 66% of the Committee of Creditors and must further gothrough challenges before NCLT and NCLAT before the newmanagement can take over and either complete construction, orpay out or refund amounts. Depending on the kind of resolutionplan that is approved, such home buyer/allottee may have to waitfor very long period for the successful completion of the project.He may never get his full money back together with interest inthe event that no suitable resolution plan is forthcoming, in whichcase, winding up of the corporate debtor alone would ensue. Onthe other hand, if such allottee were to approach the Real EstateRegulatory Authority under RERA, it is more than likely that theproject would be completed early by the persons mentionedtherein, and/or full amount of refund and interest together withcompensation and penalty, if any, would be awarded. Thus, giventhe bona fides of the allottee who moves an application underSection 7 of the Code, it is only such allottee who has completelylost faith in the management of the real estate developer whowould come before NCLT under the Code hoping that some otherdeveloper takes over and completes the project, while alwaystaking the risk that if no one were to come forward, corporatedeath must ensue and the allottee must then stand in line to receivewhatever is given to him in winding up. Given the reasons of theInsolvency Committee Report, which show that experience ofthe real estate sector in this country has not been encouraging, inthat huge amounts are advanced by ordinary people to financehousing projects which end up in massive delays on the part ofthe developer or even worse i.e. failure of the project itself, andgiven the state of facts which was existing at the time of thelegislation, as adverted to by the Insolvency Committee Report, itis clear that any alleged discrimination has to meet the tests laiddown in Ram Krishna Dalmia[Ram Krishna Dalmia v. S.R.Tendolkar, 1959 SCR 279 : 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. ShriAmbica Mills Ltd., (1974) 4 SCC 656 : 1974 SCC (L&S) 381]

, Venkateshwara Theatre [Venkateshwara Theatre v. State ofA.P., (1993) 3 SCC 677] and Mardia Chemicals [MardiaChemicals Ltd. v. Union of India, (2004) 4 SCC 311].”

[para 41]

viii. On the possibility of the Code being misused by singleallottee, we may notice the following:

“51. One other argument that is made on behalf of thecounsel for the petitioners is that allottees of flats/apartments whodo not want refunds, but who want their flats/apartmentsconstructed so that they may occupy and live in their flats/apartments, will be jeopardised, as single allottee who does notwant the flat/apartments, but wants refund of amounts paid forreasons best known to him, can trigger the Code and upset theconstruction and handing over of such flats/apartments to the vastbulk of allottees of project who may be genuine buyers whowish to occupy such flats/apartments as roofs over their heads.Another facet of this argument is that the bulk of such personswill never be on the Committee of Creditors, as they may not bepersons who trigger the Code at all. These arguments are met bythe fact that all the allottees of the project in question can eitherjoin together under the Explanation to Section 7(1) of the Code, orfile their own individual petitions after the Code gets triggered bya single allottee, stating that in addition to the construction of theirflat/apartment, they are also entitled to compensation under RERAand/or under the general law, and would thus be persons whohave “claim” i.e. right to remedy for breach of contract whichgives rise to right to compensation, whether or not such right isreduced to judgment, and would therefore be persons to whom aliability or obligation in respect of “claim” is due. Such personswould, therefore, have voice in the Committee of Creditors asto future plans for completion of the project, and compensationfor 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 freeto offer resolution plan in the event of an Application underSection 7, being admitted in favour of an allottee, subject, nodoubt, to Section 29 (A) of the Code, which may be accepted.

DEF

A160. It is clear that impugned provisos do not set at nought theruling of this Court in Pioneer (supra). In challenge by real estatedevelopers upholding the provisions in the manner done including theexplanation in Section 5 (8)(f) and allaying the apprehension about abuseby individual allotees cannot detract from the law giver amending thevery law on its understanding of the working of the Code at the instanceBof certain groups of applicants and impact it produces on the economyand the frustration of the sublime goals of the law.

INFORMATION ASYMMETRY

161. The contention on behalf of the petitioner’s both in regard toCthe debenture holders and security holders as also the allottees is thatthe provisos are unworkable. This is for the reason that informationrelating to allottees in respect of real estate projects and the debentureholders and security holders in regard to the first proviso is not available.In regard to shareholders with respect to Section 399 of the CompaniesAct, 1956 and section 244 of the Companies Act 2013, it is pointed outDthat the threshold requirements can be fulfilled having regard to thedocumented information regarding the shareholding available in law. Thisis not the position it is pointed out in regard to the categories covered byprovisos one and two. This renders the provisions manifestly arbitrary.162. Per contra, the stand of the union is as follows. As far asEallottees in real estate project is concerned, there is information availableunder the provisions of Real Estate Regulation Act. Firstly, it is pointedout that the said act contemplates an association of allottees. Theassociation plays an important role. The promoter has to take lead inthe formation of the Association. The allottees are also obliged to takeinterest in the formation of the Association. Once the association isFformed, the law giver contemplates naturally that information relating toallotment would become available. The provisions of the Act, which wehave referred to earlier, are emphasised. Secondly, it is pointed out thatunder Section 11 of the Act as also the rules the promoter is bound toopen webpage and post information relating to allotments. This is to beGupdated. Therefore, there is no merit in the contention. Similar submissionsare made in regard to debenture holders and security holders. It issubmitted that information is available in terms of section 88 of theCompanies Act, 2013. It is open to any of the security holders or debentureholders to inspect the registers and ascertain about security holders anddebenture holders.H

163. As far as allottees are concerned in regard to apartmentsand plots, Section 11(1)(b) of the RERA makes it mandatory for thepromoter to make available information regarding the bookings. We haveconflated bookings with allotments. We cannot proceed on the basis ofthe contention of the petitioners that the impugned provisos areunworkable and arbitrary on the basis that the court must take notice ofthe ‘reality’ which is that the promoters do not make available informationas required of them. The burden it is well settled to prove all facts tosuccessfully challenge the statute is always on the petitioner. Therecannot be priori reasoning, and there is no burden on the state. If thereis defiance of the law by promoters, the allottees are not helpless. Theycan always seek proper redress in the appropriate forum. No doubt, wealso would observe that it becomes the duty of all the authorities toensure that the promoters will stringently abide by their duties under theact. Section 11(1)(b) of the RERA speaks about information being madeavailable regarding bookings which can be understood as the ‘allotments’.The word ‘allottee’ as defined in Section 2(d) also takes in personwho subsequently acquires the allotment through sale, transfer orotherwise. In Section 11(1)(b) there is reference to bookings. If theinformation is to be limited to the original booking then the informationabout assignment just mentioned may not be made available. In thisregard we may notice the Haryana Real Estate Regulatory Authority,Gurugram (Quarterly Progress Report) Regulations 2018. Regulation 4provides inter alia that the promoter shall upload on the webpage whichhe has to create for the project within 15 days from the expiry of eachquarter, namely, the list of number and types of apartments/plots booked.Our attention has also been drawn to the format for Quarterly ProgressReport to be submitted under Haryana Regulations. perusal of thereport would show that the promoter is obliged to submit the names ofthe allottees. Obviously, if there is change in the allotment the changedname should be reflected in the Report. This must undoubtedly be ensuredby the authorities stringently. We also find merit in the contention of theUnion that the Association of allottees has to be formed under the mandateof the law it is expected to play an important role. Information will certainlybe forthcoming in regard to allotments upon the allottees becomingmembers of the Association as required. We cannot ignore the role ofthe association in the matter of becoming the transferee of the commonareas, being clothed with the right of first refusal within the meaning ofsection 7 of the Act and also the right to complain otherwise under the

AAct. This aspect of the association of allottees is not matter of meretrifle. The allottees cannot truly possess and enjoy their properties be itan apartment or building without their having right of common areas.The promoter is bound under Section 17 to transfer title to the commonareas to the association. Section 19(9) of RERA makes it duty on thepart of the allottee to participate towards the formation of the associationBor cooperative society or the federation of the same. The possession ofthe common areas is also to be handed over to the association of theallottees. The law giver has therefore created mechanism, namely, theassociation of allottees through which the allottees are expected to gatherinformation about the status of the allotments including the names andCaddresses of the allottees. We cannot proceed on the basis in casewhich involves challenge to statute that the information to be gatheredunder the statute will not be available on the basis that the statute willnot be worked as contemplated by the law giver. Hence, we reject thecontentions of the allottees.

D164. In regard to the debenture holders and security holders alsowe would see no merit in the contentions. There is statutory mechanism,which is comprised in the provisions of the Companies act 2013, namelySection (88). Section 88 (1) reads as follows:

“88. Register of members, etcE(1) Every company shall keep and maintain the following registersin such form and in such manner as may be prescribed,namely:—

(a) register of members indicating separately for each classof equity and preference shares held by each member residingFin or outside India;

(b) register of debenture-holders; and

(c) register of any other security holders.

165. Violation of Section 88 (1) is made punishable under SectionG88 (3).

166. There is no case established that the version of the Unionabout availability of information contained in the registers which can beperused is not correct. Again, the burden is on the petitioners and theyhave not discharged their burden.

THE FIRST AND SECOND PROVISOS CLASSIFICATIONDOWN MEMORY LANE: ARTICLE 14 ANDREASONABLE CLASSIFICATION

167. Both sides have placed reliance on large number ofdecisions in relation to reasonable classification under Article 14 of theConstitution. Even in the first decade of the Republic, this Court has, ina large number of cases, settled the principles in regard to whatconstitutes hostile discrimination and what is reasonable classification.Since, we would be in the region of platitude, if we were to chronicle theprinciples laid down in each of those cases, we think it suffices to referto some of the decisions of this Court alone.

168. In Ameerunnissa Begum(supra), which involved the challengeto law made by the Nizam as Raj Pramukh of the former State ofHyderabad, we need notice the following:

“11. The nature and scope of the guarantee that is impliedin the equal protection clause of the Constitution have beenexplained and discussed in more than one decision of this courtand do not require repetition. It is well settled that legislaturewhich has to deal with diverse problems arising out of an infinitevariety of human relations must, of necessity, have the power ofmaking special laws to attain particulars objects; and for thatpurpose it must have large powers of selection or classification ofpersons and things upon which such laws are to operate. Meredifferentiation or inequality of treatment does not per se amountto discrimination within the inhibition of the equal protection clause.To attract the operation of the clause it is necessary to show thatthe selection or differentiation is unreasonable arbitrary; that itdoes not rest on any rational basis having regard to the objectswhich the legislature has in view.”169. InNagpur Improvement Trust (supra), the petitioner beforethe High Court alleged discriminatory proceedings for acquiring his landunder the Improvement Trust Act instead of the Land Acquisition Act.This Court while dismissing the appeal and affirming the view of theHigh Court that there was hostile discrimination proceeded to lay downas follows:

“26. It is now well-settled that the State can make reasonableclassification for the purpose of legislation. It is equally well-settled

that the classification in order to be reasonable must satisfy twotests: (i) the classification must be founded on intelligible differentiaand (ii) the differentia must have rational relation with the objectsought to be achieved by the legislation in question. In thisconnection it must be borne in mind that the object itself should belawful. The object itself cannot be discriminatory, for otherwise,for instance, if the object is to discriminate against one section ofthe minority the discrimination cannot be justified on the groundthat there is reasonable classification because it has rationalrelation to the object sought to be achieved.

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28. It would not be disputed that different principles ofcompensation cannot be formulated for lands acquired on the basisthat the owner is old or young, healthy or ill, tall or short, or whetherthe owner has inherited the property or built it with his own efforts,or whether the owner is politician or an advocate. Why is this sortof classification not sustainable? Because the object being tocompulsorily acquire for public purpose, the object is equallyachieved whether the land belongs to one type of owner or anothertype.

29. Can classification be made on the basis of the public purposefor the purpose of compensation for which land is acquired? Inother words can the Legislature lay down different principles ofcompensation for lands acquired say for hospital or school ora Government building? Can the Legislature say that for hospitalland will be acquired at 50% of the market value, for school at60% of the value and for Government building at 70% of themarket value? All three objects are public purposes and as far asthe owner is concerned it does not matter to him whether it is onepublic purpose or the other. Article 14 confers an individual rightand in order to justify classification there should be somethingwhich justifies different treatment to this individual right.It seemsto us that ordinarily classification based on the public purpose isnot permissible under Article 14 for the purpose of determiningcompensation. The position is different when the owner of theland himself is the recipient of benefits from an improvementscheme, and the benefit to him is taken into consideration in fixingcompensation. Can classification be made on the basis of the

authority acquiring the land? In other words can different principlesof compensation be laid if the land is acquired for or by anImprovement Trust or Municipal Corporation or the Government?It seems to us that the answer is in the negative because as far asthe owner is concerned it does not matter to him whether the landis acquired by one authority or the other.”

170. It is also correct that this decision has come to be relied upon54by this Court recently in Union of India vs. Tarsem Singh.

171. What is emphasized before us by the petitioners is the principlethat the object itself cannot be discriminate. It is pointed out that theobject in the case of impugned provisos between different sections offinancial creditors is such discrimination. Further the corporate debtorsare discriminated again in that builders are accorded special treatmentqua other corporate debtors.

172. In Triloki Nath Khosa(supra), this Court was called upon topronounce on subordinate legislation which according to writ petitionersdenied them the guarantee of Article 14. This Court held, inter-alia, asfollows:

“18. This submission is erroneous in its formulation of alegal proposition governing onus of proof and it is unjustified in thecharge that the record discloses no evidence to show the necessityof the new Rule. There is always presumption in favour of theconstitutionality of an enactment and the burden upon him whoattacks it to show that there has been clear transgression of theconstitutional principles.[Ram Krishan Dalmia v. Justice S. R.Tendolkar AIR 1958 SC 538: 1959 SCR 279, 297(b): 1959 SCJ147] rule cannot be struck down as discriminatory on any apriori reasoning.“That where party seeks to impeach the validityof rule made by competent authority on the ground that theRules offend Act. 14 the burden is on him to plead and prove theinfirmity is too well established to need elaboration.” The burdenthus is on the respondents to set out facts necessary to sustain theplea of discrimination and to adduce “cogent and convincingevidence” to prove those facts for “there is presumption thatevery factor which is relevant or material has been taken into”account in formulating the classification.[State of U. P. v. Kartar

ASingh AIR 1964 SC 1135 : (1964) 6 SCR 679, 687 : (1964) 2 SCJ666.] In G.D. Kelkar v. Chief Controller of Imports andExports [AIR 1967 SC 839 : (1967) 2 SCR 29, 34 : (1967) 2 SCJ182] Subba Rao, C.J., speaking for the Court has cited three otherdecisions of the Court in support of the proposition that “unlessthe classification is unjust on the face of it, the onus lies upon theBparty attacking the classification to show by pleading the necessarymaterial before the Court that the said classification is unreasonable”and violative of Article 16 of the Constitution.

19. Thus, it is no part of the appellants’ burden to justify theclassification or to establish its constitutionality.CDiscrimination is the essence of classification and does violenceto the constitutional guarantee of equality only if it rests on anunreasonable basis.

31. Classification, however, is fraught with the danger that it mayDproduce artificial inequalities and therefore, the right to classify ishedged in with salient restraints; or else, the guarantee of equalitywill be submerged in class legislation masquerading as laws meantto govern well marked classes characterized by different anddistinct attainments. Classification, therefore, must be truly foundedon substantial differences which distinguish persons groupedEtogether from those left out of the group and such differentialattributes must bear just and rational relation to the object soughtto be achieved.

32. Judicial scrutiny can therefore extend only to the considerationwhether the classification rests on reasonable basis and whetherFit bears nexus with the object in view. It cannot extend to embarkingupon nice or mathematical evaluation of the basis of classification,for were such an inquiry permisible it would be open to the Courtsto substitute their own judgment for that of the legislature or theRule-making authority on the need to classify or the desirability ofGachieving particular object.”

(Emphasis supplied)

173. Justice Krishna Iyer in his concurring judgement laid downinter-alia as follows:

“Mini-classifications based on micro-distinctions are false to ouregalitarian faith and only substantial and straightforwardclassifications plainly promoting relevant goals can haveconstitutional validity. To overdo classification is to undo equality.”

174. The case in Murthy Match Works (supra), involved challengeto the levy of Excise duty on match box directed against medium sizedmanufacturers and it was impugned as being discriminatory. This Court’sconclusions are apposite and are as follows:

“There can be hostile discrimination while maintaining façade ofequality.

13. Right at the threshold we must warn ourselves of the limitationsof judicial power in this jurisdiction. Mr Justice Stone of theSupreme Court of the United States has delineated these limitationsin United States v. Butler [(1936) 297 US 1: Tresolini and Shapiro:American Constitutional Law, 3rd Edn.] thus:

“The power of Courts to declare statute unconstitutionalis subject to two guiding principles of decision which ought neverto be absent from judicial consciousness. One is that Courts areconcerned only with the power to enact statutes, not with theirwisdom.The other is that while unconstitutional exercise of powerby the executive and legislative branches of the government issubject to judicial restraint, the only check upon our exercise ofpower is our own sense of self-restraintfor the removal of unwiselaws from the statute books appeal lies not to the Courts but tothe ballot and to the processes of democratic Government.”

14. In short, unconstitutionality and not unwisdom of legislationis the narrow area of judicial review.In the present caseunconstitutionality is alleged as springing from lugging togethertwo dissimilar categories of match manufacturers into onecompartment for like treatment.

15. Certain principles which bear upon classification may bementioned here. It is true that State may classify persons andobjects for the purpose of legislation and pass laws for the purposeof obtaining revenue or other objects. Every differentiation is nota discrimination. But classification can be sustained only it isfounded on pertinent and real differences as distinguished from

Airrelevant and artificial ones. The constitutional standard by whichthe sufficiency of the differentia which form valid basis forclassification may be measured, has been repeatedly stated bythe Courts. If it rests on difference which bears fair and justrelation to the object for which it is proposed, it is constitutional.To put it differently, the means must have nexus with the ends.BEven so, large latitude is allowed to the State for classificationupon reasonable basis and what is reasonable is question ofpractical details and variety of factors which the Court will be-reluctant and perhaps illequipped to investigate. In this imperfectworld perfection even in grouping is an ambition hardly everCaccomplished. In this context, we have to remember the relationshipbetween the legislative and judicial departments of Governmentin the determination of the validity of classification.Of course, inthe last analysis Courts possess the power to pronounce on theconstitutionality of the acts of the other branches whether aclassification is based upon substantial differences or is arbitrary,Dfanciful and consequently illegal. At the same time, the questionof classification is primarily for legislative judgment and ordinarilydoes not become judicial question. power to classify beingextremely broad and based on diverse considerations of executivepragmatism, the Judicature cannot rush in where even theELegislature warily treads.All these operational restraints on judicialpower must weigh more emphatically where the subject is taxation.

18. Another proposition which is equally settled is that merelybecause there is room for classification it does not follow thatlegislation without classification is always unconstitutional. TheFCourt cannot strike down law because it has not made theclassification which commends to the Court as proper. Nor canthe legislative power be said to have been unconstitutionallyexercised because within the class sub-classification wasreasonable but has not been made.”

(Emphasis supplied)

175. In State of Gujarat and Another v. Shree Ambica MillsLtd.55, this Court has laid down certain principles relating to under inclusiveand over inclusive classification. This is, no doubt, apart from holdingthat law which contravenes fundamental rights of the citizens mayH55 (1974) 4 SCC 656

continue to be valid as regards non-citizens. As regards classificationand the vice of under inclusive and over inclusive classification we maynotice the following statement of the law:

“54. reasonable classification is one which includes allwho are similarly situated and none who are not. The questionthen is: what does the phrase “similarly situated” mean? Theanswer to the question is that we must look beyond the classificationto the purpose of the law. reasonable classification is one whichincludes all persons who are similarly situated with respect to thepurpose of the law. The purpose of law may be either theelimination of public mischief or the achievement of some positivepublic good.

55. classification is under-inclusive when all who areincluded in the class are tainted with the mischief but there areothers also tainted whom the classification does not include. Inother words, classification is bad as under-inclusive when aState benefits or burdens persons in manner that furthers alegitimate purpose but does not confer the same benefit or placethe same burden on others who are similarly situated. classificationis over-inclusive when it includes not only those who are similarlysituated with respect to the purpose but others who are not sosituated as well. In other words, this type of classification imposesa burden upon wider range of individuals than are included inthe class of those attended with mischief at which the law aims.Herod ordering the death of all male children born on particularday because one of them would some day bring about his downfallemployed such classification.

58. The piecemeal approach to general problem permittedby under-inclusive classifications, appears justified when it isconsidered that legislative dealing with such problems is usuallyan experimental matter. It is impossible to tell how successful aparticular approach may be, what dislocations might occur, whatevasions might develop, what new evils might be generated in theattempt. Administrative expedients must be forged and tested.Legislators, recognising these factors, may wish to proceedcautiously, and courts must allow them to do so. [ See JosephTussman and Jacobusten Brook The Equal Protection of the Law,37 California Rev 341]

A62. In short, the problem of legislative classification is perennialone, admitting of no doctrinaire definition. Evils in the same fieldmay be of different dimensions and proportions requiring differentremedies. Or so the legislature may think(see Tigner v. Texas).[310 US 141]

B64. Laws regulating economic activity would be viewed differentlyfrom 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 manymodern opinions and decisions in America all show that the Courtfeels less constrained to give judicial deference to legislativeCjudgment in the field of human and civil rights than in that ofeconomic regulation and that it is making vigorous use of theequal protection clause to strike down legislative action in thearea of fundamental human rights.[See “Developments EqualProtection”, 32 Harv, Law Rev 1065, 1127]D65. The question whether, under Article 14, classification isreasonable or unreasonable must, in the ultimate analysis dependupon the judicial approach to the problem. The great divide in thisarea lies in the difference between emphasising the actualities orthe abstractions of legislation. The more complicated societyEbecomes, the greater the diversity of its problems and the moredoes legislation direct itself to the diversities.

66. That the legislation is directed to practical problems, that theeconomic mechanism is highly sensitive and complex, that manyproblems are singular and contingent that laws are not abstractFpropositions and do not relate to abstract units and are not to bemeasured by abstract symmetry, that exact wisdom and niceadaption of remedies cannot be required, that judgment is largelya prophecy based on meagre and uninterpreted experience, shouldstand as reminder that in this area the Court does not take theequal protection requirement in pedagogic manner[See “GeneralGtheory of law and state” P-161].”

(Emphasis supplied)

176. In the decision of this Court in In Re The Special Courts Bill,197856, bench of seven learned judges of this Court laid down certainH56 (1979) 1 SCC 380

propositions. We need only allude to those propositions which are appositefor deciding the fate of these cases before us:

“(1) The first part of Article 14, which was adopted from the IrishConstitution, is declaration of equality of the civil rights of allpersons within the territories of India. It enshrines basic principleof republicanism. The second part, which is corollary of the firstand is based on the last clause of the first section of the FourteenthAmendment of the American Constitution, enjoins that equalprotection shall be secured to all such persons in the enjoyment oftheir rights and liberties without discrimination of favouritism. It isa pledge of the protection of equal laws, that is, laws that operatealike on all persons under like circumstances.

(2) The State, in the exercise of its governmental power, has ofnecessity to make laws operating differently on different groupsor classes of persons within its territory to attain particular ends ingiving effect to its policies, and it must possess for that purposelarge powers of distinguishing and classifying persons or things tobe subjected to such laws.

(3) The constitutional command to the State to afford equalprotection of its laws sets goal not attainable by the inventionand application of precise formula. Therefore, classification neednot be constituted by an exact or scientific exclusion or inclusionof persons or things. The courts should not insist on delusiveexactness or apply doctrinaire tests for determining the validity ofclassification in any given case. Classification is justified if it isnot palpably arbitrary.

(4) The principle underlying the guarantee of Article 14 is not thatthe same rules of law should be applicable to all persons withinthe Indian territory or that the same remedies should be madeavailable to them irrespective of differences of circumstances. Itonly means that all persons similarly circumstanced shall be treatedalike both in privileges conferred and liabilities imposed. Equallaws would have to be applied to all in the same situation, andthere should be no discrimination between one person and anotherif as regards the subject-matter of the legislation their position issubstantially the same.

(5) By the process of classification, the State has the power ofdetermining who should be regarded as class for purposes oflegislation and in relation to law enacted on particular subject.This power, no doubt, in some degree is likely to produce someinequality; but if law deals with the liberties of number of welldefined classes, it is not open to the charge of denial of equalprotection on the ground that it has no application to other persons.Classification thus means segregation in classes which have asystematic relation, usually found in common properties andcharacteristics. It postulates rational basis and does not meanherding together of certain persons and classes arbitrarily.

(6) The law can make and set apart the classes according to theneeds and exigencies of the society and as suggested byexperience. It can recognise even degree of evil, but theclassification 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 orcharacteristics which are to be found in all the persons groupedtogether and not in others who are left out but those qualities orcharacteristics must have reasonable relation to the object ofthe legislation. In order to pass the test, two conditions must befulfilled, namely, (1) that the classification must be founded on anintelligible differentia which distinguishes those that are groupedtogether from others and (2) that that differentia must have arational relation to the object sought to be achieved by the Act.

(8) The differentia which is the basis of the classification and theFobject of the Act are distinct things and what is necessary is thatthere must be nexus between them. In short, while Article 14forbids class discrimination by conferring privileges or imposingliabilities upon persons arbitrarily selected out of large numberof other persons similarly situated in relation to the privileges soughtto be conferred or the liabilities proposed to be imposed, it doesGnot forbid classification for the purpose of legislation, providedsuch classification is not arbitrary in the sense abovementioned.

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(11) Classification necessarily implies the making of distinctionor discrimination between persons classified and those who are

not members of that class. It is the essence of classification thatupon the class are cast duties and burdens different from thoseresting upon the general public. Indeed, the very idea ofclassification is that of inequality, so that it goes without sayingthat the mere fact of inequality in no manner determines the matterof constitutionality.

(12) Whether an enactment providing for special procedure forthe trial of certain offences is or is not discriminatory and violativeof Article 14 must be determined in each case as it arises, for, nogeneral rule applicable to all cases can safely be laid down. Apractical assessment of the operation of the law in the particularcircumstances is necessary.

(13) rule of procedure laid down by law comes as much withinthe purview of Article 14 as any rule of substantive law and it isnecessary that all litigants, who are similarly situated, are able toavail themselves of the same procedural rights for relief and fordefence with like protection and without discrimination.”

177. In Ajoy Kumar Banerjee and ors. v. Union of India andors.57, this Court, inter-alia, held, while dealing with the challenge to ascheme, as amended by employees of Insurance Companies, on thegrounds that it violated the fundamental rights of Article 14, 19 (1)g and31 of the Constitution. This Court held inter-alia as follows:

“Whether the same results or better results could have beenachieved and better basis of differentiation evolved is within thedomain of legislature and must be left to the wisdom of thelegislature.”

178. In the Constitution Bench decision of this Court inSubramanian Swami vs. Director, CBI and ors.58 the issue was theconstitutional validity of Section 6A of the Delhi Special PoliceEstablishment Act, 1946. Section 6A declared that the CBI shall notconduct any inquiry or investigation into any offence alleged to havebeen committed under the Prevention of Corruption Act 1988 exceptwith the previous approval of the Central Government where the allegationwas in relation to employees of the Central government of the level ofJoint Secretary and above and also officers appointed by the Central

57 1984) 3 SCC 12758 (2014) 8 SCC 682

AGovernment in public sector corporations controlled by the CentralGovernment. It is dealing with this challenge that this Court went on tohold after refering to the earlier case law including the judgment of thisCourt in the Special Courts case(supra) that it is well settled that theCourts do not substitute their views as to what the policy is. It held asfollows:B

“49. Where there is challenge to the constitutional validityof law enacted by the legislature, the Court must keep in viewthat there is always presumption of constitutionality of anenactment, and clear transgression of constitutional principlesmust be shown. The fundamental nature and importance of theClegislative process needs to be recognised by the Court and dueregard and deference must be accorded to the legislative process.Where the legislation is sought to be challenged as beingunconstitutional and violative of Article 14 of the Constitution, theCourt must remind itself to the principles relating to the applicabilityDof Article 14 in relation to invalidation of legislation. The twodimensions of Article 14 in its application to legislation and renderinglegislation 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 uncanalisedand unguided powers on the executive, whether in the form ofEdelegated legislation or by way of conferment of authority to passadministrative 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 legislation does notbecome unconstitutional merely because there is another view orFbecause another method may be considered to be as good oreven more effective, like any issue of social, or even economicpolicy. It is well settled that the courts do not substitute their viewson what the policy is.”

(Emphasised)

179. It was found that the classification made in Section 6A onthe basis of status in Central Government service is not permissible underArticle 14 of the Constitution. The Court posed the question as to whetherthere is sound differentiation between corrupt public servant based ontheir status. As noted, the provision was found to be unconstitutional.

180. In the context of the argument that sub-class cannot becreated within class, the following decisions of this Court were reliedupon by the Union to contend that it depends on the availability or absenceof rational basis.

181. In 1960 1 SCR 39/AIR 1959 SC 1124, the petitionerschallenged the constitutionality of the Sugar Export Promotion Act, 1958apart from certain orders passed thereunder. The contention taken bythe petitioners was that since the declared object of the Act was to earnforeign exchange, compelling only sugar manufacturers whichmanufactured by vacuum pan process to export sugar was discriminatory.They also pointed out that manufactures of commodities other than sugarwere not compelled to export in the same manner and there was furtherdiscrimination. It was while repelling this contention that the Court laiddown as follows:“21. In our opinion, this argument is without substance. The powerof Parliament to make laws in relation to foreign exchange ismanifest. Entry No. 36 of the Union List specifically confersjurisdiction on Parliament to legislate in relation to foreignexchange. That Entry, if interpreted widely, would embrace withinitself not only laws relating to the control of foreign exchange butalso to its acquisition to better the economic stability of the country.The need for foreign exchange to finance the various developmentschemes was, very properly, not disputed. It is, thus, plain that theobject of the Act is in the public interest. If we are to exist as aprogressive nation, it is very necessary that we carve out placefor ourselves in the International market. The beginning has to bemade, and many time, it is at great loss. That the CentralGovernment has selected the sugar industry for an exportprogramme does not mean that it cannot make classification ofthe commodities, bearing in mind which commodity will have aneasy market abroad for the purpose of earning foreign exchange.During the Suez crisis, sugar was exported in large quantities fromthis country, and earned 12.4 crores as foreign exchange. Thereis nothing on the record to show that export of other commoditieswas not also undertaken, though it was pointed out in argumentsthat manganese ore was also exported in similar manner to earnforeign exchange. It is quite obvious that the Central Governmentcannot order the export of all and sundry manufactured

Acommodities from the country, without being assured of marketin foreign countries. Necessarily, the Government can only embarkupon an export policy in relation to those products, for which thereis an easy and readily available market abroad. For this reasonalso, sugar produced by the vacuum pan process may have beenselected, because such sugar is perhaps in demand abroad andBnot sugar produced by any other process. It must be realised thatgoods manufactured in our country have to stand heavy competitionfrom goods produced abroad, and even this export can only bemade 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 challengeto the judgment of the High Court by which it had upheld the challengeby the respondent to rule which granted power to the appellant Stateto grant further exemption to the members of scheduled castes andscheduled tribes to pass the departmental test necessary for beingDconsidered for promotion. The learned ASG drew support from thefollowing statement in the judgement by Justice K.K. Mathew:

“83. classification is reasonable if it includes all personswho are similarly situated with respect to the purpose of the law.In other words, the classification must be founded on someEreasonable ground which distinguishes persons who are groupedtogether and the ground of distinction must have rational relationto the object sought to be achieved by the rule or even the rules inquestion. It is mistake to assume priori that there can be noclassification within class, say, the lower division clerks. If thereFare intelligible differentia which separates group within that classfrom the rest and that differentia have nexus with the object ofclassification, I see no objection to further classification withinthe class. It is no doubt paradox that though in one senseclassification brings about inequality, it is promotive of equality ifits object is to bring those who share common characteristicGunder class for differential treatment for sufficient and justifiablereasons. In this view, I have no doubt that the principle laid downin All India Station Masters and Assistant Station MastersAssociation v. General Manager, Central Railway [(1960) 2 SCR311 : AIR 1960 SC 384.] ; S.G. Jaisinghani v. Union ofIndia and State of J&K. v. Triloki Nath Khosa [(1974) 1 SCR 771

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

183. InIndira Sawney v. Union of India59, this Court held, “Thismerely sees goes to show that even among backward classes, there canbe sub-classification on reasonable basis.”

184. In State of West Bengal and ors. v. Rash Bihari Sarkarand ors.60, exemption was granted under Bengal Amusements Act, 1922as amended in 1981 from Entertainment Tax for theatre groups whichwere bonafide and which performed not for monetary gain which taxexemption was not given to theatre groups which performed for monetarygains. Both were theatre groups. Noticing however, the distinctionbetween the theatre groups, this Court went on to hold as follows:

“4. Equality means equality in similar circumstances between sameclass of persons for same purpose and objective. It cannot operateamongst unequals. Only likes can be treated alike. But evenamongst likes the legislature or executive may classify ondistinction which are real. classification amongst groupsperforming shows for monetary gains and cultural activities cannotbe said to be arbitrary. May be that both the groups carry out thelegislative objective of promoting social and educational activitiesand, therefore, they are likes but the distinction between the twoon monetary gains and otherwise is real and intelligible. So longthe classification is reasonable it cannot be struck down asarbitrary. Likes can be treated differently for good and validreasons. The State in treating the group performing theatricalshows for advancement of social and educational purpose,-differently, on basis of profitmaking from those formed exclusivelyfor cultural activities cannot be said to have acted in violation ofArticle 14.”

185. In State of Kerala v. Aravind Ramakant Modawdakarand ors.61, reduction in taxes was given to inter-state stage carriageoperators which benefit was not extended to intra-state stage carriageoperators. The Court though noted, that both the inter-state operatorsand intra-state operators were, in generic sense, state carriage

59 1992 Supp 3 SCC 217

60 (1993) 1 SCC 479

61 1999 7 SCC 400

Aoperators, there was distinction between the two. It is apposite torefer to what this Court laid down in para 10 of the judgement.

“10.The validity of Section 22 of the Act has not been questionedwhich section empowers the State in public interest to grantexemptions in such manner as it deems fit to class of people.BOnce we hold that the contract carriages covered by intra-State-permits and interState permits can form two distinct and separateclasses within the larger class of contract carriages, we find itdifficult to hold that this classification is either unreasonable or it”lacks nexus to the object or is violative of Article 14.

C186. In Sansar Chand Atriv. State of Punjab and another62, reliedupon by the petitioners, for contending that Article 14 frowns uponcreation of sub-class within class, the case turned on its facts. Whatis significant, however, is the reasoning. The question, in short, waswhether the appellant was an ex-serviceman or not, on the basis of theprovisions of the Punjab Recruitment of Ex-Servicemen Rules, 1982, asDamended by Notification dated 22.09.1992. The contention of therespondent was that since the appellant was discharged from the armyon his own request, he could not be treated as an ex-serviceman. Afterconsidering the Rules, as amended and on the facts, it was held as follows:

“8. …If the contention raised on behalf of the Service CommissionEand the State Government that since the appellant has beendischarged from the army at his own request, he cannot be treatedas an ex-serviceman, is accepted then it will create class withina class without rational basis and, therefore, becomes arbitraryand discriminatory. It will also defeat the purpose for which theFprovision for reservation has been made.”187. We have already adverted to the decision of this Court inrelation to the taboo, which is alleged by the petitioners against creatinga class within class.188. We are of the view that the principles, which governed theGlegitimacy of the sub-class within class, is based, essentially, on thevery principles, which are discernible in regard to reasonable classificationunder Article 14. It is clear that the law does not interdict the creation ofa class within class absolutely. Should there be rational basis forcreating sub-class within class, then, it is not impermissible. This isH62 (2002) 4 SCC 154

the inevitable result of an analysis of the judgments relied upon by thepetitioner themselves, viz., Sansar Chand Atri v. State of Punjab andanother (supra). The decisions, which have been relied upon by the Unionand which we have adverted to, clearly indicate that class within asub-class, is indeed not antithetical to the guarantee of equality underArticle 14.

189. Now, let us apply the principles, which are indisputable to thefacts before us. Allottees are, indeed, financial creditors. They do possesscertain characteristics, however, which appear to have appealed to theLegislature as setting them apart from the generality of financial creditors.These features, which set them apart, have been clearly indicated in thestand of the Union. They are:

i. Numerosity;

ii. Heterogeneity;

iii. The individuality in decision making.

190. Section 21(6A) and Section 25A, constitutionality of whichhas been upheld by this Court in Pioneer (supra), would go to show thatthe debenture holders and security holders would be covered by21(6A)(a). As far as the allottees of real estate project are concerned,they would be governed by 21(6A)(b). Both these categories, have acommon feature. The distinguishing hallmark which separates them fromthe generality of the financial creditor is numerosity. In fact this aspecthas been noticed by this Court in Swiss Robbins(supra)(para 49). Bythe sheer numbers of these creditors, they have come in for specialtreatment under Section 21(6A). Another feature, which is to be noticedin this regard in heterogeneity. Lastly, there is also the aspect ofindividualized decision-making. Authorized representatives arecontemplated in regard to these categories of financial creditors underSection 21(6A). The manner in which these authorized representativesare to vote is also provided in Section 25A. There is another aspect alsoto be noticed. Section 7 always contemplated the possibility of jointapplication. The impugned amendments incorporating the provisos 1 and2 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 Reportof the Expert Body. This certainly is highly important input whichpersuades us further that the classification in regard to these classes offinancial creditors does not represent forbidden classification.

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

“25A. Rights and duties of authorised representative of financialcreditors.- (1) The authorised representative under sub-section(6) or sub-section (6A) of section 21 or sub-section (5) of section24 shall have the right to participate and vote in meetings of theBcommittee of creditors on behalf of the financial creditor herepresents in accordance with the prior voting instructions of suchcreditors obtained through physical or electronic means.

(2) It shall be the duty of the authorised representative to circulatethe agenda and minutes of the meeting of the committee ofcreditors to the financial creditor he represents.

(3) The authorised representative shall not act against the interestof the financial creditor he represents and shall always act inaccordance with their prior instructions:

Provided that if the authorised representative representsDseveral financial creditors, then he shall cast his vote in respect ofeach financial creditor in accordance with instructions receivedfrom each financial creditor, to the extent of his voting share:

Provided further that if any financial creditor does not giveprior instructions through physical or electronic means, theEauthorised representative shall abstain from voting on behalf ofsuch 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 creditorshe represents in accordance with the decision taken by vote ofmore than fifty per cent. of the voting share of the financialcreditors he represents, who have cast their vote:

Provided that for vote to be cast in respect of an applicationunder section 12A, the authorised representative shall cast hisvote in accordance with the provisions of sub-section (3).]

(4) The authorised representative shall file with the committee ofcreditors any instructions received by way of physical or electronicmeans, from the financial creditor he represents, for voting inaccordance therewith, to ensure that the appropriate votinginstructions of the financial creditor he represents is correctly

recorded by the interim resolution professional or resolutionprofessional, as the case may be.

Explanation.- For the purposes of this section, the “electronicmeans” shall be such as may be specified.]”

192. We will expatiate on these aspects. In the case of the allotteesof real estate project, it is the approach of the Legislature that in realestate project there would be large number of allottees. There can behundreds or even thousands of allottees in project. If single allottee,as 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 thereason that as stakeholders in the real estate project, having investedmoney and time and looking forward to obtaining possession of the flator apartment and faced with the same state of affairs as the allottee,who moves the application under Section 7 of the Code, the other allotteesmay have different take of the whole scenario. Some of them mayapproach the Authority under the RERA. Others may, instead, resort tothe Fora under the Consumer Protection Act, though, the remedy of acivil suit is, no doubt, not ruled out. Ordinarily, the allottee would havethe remedies available under RERA or the Consumer Protection Act, asthe more effective option. In such circumstances, if the Legislature,taking into consideration, the sheer numbers of 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, whoare not found to possess the characteristics of numerosity, then, it is notfor this Court to sit in judgment over the wisdom of such measure.

193. The enquiry, we realize, must not end with finding that thereis an intelligible differentia, to be found in the numerosity, heterogeneityand individuality in decision-making of the allottees. The law furtherrequires that the differentia must have bear rational nexus with theobject of the law.

194. The object of the law is clear. radical departure wascontemplated from the erstwhile regime, which was essentially containedin The Sick Industrial Companies (Special Provisions) Act, 1985, andwhich manifested deep malaise, which impacted the economy itself.To put it shortly, the procedures involved under the Act, simply meantprocrastination in matters, where speed and dynamic decisions were thecrying need of the hour. The value of the assets of the Company indistress, was wasted away both by the inexorable and swift passage of

Atime and tardy rate at which the forums responded to the problem offinancial distress. The Code was an imperative need for the nation to tryand catch up with the rest of the world, be it in the matter of ease ofdoing business, elevating the rate of recovery of loans, maximization ofthe assets of ailing concerns and also, the balancing the interests of allstakeholders. The Code purports to achieve the object of maximizationBof the assets of corporate bodies, inter alia, which have slipped intoinsolvency. Present default, which, no doubt, is not barred by time(subject to the power of the Authority under Section 5 of the LimitationAct), the Insolvency Resolution Process can be triggered. It falls intotwo stages. In the first stage or the calm period, every attempt isCcontemplated to rescue the corporate debtor from falling into liquidation.No doubt the moratorium under section 14 is inevitable. The mostsignificant feature of the Code is the seemingly inexorable time limit,which is fixed under Section 12. On the application being admitted underSection 7(5), an Interim Resolution Professional makes his appearance.In him, vests the powers to manage the affairs of the corporate debtor.DHe may be replaced by Resolution Professional or he may be appointedas Resolution Professional. The most striking feature of the Code isthe constitution of the Committee of Creditors and the role, which itplays. In short, the show is run by the Resolution Professional, subject tothe control of the Committee of Creditors. The Resolution of InsolvencyEis essentially sought through the instrument of Resolution Plan to besubmitted by Resolution Applicant. Various restrictions are cast, inregard to Resolution Applicant, through the device of Section 29A ofthe Code. Resolution Plan is intended to resuscitate an ailing corporatedebtor and keep it going as going concern. The importance of rescuingailing businesses in the form of infusing new life in such concerns, cannotFbe understated. Its significance lies in various directions. There wouldbe various categories of creditors, of which, the legislative choice appearsto show some degree of preference for the financial creditors, particularlyin the form of banks and financial institutions. One of the chief goals ofthe Code is to prevent the loss of the value of capital. If the recovery ofGthe loan is effected at the earliest, it translates into the availability of therecovered capital for being lent to other entrepreneurs, and this is anaspect, which goes to the root of the matter. With every passing hour,not unnaturally, depreciation will claim its victim in the form of diminutionof 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 representH

loss for the Nation. This is, undoubtedly, apart from the impairment ofthe interests of all stakeholders. The stakeholders would include thefinancial creditors and the operational creditors, as well. Employees ofthe failed business, would take direct hit. Therefore, the Code accordsthe highest importance to speed in the matter of undergoing the processof insolvency.

195. Section 12 contemplates, in short, maximum period of 330days from the date of the insolvency commencement date, which wehave already explained. Though, the word ‘mandatorily’ has been struckdown by this Court in the decision in Committee of Creditors of EssarSteel India Limited (supra), this Court has only balanced the interest ofall concerned, by permitting an enlargement of the time, only in thosecases, where the delay occurs not on account of the fault of the playersconcerned and it is based on the principle actus curiae nemiem gravabit,which means that the act of Court shall prejudice no man. This Courthas not undermined the timeline fixed by the Legislature and, in fact, ithas underlined the importance of conforming to the time limit. Speed,indeed, continues to be of the essence of the Code.

196. The speed, with which the processes can be conducted andcompleted, is based on the volume of the litigation. The AdjudicatingAuthorities and the Appellate Bodies, viz., N.C.L.A.T., are authoritiesunder other enactments, as well. They are hard-pressed for time. Thematters, which are covered by the Code, may present convoluted facts.The issues may bristle with complications, both in points of law and alsofacts. If, out of large body of financial creditors belonging to sub-group, as for instance allottees of real estate project, were to be giventhe freedom to activise the Code, then, the possibility of multiple individualactions, is spectre, which the Legislature, must be presumed to beaware of. In other words, the Legislature became alive to the peril ofentire object of the Code, being derailed by permitting the individualplayers crowding the docket of the Authorities under the Code, andresultantly, reviving the very state of affairs, which compelled theLegislature to script new dawn in this area of law. Instead, havingregard to the numerosity, the Legislature has thought it fit to adopt abalanced approach by not taking the allottee out of the fold of the financialcreditors altogether. The allottee continues to be financial creditor. Allthat is envisaged is the legislative value judgment that critical mass isindispensable for allottees to be present before the Code, can be activised.

AThe purport of the critical mass of applicants would ensure that areasonable number of persons similarly circumstanced, form the viewthat despite the remedies available under the RERA or the ConsumerProtection Act or civil suit, the invoking of the Code is the only wayout, in particular case. As held by this Court, in Pioneer(supra), afterhaving analyzed, what awaits an allottee, moving an application underBSection 7 of the Code, as contrasted with what he could get under RERAor what we note under the Consumer Protection Act and finding that theCode would be ordinarily activised by an allottee, when he feels that thesolution lies in the remedy provided under the Code, viz., replacing themanagement of the real estate project with new management, thisCCourt took notice of the fact that should Insolvency Resolution reach astage of liquidation, being unsecured creditors, the allottees would noteven get the amount, which he has invested. In fact, after insertion ofthe explanation to section 33 (2) at any time after committee of creditorsis constituted such an eventuality is possible. In short, numerosity of theallottees of real estate project, necessitated, in the view of theDLegislature, as gleaned from the provisions, to condition an absolute right,which does have clear rational nexus with the object sought to beachieved. We have noticed, one of the objects is the balancing of theinterests of all stakeholders. By imposing threshold limit of either hundredallottees or if the number of allottees going by the criteria of one-tenth ofEthe allottees is, even less than hundred, then, the said number of allotteesmust agree to invoke the Code. This is again, based on the intelligibledifferentia of heterogeneity. By heterogeneity, is meant, differencesbetween seemingly homogenous group. All allottees of real estateproject form class. All of them have stakes in the prompt and effectivecompletion of the real estate project. We must proceed on the basis thatFwhat the allottee would legitimately look forward is the completion ofthe project and the handing over of the possession of the flat or apartmentin due time. The achievement of this object, which must be attributedreasonably to each and every allottee, as his goal, may be possible in theviews of different allottees differently. As noted, there is plurality ofGremedies, which the law provides. More importantly, the outcome ofactivising the Code, is almost like an uncertain wager. The outcome ofinvoking the Code by individual allottees would be apart from cloggingthe dockets of the Adjudicating Authorities with even more voluminousfiles leading to greater delay, that at the instance of such individualallottees, what would be perceived as an avoidable calamity, isH

perpetuated. In other words, while vast majority of allottees may seereason in either giving time and reposing faith in existing management ofreal estate project or successfully invoking the other remedies availableto them, an individual allottee, out of the heterogenous group, wouldthrow the spanner in the works and bring the entire real estate projectitself to possible doom. Under the newly added Explanation to Section33(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 bythe Union, is the difference in individuality in decision-making process,attributed to the allottees. This means that unlike bank or financialinstitution, where the decision-making process is more institutionalized,an individual allottee, left free to file an application under Section 7,would exhibit high-level of subjectivity. As the learned ASG points out,and which is also part of the argument, based on both, numerosity andheterogeneity, what Parliament has instated upon is, the presence of thecommendable value of exhibiting concern for the other allottees, whomay think completely differently about the wisdom of invoking the Code.Here again, this distinguishing feature, which becomes an intelligibledifferentia, in the view of the Legislature, and which cannot be shownto be demonstrably mere pretense, it bears rational nexus with theobjects of the Code, which we have already delineated. To recapitulate,the individual allottee, with high-level of subjectivity in decision-making,may take plunge at invoking the Code, without having more globalview of the consequences, which will follow. Any such attempt wouldonly be dubbed as frivolous. This attempt by individual allottees wouldhave the following consequences:

i.It would crowd an already heavy docket;

ii.It would consequently slow down the processes under theCode, even with respect to matters, which may be moregenuine and require greater and more timely attention;

iii. It will defeat the object of the balancing the interests of allstakeholders. We must indicate that the aspect about delayingof the processes, when allottees are pulling at each other,having conflicting views about the appropriateness of the Codebeing invoked, is the clear prospect of allottees coming intocollision in the Fora by way of opposing the application, would

Abe an undeniable reality. This is despite the fact that it couldalways be argued by the individual allottee that what the lawmandates in Section 4, is only the proving of the fact of defaultin sum of Rs.1 crore, as thing stand. It is also the argumentof the petitioners that since what is relevant for the otherfinancial creditors, is proving the default of Rs.1 crore, theBinsistence on threshold for allottees alone, makes itdiscriminatory. Allottees being financial creditors, must beassumed to know what is in their best interest. What is giventhrough one hand, cannot be taken away by another, is anotherallied submission. It is also contended that there is no empiricalCevidence of there being misused, after the judgment of thisCourt in Pioneer (supra), upholding the rights of the allottees,including debunking the argument that lone ranger will endup abusing the system;

198. This aspect, in fact, is countered by the learned ASG, byDreeling out facts. Between 2016, when the Code was enacted and June,2018, there were 241 applications by the allottees. In the aftermath ofthe amendment, i.e., from 06.06.2018, there was sudden spurt ofapplications by allottees (2201 cases in short span of about eighteenmonths). This is again sought to be contrasted by mere 130 applications,which came to be filed from 29.12.2019, over period of eight monthsEtill August, 2020. There is also the case for the Union that an ExpertBody, viz., the Committee has recommended for the threshold. Thisrecommendation was born out of experience of the pitfalls, which follow,allowing completely free hand to individual allottees to move theapplication. We are not impressed by reference to the discordant notesFstruck, both by reason of the nature of jurisdiction we exercise as alsothe merit we see otherwise in the rationale behind the law.199. We see considerable merit in the stand of the Union. This isnot case where there is no intelligible differentia. The law under scrutinyis an economic measure. As laid down by this Court, in dealing with theGchallenge on the anvil of Article 14, the Court will not adopt doctrinaireapproach. Representatives of the people are expected to operate ondemocratic principles. The presumption is that they are conscious ofevery fact, which would go to sustain the constitutionality of the law. Alaw cannot operate in vacuum. In the concrete world, when the law isput into motion in practical experiences, bottlenecks that would flowH

from its application, are best envisaged by the Law Givers. Solutions tovexed problems made manifest through experience, would indeed requirea good deal of experimentation, as long as it passes muster in law. It isno part of court’s function to probe into what it considers to be morewise or better way to deal with problem. In economic matters, thewider latitude given to the Law Giver is based on sound principle andtested logic over time. In fact, though there is no rigid separation ofpowers in India, as it obtains in the United States, there is broadlyseparation of powers, which in fact, has been recognized as basicfeature of the Constitution (see His Holiness Kesavananda BhartiSripadagalvaru v. State of Kerala and another63). In any case, the Courterrs in the judicial veto of legislation, in manner of speaking, it is usurpingthe power, which is earmarked to another organ of the State, viz., theLegislature. The large number of validating acts would produceundeniable proof of the same.

ALLOTTEES VS. OPERATIONAL CREDITORS

200. One of the contentions raised by petitioners is as regards thehostile discrimination between petitioner (allottees) and operationalcreditors. The advantages which, financial creditor have over operationalcreditors is referred to.

201. In regard to the advantages, which the financial creditorsenjoyed over operational creditors, which constituted also differencesbetween them, the following are highlighted, apart from the differencein procedure, by which, the operational creditor could stand ousted, ifthe corporate debtor could set up plausible dispute:

i.Firstly, it is pointed out that the financial creditor is on theCommittee of Creditors and manages the affairs of the debtorFwith the Resolution Professional; The operational creditorshave no such power.

ii.Financial creditors decide who is to be the ResolutionProfessional;

iii. The financial creditors approve or disapprove the resolutionplan.

iv. Almost, all, major decisions require the sanction of financialcreditors.

63 (1973) 4 SCC 225

Av.Financial debts enjoy priority over third party, operational claimsunder Section 53 in liquidation. It is despite all this, post theimpugned amendment, large number of financial creditorscovered by the provisos are required to initiate proceeding.It is palpably arbitrary. The financial creditor in the categoryof the allottees are now worse off.B

202. As far as the argument relating to violation of Article 14 quaoperational creditor is concerned, we are of the view that there is nomerit in the same. Quite apart from the fact that under the code they aredealt with under different provisions and different procedure is entailedthereunder, even the decisions of this Court relied on by the allotteesChave 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 distinctionbetween the financial creditors and the operational creditors. This Courtnoticed that in the case of application, under Section 8, by an operationalDcreditor, the corporate debtor within ten days of the notice, issued underSection 8 can bring to the notice of the operational creditor, the existenceof the dispute or record of proceeding in court or before anArbitrator. This exercise, successfully carried out by the corporate debtor,will enable it to get out of the purview of the Code. In case of financialEcreditor, if the debt is due, that it is payable unless it is interdicted bysome law or it has not become due, the default, contemplated under theCode, has occurred and the application, filed by the financial creditor,must be admitted and the matter proceeded with.

204. In Swiss Ribbons (supra) the classification in controversyFwas between operational and financial creditor. Apart from dealing withthe policy behind the Code and the reasons which led to it, this Courtinter alia held as follows:

“42. perusal of the definition of “financial creditor” and “financialdebt” makes it clear that financial debt is debt together withGinterest, if any, which is disbursed against the consideration fortime value of money. It may further be money that is borrowed orraised 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 claim in respect of the provision

of goods or services, including employment, or debt in respectof payment of dues arising under any law and payable to theGovernment or any local authority.

43. financial creditor may trigger the Code either by itself orjointly with other financial creditors or such persons as may benotified by the Central Government when “default” occurs. TheExplanation to Section 7(1) also makes it clear that the Code maybe triggered by such persons in respect of default made to anyother financial creditor of the corporate debtor, making it clearthat once triggered, the resolution process under the Code is acollective proceeding in rem which seeks, in the first instance, torehabilitate the corporate debtor. Under Section 7(4), theadjudicating authority shall, within the prescribed period, ascertainthe existence of default on the basis of evidence furnished bythe financial creditor; and under Section 7(5), the adjudicatingauthority has to be satisfied that default has occurred, when itmay, by order, admit the application, or dismiss the application ifsuch default has not occurred. On the other hand, under Sections8 and 9, an operational creditor may, on the occurrence of default,deliver demand notice which must then be replied to within thespecified period. What is important is that at this stage, if anapplication is filed before the adjudicating authority for initiatingthe corporate insolvency resolution process, the corporate debtorcan prove that the debt is disputed. When the debt is so disputed,such application would be rejected.

49. It is obvious that debenture-holders and persons with homeloans may be numerous and, therefore, have been statutorily dealtwith by the aforesaid change made in the Code as well as theRegulations.However, as general rule, it is correct to say thatfinancial creditors, which involve banks and financial institutions,would certainly be smaller in number than operational creditors ofa corporate debtor.

50. According to us, it is clear that most financial creditors,particularly banks and financial institutions, are secured creditorswhereas most operational creditors are unsecured, payments forgoods and services as well as payments to workers not beingsecured by mortgaged documents and the like. The distinctionbetween secured and unsecured creditors is distinction which

Ahas obtained since the earliest of the Companies Acts both in theUnited Kingdom and in this country. Apart from the above, thenature of loan agreements with financial creditors is different fromcontracts with operational creditors for supplying goods andservices. Financial creditors generally lend finance on term loanor for working capital that enables the corporate debtor to eitherBset up and/or operate its business. On the other hand, contractswith operational creditors are relatable to supply of goods andservices in the operation of business. Financial contracts generallyinvolve large sums of money. By way of contrast, operationalcontracts have dues whose quantum is generally less. In theCrunning of business, operational creditors can be many asopposed to financial creditors, who lend finance for the set-up orworking of business. Also, financial creditors have specifiedrepayment schedules, and defaults entitle financial creditors torecall loan in totality. Contracts with operational creditors do nothave any such stipulations. Also, the forum in which disputeDresolution takes place is completely different. Contracts withoperational creditors can and do have arbitration clauses wheredispute resolution is done privately. Operational debts also tend tobe recurring in nature and the possibility of genuine disputes incase of operational debts is much higher when compared toEfinancial debts. simple example will suffice. Goods that aresupplied may be substandard. Services that are provided may besubstandard. Goods may not have been supplied at all. All thesequa operational debts are matters to be proved in arbitration or inthe courts of law. On the other hand, financial debts made tobanks and financial institutions are well documented and defaultsFmade are easily verifiable.

51. Most importantly, financial creditors are, from the verybeginning, involved with assessing the viability of the corporatedebtor. They can, and therefore do, engage in restructuring of theloan as well as reorganisation of the corporate debtor’s businesswhen there is financial stress, which are things operational creditorsdo not and cannot do. Thus, preserving the corporate debtor as agoing concern, while ensuring maximum recovery for all creditorsbeing the objective of the Code, financial creditors are clearlydifferent from operational creditors and therefore, there is

obviously an intelligible differentia between the two which has adirect relation to the objects sought to be achieved by the Code.

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119. It will be seen that the reason for differentiating betweenfinancial debts, which are secured, and operational debts, whichare unsecured, is in the relative importance of the two types ofdebts when it comes to the object sought to be achieved by theInsolvency Code. We have already seen that repayment offinancial debts infuses capital into the economy inasmuch as banksand financial institutions are able, with the money that has beenpaid back, to further lend such money to other entrepreneurs fortheir businesses. This rationale creates an intelligible differentiabetween financial debts and operational debts, which areunsecured, which is directly related to the object sought to beachieved by the Code. In any case, workmen’s dues, which arealso unsecured debts, have traditionally been placed above mostother debts. Thus, it can be seen that unsecured debts are ofvarious kinds, and so long as there is some legitimate interestsought to be protected, having relation to the object sought to beachieved by the statute in question, Article 14 does not getinfracted. For these reasons, the challenge to Section 53 of theCode must also fail.”

205. It must be remembered that the principles laid down came tobe made in the context of challenge to the provisions of the Code pointingout violation of Article 14 insofar as the classification between operationalcreditor and financial creditor was alleged to be contrary to Article 14.

206. In Pioneer(supra) the case and the decision is closer to thefacts before us. The challenge was to the amendments to the Codeincluding the explanation added to Section 5(8) to the Code. As we havenoted the explanation purports to clarify that any loan raised from anallottee under the real estate project is to be deemed to be an amounthaving commercial effect of borrowing. Apart from the said provision,there were other provisions also called in question. This Court proceededto 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 flatsand apartments were subsumed within the provisions of Section

5(8)(f). In other words, an allottee was financial creditor. Aftera conspectus of the provisions the Code and the RERA, this Courtalso held that the RERA and the Code co-exist and in the event ofthe confrontation, the Code will hold sway. RERA was thus foundto be not special statute which will override the general statutenamely the Code. Dealing with the challenge to the amendmentto the Code on the ground that there is violation of Article 14 onthe basis that the equals are being treated unequally and unequalsare being treated equally this Court found it unacceptable. ThisCourt found the amendment to be an economic measure. ThisCourt also pointed out the perils associated with an allottee pursuingremedy under the Code in paragraph 41 and thereafter went onto hold as follows:

“42. It is impossible to say that classifying real estate developersis not founded upon an intelligible differentia which distinguishesthem from other operational creditors, nor is it possible to say thatsuch classification is palpably arbitrary having no rational relation

to the objects of the Code. It was vehemently argued by thelearned counsel on behalf of the petitioners that if at all real estatedevelopers were to be brought within the clutches of the Code,being like operational debtors, at best they could have been broughtin under this rubric and not as financial debtors. Here again, what

is unique to real estate developers vis-à-vis operational debts, isthe fact that, in operational debts generally, when person suppliesgoods and services, such person is the creditor and the personwho has to pay for such goods and services is the debtor. In thecase 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 advanceto the developer for construction of the building in which hisapartment is to be found. Another vital difference betweenoperational debts and allottees of real estate projects is that anoperational creditor has no interest in or stake in the corporatedebtor, unlike the case of an allottee of real estate project, whois 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 withinterest, which is the other option, will be recoverable from thecorporate debtor. One other important distinction is that in an

operational debt, there is no consideration for the time value ofmoney—the consideration of the debt is the goods or servicesthat are either sold or availed of from the operational creditor.Payments made in advance for goods and services are not madeto fund manufacture of such goods or provision of such services.Examples given of advance payments being made for turnkeyprojects and capital goods, where customisation and uniquenessof such goods are important by reason of which advance paymentsare made, are wholly inapposite as examples vis-à-vis advancepayments made by allottees. In real estate projects, money is raisedfrom the allottee, being raised against consideration for the timevalue of money. Even the total consideration agreed at timewhen the flat/apartment is non-existent or incomplete, issignificantly less than the price the buyer would have to pay for aready/complete flat/apartment, and therefore, he gains the timevalue of money. Likewise, the developer who benefits from theamounts disbursed also gains from the time value of money. Thefact that the allottee makes such payments in instalments whichare co-terminus with phases of completion of the real estate projectdoes not any the less make such payments as payments involving“exchange” i.e. advances paid only in order to obtain flat/apartment. What is predominant, insofar as the real estatedeveloper is concerned, is the fact that such instalment paymentsare used as means of finance qua the real estate project. Oneother vital difference with operational debts is the fact that thedocumentary evidence for amounts being due and payable by thereal estate developer is there in the form of the informationprovided by the real estate developer compulsorily under RERA.This information, like the information from information utilitiesunder the Code, makes it easy for homebuyers/allottees toapproach NCLT under Section 7 of the Code to trigger the Codeon the real estate developer’s own information given on itswebpage as to delay in construction, etc. It is these fundamentaldifferences between the real estate developer and the supplier ofgoods and services that the legislature has focused upon andincluded real estate developers as financial debtors. This beingthe case, it is clear that there cannot be said to be any infractionof equal protection of the laws.

ABC

DEF

43. Shri Shyam Divan relying upon Nagpur ImprovementTrust 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) 6SCC (Cri) 42 : (2014) 3 SCC (L&S) 36] SCC paras 44, 58 and 68argued that the object of the amendment is itself discriminatory inthat it seeks to insert into “means and includes” definition acategory which does not fit therein, namely, real estate developerswho do not, in the classical sense, borrow monies like banks andfinancial institutions. According to him, therefore, the object itselfbeing discriminatory, the inclusion of real estate developers asfinancial debtors should be struck down. We have already pointedout how real estate developers are, in substance, persons whoavail finance from allottees who then fund the real estatedevelopment project. The object of dividing debts into twocategories under the Code, namely, financial and operational debts,is broadly to sub-divide debts into those in which money is lentand those where debts are incurred on account of goods beingsold or services being rendered. We have no doubt that real estatedevelopers fall squarely within the object of the Code as originallyenacted insofar as they are financial debtors and not operationaldebtors, as has been pointed out hereinabove. So far as unequalsbeing treated as equals is concerned, homebuyers/allottees canbe assimilated with other individual financial creditors likedebenture holders and fixed-deposit holders, who have advancedcertain amounts to the corporate debtor. For example, fixed-depositholders, though financial creditors, would be like real estateallottees in that they are unsecured creditors. Financial contractsin the case of these individuals need not involve large sums ofmoney. Debenture holders and fixed-deposit holders, unlike realestate holders, are involved in seeing that they recover the amountsthat are lent and are thus not directly involved or interested inassessing the viability of the corporate debtors. Though not havingthe expertise or information to be in position to evaluate feasibilityand viability of resolution plans, such individuals, by virtue of beingfinancial creditors, have right to be on the Committee of Creditorsto safeguard their interest. Also, the question that is to be askedwhen debenture holder or fixed-deposit holder prefers Section7 application under the Code will be asked in the case of allottees

of real estate developers — is debt due in fact or in law? Thus,allottees, being individual financial creditors like debenture holdersand fixed-deposit holders and classified as such, show that theyare within the larger class of financial creditors, there being noinfraction of Article 14 on this score.”

207. Thus, we notice the following aspects:

In Swiss Robbins (supra) on the basis of the challengeinvolved to the legislation, this Court noted that financial creditorcan trigger the Code either by itself or jointly with other financialcreditors when default occurs. The procedure in regard tooperational creditors is however different. At the stage prior toadmission of the application, it is open to the corporate debtor toshow that the debt is disputed in which event the application stands-rejected. In paragraph49, this Court took the view that thedebenture holder and the persons with home loans may benumerous and therefore have been statutorily dealt with by thechanges made in the Code.But as general rule it was found thatfinancial creditors which involved banks and financial institutionswill be certainly smaller than the operational creditors. Further itwas held that most financial creditors particularly Banks andfinancial institutions are secured creditors whereas mostoperational creditors are unsecured. In para 50 of Swiss Ribbonthis Court distinguished between secured and unsecured creditorsand noted that divide existed from the earliest of the CompaniesActs both in U.K. and in India. Financial creditors generally lendon term loan or for working capital. Operational creditors arecreditors on account of supply of goods and services. The sumsinvolved in the financial contracts are generally large sums incontrast with amounts involved in operational credit which aregenerally less. Repayment schedules are different. Otherdistinctions are noticed between the two. It is further found thateven more importantly financial creditors are involved with theassessing of viability of the corporate debtor from the verybeginning. This enables the financial creditor to indulge inrestructuring of the loan. Preserving the corporate debtor as agoing concern while securing the highest recovery for all creditorsis the objective of the Code. Financial creditors were thereforeclearly different from operational creditors. There is obviously an

Aintelligible differentia between the two which has the direct relationwith the object to the object which is to be achieved by the Code.This Court further noticed in the context of challenge to Section53 of the Code which deals with the manner of distribution ofassets of corporate debtor in liquidation proceedings, that there isdifference in relative importance between financial debt whichBare secured and operational debts which are unsecured. Thedistinction was found in the relative importance of two types ofdebts when it comes to the objects sought to be achieved. ThisCourt was of the view when repayment takes place in regard tofinancial creditors it leads to fresh infusion of capital into theCeconomy which results in the money being available to be lent toother businessmen.208. In Swiss Ribbons (supra), dealing with the challenge to theprovisions based on Article 14 of the Constitution of India, this Courtadopted the following reasoning. Financial creditors were essentiallyDidentified as being banks and other financial institutions. Banks andfinancial institutions, are generally secured creditors. The procedureadopted by these institutions, right from the time the loan is applied for,and it being processed, the largeness of the sums involved, the methodof repayment, the re-arrangement of the repayment of the loan, thestudy conducted, in fact, before the loan is given the control, which theEbanks and the financial institutions retain over the debtor, and finally, theimportance of the repayment to such institutions, for the economic stabilityand progress of the country, by way of the recovered amounts beinginfused fresh capital for other entrepreneurs, was contrasted with theoperational debtors, who were, in the first place, unsecured creditors,

Fgenerally. Operational creditors are creditors to whom the corporatedebtor owes money for having availed goods and services. The featureswhich mark out the banks and financial institution were found in applicableto the operational creditors.

209. Coming to Pioneer (supra), this Court has recognized thatGallottees under real estate project are unsecured creditors (Seeparagraph-61, wherein it is so found). Equally, it is noted in paragraph-43 as follows:

“43. for example, fixed deposit holders, though financialcreditors, would be like real estate allottees in that they areunsecured creditors.”H

210. It is further found that financial contracts in the case ofthese individuals, (allottees) need not involve large sums of money [Seeparagraph-43 of Pioneer (supra)].

211. It could be urged, therefore, that the real foundation on thebasis of which, this Court justified the difference in procedure underSection 7 on the one hand and Sections 8 and 9 on the other hand betweenfinancial creditors and operational creditors, is that after conflatingfinancial creditors with banks and financial institutions and noting themto be secured creditors, lending large sums of money, both of whichfeatures are not present in the case of an allottees under real estateproject as allottees remain unsecured creditors and also their contractneed not involve large sums of money, they should, therefore, fall to betreated at least like the operational creditors with whom they bear thegreater resemblance. What is complained of is before the impugnedamendments, allottees being treated as part of the larger group of financialcreditors, could invoke the provisions of Section 7 singly and withouthaving to garner the support of any fellow traveller. The operationaldebtor could also, likewise, file such an application without having tosearch around for kindred souls. After the amendment, however, theadvantageous position which was occupied by the allottee as financialcreditor, has been extinguished and the allottee is worse off than evenan operational creditor. This is for the reason that single operationalcreditor could all by himself, activise the Code whereas the allottee isleft far behind. This amounts to treating the allottee with discrimination.212. While it may be true that the allottee is not secured creditorand he is not in the position of bank or the financial institution, thecontentions of the petitioners that there is hostile discrimination forbiddenArticle 14 is untenable. There cannot be any doubt that intrinsically afinancial creditor and an operational creditor are distinct. An operationalcreditor is one to whom money is due on account of goods or servicessupplied to the debtor. The financial creditor on the other hand, is sodescribed, on account of there being the element of borrowing. Thisdistinction is indisputable. The other distinctions are articulated with clarityin paragraph-42 of the judgment of this Court inPioneer(supra) whichwe have already adverted to. As noticed by this Court, what is unique tothe real estate developer vis-a-vis operational debts is that the developeris the debtor as an allottee funds his own apartment by paying amountsin advance. On the other hand, in case of operational debt, the person

Awho has supplied the goods and services, becomes the creditor and thecorporate debtor is one who has availed such services. Another distinctionnoticed is that an operational creditor has no interest or stake in thecorporate debtor. The allottee is, on the other hand, vitally concernedwith the financial health of the corporate debtor. Should financial ruinoccur, the real estate project will come to nought. Should such anBevent take place also, the allottee would not be in position to eitherclaim or get compensation or even refund with interest. Thirdly, as againnoticed by this Court, there is no consideration for the time value ofmoney in the operational debt. This is not so in the case of an allottee.The non-availability of documentary evidence in respect of operationalCdebts as against information available under the RERA qua real estatedevelopers is yet another feature which was noticed inPioneer(supra)dealing with the differences between an operational debtor and an allottee.

213. The operational debtor, is concerned with the payment of theamount due to it for the goods and services supplied. When an allotteeDinvests money in real estate project, his primary and principal concernis that the project is completed and he gets possession of the apartmentor the flat. The problem really arises as there are many stakeholderswhose interests are affected. It cannot be in dispute that under the law,an allottee can seek remedies under the RERA. An allottee can alsoseek remedies under the Consumer Protection Act or even file suit.ENo doubt, Section 71 of the RERA permits person who has filed acomplaint in respect of matters governed by Sections 12, 14, 18 and 19of RERA to withdraw the complaint and file the same before theAdjudicating Officer under RERA. There are large number of caseswhere allottee seek refuge either under the RERA or under the ConsumerFProtection Act. An action under the Code by way of an application underSection 7 is an action in rem. The recovery of the amounts paid is notwhat is primarily contemplated under the Code. In paragraph-41 ofjudgment of this Court in Pioneer (supra), this Court has painted therather dismal but realistic picture of the fruits of litigation launched under

Section 7 by an allottee of real estate project. This Court has gone onGto hold that only such allottee who has completely lost faith inmanagement would come under Section 7 in hope that some otherdeveloper will take over and complete the project. At the same time, thisCourt noticed that such an adventure would be in the teeth of an impendingperil, that should things do not go as planned, corporate demise followsHand the allottee would stand reduced to receiving whatever little may

remain and found on the basis that he is mere unsecured creditor in theorder of priority prescribed under Section 53 of the Code. This Courthas painted more rosy picture for an allottee approaching under theRERA, as there is great likelihood, it is noted that the project could becompleted or the full amount of refund together with penalty is awarded.Thus, the vires of the impugned provisions must be judged without turninga blind eye to the distinction between the wisdom and the legislativevalue judgment behind the Statute being immune from judicial scrutinyon the one hand and hostile discrimination falling foul of the mandateof equality under Article 14, being fatal to the Statute. In this case, whileit 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 thatmany contracts under real estate projects, may not involve large sumsas the subject matter of advances by banks and other financial institutions,the similarity between the two ends there. What is of greater importanceis the distinctions which we have already noted and the most vital pointwhich sets them apart, in the matter of pronouncing on the vires of theprovisos under Section 7 is the numerosity of the allottees, and what ismore not being homogeneous in what they want in particular situation,since the law has indeed endowed the allottees with different remedies,having different implications, be it under the Consumer Protection Actor under RERA. If the Legislature felt that having regard to theconsequences of an application under the Code, when such large groupof persons, pull at each other, an additional threshold be erected forexercising the right under Section 7, certainly, it cannot suffer aconstitutional veto at the hands of Court exercising judicial review oflegislation. In fact, this Court in Pioneerwas invited to hold that theallottees were more like operational creditors than financial creditorsand many aspects were pointed out and this Court after referring to thedifferences pointed out to it in tabular form in [para 48], rejected thecontentions. The rejection is supported with reference to the findings inSwiss Robbin(supra) which is alluded to in para 32 ofPioneer (supra).

214. It is to be noted also that it is not case where the right ofthe allottee is completely taken away. All that has happened is half-way house is built between extreme positions, viz., denying the rightaltogether to the allottee to move the application under Section 7 of theCode and giving an unbridled license to single person to hold the realestate project and all the stakeholders thereunder hostage to proceedingunder the Code which must certainly pass inexorably within stipulated

Aperiod of time should circumstances exists under Section 33 into corporatedeath with the unavoidable consequence of all allottees and not merelythe applicant under Section 7 being visited with payment out of theliquidation value, the amounts which are only due to the unsecuredcreditor.

BIt must be remembered that, the point of distinction, between afinancial creditor in this case, the allottees of real estate project andthe operational creditors, as contained in Section 7 on the one hand andSections 8 and 9 are preserved. In other words, the operational creditorstill has to cross the threshold of not being shut off from the applicationnot being processed in the teeth of the defense allowed to the corporateCdebtor in regard to an operational creditor. All that has happened is theLegislature in its wisdom has found that the greater good lies inconditioning an absolute right which existed in favour of an allottee byrequirements which would ensure some certain element of consensusamong the allottees. It must be remembered that the requirement is aDmere one-tenth of the allottees. This is number which goes to policyand lies exclusively within the wisdom of the Legislature. Hence, wehave no hesitation in repelling the contentions in this regard.

DEBENTURE HOLDERS/SECURITY HOLDERS: THECHALLENGE 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 clearlythe result of mistake. It is contended that the target of the legislaturewas the problem created by individual allottees invoking section 7 ofIBC. As far as his clients are concerned, they are debenture holders andFother security holders to whom debt is owed by the corporate debtor.There is no rational basis for imposing threshold requirement upon thesecurity holders. Reference is made to the mention of ‘class’.

216. Learned counsel would commend to us the principle ofabsurdity. It is pointed out that the principle of absurdity should guide thisGCourt to read down the first proviso to not apply it in regard to securityholders and debenture holders. In this regard our attention has beendrawn to the decision of this court in Vasant Ganpat Padave (D) byL.Rs. and Ors. v. Anant Mahadev Sawant (D) through L.Rs. andOrs.65. It is further brought to the notice of the court that the provision

suffers from manifest arbitrariness. Counsel relies upon the judgementof this Court in Shayara Bano v. Union of India and others66 decisionwhich witnessed the striking down of the law relating to triple talak. Percontra, it is the stand of the Union that Section 21(6A)(a) and (b) readwith Section 25A of the Code contemplated certain classes of financialcreditors as falling in separate class by themselves.

217. It is the stand of the Union that in regard to certain classes ofcreditors, financial creditors, i.e., having regard to the large numbers,they were to be treated differently. It is accordingly that with the insertionof sub-section (6A) in section 21 with clause (a) dealing with securityholders including debenture holders which would cover the petitionersthat an authorised representative was to be appointed to be on thecommittee of creditors.

218. Section 25A provides for the rights and liabilities of theauthorised representatives who include the authorised representativesof debenture holders, security holders and finally the allottees. As far asallottees are concerned, it is the stand of the Union that they would fallunder Section 21 (6A)(b) whereas the security holders including debentureholders to whom the corporate debtor owes money would fall undersection 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 alsothe large number of allottees. No doubt, in the case of allottees there areother distinguishing features as well. The interplay of the ConsumerProtection Act, the provisions of the Real Estate Regulation Act, thebalancing of the interests of the allottees in the sense of the optimalsecuring of the stake of the allottees in the continuance of the real estateproject itself would only strengthen the classification further in regard toallottees. However, that is not to say that in regard to the debentures andsecurity holders they can individually be permitted to set in motion CIRP.In regard to the question of availability of information with respect tosimilarly placed debenture holders or security holders, the contention ofthe Union is that under section 88 of the Companies Act information isgenerated regarding debenture holders and security holders. Anyonecan inspect the records of the company and glean information with whichapplication can be moved under the first proviso to Section 7(1). In regardto them also it is the case of the Union that the principle of heterogeneityapplies. Equally, it is the case of the Union that the individual creditor in

66 (2017) 9 SCC 1

Athe said class would make highly individualised and subjective decisionin regard to whether an application under Section 7 must be moved andthis is sought to be contrasted with the institutional decision-making whichwould come into play in regard to banks and other financial institutions.

219. We are of the view that the first proviso is invulnerable. AsBpointed out by the learned Additional Solicitor General with the insertionof sub-section 6A in section 21 as also Section 25A, the intention of thelegislature is to treat the financial creditors differently. They are markedby unique features in terms of numerosity and heterogeneity is clear.Section 21 (6A) (a)reads as follows:

C“(6A) Where financial debt –

(a) is in the form of securities or deposits and the terms of thefinancial debt provide for appointment of trustee or agent to actas authorised representative for all the financial creditors, suchtrustee or agent shall act on behalf of such financial creditors;

D(b) xxxxxxxxx(c) xxxxxxxxx

Section 25A provides as follows:

“ 25A. Rights and duties of authorised representative ofEfinancial creditors.

(1) The authorised representative under sub-section (6) or sub-section (6A) of section 21 or sub-section (5) of section 24 shallhave the right to participate and vote in meetings of the committeeof creditors on behalf of the financial creditor he represents inFaccordance with the prior voting instructions of such creditorsobtained through physical or electronic means.

(2) It shall be the duty of the authorised representative to circulatethe agenda and minutes of the meeting of the committee ofcreditors to the financial creditor he represents.

(3) The authorised representative shall not act against the interestof the financial creditor he represents and shall always act inaccordance with their prior intructions:

Provided that if the authorised representative represents severalfinancial creditors, then he shall cast his vote in respect of each

financial creditor in accordance with instructions received fromeach financial creditor, to the extent of his voting share:

Provided further that if any financial creditor does not give priorinstructions through physical or electronic means, the authorisedrepresentative 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 creditorshe represents in accordance with the decision taken by vote ofmore than fifty per cent. of the voting share of the financialcreditors he represents, who have cast their vote:

Provided that for vote to be cast in respect of an applicationunder section 12A, the authorised representative shall cast hisvote in accordance with the provisions of sub-section (3).”

220. These provisions were unsuccessfully challenged before thisCourt as evident from the decision in the Pioneer (supra). As pointed outon behalf of the Union, in the said case the challenge was mounted bythe promoters of real estate projects. These provisions have been acceptedby creditors like the petitioners covered by sub-section 6A. The impactof the insertion of sub-section 3A in Section 25A is to be noticed. Asalready seen section 25A, inter alia, deals with the exercise of rightsand the liabilities of authorised representative of creditors like debentureholders and allottees. After the insertion of sub-section 3A in section25A, the majority of the creditors of class is permitted to call the shots.It’s view, in other words, will hold sway. This is subject to the Codeotherwise. The legislative understanding is clear that in regard to suchcreditors bearing the hallmark of large numbers they are required to betreated differently. If they are not treated differently it would spell chaosand the objects of the Code would not be fulfilled. It is an extension ofthis basic principle which has led to the insertion of the impugned proviso.Insisting on threshold in regard to these categories of creditors wouldlead to the halt to indiscriminate litigation which would result in anuncontrollable docket explosion as far as the authorities which work theCode are concerned. The debtor who is apparently stressed is relievedof the last straw on the camel’s back, as it were, by halting individualcreditors whose views are not shared even by reasonable number ofits peers rushing in with applications. Again, as in the case of the allottees,

Athis is not situation where while treating them as financial creditorsthey are totally deprived of the right to apply under Section 7 as part ofthe legislative scheme. The legislative policy reflects an attempt atshielding the corporate debtor from what it considers would be either forfrivolous or avoidable applications. What we mean by avoidableapplications is decision which would not be taken by similarly placedBcreditors keeping in mind the consequences that would ensue not only inregard to persons falling in the same category but also the generality ofcreditors and other stakeholders. All that the amendment is likely toensure is that the filing of the application is preceded by consensus atleast by minuscule percentage of similarly placed creditors that theCtime has come for undertaking legal odyssey which is beset with perilsfor the applicants themselves apart from others. As far as the percentageof applicants contemplated under the proviso it is clear that it cannot bedubbed as an arbitrary or capricious figure. The legislature is not wantingin similar requirements under other laws. The provisions of the CompaniesAct, 2013 and its predecessors contained similar provisions. AllowingDwhat is described as ‘lone Ranger’ applications beset with extremelyserious ramifications which are at cross purposes with the objects of thecode. This is apart from it in particular spelling avoidable doom for theinterest of the creditors falling in the same categories. The object ofspeed in deciding CIRP proceedings would also be achieved by applyingEthe threshold to debenture holders and security holders. The dividing linebetween wisdom or policy of the legislature and limitation placed by theConstitution must not be overlooked.

221. The contention based on the applicability of the AbsurdityDoctrine on the Principle that the result which, ‘all mankind withoutFspeculation would unite in rejecting’ can have no application to theprovision. The Code and object of the Code and the unique featureswhich set apart the creditors involved in this case from the generality ofthe creditors, the challenge being to an economic measure and theconsequential latitude that is owed to the legislature renders the Principleof Absurdity wholly inapposite.G

222. There is no scope also having regard to their identification inparagraph-49 of Pioneer(supra) with reference to their numerosity. Theycannot be heard to complain about their inclusion within the terms of the1[st] proviso. Also Section 21(6A)(a) read with Section 25(A) puts thematter beyond the pale of doubt.H

223. There is no basis for the petitioners to draw any supportfrom the decision of this Court in 2019(12) SCALE.579. The facts in thesaid case presented clear situation which invited the application of thePrinciple.

THE CHALLENGE TO EXPLANATION-II TO SECTION11 OF THE CODE.

224. The Petitioner, in Writ Petition No. 267 of 2020, challengesthe aforesaid Explanation.

225. As already noticed, the Amendment Act, 2020 received theassent of the President of India on 13.03.2020 and it is deemed to havecome into force on the 28.12.2019 (be it remembered that the Ordinance,inserting the same Explanation, had been brought into force on28.12.2019).

226. The case of the Petitioner, in brief, is as follows:

Respondent No.3 is subsidiary company of the Petitioner.Respondent No. 2 is also corporate body. There were certaintransactions between Respondent Nos.2 and 3. Alleging defaultby Respondent No.3, Respondent No.2 had filed an Applicationunder Section 9 (the application to be filed by an operationalcreditor) against Respondent No.3. Respondent No.2 had filedthe application under Section 9 of the Code on 24.08.2018. It isthe further case of the Petitioner that Respondent No.2, on theother hand, was itself undergoing CIRP and the CIRP Applicationhad been admitted against the Second Respondent on 12.09.2017.It is pointed out that the Respondent No.3 has taken contentionthat Respondent No.2 was disentitled to file an application underSection 11(a) of the Code as Respondent No.2 was itself facing aCIRP. It is further contended that during the pendency of theproceeding against the second Respondent, the AdjudicatingAuthority has passed an Order on 19.11.2018 to liquidateRespondent No.2 under Section 34 of the Code. This developmentinvites the wrath of Section 11(d) as well. However, theAdjudicating Authority had, on 24.08.2019, erroneously admittedthe Application filed by Respondent No.2 under the Code. AnAppeal was carried by the Petitioner against the same, which ispending. It is while so, that the Ordinance came to be promulgatedon 28.12.2019 adding Explanation-II to Section 11 vis-à-vis

Afollowed by passing of the impugned, amending Act on similarlines.

227. The contention of the Petitioner can be summed-up as follows:An Explanation cannot modify the main provision to whichit is an Explanation.

Section 11(a) and Section 11(b) unequivocally bar CorporateDebtor from filing CIRP Application qua another CorporateDebtor under Section 7 and Section 9 of the Code. Support issought to be drawn from the exposition of the law qua anexplanation laid down in S. Sundaram Pillai and othersv. R.C67Pattabiraman and others and Sonia Bhatiav. State of U.P. andothers68. It is complained that the label of an Explanation has beenused to substantially amend, which is an arbitrary and irrationalexercise of power.

228. It was pointed out that the word ‘includes’ in Explanation-IDto Section 11 would indicate that an Application for CIRP is barred notonly against itself but also against any other Corporate Debtor when theapplicant-Corporate Debtor is found placed in circumstances expressedin Section 11. It is further contended that the impugned Amendment,effectively repeals Sections 11(a) and 11(d). If the purport of theEExplanation, which is impugned, is that the intention of the law was toonly bar an Application for CIRP by Corporate Debtor against itself,then, it will be unworkable and practically impossible. Explanation-II ismanifestly arbitrary. Support is sought to be drawn from Shayara Bano(supra). It was further contended that the amendment cannot be usedretrospectively and take away the vested right. In fact, it is contendedFthat clarificatory amendment is prospective but Explanation II is inreality substantive provision. Attempt is made to lay store by theJudgment of this Court in Virtual Soft Systems Ltd.v. Commissioner ofIncome Tax, Delhi-I69, wherein this Court was dealing with Section 271of the Income-Tax Act, 1961, in which, an Explanation was added. TheGSection in question, was penal provision.

229. It was further contended that the law has been settled byNational Company Law Tribunal (NCLT) and National Company Law

67 (1985) 1 SCC 59168 (1981) 2 SCC 585H69 (2007) 9 SCC 665

Appellate Tribunal (NCLAT) that Corporate Debtor, covered by Section11(a) and 11(d), cannot file application for CIPR against another CorporateDebtor. The impugned amendment cannot be used retrospectively incases instituted before 28.12.2019, which is the day on which theimpugned amendment came into force. It is submitted that the amendmentis violative of Article 14 and the relevant law.

230. Respondent No.2, in its submissions, contends as follows:

Respondent No. 3 owes Respondent No.2, more than asum of Rs. 26 crores, which is 20 per cent of the liquidation valueof Respondent No.2. It is further contended that the notes onclause explains the purpose of the provision. The amendment isdefended as reasonable and not arbitrary. It is pointed out that itwill be contrary to the object of the Code if the debt due to theCorporate Debtor cannot be secured. The duties of the ResolutionProfessional under the Code to protect and preserve the assets ofthe Corporate Debtor are pointed out. An order of the AppellateAdjudicating Authority in support of Respondent No.2 is alsopointed out. Explanation-II, it is pointed out, only clarifies whatwas always the correct position.

231. Learned Additional Solicitor General, appearing on behalf ofthe Union of India would also support the amendment. Reference ismade to the Report dated February, 2020 of the Insolvency LawCommittee, which, inter alia, reads as follows:

“6. ELIGIBILITY OF CORPORATE DEBTOR TO INITIATECIRP AGAINST OTHER PERSONS

6.1. Under Section 11(a) and (d) of the Code, corporate debtors“undergoing corporate insolvency resolution process” and “inrespect of whom liquidation order has been made” are notpermitted to file an application to initiate CIRP. It was brought tothe Committee that this has created confusion over whether acorporate debtor which is undergoing CIRP or liquidation process,may file an application to initiate CIRP against other corporatepersons who are its debtors.

6.2. The Committee noted that different Adjudicating Authoritieshad taken different approaches regarding the right of resolutionprofessional to initiate CIRP against other corporate debtors. Onthe one hand, the right of the resolution professional to initiate

ACIRP against other corporate debtors was upheld by relying onthe statutory duty of the resolution professional to recoveroutstanding dues of the corporate debtor under Section 25(2)(b).On the other hand, the resolution professional had been preventedfrom doing so, on the basis of literal interpretation of Section11(a). While the Appellate Authority had dismissed the appealsBfiled against some of these orders without endorsing either ofthese approaches, in Abhay N. Manudhane v Gupta Coal IndiaPvt. Ltd., it had taken the latter approach and denied the liquidatorthe right to file an application to initiate CIRP against othercorporate 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 thecorporate insolvency resolution process in order to delayrepayment of debts due or to keep assets out of the reach ofcreditors” and to “ensure finality of the liquidation order” bypreventing corporate debtor to initiate CIRP after liquidationorder is passed. Thus, it is clear that Section 11 aims at preventinga corporate debtor from abusing the statutory process underChapter II of Part II of the Code by repeatedly initiating CIRPagainst itself or by initiating CIRP even after liquidation order ispassed against it. The Committee discussed that if Section 11were instead, interpreted to prevent the resolution professional orthe liquidator of corporate debtor from initiating CIRP againstother defaulting entities, it would cause serious detriment to theability of corporate debtor to recover its dues from its debtors.”

ANALYSISF

232. Before we address the argument with regard to the provisionsof the Code, it is necessary to cull-out the principles applicable in regardto the function of an Explanation. bench of three learned Judges, in anoff-quoted judgment in S. Sundaram Pillai(supra) came to elaboratelyexamine the scope of an Explanation. Incidentally, the Court had to dealGwith an Explanation which was appended to proviso and, therefore,its judgment also deals with the principles applicable in regard to aproviso. On conspectus of various decisions, this Court made surveyof 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 arefully supported by various authorities of this Court. To quote onlya few, in Burmah Shell Oil Storage and Distributing Co. ofIndia Ltd. v. CTO [(1961) 1 SCR 902 : AIR 1961 SC 315 : (1960)11 STC 764] Constitution Bench decision, Hidayatullah, J.speaking for the Court, observed thus:

“Now, the Explanation must be interpreted according toits own tenor, and it is meant to explain clause (1)(fl) of theArticle and not vice versa. It is an error to explain theExplanation with the aid of the Article, because this reversestheir roles.”

50. In Bihta Cooperative Development Cane MarketingUnion Ltd. v. Bank of Bihar [(1967) 1 SCR 848 : AIR 1967 SC389 : 37 Com Cas 98] this Court observed thus:

“The Explanation must be read so as to harmonise withand clear up any ambiguity in the main section. It should not beso construed as to widen the ambit of the section.”

52. In Dattatraya Govind Mahajan v. State ofMaharashtra [(1977) 2 SCR 790 : (1977) 2 SCC 548 : AIR 1977SC 915] Bhagwati, J. observed thus: (SCC p. 563, para 9)

“It is true that the orthodox function of an Explanation isto explain the meaning and effect of the main provision to whichit is an Explanation and to clear up any doubt or ambiguity init.... Therefore, even though the provision in question has beencalled an Explanation, we must construe it according to itsplain language and not on any priori considerations.”

53. Thus, from conspectus of the authorities referred toabove, it is manifest that the object of an Explanation to statutoryprovision is—

“(a) to explain the meaning and intendment of the Actitself,

(b) where there is any obscurity or vagueness in themain enactment, to clarify the same so as to make it consistentwith the dominant object which it seems to subserve,

(c) to provide an additional support to the dominant objectof the Act in order to make it meaningful and purposeful,

(d) an Explanation cannot in any way interfere with orchange the enactment or any part thereof but where some gapis left which is relevant for the purpose of the Explanation, inorder to suppress the mischief and advance the object of theAct it can help or assist the Court in interpreting the true purportand intendment of the enactment, and

(e) it cannot, however, take away statutory right withwhich any person under statute has been clothed or set atnaught the working of an Act by becoming an hindrance in theinterpretation of the same.”

C233. It is important to actually understand the scope of anExplanation. We have already noticed the summary of the conclusionsof this Court in S. Sundaram Pillai(supra) at paragraph-53. It may givethe impression that an Explanation, in those circumstances, does notwiden 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 onDan earlier occasion. In judgment rendered by four learned Judges inHiralal Rattanlal and Ors.v. State of U.P. and another70 this Court had,while considering the scope of an Explanation in Taxing Statute, viz.,the United Provinces Sales Tax Act, 1948, had this to say:

“22. It was next urged that on true construction ofEExplanation II to Section 3-D, no charge can be said to have beencreated on the purchases of split or processed pulses. It was firstlycontended that an Explanation cannot extend the scope of themain section, it can only explain that section. In construing astatutory provision, the first and the foremost rule of constructionFis the literary construction. All that we have to see at the veryoutset is what does that provision say? If the provision isunambiguous and if from that provision, the legislative intent isclear, we need not call into aid the other rules of construction ofstatutes. The other rules of construction of statutes are called intoaid only when the legislative intention is not clear. Ordinarily aGproviso to section is intended to take out part of the mainsection for special treatment. It is not expected to enlarge thescope of the main section. But cases have arisen in which thisCourt has held that despite the fact that provision is called proviso,it is really separate provision and the so-called proviso has

H70 (1973) 1 SCC 216

substantially altered the main section. In CIT v. BipinchandraMaganlal & Co. Ltd., Bombay [AIR 1961 SC 1040 : (1961) 2SCR 493 : (1961) 41 ITR 290] this Court held that by the fiction inSection 10(2)(vii) second proviso read with Section 2(6-C) of theIndian Income Tax Act, 1922 what is really not income is, for thepurpose of computation of assessable income, made taxableincome.

25. On the basis of the language of the Explanation thisCourt held that it did not widen the scope of clause (c). But fromwhat has been said in the case, it is clear that if on true readingof an Explanation it appears that it has widened the scope of themain section, effect be given to legislative intent notwithstandingthe fact that the Legislature named that provision as an Explanation.In all these matters the courts have to find out the true intention ofthe Legislature.”

(Emphasis supplied)

234. Even though, in later decision in S. Sundaram Pillai(supra),this Court had adverted to this Judgment when it came to culling out thepropositions, the aspect about an Explanation, widening the scope of aprovision, has not been expressly spelt out. It must be remembered thatthe Legislature speaks through the medium of the words it uses. Thenomenclature, it gives to the device, cannot control the express language,which it employs. If, in effect, in particular case, an Explanation doeswiden the terms of the main provision, it would become the duty of theCourt 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 forconsideration. The Court, in the said case, was dealing with the lawrelating to restrictions on eviction of the tenant prevailing in Tamil Nadu.The substantive provision conferred right on the landlord to evict atenant, should he wilfully fail to pay the rent. There was proviso,however, which empowered the Court to grant time to the tenant subjectto the limit of 30 days, should it be found that the non-payment of therent was not wilful. It was to this proviso that an Explanation was added.The Explanation, in turn, provided that if the landlord gave notice to thetenant to pay the rent and rent remained unpaid for period of twomonths, it would be construed as case of wilful default. The arguments,

Awhich were addressed before this Court, included the contention thateven if notice was given within the meaning of the Explanation, itwould not control the duty of the Court to find out whether there waswilful default. It was, while the Court dealt with these arguments, interalia, that the Court proceeded to lay down two propositions. Firstly, in acase where no notice was given by the landlord, within the meaning ofBthe Explanation, it was for the Court to find out, on the facts andcircumstances, as to whether there was wilful default. The secondproposition, which was laid down was, even if notice was given underthe Explanation and there was default in payment, it would be treated asa case of wilful default unless the tenant was able to establish that heCwas prevented from making payment on account of circumstances whichprevented him from doing so. We may also notice still later judgmentof this Court in Sonia Bhatia (supra). In the said case, the question fellfor 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 person, after certain date,Dwas to be ignored. There was proviso, which, however, exceptedcertain transfers. One of the conditions to be met before case couldfall within the proviso was that the transfer must have been made forvaluable consideration. To the said proviso, there was again anExplanation I followed by Explanation II. It reads as follows:

E“Explanation I.—For the purposes of this sub-section, theexpression “transfer of land made after the twenty-fourth day ofJanuary, 1971”, includes—

(a) declaration of person as co-tenure-holder made afterthe twenty-fourth day of January, 1971 in suit or proceedingFirrespective of whether such suit or proceeding was pending onor was instituted after the twenty-fourth day of January, 1971;

(b) any admission, acknowledgement, relinquishment or declarationin favour of person to the like effect, made in any other deed orinstrument or in any other manner.G

Explanation II: The burden of proving that case falls within clause(b) of the proviso shall rest with the party claiming its benefits.”

236. The transfer in the said case was gift which attracted thewrath of the main provision which meant that the transfer had to beignored, and the land, which was the subject matter of the gift, had to beH

included in the ceiling account of the donor. This Court appreciated thescope of the legislation to be just that and rejected the argument basedon the terms of the Explanation and held as follows:

“24. In Bihta Co-operative Development Cane MarketingUnion Ltd. v. Bank of Bihar [AIR 1967 SC 389 : (1967) 1 SCR848 : 37 Com Cas 98] this Court was called upon to consider theExplanation to Section 48(1) of the Bihar and Orissa CooperativeSocieties Act, 1935. Therein this Court observed:

“The question then arises whether the first Explanation to thesection widens the scope of sub-section (1) of Section 48 so as toinclude claims by registered societies, against non-members evenif the same are not covered by clause (c).”

237. We have made brief survey of some of the case law byway of expounding the true province of an Explanation.

238. Coming to the facts of the instant case, it is necessary toanalyse the limbs of Section 11. Sections 7, 9 and 10, read with Section5, provide for the procedure to be adopted by the Adjudicating Authorityin dealing with applications for initiating CIRP by the financial creditor,operational creditor and corporate debtor. It is after that Section 11 makesits appearance in the Code. It purports to declare that an application forinitiating CIRP cannot be made by categories expressly detailed in Section11. Section 11(a) vetoes an application by corporate debtor, which isitself undergoing CIRP. An argument sought to be addressed by thepetitioner is that the purport of the said provision is that it prohibits notonly corporate debtor, which is undergoing CIRP, from initiating aCIRP against itself, which, but for the fact, it is undergoing CIRP,would be maintainable under Section 10 of the Code, but it also proscribesan application by corporate debtor for initiating CIRP against anothercorporate debtor. It appears to be clear to us, and this will be corroboratedby the further provisions as well, that the real intention of the Legislaturewas that the prohibition was only against the corporate debtor, which isalready faced with the CIRP filed by either financial creditor oroperational creditor, jumping into the fray with an application under Section10. This appears to be clear from the reports which have been placedbefore us.

239. Coming to Section 11(b), it again disables corporate debtorwhich has completed CIRP twelve months preceding the date of the

Amaking of the application from invoking the Code. It may be demystifiedas follows:

On the strength of the application made under Sections 7, 9 or 10,CIRP is initiated and it is completed at certain point of time. ThisSection is aimed at preventing further application not eternally but forBa period of twelve months after the expiry of the insolvency resolutionprocess. Quite apart from the fact that even the petitioners do not laystore by Section 11(b) and their case is premised on Section 11(a) and11(d), the importance of Section 11(b) is that it sheds light regarding theintention of the Legislature to be that the corporate debtor cannot initiateCIRP against itself under any of the limbs of Section 11, in theCcircumstances detailed therein. Section 11(c) again disentitles corporatedebtor, apart from financial creditor who has violated any terms of aresolution plan, which was approved twelve months before the makingof the application. In other words, after the Adjudicating Authorityapproves resolution plan under Section 31 of the Code, should aDcorporate debtor, inter alia, transgress upon any of the terms of theresolution plan and it still ventures to again approach the AdjudicatingAuthority with an application under Section 10 and attempt to restart theprocess all over again within period of twelve months from the date ofapproval, this is declared impermissible under Section 11(c).E240. Finally, coming to Section 11(d), it disentitles the making ofan application to initiate CIRP by corporate debtor in respect of whoma liquidation order has been made. We have already noticed the schemeof the Code. The Legislature intends to have two-stages approach tothe problem of insolvency as regards the corporate debtor. On the basisof an application by the eligible person, CIRP is initiated. If it is admitted,Fa Committee of Creditors is constituted before the curtains are wrungdown on the insolvency resolution process by the inexorable passage oftime, which is fixed under Section 12. If resolution plan finds approvalat the hands of the Committee of Creditors and also the AdjudicatingAuthority, liquidation is staved off. Should there be no resolution planGwithin the time limit or the resolution plan is not approved, the curtainsrise for the process of liquidation process to be played out in terms of theCode. The first act of the drama consists of the order of liquidation to bepassed under Section 33 of the Code. It is this order which is referred toin Section 11(d). There is also an order of liquidation permissible earlier,under Section 33(4). No doubt after the introduction of the explanationH

to Section 33(2), an order of liquidation may be passed in terms thereof.Once, this order is passed, the Legislature intended that corporatedebtor, in regard to whom the CIRP was initiated and which hasculminated in the order of liquidation being passed after no resolution ofthe insolvency took place, cannot again initiate fresh CIRP, puttingunder the carpet, as it were, whole process in the recent past. In fact,to use the words “recent past” may not be correct for unlike Section11(b) and 11(c), in case, where there is an order for liquidation underSection 33, then, an application under Section 10, would not bemaintainable. The person disentitled under Section 11(d) would be thecorporate debtor and the disentitlement is qua itself.

241. Now, let us turn to the first Explanation. The Explanationdeclares that for the purpose of Section 11, corporate debtor includesa corporate applicant in respect of such corporate debtor. There is anargument raised on behalf of the petitioners which surrounds the word“included”. The contention appears to be that before the insertion ofExplanation II, which is challenged before us, under Section 11, not onlywas an application for initiating CIRP by corporate debtor againstitself prohibited in the circumstances referred to in Section 11 but it alsocontemplated that the CIRP could not be filed by the corporate debtor incircumstances covered by Section 11 against another corporate debtor.Otherwise, there was no meaning in using the word “includes”. In orderto appreciate this argument, it is necessary to set out the definition of theword “corporate applicant” in the Code.

“6(5) “corporate applicant” means—

(a) corporate debtor; or

(b) member or partner of the corporate debtor who isauthorised to make an application for the corporate insolvencyresolution process under the constitutional document of thecorporate debtor; or

(c) an individual who is in charge of managing the operationsand resources of the corporate debtor; or

(d) person who has the control and supervision over thefinancial affairs of the corporate debtor;”

242. It is to be noticed that under Section 10 of the Code, acorporate debtor can file an application for CIRP, when there is default

Aby itself. The persons, who can make application under section 10, arethose who are alluded to as in the definition of the word “corporateapplicant”. In other words, an application by the corporate debtor forinitiating CIRP, when there is default by the corporate debtor, can bemade not only by the corporate debtor but also any of the other threecategories falling in clauses (b), (c) and (d) of the provision which definesBthe word “corporate applicant”. It is to ensure that there was clarityregarding the question as to whether, while in Section 11, there is aprohibition against the corporate debtor in various circumstances and itis disabled from moving an application under Section 10 against itself,there is no reference to the other persons who are covered by the definitionCof the word “corporate applicant”. It is hence that Explanation I wasinserted. In other words, it was to ensure that in the circumstancescontemplated in Section 11, an application under Section 10 could not bemade by any of the categories of persons mentioned in the definition ofthe word “corporate applicant”.

D243. Now, let us consider finally the impugned Explanation. Theimpugned Explanation came to be inserted by the impugned amendment.Apparently, interpreting Section 11, there appears to have been somecleavage of opinion. This is apparent from the case set up on behalf ofthe petitioners and the case set up on behalf of the Union of India. Theintention of the Legislature was always to target the corporate debtorEonly insofar as it purported to prohibit application by the corporate debtoragainst itself, to prevent abuse of the provisions of the Code. It couldnever had been the intention of the Legislature to create an obstacle inthe path of the corporate debtor, in any of the circumstances containedin Section 11, from maximizing its assets by trying to recover the liabilities

Fdue to it from others. Not only does it go against the basic commonsense view but it would frustrate the very object of the Code, if acorporate debtor is prevented from invoking the provisions of the Codeeither 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 clarificatory amendment. AGclarificatory amendment, it is not even in dispute, is retrospective in nature.The Explanation merely makes the intention of the Legislature clearbeyond the pale of doubt. The argument of the petitioners that theamendment came into force only on 28.12.2019 and, therefore, in respectto applications filed under Sections 7, 9 or 10, it will not have any bearing,Hcannot be accepted. The Explanation, in the facts of these cases, is

clearly clarificatory in nature and it will certainly apply to all pendingapplications also.

244. We may notice that these are petitions filed under Article 32of the Constitution of India, essentially, complaining of violation ofFundamental Right under Article 14 of the Constitution insofar as thechallenge to the Explanation is concerned, strained effort is made todescribe this amendment as manifestly arbitrary. To build up this argument,an attempt is made to contend that an Explanation cannot widen theprovisions or whittle down its scope. We are afraid, that this venture ofattempting to persuade us to hold that an Explanation would be trespassingthe 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 tounderstand how it could be described as being arbitrary for the Legislatureto clarify its intention through the device of an Explanation. The furtherattempt to persuade us to overturn the provision on the score that theExplanation attempts to achieve the result of repeal of Sections 11(a)and 11(d), is totally meritless. We are clear in our mind that on properunderstanding 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 thepetitioner in the light of the application which is pending and the appealalso which is preferred by the petitioner in NCLAT. We are reallyconcerned and can be called upon only to pronounce on the vires of theStatute on the score that it is unconstitutional on any ground known tolaw. The only ground which is urged before us is the violation of Article14. This ground does not merit acceptance. The challenge is repelled.

IS SECTION 32A UNCONSTITUTIONAL?

246. Section 32A is challenged by allottees in Writ Petition No.75of 2020. The petitioners in Writ Petition No.27 of 2020 and Writ PetitionNo. 579 of 2020, who are creditors (money lenders) also challenge Section32A.

247. The petitioners contend that immunity granted to the corporatedebtors and its assets acquired from the proceeds of crimes and anycriminal liability arising from the offences of the erstwhile managementfor the offences committed prior to initiation of CIRP and approval ofthe resolution plan by the adjudicating authority further jeopardizes theinterest of the allottees/creditors. It will cause huge losses which is sought

Ato be prevented under the provisions of the Prevention of MoneyLaundering Act, 2002.

248. Section 32A is arbitrary, ultra vires and violative of Article300A and Articles 14, 19 and 21.

249. The stand of the Union, on the other hand, is as follows:

Section 32A provides immunity to the corporate debtor andits property when there is approval of the resolution plan resultingin the change of management of control of corporate debtor. Thisis subject to the successful resolution applicant being not involvedin the commission of the offence. Statutory basis has now givenCunder Section 32A to the law laid down by this Court in the decisionof Committee of Creditors of Essar Steel(supra). This Court tookthe view therein that successful resolution applicant cannot befaced with undecided claim after its resolution plan has beenaccepted. The object is to ensure that successful resolutionDapplicant starts of on fresh slate. The relevant extracts of theStatement of Objects and Reasons relied upon by the Union ofIndia are as follows:

“STATEMENT OF OBJECTS AND REASONS

xxx

2. need was felt to give the highest priority in repayment to lastmile funding to corporate debtors to prevent insolvency, in casethe company goes into corporate insolvency resolution process orliquidation, to prevent potential abuse of the Code by certain classesof financial creditors, to provide immunity against prosecution ofthe corporate debtor and action against the property of thecorporate debtor and the successful resolution applicant subjectto fulfilment of certain conditions, and in order to fill the criticalgaps in the corporate insolvency 69 framework, it has becomenecessary to amend certain provisions of the Insolvency andBankruptcy Code, 2016.

3.The Insolvency and Bankruptcy Code (Second Amendment)Bill, 2019, inter alia, provides for the following, namely:—

xxx

(vii) to insert new section 32A so as to provide that the liabilityof corporate debtor for an offence committed prior to thecommencement of the corporate insolvency resolution processshall cease under certain circumstances.”

250. Reliance is also placed on the report of the Insolvency LawCommittee. Relevant extracts which have been relied on are as follows:

“PREFACE

v. Liability of corporate debtor for offences committed prior toinitiation of CIRP- in order to address the issue of liability that fallupon the resolution applicant for offences committed prior tocommencement of CIRP, it has been recommended that newsection should be inserted which provides that when the corporatedebtor is successfully resolved, it should not be held liable for anyoffence committed prior to the commencement of the CIRP, unlessthe successful resolution applicant was also involved in thecommission of the offence, or was related party, promoter orother person in management and control of the corporate debtorat the time of or any time following the commission of the offence.Notwithstanding this, those persons who were responsible to thecorporate debtor for the conduct of its business at the time of thecommission of such offence, should continue to be liable for suchan offence, vicariously or 70 otherwise. The newly inserted sectionas mentioned above shall also include protection of property fromenforcement action when taken by successful resolution applicant.Also, it was recommended that cooperation and assistance toauthorities investigating the offences committed prior tocommencement of CIRP shall be continued by any person who isrequired to provide such assistance under the applicable law.

xxx

Chapter 1: Recommendations regarding the Corporate InsolvencyResolution Process

xxx

17. LIABILITY OF CORPORATE DEBTOR FOROFFENCES COMMITTED PRIOR TO INITIATION OFCIRP*

17.1. Section 17 of the Code provides that on commencement ofthe CIRP, the powers of management of the corporate debtorvest with the interim resolution professional. Further, the powersof the Board of Directors or partners of the corporate debtorstand suspended, and are to be exercised by the interim resolutionprofessional. Thereafter, Section 29A, read with Section 35(1)(f),places restrictions on related parties of the corporate debtor fromproposing resolution plan and purchasing the property of thecorporate debtor in the CIRP and liquidation process, respectively.Thus, in most cases, the provisions of the Code effectuate changein control of the corporate debtor that results in clean break ofthe corporate debtor from its erstwhile management. However,the legal form of the corporate debtor continues in the CIRP, andmay be preserved in the resolution plan. Additionally, while theproperty of the corporate debtor may also change hands uponresolution or liquidation, such property also continues to exist, eitheras property of the corporate debtor, or in the hands of thepurchaser.17.2. However, even after commencement of CIRP or after itssuccessful resolution or liquidation, the corporate debtor, alongwith its property, would be susceptible to investigations orproceedings related to criminal offences committed by it prior tothe commencement of CIRP, leading to the imposition of certainliabilities and restrictions on the corporate debtor and its 71properties even after they were lawfully acquired by resolutionapplicant or successful bidder, respectively.

Liability where Resolution Plan has been Approved

17.3. It was brought to the Committee that this had createdapprehension amongst potential resolution applicants, who did notwant to take on the liability for any offences committed prior tocommencement of CIRP. In one case, JSW Steel had specificallysought certain reliefs and concessions, within an annexure to theresolution plan it had submitted for approval of the AdjudicatingAuthority. Without relief from imposition of the such liability, theCommittee noted that in the long run, potential resolution applicantscould be disincentivised from proposing resolution plan. TheCommittee was also concerned that resolution plans could be pricedlower on an average, even where the corporate debtor did not

commit any offence and was not subject to investigation, due toadverse selection by resolution applicants who might beapprehensive that they might be held liable for offences that theyhave not been able to detect due to information asymmetry. Thus,the threat of liability falling on bona fide persons who acquire thelegal entity, could substantially lower the chances of its successfultakeover by potential resolution applicants.

17.4. This could have substantially hampered the Code’s goal ofvalue maximisation, and lowered recoveries to creditors, includingfinancial institutions who take recourse to the Code for resolutionof the NPAs on their balance sheet. At the same time, theCommittee was also conscious that authorities are duty bound topenalize the commission of any offence, especially in casesinvolving substantial public interest. Thus, two competing concernsneed to be balanced.

17.5. The Committee noted that the proceedings under the Code,which are designed to ensure maximization of value, generallyrequire transfer of the corporate debtor to bona fide persons. Infact, Section 29A casts wide net that disallows any undesirableperson, related party or defaulting entity from acquiring corporatedebtor. Further, the Code provides for an open process, in whichtransfers either require approval of the Adjudicating Authority, orcan be challenged before it. Thus, the CIRP typically culminatesin change of control to 72 resolution applicants who are unrelatedto the old management of the corporate debtor and step in toresolve the insolvency of the corporate debtor following theapproval of resolution plan by the Adjudicating Authority.

17.6. Given this, the Committee felt that distinction must bedrawn between the corporate debtor which may have committedoffences under the control of its previous management, prior tothe CIRP, and the corporate debtor that is resolved, and takenover by an unconnected resolution applicant. While the corporatedebtor’s actions prior to the commencement of the CIRP must beinvestigated and penalised, the liability must be affixed only uponthose who were responsible for the corporate debtor’s actions inthis period. However, the new management of the corporatedebtor, which has nothing to do with such past offences, shouldnot be penalised for the actions of the erstwhile management of

the corporate debtor, unless they themselves were involved in thecommission of the offence, or were related parties, promoters orother persons in management and control of the corporate debtorat the time of or any time following the commission of the offence,and could acquire the corporate debtor, notwithstanding theprohibition under Section 29A.

17.7. Thus, the Committee agreed that new Section should beinserted to provide that where the corporate debtor is successfullyresolved, it should not be held liable for any offence committedprior to the commencement of the CIRP, unless the successfulresolution applicant was also involved in the commission of theoffence, or was related party, promoter or other person inmanagement and control of the corporate debtor at the time of orany time following the commission of the offence. 17.8.Notwithstanding this, those persons who were responsible to thecorporate debtor for the conduct of its business at the time of thecommission of such offence, should continue to be liable for suchan offence, vicariously or otherwise, regardless of the fact thatthe corporate debtor’s liability has ceased.

Actions against the Property of the Corporate Debtor

17.9. The Committee also noted that in furtherance of criminalEinvestigation and prosecution, the property of company, whichcontinues to exist after the resolution or liquidation of corporatedebtor, may have been liable to be attached, seized or confiscated.For instance, the property of corporate debtor may have beenat risk of attachment, seizure or confiscation where there wasFany suspicion that such property was derived out of proceeds ofcrime in an offence of money laundering. It was felt that takingactions against such property, after it is acquired by resolutionapplicant, or bidder in liquidation, could be contrary to the interestof value maximisation of the corporate debtor’s assets, bysubstantially reducing the chances of finding willing resolutionGapplicant or bidder in liquidation, or lowering the price of bids, asdiscussed above.

17.10. Thus, the Committee agreed that the property of corporatedebtor, when taken over by successful resolution applicant, orwhen sold to 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 thecorporate debtor’s assets should in no way prevent the relevantinvestigating authorities from taking action against the property ofpersons in the erstwhile management of the corporate debtor, thatmay have been involved in the commission of such criminal offence.

17.11. By way of abundant caution, the Committee also recognisedand agreed that in all such cases where the resolution plan isapproved, or where the assets of the corporate debtor are soldunder liquidation, such approved resolution plan or liquidation saleof the assets of the corporate debtor’s assets would have to resultin change in control of the corporate debtor to person whowas not related party of the corporate debtor at the time ofcommission of the offence, and was not involved in the commissionof such criminal offence along with the corporate debtor.

Cooperation in Investigation

17.12. While the Committee felt that the corporate debtor andbona fide purchasers of the corporate debtor or its property shouldnot be held liable for offences committed prior to thecommencement of insolvency, the Committee agreed that thecorporate debtor and any person who may be required to provideassistance under the applicable law should continue to provideassistance and cooperation to the authorities investigating anoffence committed prior to the commencement of the CIRP.Consequently, the Committee recommended the new Sectionshould provide for such continued cooperation and assistance.”The Additional Solicitor General also places reliance on the SixthReport of the Standing Committee of Lok 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 thefollowing suggestion:-

“Though the Bill gives immunity to the corporate debtor(company as legal entity) from prior offences, theindividuals responsible for committing such offences onbehalf of the debtor will still be held liable. The question is

whether the debtor should be absolved of all kinds of prioroffences with such blanket immunity.”

3.9The Secretary, Ministry of Corporate Affairs during thesitting held on 15th January, 2020 remarked:-

“If the bidder, who is coming and participating under thecourt supervised competitive process, does not get securityand is not indemnified, there may be problem.”

3.10Further, the Ministry furnished the following comment onthe above suggestion:

“…this provision would only apply where the CIRPculminates in change in control to 75 completelyunconnected resolution applicant. As such, resolutionapplicant has nothing to do with the commission of any pre-CIRP offence whatsoever, and the corporate debtor is nowfundamentally not the same entity as the one that committedthe crime.”

3.11The Committee are in agreement with the intent of thisamendment to safeguard the position of the ResolutionApplicant(s) by ring-fencing them from prosecution andliabilities under offences committed by erstwhile promotersetc. The Committee understand the need for treating thecompany or the Corporate Debtor as cleansed entity forcases which result in change in the management or controlof the corporate debtor to person who was not promotoror in the management control of the corporate debtor orrelated party of such person, or to person against whomthere are material evidence and pending complaint or reportby the investigating authority filed in relation to the criminaloffence. The Committee agree that this provision is essentialto provide the Resolution Applicant(s) fair chance to revivethe unit which otherwise would directly go into liquidation,which may not be as beneficial to the economy. TheCommittee believe that this ring-fencing is essential toachieve revival or resolution without imposing additionalliabilities on the Resolution Applicant, arising from malafideacts of the previous promoter or management.”

251. Apart from the fact that it is intended to give clean break tothe successful resolution applicant, it is pointed out that it is hedged inwith ample safeguards to avoid any exploitation. The same are as follows:

“106. Section 32A was inserted to give clean break to successfulresolution applicants from the erstwhile management by shielding themand immunizing them from prosecution and liabilities for offences thatmay have been committed prior to the commencement of the CIRP.Further, ample safeguards have been incorporated in the said provisionto prevent any exploitation, namely:

i. The immunity is attracted only when resolution plan is approvedby the Adjudicating Authority under section 31 and the resolutionplan results in the change in management or control of the corporatedebtor.

ii. The immunity is granted only to the corporate debtor and itsproperty, where such property is covered under the resolutionplan approved by the Adjudicating Authority under section 31,from any liability or prosecution with regard to offences committedprior to the commencement of the corporate insolvency resolutionprocess.

iii. Any person who was promoter or in the management orcontrol of the corporate debtor or related party or was in anymanner incharge of, or responsible to the corporate debtor for theconduct of its business and who was directly or indirectly involvedin the commission of such offence shall continue to be liable to beprosecuted and punished for such an offence committed by thecorporate debtor notwithstanding that the corporate debtor’sliability has ceased.

iv. Section 32A does not bar an action against the property of anyperson other than the corporate debtor against whom such anaction may be taken under such law as may be applicable.

v. Notwithstanding the immunity given under Section 32A, thecorporate debtor and any person, who may be required to provideassistance under such law as may be applicable to such corporatedebtor or person, shall extend all assistance and co-operation toany authority investigating an offence committed prior to thecommencement of the corporate insolvency resolution process.”

A252. Section 32A has been divided into three parts consisting ofsub-Sections (1) to (3). Under sub-Section (1), notwithstanding anythingcontained, either in the Code or in any other law, liability of corporatedebtor, for an offence committed prior to the commencement of theCIRP, shall cease. Further, the corporate debtor shall not be liable to beprosecuted for such an offence. Both, these immunities are subject toBthe following conditions:

i.A Resolution Plan, in regard to the corporate debtor, must beapproved by the Adjudicating Authority under Section 31 ofthe Code;

Cii.The Resolution Plan, so approved, must result in the changein the management or control of the corporate debtor;

iii.The change in the management or control, under the approvedResolution Plan, must not be in favour of person, who wasa promoter, or in the management and control of the corporateDdebtor, or in favour of related party of the corporate debtor;

iv.The change in the management or control of the corporatedebtor must not be in favour of person, with regard to whomthe relevant Investigating Authority has material which leadsit to entertain the reason to believe that he had abetted orEconspired for the commission of the offence and has submittedor filed Report before the relevant Authority or the Court.This last limb may require little more demystification. Theperson, who comes to acquire the management and controlof the corporate person, must not be person who has abettedor conspired for the commission of the offence committed byFthe corporate debtor prior to the commencement of the CIRP.Therefore, abetting or conspiracy by the person, who acquiresmanagement and control of the corporate debtor, under aResolution Plan, which is approved under Section 31 of theCode and the filing of the report, would remove the protectiveGumbrella or immunity erected by Section 32A in regard to anoffence committed by the corporate debtor before thecommencement of the CIRP. To make it even more clear, ifeither of the conditions, namely abetting or conspiring followedby the report, which have been mentioned as aforesaid, arepresent, then, the liability of the corporate debtor, for an offence

committed prior to the commencement of the CIRP, will remainunaffected.;

253. The first proviso in sub-Section (1) declares that if there isapproval of Resolution Plan under Section 31 and prosecution hasbeen instituted during the CIRP against the corporate debtor, the corporatedebtor will stand discharged. This is, however, subject to the conditionthat the requirements in sub-Section (1), which have been elaborated byus, have been fulfilled. In other words, if under the approved Resolutionplan, there is change in the management and control of the corporatedebtor, to person, who is not promoter, or in the management andcontrol of the corporate debtor, or related party of the corporate debtor,or the person who acquires control or management of the corporatedebtor, has neither abetted nor conspired in the commission of the offence,then, the prosecution, if it is instituted after the commencement of theCIRP and during its pendency, will stand discharged against the corporatedebtor. Under the second proviso to sub-Section (1), however, thedesignated partner in respect of the liability partnership or the Officer indefault, as defined under Section 2(60) of the Companies Act, 2013, orevery person, who was, in any manner, in-charge or responsible to thecorporate debtor for the conduct of its business, will continue to be liableto be prosecuted and punished for the offence committed by the corporatedebtor. This is despite the extinguishment of the criminal liability of thecorporate debtor under sub-Section (1). Still further, every person, whowas associated with the corporate debtor in any manner, and, who wasdirectly or indirectly involved in the commission of such offence, in termsof the Report submitted and Report filed by the Investigating Authority,will continue to be liable to be prosecuted and punished for the offencecommitted by the corporate debtor. Thus, the combined reading of thevarious limbs of sub-Section (1) would show that while, on the one hand,the corporate debtor is freed from the liability for any offence committedbefore the commencement of the CIRP, the statutory immunity from theconsequences of the commission of the offence by the corporate debtoris 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 whowere responsible for the conduct of its business or those who wereassociated with the corporate debtor in any manner, and who were directlyor indirectly involved in the commission of the offence, and they willcontinue to be liable.

A254. Coming to sub-Section (2) of Section 32A, it declares baragainst taking any action against property of the corporate debtor. Thisbar also contemplates the connection between the offence committedby the corporate debtor before the commencement of the CIRP and theproperty of the corporate debtor. This bar is conditional to the propertybeing covered under the Resolution Plan. The further requirement isBthat Resolution Plan must be approved by the Adjudicating Authorityand, finally, the approved plan, must result in change in control of thecorporate debtor not to person, who is already identified and describedin sub-Section (1). In other words, the requirements for invoking the baragainst proceeding against the property of the corporate debtor in relationCto an offence committed before the commencement of the CIRP, are asfollows:

(i)There must be Resolution Plan, which is approved by theAdjudication Authority under Section 31 of the Code;

(ii) The approved Resolution Plan must result in the change inDcontrol of the corporate debtor to person, who was not –(a) promoter; (b) in the management or control of thecorporate debtor or (c) related party of the corporate debtor;(d) person with regard to whom the investigating authority,had, on the basis of the material, reason to believe that he hasEabetted or conspired for the commission of the offence andhas submitted Report or complaint. If all these aforesaidconditions are fulfilled then the Law Giver has provided thatno action can be taken against the property of the corporatedebtor in connection with the offence;

FThe Explanation to sub-Section (2) has clarified that the words“an action against the property of the corporate debtor inrelation to an offence”, would include the attachment, seizure,retention or confiscation of such property under the lawapplicable to the corporate debtor. Since the word “include” isused under sub-clause (i) of the Explanation, the word “action”Gagainst the property of the corporate debtor is intended to havethe widest possible amplitude. There is clear nexus with theobject of the Code. The other part of the clarification, underthe Explanation, is found in the second sub-clause of theExplanation (ii). Under the second limb of the Explanation, theHLaw Giver has clearly articulated the point that as far as the

property of any person, other than the corporate debtor or anyperson who had acquired the property of the corporate debtorthrough the CIRP or liquidation process under the Code andwho otherwise fulfil the requirement under Section 32A, actioncan be taken against the property of such other person. Thus,reading sub-Section (1) and sub-Section(2) together, two resultsemerge – (i) subject to the requirements embedded in sub-Section (1), the liability of the corporate, debtor for the offencecommitted under the CIRP, will cease; (ii) The property of thecorporate debtor is protected from any legal action again subjectto the safeguards, which we have indicated. The bar againstaction against the property, is available, not only to the corporatedebtor but also to any person who acquires property of thecorporate debtor under the CIRP or the liquidation process.The bar against action against the property of the corporatedebtor is also available in the case of person subject to thesame limitation as prescribed in sub-Section (1) and also insub-Section (2), if he has purchased the property of thecorporate debtor in the proceedings for the liquidation of thecorporate debtor.

255. The last segment of Section 32A makes it obligatory on thepart of the corporate debtor or any person, to whom immunity is providedunder Section 32A, to provide all assistance to the Investigating Officerqua any offence committed prior to the commencement of the CIRP.

256. The contentions of the petitioners appear to be that thisprovision is constitutionally anathema as it confers an undeservedimmunity for the property which would be acquired with the proceeds ofa crime. The provisions of the Prevention of Money-Laundering Act,2002 (for short, the PMLA) are pressed before us. It is contended thatthe prohibition against proceeding against the property, affects the interestof stakeholders like the petitioners who may be allottees or othercreditors. In short, it appears to be their contention that the provisionscannot stand the scrutiny of the Court when tested on the anvil of Article14 of the Constitution of India. The provision is projected as beingmanifestly arbitrary. To screen valuable properties from being proceededagainst, result in the gravest prejudice to the home buyers and othercreditors. The stand of the Union of India is clear. The provision is bornout of experience. The Code was enacted in the year 2016. In the course

Aof its working, the experience it has produced, is that, resolution applicantsare reticent in putting up Resolution Plan, and even if it is forthcoming,it is not fair to the interest of the corporate debtor and the other stakeholders.

257. We are of the clear view that no case whatsoever is madeBout to seek invalidation of Section 32A. The boundaries of this Court’sjurisdiction are clear. The wisdom of the legislation is not open to judicialreview. Having regard to the object of the Code, the experience of theworking of the code, the interests of all stakeholders including mostimportantly the imperative need to attract resolution applicants who wouldnot shy away from offering reasonable and fair value as part of theCresolution plan if the legislature thought that immunity be granted to thecorporate debtor as also its property, it hardly furnishes ground for thisthis Court to interfere. The provision is carefully thought out. It is not asif the wrongdoers are allowed to get away. They remain liable. Theextinguishment of the criminal liability of the corporate debtor isDapparently important to the new management to make clean breakwith the past and start on clean slate. We must also not overlook theprinciple that the impugned provision is part of an economic measure.The reverence courts justifiably hold such laws in cannot but be applicablein the instant case as well. The provision deals with reference to offencescommitted prior to the commencement of the CIRP. With the admissionEof the application the management of the corporate debtor passes intothe hands of the Interim Resolution Professional and thereafter into thehands of the Resolution Professional subject undoubtedly to the controlby the Committee of Creditors. As far as protection afforded to theproperty is concerned there is clearly rationale behind it. Having regardFto the object of the statute we hardly see any manifest arbitrariness inthe provision.

258. It must be remembered that the immunity is premised onvarious conditions being fulfilled. There must be resolution plan. Itmust be approved. There must be change in the control of the corporateGdebtor. The new management cannot be the disguised avatar of the oldmanagement. It cannot even be the related party of the corporate debtor.The new management cannot be the subject matter of an investigationwhich has resulted in material showing abetment or conspiracy for thecommission of the offence and the report or complaint filed thereto.These ingredients are also insisted upon for claiming exemption of theH

bar from actions against the property. Significantly every person whowas associated with the corporate debtor in any manner and who wasdirectly or indirectly involved in the commission of the offence in termsof the report submitted continues to be liable to be prosecuted and punishedfor the offence committed by the corporate debtor. The corporate debtorand its property in the context of the scheme of the code constitute adistinct subject matter justifying the special treatment accorded to them.Creation of criminal offence as also abolishing criminal liability mustordinarily be left to the judgement of the legislature. Erecting bar againstaction against the property of the corporate debtor when viewed in thelarger context of the objectives sought to be achieved at the forefront ofwhich is maximisation of the value of the assets which again is to beachieved at the earliest point of time cannot become the subject of judicialveto on the ground of violation of Article 14. We would be remiss if wedid not remind ourselves that attaining public welfare very often needsdelicate balancing of conflicting interests. As to what priority must beaccorded to which interest must remain legislative value judgementand if seemingly the legislature in its pursuit of the greater good appearsto jettison the interests of some it cannot unless it strikingly ill squareswith some constitutional mandate suffer invalidation.259. There is no basis at all to impugn the Section on the groundthat it violates Articles 19, 21 or 300A.

VESTED RIGHT; RETROSPECTIVITY; THE 3rdPROVISO IN SECTION 7

260. We will recapitulate the third proviso, at this juncture.

“7(1)xxxxxxxxxExplanation xxxxxxxxxxxxxxxxxx

Provided also that where an application for initiating thecorporate insolvency resolution process against corporate debtorhas been filed by financial creditor referred to in the first andsecond provisos and has not been admitted by the AdjudicatingAuthority before the commencement of the Insolvency andBankruptcy Code (Amendment) Act, 2020, such application shallbe modified to comply with the requirements of the first or secondproviso within thirty days of the commencement of the said Act,

Afailing which the application shall be deemed to be withdrawnbefore its admission.”

261. perusal of the same, makes it clear that the third proviso isa one-time affair. It is intended only to deal with those applications, underSection 7, which were filed prior to 28.12.2019, when, by way of theBimpugned Ordinance, initially, the threshold requirements came to beintroduced by the first and the second impugned provisos. In other words,the legislative intention was to ensure that no application under Section 7could be filed after 28.12.2019, except upon complying with therequirements in the first and second provisos. The Legislature did notstop there. It has clearly intended that the threshold requirement it imposed,Cwill apply to all those applications, which were filed, prior to 28.12.2019as well, subject to the exception that the applications, so filed, had notbeen admitted, under Section 7(5). In other words, the Legislature intendedthat in every application, filed under Section 7, by the creditors coveredby the first proviso and by the allottees governed by the second proviso,Dshould also be embraced by the newly imposed threshold requirementfor which, it was intended, should be complied within 30 days from thedate of the Ordinance. However, this restriction was not to apply tothose applications which stood admitted as on the date of the Ordinance.It is also clear that the consequence of failure to comply with the thresholdrequirement, in regard to applications, which have been filed earlier, wasEthat they would stand withdrawn.

262. In this regard, several contentions are raised. It is pointedout by the learned Counsel for the petitioners, apart from the plea ofdiscrimination, which is alleged against the first and second provisos,that the third proviso, makes clear incursion into vested right. TheFimpugned third proviso is afflicted with the vice of manifest arbitrariness.It is contended that the petitioners, who had moved an application underthe erstwhile regime, were legally entitled to make such an application,whether it is by single allottee or jointly. This was substantive right.Availing such substantive right, under Statute, when the applicationGstood instituted, they had the right to continue with the proceedingunimpaired and unhindered by the new threshold requirement, whichcannot be made applicable in their cases. It is contended that whenthere is repeal of Statute, the existing rights are saved. In this case,there was an existing right with the petitioners to institute the applicationunder Section 7 and, therefore, this right cannot be imperilled by enactingHthe amendment. It is pointed out that the statutory time limit to decide anapplication, was fourteen days. This Court, in Pioneer(supra), alsostressed the importance of disposing matters, within the period, eventhough, it may have laid down that the period is not inflexibly mandatoryand that it is directory. In the case of the petitioners, the applicationswere pending for more than year. Classifying the applications underthe same head, is arbitrary and irrational. The petitioners have spentsubstantial sums towards court fee, legal and other expenses, in additionto considerable time. There is no provision to ameliorate their losses.Withdrawals and fresh filing would derail the insolvency process. Ourattention is draw to the judgment of this Court in Hitendra Vishnu Thakurand others v. State of Maharashtra and others71, wherein this Court laiddown that Statute, which affects substantive right, is presumed to beprospective, unless made retrospective expressly or by necessaryintendment. Every litigant has vested right in substantive matters butno such right exists in procedural law. The law relating to right of actionand right of appeal, even though remedial, is substantive in nature. Aprocedural Statute should not, generally speaking, be appliedretrospectively, where the result would be to create new disabilities orobligations or to impose new duties in respect of accomplishedtransactions. Reliance is placed similarly on the judgment of this Courtin 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 ofthis Court in B.K. Educational Services Private Ltd.v. Parag Gupta andAssociates73, is referred to. The proviso cannot be appliedretrospectively. The proviso is penal, arbitrary, unjust and unfair. Relianceis placed on In Re: Pulborough Parish School Board Election, Bourkev.Nutt74.

263. Per contra, the stand of the respondents in this regard, is asfollows:

The third proviso does not affect any rights of the creditors inquestion. By merely filing an application under Section 7, no absoluteright is created. In this regard, reliance is placed on judgments of thisCourt in (2004) 1 SCC 663, (2019) 2 SCC 1, (2019) 4 SCC 17, (2015) 3

71 (1994) 4 SCC 60272 (2001) 8 SCC 397

73 (2019) 11 SCC 633/ 2018 1 IBJ (JP) 649 SC74 (1894) 1 QB 725

DEF

ASCC 206, (2019) SCCONLINE SC 1478. It is further contended thatthe mere right to take advantage of statue is not vested right. And inthis regard out attention is drawn to following Judgments – (1961) Vol. 2All Eng. 721,(1980) 1 SCC 149;Lalji Raja and Sons(supra), (1985) 1SCC 436. The impugned third proviso is intended to protect the collectiveinterest of others in class of creditors. Before admission of an application,Bthere is no vested right. Therefore, it does not have retrospectiveapplication, in manner that impairs vested right. This requirement wouldensure that there is no needless multiplicity and no single allottee wouldbe able to achieve admission and its consequences without having acertain minimum number of compatriots on board. Even vested rightCcan be taken away by the Legislature [(1957 SCR 488].

264. The first question, which we would have to answer, is whetherthe right under the unamended Section 7 was vested right of the financialcreditors or allottees covered by the provisos 1 and 2, respectively. Thisbrings us squarely to the question as to what constitutes vested right.DLearned ASG contends that there is no vested right till the application isadmitted. It is also contended that the right was only one to take advantageof Statute. In Salmond on Jurisprudence, the following characteristicshave been found indispensable to constitute right:

“41. The characteristics of legal rightEEvery legal right has the five following characteristics: -

(1) It is vested in person who may be distinguished as the ownerof the right, the subject of it, the person entitled, or the person ofinherence.

F(2) It avails against person, upon whom lies the correlative duty.He may be distinguished as the person bound, or as the subject ofthe duty, or as the person of incidence.

(3) It obliges the person bound to an act or omission in favour ofthe person entitled. This may be termed the content of the right.

G(4) The act or omission relates to some thing (in the widest senseof that word), which may be termed the object or subject-matterof the right.

(5) Every legal right has title, that is to say, certain facts orevent by reason of which the right has become vested in its owner.”

265. Legal rights are, in wider sense, of four distinct kinds.They are rights, liberties, powers and immunities. Duty is the correlativeof right, while, no rights correspond to liberties. Liabilities have nexuswith the power exercised by another person, with regard to whom, theliability exists in another party. When somebody has an immunity againstanother, it disables the latter, and thus, it constitutes disability for him.Salmond notes further that the term right is often used in the wide senseto include liberty by which it is meant to have one left free to do as hepleases.

266. We may notice the following discussion relating to powersand liabilities:

“2. Powers and liabilities. Yet another class of legal rightsconsists of those which are termed powers. Examples of suchare the following: the right to make will, or to alienate property;the power of sale vested in mortgagee; landlord’s right of re-entry; the right to marry one’s deceased wife’s sister; the powerto sue and to prosecute; the right to rescind contract for fraud;a power of appointment; power of appointment; the right ofissuing execution on judgment; the various powers vested injudges 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 adifferent species from the two classes which we have alreadyconsidered. …… My right to make will corresponds to no dutyin any one else.A mortgagee’s power of sale is not the correlativeof any duty imposed upon the mortgagor;

power may be defined as ability conferred upon personby law to alter, by his own will directed to that end, the rights,duties, liabilities or other legal relations, either of himself or ofother persons. …”

(Emphasis supplied)

267. It may be asked whether right of action is right or apower. Is there duty with anyone in the case of right to an action?We need not probe this further as power is also right in the widersense. The right to sue and right to appeal has been so recognized as wewill notice.

A268. As far as the distinct kind of legal rights are concerned, inthe classification made by Salmond[75] which counts nine distinct legalclassifications of legal rights, we notice the following discussion ofclassification between vested and contingent rights. To quote:

“Vested and contingent rights. right vests when all theBfacts have occurred which must by law occur in order for theperson in question to have the right. right is contingent whensome but not all of the vestive facts, as they are termed, haveoccurred. grant of land to in fee simple will give vestedright of ownership. grant to for life and then to in fee simpleif he survives A, gives contingent right. It is contingent becauseCsome of the vestive facts have not yet taken place, and indeedmay neve do so: may not survive A. if he does, his formerlycontingent right now becomes vested. contingent right then is aright that is incomplete. contingent right is different, however from mere hopeDof spes. If leaves legacy in his will, has no right to thisduring A’s lifetime. He has no more than hope that he will obtaina legacy; he certainly does not have an incomplete right, since it isopen to at any time to alter his will.”

269. In Garikapati Veeraya (supra), the suit was filed onE22.04.1949. The High Court decreed the suit in an appeal by the plaintiffon 04.03.1955. The petitioner before this Court contended that since thevaluation of the suit was more than Rs. 10,000, in terms of the clause 39of the Letters Patent, 1865, an appeal was maintainable before theSupreme Court. No doubt this involved the argument that the appeal inFfact lay to the Federal Court as all appeals would lie to the Federal Courtin view of the abolition of the Privy Council in 1949. Since, the FederalCourt was replaced by Supreme Court, the appeal lay before this Court.270. After consideration of the case law we notice the followingprinciples which have been laid down by this Court.

G“23(i) That the legal pursuit of remedy, suit, appeal and secondappeal are really but steps in series of proceedings all connectedby an intrinsic unity and are to be regarded as one legal proceeding.

(ii) The right of appeal is not mere matter of procedure but is asubstantive right.H75 See “Salmond on Jurisprudence, 12th Edition, P J Fitzgerald”

(iii) The institution of the suit carries with it the implication that allrights of appeal then in force are preserved to the parties theretotill the rest of the career of the suit.

(iv) The right of appeal is vested right and such right to enterthe superior court accrues to the litigant and exists as on and fromthe date the lis commences and although it may be actuallyexercised when the adverse judgment is pronounced such right isto be governed by the law prevailing at the date of the institutionof the suit or proceeding and not by the law that prevails at thedate 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 asubsequent enactment, if it so provides expressly or by necessaryintendment and not otherwise.

(Emphasis supplied)

271. It is clear that the institution of suit leads to the inferencethat the right of appeal is preserved. There is vested right of appeal.The vested right of appeal accrues to the litigant and exists from the dayof the institution of the lis (suit). Therefore, while the remedy of anappeal may be provided under the statute that right becomes vestedright only from the point of time that the suit is filed either by the appellantor the opposite party. All of this undoubtedly is subject to subsequentenactment not interfering with the right of an appeal.

272. In Lalji Raja and Sons v. Hansraj Nathuram76, this courtinter alia held as follows:

“16. That provision to preserve the right accrued under arepealed Act “was not intended to preserve the abstract rightsconferred by the repealed Act.... It only applies to specific rightsgiven to an individual upon happening of one or the other of theevents specified in statute see” — Lord Atkin’s observationsin Hamilton Cell v. White. [(1922) 2 KB 422] The mere right,existing at the date of spealing statute, to take advantage ofprovisions of the statute repealed is not “right accrued” withinthe meaning of the usual saving clause — see Abbot v. Ministerfor Lands [(1895) AC 425] and G. Ogden Industries Pvt.Ltd. v. Lucas. [(1969) 1 All ER 121]”

A273. It is apposite to notice the context in which the saidobservations were made. There was an ex parte decree passed by aCourt in West-Bengal in 1949. It was transferred to Court (Morena) inOld Madhya Bharat State. The Execution Petition was dismissed on theground that it was an ex parte Decree by foreign court. This Courtnoted that Sections 38 and 39 of the Code of Civil Procedure did notBapply on the day in question, and therefore, the transfer orders waswithout jurisdiction. On 1[st] April, 1951 the CPC was extended to formerstate of Madhya Bharat. The decree holders sought fresh transfer ofthe decree to the very same court as earlier namely Morena which hadbecome part of State of Madhya Pradesh to which CPC applied. TheCHigh Court upheld the contention of the judgment debtor that the decreecould not be executed as being of the foreign court. This Court reversedthe High Court judgment. The argument which was raised, was basedon Section 20 of the Code of Civil Procedure (Amendment) Act, 1951,by which the Code was extended to Madhya Bharat. There was repealof the law that prevailed in the State when the amendment to the CPC inD1951 was made applicable. There was, however, also proviso whichsaved rights privileges, obligations and liabilities acquired, accrued orincurred. The contention therefore of the judgment debtor was that thejudgment debtor’s right to resist was preserved under the saving clause.It was found by this Court that the provisions of CPC enforced in MadhyaEBharat did not confer the right claimed by the judgment debtor. All thathappened as result of the extension of the Code to the whole of Indiain 1951, was that the decrees which could have been executed in theBritish India could now be executed in the whole of India. It is, therefore,in the context of repeal and as to whether right to take advantage ofthe repealed law constituted right accrued under the usual saving clauseFthat the observations made in paragraph 16 are to be understood.

274. This Court made reference to few decisions (paragraph-16) including Abbott and Minister of Lands77. We think, it is appropriatethat we advert to the issues which were involved in the said cases.

G275. In Abbott (supra), the Privy Council had to deal with thefollowing factual matrix, in short:

The appellant effected conditional purchase under Section 22of the Crown Lands Alienation Act, 1861, adjoining the land which hehad acquired in fee simple. He made certain applications, seeking to

H77 (1895) AC 425

make further additional conditional purchases of certain adjoining landsas also seeking lease. The questions which arose for the opinion of thecourt were three in number. Firstly, the question arose whether theconditional purchase which the appellant had made, constituted him theholder of an original conditional purchase, under Section 42 of the Act of1884. Still further, the question fell for decision as to whether Section 22of the Crown Lands Act of 1884 reserved the right for the appellant theright to purchase additional conditional purchases of adjoining crownlands, which were allowed to the full area of 648 acres allowed by therepealed Act. Thirdly, the question arose, as to whether supposing himto be entitled to the additional conditional purchase, was he entitled tothe conditional lease which he had applied for? Section 22 of the 1861Act was repealed and in the later Act, there was no correspondingprovision to Section 22 but there was saving proviso which enabled theappellant, according to him, to make an additional conditional purchase,as if Section 22 remained in force. The saving clause saved all the accruedrights and liabilities. Noticing the change in the condition of residence,which had been earlier imposed, being done away with, the Court wenton to hold as follows:

“It has been very common in the case of repealing statuesto save all rights accrued. If it were held that the effect of thiswas to leave it open to any one who could have taken advantageof them, the result would be very far-reaching.

It may be, as Windeyer J. observes, that the power to takeadvantage of an enactment may without impropriety be termed a“right”. But the question is whether it is “right accrued” withinthe meaning of the enactment which has to be construed.

Their Lordships think not, and they are confirmed in thisopinion by the fact that the words relied on are found in conjunctionwith the words “obligations incurred or imposed”. They think thatthe mere right (assuming it to be properly so called existing in themembers of the community or any class of them to take advantageof an enactment, without any act done by an individual towardsavailing himself of that right, cannot properly be deemed “rightaccrued” within the meaning of the enactment.”

276. InHamilton Gell v. White78, upon quit notice given by thelandlord, the tenant sought to avail the benefit of Section 11 of the

AAgricultural Holdings Act, 1914 by successfully complying with one outof the two conditions for seeking the compensation. Before the tenantcould comply with the further condition, which was that he should movethe action within two months, after quitting the holding, Section 11 wasrepealed. He subsequently made his claim within three months, as limitedby the repealed Section. The matter went to an Arbitrator. The ArbitratorBstated special case. He raised two questions. Firstly, whether the tenantwas entitled to claim compensation under the repealing Act of 1920 and,secondly, whether he could claim under the repealed Act notwithstandingthe repeal. The first question was answered against the tenant, withwhich, the Court of Appeal agreed. As regards the second question, theCCourt was of the view that the tenant was entitled to succeed. Thefollowing is the reasoning, in short:

“SCRUTTON L.J. … But it is not suggested by theappellant that his right to compensation was acquired by his givingnotice of intention to claim it, what gave him the right was the factDof the landlord having given notice to quit in view of sale. Theconditions imposed by s. 11 were conditions, not of the acquisitionof the right, but of its enforcement.Sect. 38 says that repeal of anAct shall not (c) “affect any right …. acquired …. under anyenactment so repealed,” or (e) “affect any investigation, legalproceeding, or remedy in respect of any such right.” As soon asEthe tenant had given notice of his intention to claim compensationunder s. 11 he was entitled to have that claim investigated by anarbitrator.In the course of that arbitration he would no doubt haveto prove that that right in fact existed, that is to say that the noticeto quit was given in view of sale, and he would also have toFprove the measure of his loss. But he was entitled to have thatinvestigation, which had been begun, continue, for s. 38 expresslyprovides that the investigation shall not be affected by the repeal.I should like to add that the arbitrator would be well advised tomake his award complete. If he had continued his investigationand said: If it is found that the tenant had right I assess theGcompensation at so much under the Act of 1908 and so muchunder the Act of 1920 we should have been able to give our finaljudgment.”

(Emphasis supplied)

277. The decision thus turned on the point of time at which theright arose.

278. Atkin LJ., as he then was, agreed that the Appeal should beallowed and went on to hold as follows:

“ATKIN L.J. …. It is obvious that that provision was notintended to preserve the abstract rights conferred by the repealedAct, such for instance as the right of compensation for disturbanceconferred upon tenants generally under the Act of 1908, for if itwere the repealing Act would be altogether inoperative. It onlyapplies to the specific rights given to an individual upon thehappening of one or other of the events specified in the statute.Here the necessary event has happened, because the landlordhas, in view of sale of the property, given the tenant notice toquit. Under those circumstances the tenant has “acquired right,”which would “accrue” when he has quitted his holding, to receivecompensation. …”

279. In Odgen Industries Pty. Ltd. v. Haider DoreenLucas79,the following facts in case which originated in Australia maybe noticed. An employee of the appellant died on 7[th] July, 1965. Hisdeath was materially contributed by injuries, which, in turn, arose out ofand in the course of his employment with the appellants. The employeewas hospitalized in March, 1965 for treatment and he again came to behospitalized in 19[th] June, 1965 and, thereafter, he died on 07.07.1965. Heleft behind him the respondent, his widow and two children under theage of 16, who were wholly dependent on the employee’s earnings. Theamount of compensation for the dependents would have been calculatedunder the Workers Compensation Act, 1958. The Act, however, wasamended by the Workers Compensation (Amendment) Act, 1965. TheAmendment Act, came into force for 01.07.1965. The Amendment Actincreased the benefits payable to the dependents. The High Court ofAustralia dismissed the appeal of the employer and affirmed the awardof the Workman’s compensation board paying the increasedcompensation under the Amending Act. The Privy Council was calledupon to decide two questions. Firstly, the question was whether, as theAmendment Act came into operation after the original injury to theemployee, his dependents were entitled to the increased rates prescribedby the amending Act. Secondly, did the deceased, after the 30.06.1965,79 3 WLR 75 / (1969) (1) All England Reports 121

Asuffer further injury or aggravation, which gave him new title for thepurpose of the Amendment Act. The Court, went on to hold as inter-aliafollows:

“Under the Act of 1958 the widow did not have to provethat she was in fact dependent upon the earnings of her husbandBthough under the Amendment Act she has to do so. Nevertheless,it is quite clear as matter of law that no single person can sayunder either Act the moment before the death “I shall be adependant at the death if I so long live.” First, it must beestablished that the death was caused or contributed to by theaccident, secondly that the widow will be the deceased’s widowCat the date of death and not dead or married to some other man,and the children must show that they are under sixteen.None ofthese things can be ascertained (let alone proved) until after themoment of death of the worker.

In their Lordships’ opinion in section 7 (2)(c) the rights,Dprivileges and obligations acquired or accrued on the one side andthe liabilities incurred on the other side referred to in that paragraphare mutual and correlative.

… The object and intent of the Interpretation Act is topreserve rights and privileges acquired or accrued on the one sideEand the corresponding obligation or liability incurred by the personbound to observe or perform those rights or privileges on the otherside; so that when subsequent Act repeals or amends thoserights, privileges and liabilities for the future that would not affect-the preexisting mutual rights and liabilities of the parties. …. Butin the view that their Lordships take there is for the purposes ofFthe Interpretation Act no right in the dependants and no correlativeliability upon the worker’s employers until the moment of death.Therefore apart altogether from authority their Lordships are ofopinion that the Acts Interpretation Act has no application and therights of the dependants and the corresponding liability of theGemployer must be tested and ascertained at the date of the death;at that time there was an obligation upon the employer under andby virtue of the Act of 1958 as amended by the Amendment Actto 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 therepealing Act, was not the basis for the judgment rendered in favour ofthe employee. The compensation was ordered based on the law prevalentat the time of death.

281. Now, it is necessary to refer to the judgment of this Court inIsha Valimohamed v. Haji Gulam Mohamad & Haji Dada Trust80. Thefacts in the said case are to be noticed in some detail for it may havebearing on the questions to be answered by us. The Respondent landlordpurported to terminate the tenancy in relation to building by noticedated 12.02.1964 on the ground inter alia of subletting. It must be noticedthat at the time the subletting took place the building was covered bySaurashtra Rent Control Act, 1951. The said Act provided that the landlordshall be entitled to recover possession in the case of subletting by thetenant. 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 clausethat the repeal would not affect any right, privilege, obligation, liabilityaccrued or incurred under any law so repealed. The notice, terminatingtenancy was issued on 12.02.1964 after the repeal of the ‘SaurashtraAct’. The High court took the view that the landlord had an accruedright under saving clause of the Bombay Act. The suit was brought afterthe repeal.

282. This Court adopted the following reasoning:

If the notice under the Transfer of Property was necessaryto determine the tenancy on the ground of subletting, then theHigh Court would not be correct that the respondent landlord hadan accrued right before issue of notice. Thereafter, the Courtwent on to consider ‘Hamilton’ (supra) and ‘Abbott’ (supra) interalia.

Thereafter, the Court went on to consider the argument asto whether the landlord had privilege under the saving clause.

Thereafter, what is relevant is that this Court went on tofind that the High Court was not right in proceeding on the basisof that notice was necessary under Transfer of Property Act toterminate 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 atenant, unless the contract of tenancy so provides, is no groundfor terminating the tenancy. Under that Act landlord cannotterminate tenancy on the ground that the tenant had sub-let thepremises unless the contract of tenancy prohibits him from doingso. The respondent-landlord therefore could not have issued anotice under any of the provisions of the Transfer of Property Actto determine the tenancy, as the contract of tenancy did not prohibitsub-letting by the tenant. To put it, differently, under the Transferof Property Act, it is only if the contract of tenancy prohibits sub-letting by tenant that landlord can forfeit the tenancy on theground that the tenant has sub-let the premises and recoverpossession of the same after issuing notice. Section 111 of theTransfer of Property Act provides that lease may be determinedby forfeiture if the tenant commits breach of any of the conditionsof the contract of tenancy which entails forfeiture of the tenancy.If sub-letting is not prohibited under the contract of tenancy, sub-letting would not be breach of any condition in the contract oftenancy which would enable the landlord to forfeit the tenancy onthat score by issuing notice. If that be so, there was no questionof the respondent landlord terminating the tenancy under theTransfer of Property Act on the ground that the tenant had sub-let the premises. It is only under Section 13(1)(e) of the SaurashtraAct that landlord was entitled to recover possession of theproperty on the basis that the tenant had sub-let the premises;and, that is because, Section 15 of that Act unconditionallyprohibited tenant from sub-letting. The Saurashtra Act nowhereinsists that the landlord should issue notice and terminate thetenancy before instituting suit for recovery of possession underSection 13(1)(e) on the ground that the tenant had sub-let thepremises. The position, therefore, was that the landlord was entitledto recover possession of the premises under Section 13(1) of theSaurashtra Act on the ground that the tenant sublet the premises.

It would follow that right accrued to the landlord to recoverpossession under Section 13(1) of the Saurashtra Act when thetenant sub-let the premises during the currency of that Act andthe right survived the repeal of that Act under proviso (2) to Section51 of the Bombay Act and, therefore, the suit for recovery ofpossession of the premises under Section 13(1) read with clause(e) of the Saurashtra Act after the repeal of that Act on the basisof the sub-letting during the currency of the Saurashtra Act wasmaintainable. In this view, we think that the judgment of the HighCourt must be upheld and we do so.”

284. Thus, what is relevant, this Court went on to find under theSaurashtra Act, there was no requirement of any notice to terminate thetenancy. It was found that the landlord was entitled to recover thepossession under the said Act, if there was subletting. In other words,the Court went on to hold that right accrued to the landlord under theSaurashtra Act upon the appellant subletting the premises. It was duringthe pendency of the Saurashtra Act. This right survived the repeal of theSaurashtra Act and thus the suit under the Saurashtra Act wasmaintainable.

285. Apparently, the Court drew support from the principle inHamilton(supra). We have already noticed the facts ofHamilton (supra).The question in short would appear to be as to when the right comes intoexistence? If, the right comes into existence then the remedy can bepursued by the party entitled.

286. This again would necessarily depend upon the terms of therepealing enactments as also the terms of the saving clause. In theabsence of saving clause, no doubt party can also fall back on theSection 6 of the General Clauses Act, 1897. This is again subject towhat is held about the scope of saving clause in (1989) 2 SCC 557aswill be noticed later on.

287. What is further significant to be noticed is that the decisioninvolved case where, though styled as suit, the proceeding under theSaurashtra Act was proceeding under Statute and the right was onecreated by the statute and what gave the right to the landlord was an actof 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 discussionon the distinction between privilege and an accrued right in the said

Adecision has been relied upon recently in judgement by one of us (Justice81R.F. Nariman) in Bombay Stock Exchange v. V.S. Kandalgaonkar.

288. In New India Assurance Co. Ltd. v. Shanti Misra82, thehusband of the first respondent died as result of motor accident. Thesuit could be brought under Article 82 of the Limitation Act 1963 withinBtwo years of the accident. On 18.03.1867, the Government of UttarPradesh constituted the claim Tribunal under Section 110 of the MotorVehicle Act. The application of the respondents before the Tribunal wasobjected to by the appellant insurer. While deciding in favour of therespondents and holding that the application was maintainable beforethe Tribunal, this court, inter-alia, held as follows:C

“… If action, before Civil Court was alive where no suit had beenfiled “In such cases the vested right of action was not meant to beextinguished. The remedy of either application under Section 110Aor civil suit must be available; surely not both.”

289. Thereafter, it was held, inter-alia, as follows:D

“5. On the plain language of Sections 110-A and 110-F there shouldbe no difficulty in taking the view that the change in law wasmerely change of forum i.e. change of adjectival or procedurallaw and not of substantive law. It is well-established propositionthat such change of law operates retrospectively and the personEhas to go to the new forum even if his cause of action or right ofaction accrued prior to the change of forum. He will have vestedright of action but not vested right of forum. If by express wordsthe new forum is made available only to causes of action arisingafter the creation of the forum, then the retrospective operationFof the law is taken away. Otherwise the general rule is to make itretrospective. The expressions “arising out of an accident”occurring in sub-section (1) and “over the area in which theaccident occurred”, mentioned in sub-section (2) clearly showthat the change of forum was meant to be operative retrospectivelyirrespective of the fact as to when the accident occurred. To thatGextent there was no difficulty in giving the answer in simpleway.”

(Emphasis supplied)

81 (2015) 2 SCC 1H82 (1975) 2 SCC 840

290. We may also notice that in regard to the question as to whethera new law of Limitation could extinguish vested right of action, it washeld, inter-alia, as follows:

“7. (2) Even though by and large the law of limitation has beenheld to be procedural law, there are exceptions to this principle.Generally the law of limitation which is in vogue on the date of thecommencement of the action governs it. But there are certainexceptions to this principle. The new law of limitation providing alonger period cannot revive dead remedy. Nor can it suddenlyextinguish vested right of action by providing for shorter periodof limitation.”

It is important to notice paragraph-9:

“9. In Gopeshwar Pal v. Jiban Chandra Chandra [ILR 51 Cal1125] Jenkins, C.J. delivering the judgment on behalf of the majorityof the Full Bench said at p. 1141:

“Here the plaintiff at the time when the amending Act was passedhad vested right of suit, and we see nothing in the Act as amendedthat demands the construction that the plaintiff was therebydeprived of right of suit vested in him at the date of the passingof the amending Act. It is not (in our opinion) even fair readingof Section 184 and the third Schedule of the Bengal Tenancy Act,as amended, to hold that it was intended to impose an impossiblecondition under pain of the forfeiture of vested right, and wecan only construe the amendment as not applying to cases whereits provisions cannot be obeyed.”

The majority of the Full Bench of the Madras High Court in RajahSahib Meharban-i-Doston Sri Raja Row V.K.M. Surya RowBahadur, Sirdar, Rajahmundry Sircar and Rajah of Pittapur v. G.Venkata Subba Row [ILR 34 Mad 645] has taken the same viewfollowing the Full Bench decision in Gopeshwar Pal case at p.650. Amendment of the law of limitation could not destroy theplaintiff’s right of action which was in existence when the Actcame into force. We are conscious of the distinction which wassought to be made in the application of these principles. It wassaid that the right could not be destroyed but recourse to suitwould be available under the old law of limitation. We, however,think that giving retrospective effect to the change of law in relation

Ato the forum, in the context of the object of the change, isimperative. That being so the principles aforesaid for overcomingthe bar of limitation will be applicable.”

291. This judgment has been followed inVinod Gurudas Raikarv. National Insurance Co. Ltd. & ors83 and also in Union of India v.BHarnam Singh84 and recently also by this Court in B.K. EducationalServices(supra).

292. In V. Dhanapal Chettiar v. Yesodai Ammal85, Bench ofseven learned Judges while taking the view that notice to quit undersection 106 of the TP Act 1882 was not necessary for an EvictionCPetition under any of the State Rent Acts observed in regard to IshaValimohamed(supra) that the view taken in the said case that the landlordcould not have issued notice to determine the tenancy on the ground ofsubletting under any of the provisions of Transfer of Property Act wasnot correct as notice issued under Section 111 (h) does not require anyground to be made out for termination of the tenancy. It was furtherDheld that the view taken in Isha Valimohamed (supra), in this regard,would be taken only under Section 111 (g).

293. In D. C. Bhatia v. Union of India86, the Delhi Rent ControlAct came to be amended with effect from 01.12.1988, by whichamendment, the Act was not to apply to any premises, the monthly rentEof which exceeded Rs.3500/-. Dealing with the tenants’ contention thathe had vested right this Court took the view that if the tenant is soughtto be evicted before the amendment, they could have taken advantageof the provisions of the Act to resist such eviction. But this was nothingmore than the right to take advantage of the law and the tenant hadFstatutory protection only as long as the law remains in force. We mayonly notice paragraph-53. It read as under:

“53. The provisions of repealed statute cannot be relied uponafter it has been repealed. But, what has been acquired under theRepealed Act cannot be disturbed. But, if any new or further stepGis needed to be taken under the Act, that cannot be taken evenafter the Act is repealed.”

(Emphasis supplied)

83 (1991) 4 SCC 33384 (1993) 2 SCC 16285 (1979) 4 SCC 214H86 (1995) 1 SCC 104

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 theBihar Land Reforms Act, 1950 (Bihar Act 30 of 1950). In the course, ofthe said judgement the Court went on to hold that the right of the proprietorof State to hold ‘Mela’ on its own land is right in the estate beingappurtenant to the ownership of his land. In the context, of propertyrights undoubtedly the Court went on to make the following observations:

“17. The word ‘vested’ is defined in Black’s Law Dictionary (6thEdn.) at p. 1563 as:

“Vested; fixed; accrued; settled; absolute; complete. Havingthe character or given the rights of absolute ownership; notcontingent; not subject to be defeated by condition precedent.”

Rights are ‘vested’ when right to enjoyment, present orprospective, has become property of some particular personor persons as present interest; mere expectancy of futurebenefits, or contingent interest in property founded onanticipated continuance of existing laws, does not constitutevested rights.

In Webster’s Comprehensive Dictionary, (International Edn.) atp. 1397 ‘vested’ is defined as:

“[L]aw held by tenure subject to no contingency; complete;established by law as permanent right; vested interests.”

295. Though this is case which dealt with vested right quaproperty there is indeed authority for the proposition that the concept ofvested right is not confined to property right. In this regard we mayprofitably refer to the special bench of judgement of High Court ofCalcutta reported in Gopeshur Pal v. Jiban Chandra Chandra and others88,referred to by this Court in AIR 1976 SC 237 (supra) when it was, interalia, held:

3.‘‘On the contrary, the essential conditions of the two cases areso distinct that in our opinion it cannot be said that the earlierdecision is, in relation to the circumstances of this case, affectedby the judgment of the Privy Council. It is an established axiom ofconstruction that though procedure may be regulated by the Act

87 (1996) 9 SCC 516/AIR 1996 SC 1936

88 AIR 1914 Calcutta 806

Afor the time being in force, still, the intention to take away vestedright without compensation or any saving, is not to be imputed tothe Legislature, unless it be expressed in unequivocal terms [cf. TheCommissioner of Public Works v. Logan [L.R. 1903 A.C. 355.]].That this view is not limited to those cases where rights of propertyin the limited sense are involved, is shown by the Colonial SugarBRefining Co. v. Irving[L.R. 1905 A.C. 369.], where it was heldthat an Act ought not to be so construed as to deprive suitor ofan appeal in pending action, which belonged to him as of right atthe date of the passing of the Act. Equally is right of suit avested right,and in Jackson v. Woolley [8 Ell. and Bl. 784 (1859).],Cthe Court of Exchequer Chamber declined, in the absence ofsomething putting the matter beyond doubt, to put on an Act aconstruction that would deprive any person of right of actionvested in him at the time of the passing of the Act.

4. William, J. said: “It would require words of no ordinary strengthDin the statute to induce us to say that it takes away such vestedright.”

296. In M.S. Shivananda v. Karnataka SRTC89, under an ordinance,employees of the erstwhile State Carriage Operators were to be absorbedby State Road Transport corporation subject to certain conditions. TheEratio was provided. The ordinance was replaced by an Act. The ratio,however, stood altered. This affected the chances of absorption of theworkers. This led to writ petitions. The question which fell to be decidedwith reference to the effect of repeal and what constituted right. Thecourt held inter-alia as follows:

F“15. The distinction between what is, and what is not rightpreserved by the provisions of Section 6 of the General clausesAct is often one of great fineness. What is unaffected by therepeal of statute is right acquired or accrued under it and nota mere “hope or expectation of”, or liberty to apply for, acquiringa right. In Director of Public Works v. Ho Po Sang [(1961) 2 AllGER 721, 731 (PC)] Lord Morris speaking for the Privy Council,observed:

“It may be, therefore, that under some repealed enactment, aright has been given but that, in respect of it, some investigation or

legal proceeding is necessary. The right is then unaffected andpreserved. It will be preserved even if process of quantificationis necessary. But there is manifest distinction between aninvestigation in respect of right and an investigation which is todecide whether some right should be or should not be given. On arepeal, the former is preserved by the Interpretation Act. Thelatter is not.”(emphasis supplied)

It must be mentioned that the object of Section 31(2)(i) is topreserve only the things done and action taken under the repealedOrdinance, and not the rights and privileges acquired and accruedon the one side, and the corresponding obligation or liability incurredon the other side, so that if no right acquired under the repealedOrdinance was preserved, there is no question of any liability beingenforced.

16. Further, it is significant to notice that the saving clause thatwe are considering in Section 31(2)(i) of the Act, saved thingsdone while the Ordinance was in force; it does not purport topreserve right acquired under the repealed Ordinance. It is unlikethe usual saving clauses which preserve unaffected by the repeal,not only things done under the repealed enactment but also therights acquired thereunder. It is also clear that even Section 6 ofthe General clauses Act, the applicability of which is excluded, isnot intended to preserve the abstract rights conferred by therepealed Ordinance. It only applies to specific rights given to anindividual upon the happening of one or other of the events specifiedin the statute.”

297. In Kanaya Ram(supra) the predecessor in interest of theappellants had applied for purchase of the tenancy right under the PunjabSecurity of Land Tenures Act 1953. During the pendency of theproceedings before the Assistant Collector, certain persons wereimpleaded as respondents on the basis that they were the legal heirs ofthe landlord. Thereafter, their names were struck off as unnecessary.On the same day, the application of the predecessor in interest of theappellants was allowed. Thereafter, there was certain oral sales by theoriginal land owner. The contention which apparently was taken by thelegal heirs of landlord upon his death was that the original landlord diedduring the pendency of the proceedings, and there was change in thestatus of the land owners against whom the application under Section

A18(1) of the Act was made as on that date as his legal heirs becamesmall land owners. The Financial Commissioner before whom the matterreached, however, was of the view that the application made by theappellants predecessor being competent on the date it was filed, therights of the parties had to be adjudicated on that basis. The learnedSingle Judge of the High Court took the view, however, that the changedBsituation brought about by the death of the big land owner had to betaken into account in determining the right of the tenant. Respondents 3to 14 who were the legal heirs of the landlord instituted suit against thetransferees from the landlord on the basis that they were merebenmaidars of the land owner and no title passed to them as the allegedCsales were not effected by registered instruments under section 54 whichhad been extended by the Government of Punjab with effect from1[st] April 1955 to the State. The suit came to be decreed. They soughtimpleadment before the High Court on the ground that the Collector hadin determining the surplus area of the land of the land owners held thatthe sales in favour of respondents 1 and 2 were benami. The CollectorDfound that on the death of the original land owners, respondents 3 to 14became small land owners. The Division Bench took the view that nooral sale could be made, and therefore, the transfers made in favour ofrespondents 1 and 2 did not pass any title. This Court, apart from noticingthe fact that as the special leave had been refused against the mainEjudgment the appeal was no longer tenable it, held that the original landowner was not impleaded by the predecessor in interest of the appellantsin his application even though respondents 3 to 14 were impleaded andthey were subsequently deleted on appellant’s objection that they werenot necessary parties. This Court went on to distinguish the judgment inRameshwar and Others v. Jot Ram and Another90 as it was caseFwhere the tenants after making the requisite application had made thenecessary deposit of the first instalment of the purchase price. It was insuch circumstances noted that the tenants had acquired vested right topurchase the land and the case had gone beyond the stage of mereapplication under section 18(1). This Court noted that the observation ofGthe Court that the rights of the parties are determined “by the facts asthey exist on the date of the action” must be held in the context in whichthey were made. What is relevant is the following statement is thejudgment inKanaya Ram(supra):

“10. ……In the present case, Harditta Ram, the predecessor-in-title of the appellants, when he made the application for purchaseunder Section 18(1) of the Act, had mere “hope or expectationof, or liberty to apply for, acquiring right” and not “right acquiredor accrued” under Section 18(1). It has been held ever since theleading case of Abbott v. Minister for Lands [1895 AC 425 : 64LJPC 167 : 72 LT 402 (PC)] [1895 AC 425 : 64 LJPC 167 : 72 LT402 (PC)] that mere right to take advantage of the provisions ofan Act is not an accrued right. Abbott case [1895 AC 425: 64LJPC 167 : 72 LT 402 (PC)] has been followed by this Court ina number of decisions.In such situation, the Court is bound totake into consideration the subsequent events and mould the reliefaccordingly. The decision in Rameshwar case [(1976) 1 SCC 194: AIR 1976 SC 49 : (1976) 1 SCR 847] clearly turned on the legalfiction contained in Section 18 (4) (b) of the Act and the death ofthe large landholder Teja during the pendency of the appeal beforethe Financial Commissioner on which inheritance opened and hislegal heirs became small landholders, could not impair the vestedrights acquired by the tenants by virtue of the order passed by thePrescribed Authority and the deposit by them of the first instalmentof the purchase price as required under Section 18 (4)(a).”

(Emphasis supplied)

298. While on the ambit of the saving clause we may noticeBansidhar v. State of Rajasthan91 while dealing with the fact of savingclause in repealing statute the court held as follows:

“28. saving provision in repealing statute is not exhaustive ofthe rights and obligations so saved or the rights that survive therepeal. It is observed by this Court in IT Commissioner v. ShahSadiq & Sons [(1987) 3 SCC 516 : 1987 SCC (Tax) 270 : AIR1987 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 rightswhich are not saved by the ‘savings’ provision are extinguishedor stand ipso facto terminated by the mere fact that new statuterepealing the old statute is enacted. Rights which have accrued

are saved unless they are taken away expressly. This is theprinciple behind Section 6(c), General Clauses Act, 1897....”

We agree with the High Court that the scheme of the 1973 Actdoes not manifest an intention contrary to, and inconsistent with,the saving of the repealed provisions of Section 5(6-A) and ChapterIII-B of “1955 Act” so far as pending cases are concerned andBthat the rights accrued and liabilities incurred under the old laware not effaced. Appellant’s contention (a) is, in our opinion,insubstantial.

Re Contention (b)”

299. Petitioners also rely on the judgment of this CourtHitendraCVishnu Thakur(supra) andAmbalal Sarabhai Enterprises Ltd.(supra).

300. In Hitendra Vishnu Thakur (supra), the case arose underthe Terrorist and Disruptive Activities (Prevention) Act, 1987 (TADAAct). Section 20(4) of TADA Act, made Section 167 of the CrPCapplicable with certain modifications. Clause (b) provided for longerDperiod, as the period for which remand could be ordered. By anamendment, w.e.f. 22.05.1993, the period was reduced. Thereafter,however, another clause, viz., clause (bb) was added, which contained aproviso. The proviso mandated that if it was not possible to completethe investigation within period of 180 days on the Report of the PublicProsecutor, indicating the progress of the investigation and the specificEreasons for detention beyond 180 days, the designated court should extendthe period upto one year. It was in the context of this provision that thisCourt, after noting that the amendment was retrospective and apply topending cases, in which, the investigation was not complete on the dateof the Amending Act and the challan had not been filed in the Court, theFCourt culled-out the following principles:

“26.xxx

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(i) statute which affects substantive rights is presumedto be prospective in operation unless made retrospective, eitherexpressly or by necessary intendment, whereas statute whichmerely affects procedure, unless such construction is textuallyGimpossible, is presumed to be retrospective in its application, shouldnot be given an extended meaning and should be strictly confinedto its clearly defined limits.

(ii) Law relating to forum and limitation is procedural innature, whereas law relating to right of action and right of appealHeven though remedial is substantive in nature.

(iii) Every litigant has vested right in substantive law butno such right exists in procedural law.

(iv) procedural statute should not generally speaking beapplied retrospectively where the result would be to create newdisabilities or obligations or to impose new duties in respect oftransactions already accomplished.

(v) statute which not only changes the procedure butalso creates new rights and liabilities shall be construed to beprospective in operation, unless otherwise provided, eitherexpressly or by necessary implication.”

301. Thereafter, the Court also went on to hold, however, thatboth the amendment clauses (b) and (bb) would apply retrospectively toall pending cases. Thus, it was found that the Amending Act wasretrospective and both the clauses would apply to cases which werepending investigation on the date when the amendment came into forceand where challan had not been filed till then.

302. In Ambalal Sarabhai Enterprises Ltd.(supra), by anamendment to the Delhi Rent Control Act, while petition for evictionby the respondent landlord was pending on the ground of subletting,exclusion of the jurisdiction of the Rent Controller with respect oftenancies fetching monthly rent exceeding Rs.3,500/- was brought intoforce. The question arose, inter alia, as to whether the ground of illegalsubletting was vested right. It also fell for decision as to whether therewas merit in the contention of the appellant tenant that after theamendment, the civil court alone had jurisdiction. It was the contentionof the tenant that he had no vested right and the amendment was notretrospective in operation, and therefore, the civil court alone would havejurisdiction. The landlord contended that in view of Section 6 of theGeneral Clauses Act, 1897, the pending proceedings before the RentController should at any rate continue even if his contention based onvested right was repelled. This Court went on to hold that the tenant hadno vested right by relying on the judgment of this court in MohinderKumar and others v. State of Haryana and another92 and also inD. C. Bhatia and others v. Union of India and another93 (the latterof which decisions is relied upon by the respondent-Union for theproposition that right to take advantage of an enactment, would not

92 (1985) 4 SCC 221

93 (1995) 1 SCC 104

Acreate vested right). Thereafter, this Court went on to hold that thelandlord also did not have vested right for seeking on the ground ofeviction under Section 14 of the Delhi Rent Control Act. It was foundthat Section 14 was only protective right for tenant and the variousclauses which constituted proviso to the protection from eviction by alandlord could not be construed as vested right in favour of the landlord.BHaving so held, this Court went on to consider the effect of repeal ofSection 6 of the General Clauses Act. Therein, this Court went on tohold that the respondent-landlord had right to continue the proceedingsbefore the Rent Control Board under Section 6 of the General ClausesAct. It would be an accrued right in terms of Section 6. We need onlyCnotice paragraphs-26, 35 and 36 of Ambalal Sarabhai Enterprises Ltd.(supra):“26. As general rule, in view of Section 6, the repeal of statute,which is not retrospective in operation, does not prima facie affectthe pending proceedings which may be continued as if the repealedDenactment were still in force. In other words, such repeal doesnot affect the pending cases which would continue to be concludedas if the enactment has not been repealed. In fact when liscommences, all rights and obligations of the parties get crystallisedon that date. The mandate of Section 6 of the General ClausesAct is simply to leave the pending proceedings unaffected whichEcommenced under the unrepealed provisions unless contraryintention is expressed. We find clause (c) of Section 6, refers thewords “any right, privilege, obligation … acquired or accrued”under the repealed statute would not be affected by the repealingstatute. We may hasten to clarify here, mere existence of rightFnot being “acquired” or “accrued” on the date of the repeal wouldnot get protection of Section 6 of the General Clauses Act.

xxxxxx

35. In cases where Section 6 is not applicable, the courtshave to scrutinise and find whether person under repealedstatute had any vested right. In case he had, then pendingproceedings would be saved. However, in cases where Section 6is applicable, it is not merely vested right but all those coveredunder various clauses from (a) to (e) of Section 6. We have alreadyclarified that right and privilege under it is limited to that which is

“acquired” and “accrued”. In such cases pending proceedings isto be continued as if the statute has not been repealed.

36. In view of the aforesaid legal principle emerging, wecome to the conclusion that since proceeding for the eviction ofthe tenant was pending when the repealing Act came intooperation, Section 6 of the General Clauses Act would be applicablein the present case, as it is the landlord’s accrued right in terms ofSection 6. Clause (c) of Section 6 refers to “any right” whichmay not be limited as vested right but is limited to be an accruedright. The words “any right accrued” in Section 6(c) are wideenough to include the landlord’s right to evict tenant in caseproceeding was pending when repeal came in. Thus pendingproceeding before the Rent Controller for the eviction of tenanton the date when the repealing Act came into force would not beaffected by the repealing statute and will be continued andconcluded in accordance with the law as existed under the repealedstatute.”

303. In Howrah Municipal Corporation and Others v. GangesRope Co. Ltd. and Others94 the first respondent company had appliedfor sanction for construction of its complex of seven floors. By orderdated 23.12.1993 the High Court directed sanction to be accorded forthe plan up to the 4[th] floor provided other requirements are compliedwith. It was also observed that the company would be at liberty to seekfurther sanction if it was permissible. Sanction was given and constructioncompleted as regards the four floors. Relying on the High Court order,sanction was sought for the remaining floors. The High Court passed anorder expressing the expectation that the order would be passed withina period of four weeks relying upon the earlier order. There wascorrespondence between the parties. While the matter was so pending,the building rules were amended restricting the height of buildings, interalia. The height being restricted, the application for sanction of additionalthree floors was rejected. The High Court took the view that theunamended rules and regulations on the date of submission of theapplication seeking sanction for further construction would govern thematter. This Court on conspectus of the rules found that the rules didnot contemplate ‘deemed sanction’ or ‘deemed refusal’, and therefore,without express sanction there could not be construction. The contention

Ahowever, was that the order of the High court fixing period to decideits pending application be treated as creating vested right in favour ofthe respondent. This court held as follows:

“37. The argument advanced on the basis of so-called creationof vested right for obtaining sanction on the basis of the BuildingBRules (unamended) as they were on the date of submission of theapplication and the order of the High Court fixing period fordecision of the same, is misconceived. The word “vest” is normallyused where an immediate fixed right in present or future enjoymentin respect of property is created. With the long usage the saidword “vest” has also acquired meaning as “an absolute orCindefeasible right” [see K.J. Aiyer’s Judicial Dictionary (AComplete Law Lexicon), 13[th] Edn.]. The context in which therespondent Company claims vested right for sanction and whichhas been accepted by the Division Bench of the High Court, isnot right in relation to “ownership or possession of any property”Dfor which the expression “vest” is generally used. What we canunderstand from the claim of “vested right” set up by therespondent Company is that on the basis of the Building Rules, asapplicable to their case on the date of making an application forsanction and the fixed period allotted by the Court for itsconsideration, it had “legitimate” or “settled expectation” to obtain

Ethe 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 themanner of processing of application for sanction by the Corporationcannot be blamed for delay but during pendency of its application

Ffor sanction, if the State Government, in exercise of its rule-makingpower, amended the Building Rules and imposed restrictions onthe heights of buildings on G.T. Road and other wards, such “settledexpectation” has been rendered impossible of fulfilment due tochange in law. The claim based on the alleged “vested right” or“settled expectation” cannot be set up against statutory provisionsGwhich were brought into force by the State Government byamending the Building Rules and not by the Corporation againstwhom such “vested right” or “settled expectation” is being soughtto be enforced. The “vested right” or “settled expectation” hasbeen nullified not only by the Corporation but also by the State byHamending the Building Rules. Besides this, such “settled

expectation” or the so-called “vested right” cannot becountenanced against public interest and convenience which aresought to be served by amendment of the Building Rules and theresolution of the Corporation issued thereupon.”

304. In Arcelormittal India Private Limited v. Satish Kumar95Gupta & Others, judgment rendered by one of us (R.F. Nariman,J.), this Court dealt with the very Code with which we are concerned. Itconcerned the scope of Section 29A of the Code declaring ineligibility ofcertain categories of persons to be resolution applicants. In this context,this Court inter alia, while dealing with the scope of the Code as alsothe principle of piercing of corporate veil, and after an exhaustive surveyof the Code and reiterating the principle that it is settled law that statuteis designed to be workable, question was posed whether resolutionplan being turned down under 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 thata resolution applicant has no vested right that his resolution planbe considered, it is clear that no challenge can be preferred to theadjudicating authority at this stage. writ petition under Article226 filed before High Court would also be turned down on theground that no right, much less fundamental right, is affected atthis stage. This is also made clear by the first proviso to Section30(4), whereby Resolution Professional may only invite freshresolution plans if no other resolution plan has passed muster.

xxx

82. Take the next stage under Section 30. ResolutionProfessional has presented resolution plan to the Committee ofCreditors for its approval, but the Committee of Creditors doesnot approve such plan after considering its feasibility and viability,as the requisite vote of not less than 66% of the voting share ofthe financial creditors is not obtained. As has been mentionedhereinabove, the first proviso to Section 30(4) furnishes the answer,which is that all that can happen at this stage is to require theResolution Professional to invite fresh resolution plan within thetime-limits specified where no other resolution plan is availablewith him. It is clear that at this stage again no application before

1128SUPREME COURT REPORTS

Athe adjudicating authority could be entertained as there is no vestedright or fundamental right in the resolution applicant to have itsresolution plan approved, and as no adjudication has yet takenplace.

305. InSwiss Ribbons (supra), while dealing with constitutionalBvalidity of Section 29A of the Code declaring certain persons not to beeligible as resolution applicants, after referring to the decision inArcelormittal India Private Ltd.(supra), this Court held as follows:

“97. It is settled law that statute is not retrospective merelybecause it affects existing rights; nor is it retrospective merelyCbecause part of the requisites for its action is drawn from timeantecedent to its passing [see State Bank’s Staff Union (MadrasCircle) v. Union of India [State Bank’s Staff Union (MadrasCircle) 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, (2019) 2 SCC 1] , this Court hasDobserved that resolution applicant has no vested right forconsideration or approval of its resolution plan as follows: (SCCp. 87, para 82)

“82. Take the next stage under Section 30. ResolutionProfessional has presented resolution plan to the Committee ofECreditors for its approval, but the Committee of Creditors doesnot approve such plan after considering its feasibility and viability,as the requisite vote of not less than 66% of the voting share ofthe financial creditors is not obtained. As has been mentionedhereinabove, the first proviso to Section 30(4) furnishes the answer,Fwhich is that all that can happen at this stage is to require theResolution Professional to invite fresh resolution plan within thetime-limits specified where no other resolution plan is availablewith him. It is clear that at this stage again no application beforethe adjudicating authority could be entertained as there is no vestedright or fundamental right in the resolution applicant to have itsGresolution plan approved, and as no adjudication has yet takenplace.”

98. This being the case, it is clear that no vested right is takenaway by application of Section 29-A. However, Shri Viswanathanpointed out the judgments in Ritesh 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 ofKerala, (1994) 5 SCC 593] (at paras 60-66), DarshanSingh v. Ram Pal Singh [Darshan Singh v. Ram Pal Singh,1992 Supp (1) SCC 191] (at para 35), Pyare LalSharma v. Jammu & Kashmir Industries Ltd. [Pyare LalSharma v. Jammu & Kashmir Industries Ltd., (1989) 3 SCC448 : 1989 SCC (L&S) 484] (at para 21), P.D. Aggarwal v. Stateof U.P. [P.D. Aggarwal v. State of U.P., (1987) 3 SCC 622 :1987 SCC (L&S) 310] (at para 18), and GovindDas v. CIT [Govind Das v. CIT, (1976) 1 SCC 906 : 1976 SCC(Tax) 133] (at paras 6 and 11), to argue that if section operateson an antecedent set of facts, but affects vested right, it can beheld to be retrospective, and unless the legislature clearly intendssuch retrospectivity, the section should not be construed as such.Each of these judgments deals with different situations in whichpenal and other enactments interfere with vested rights, as resultof which, they were held to be prospective in nature. However, inour judgment in ArcelorMittal [ArcelorMittal (India) (P)Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1], we have alreadyheld that resolution applicants have no vested right to be consideredas such in the resolution process.Shri Mukul Rohatgi, however,argued that this judgment is distinguishable as no question ofconstitutional validity arose in this case, and no issue as to thevested right of promoter fell for consideration. We are of theview that the observations made in ArcelorMittal [ArcelorMittal(India) (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] directlyarose on the facts of the case in order to oust the Ruias aspromoters from the pale of consideration of their resolution plan,in which context, this Court held that they had no vested right tobe considered as resolution applicants. Accordingly, we followthe aforesaid judgment. Since resolution applicant who appliesunder Section 29-A(c) has no vested right to apply for beingconsidered as resolution applicant, this point is of no avail.”

306. We may observe that the decisions of this Court inArcelormittal India Pvt. Ltd.(supra) and Swiss Robbins (supra) areinappropriate to the context of the cases before us. We may also noticethe decision of the Court of Appeal in West vs. Gwynne96. The plaintiff96 (1910) WLR 976

Ain the said case who was the landlord of the property wrote to thedefendant, his tenant for his consent for the proposed underlease. Thedefendant insisted however on receiving for himself one half of the surplusrental as condition for the consent. The suit filed by the plaintiff wasfor declaration that the defendant could not impose such conditionand that he could give the underlease without any further consent of theBdefendant. In the year 1892 (after the lease), section 3 of theConveyancing Act 1892 was enacted. The question which arose waswhether it would apply to existing leases as well as and was of generalapplication or it should be confined to leases after the commencementof the Act. The said section provided that in all leases containing aCcovenant against assigning or under letting without license or consentsuch covenant should unless the lease contain an express provision tothe contrary be deemed subject to the proviso that no fine shall be payablefor or in respect of such license or consent. The court took the view thatthe words of the section was clear. In fact, we may profitably notice thewords of Joyce, J. whose judgment was the subject matter of the appealD“the section with which we have to deal with in this case is quite plain toeveryone but lawyer”. The court of appeal took the view that theprovision was general enactment based on ground of public policy,Cozens Hardy M.R. while agreeing with the general proposition that astatute is presumed not to have retrospective operation unless contraryEintention appears by express words or by necessary implication held asfollows:

“Retrospective operation is an inaccurate term. Almost everystatute affects right which would have been existed but for thestatute.

F307. Buckley, L.J. went on to hold as follows:

“…To my mind the word “retrospective” is inappropriate, and thequestion is not whether the section is retrospective. Retrospectiveoperation is one matter. Interference with existing rights is another.If an Act provides that as at past date the law shall be taken toGhave been that which it was not, that Act I understand to beretrospective.That is not this case. The question here is whethera certain provision as to the contents of leases is addressed to thecase of all leases or only of some, namely, leases executed afterthe 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, asenacted by the Act, is to be taken to have been the law.”

308. Reliance has been placed on the judgment of this court inB.K. Educational Services Private Limited v. Parag Gupta andAssociates97 which was rendered by one of us (R.F. Nariman, J.). Byan amendment to the Code with effect from 6.6.2018 Section 238A wasinserted by which the Limitation Act, 1963, was made applicable to theproceedings and appeals before the authorities including the appellatetribunal. The question which fell for decision was whether the LimitationAct 1963 would also apply in respect of application under Section 7inter alia on and from the commencement of the Code on 1.12.2016 tillthe 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 afinancial or operational creditor in relation to debts which have not becometime barred. In the course of its judgment, this Court referred to theearlier judgment of this Court including the recent judgment of this Courtin M.P. Steel Corporation v. Commissioner of Central Excise98. Inthe said decision, this Court has relied upon the earlier judgment reportedin Smt. Shanti Misra(supra) wherein it was laid down inter alia asfollows:“(2) Even though by and large the law of limitation has been heldto be procedural law, there are exceptions to this principle.Generally, the law of limitation which is in vogue on the date ofthe commencement of the action governs it. But there are certainexceptions to this principle. The new law of limitation providing alonger period cannot revive dead remedy. Nor can it suddenlyextinguish vested right of action by providing for shorter”period of limitation.

309. This Court also held that the application filed in 2016 or2017 cannot suddenly revive debt which is no longer due as it is timebarred. Apparently, the petitioners are seeking to lay store by the principlethat new law cannot extinguish vested right of action even if it bepertaining to the period of limitation.

310. right of appeal is vested right, as noticed. However, itbecomes vested not because the right is created under the Statute alone.

97 (2019)11 SCC 633

98 (2015) 7 SCC 58

AIt becomes vested, as noticed by this Court in Garikapati Veeraya(supra), from the date of institution of the suit. What about right tosue? In the case of right to file civil suit, equally there is vestedright to file 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 thecase of the right to take advantage of an existing Statute, there is noBaccrued right, which means also that there is no vested right, should weproceed on the basis that the concept of vested right qua civil suit,can be recognized only after the civil suit is filed, at time when there isno law, ousting or barring civil suit and law is passed, during thependency of civil suit, which again does not expressly bar the suits,Cwhich had already been filed? Since we are in the regions of vestedrights, and every right must have title to the right, and since every civilsuit is based on cause of action, could it not be said that the right to suebecomes vested from the point of time when the cause of action arises?Since, for every civil suit, there is period of limitation prescribed, couldit not be said that since period of limitation has been prescribed forDinstituting suit, the right to sue becomes vested from the first day whenthe period of limitation starts to run?

311. Order VII Rule 11 of the Code of Civil Procedurecontemplates rejection of plaint, if it does not disclose cause of action.The cause of action in suit, will consist of the facts, which, if notEtraversed by the defendant, will entitle the plaintiff to Decree. TheSchedule to the Limitation Act, 1963, consisting of three columns. Thethird column, provides for the time, from which, the period begins to runfor different suits. Article 19 provides for money payable for moneylent. The period of three years, prescribed as period of limitation, beginsFto run from the point of time, when the loan is made. This means that, atany 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 suit is filedtowards the end of the three-year period, would it be said that the rightto sue was not available from the first day, when the period of limitation

began to run? We will take another example. Article 73 provides for aGperiod of one year for suit for compensation for false imprisonment.The time, from which the period begins to run, is when the imprisonmentends. Can it not be said that the prisoner, upon his incarceration comingto an end, is clothed with vested right to sue? We would think, that heis given right, which is vested in him, when the imprisonment ends. InHfact, 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 noperiod provided in the schedule. The period of 03 years provided beginsto run when the right to sue accrues. If the right to sue ‘accrued’ withinthe meaning of Article 113, can it still be said, that for the purpose ofdeciding, the effect of law purporting to impact the right, there is novested right or accrued right till the suit is filed? We will give anotherexample and that is Article 30, which gives right to sue on the bondsubject to condition. The period of limitation is three years. The timebegins to run when the condition is broken. The right to sue clearly couldbe said to arise, immediately upon the condition being broken. We may,in this context also, notice that one of the five characteristics for legalright to exist, is that every legal right has title. It is further stated, inSalmond on Jurisprudence that every legal right has title, which areapparently the facts or events by reason of which the right has becomevested in its owner. Now, it must be noticed also, at this stage that theLimitation Act, in fact, contemplates the time, within which the suit mustbe brought, beginning necessarily on the supposition, that at least, on thevery first day of the period of time, from which plaintiff can sue, theright is already vested in him. This would reinforce us in our view that avested right to sue could be said to accrue, and it would always precedethe institution of the suit. At any rate, it could be said to exist from thevery first day, on which the time begins to run, under the Limitation Act.Thus, vested right to sue could be tested with reference not to the dateon which the suit is filed as would be the case where question arises,whether right of appeal exists.

312. However, we must consider whether right of suit isconferred by statute. In this regard, we may notice the decision of thisCourt in Mardia Chemicals Ltd. and othersv. 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 ofthis Court relating to the vires of Section 17(2). The said provisioncontemplated pre-deposit of 75 per cent of the amount by the applicantunder Section 17 before the Tribunal. This Court found the condition ofpre-deposit arbitrary and unreasonable. In this context, this court alsonoted the distinction between civil suit and an appeal and it was foundthat an application maintained under section 17 was in the nature of asuit, it is apposite that we notice the following:

99 (2004) 4 SCC 311

“59.We may like to observe that proceedings under Section17 of the Act, in fact, are not appellate proceedings. It seems tobe misnomer. In fact it is the initial action which is broughtbefore forum as prescribed under the Act, raising grievanceagainst the action or measures taken by one of the parties to thecontract. It is the stage of initial proceeding like filing suit in civilcourt. As matter of fact proceedings under Section 17 of theAct are in lieu of civil suit which remedy is ordinarily availablebut for the bar under Section 34 of the Act in the present case.We may refer to decision of this Court in Ganga Bai v. VijayKumar [(1974) 2 SCC 393] where in respect of original andappellate proceedings distinction has been drawn as follows:(SCC p. 397, para 15)“There is basic distinction between the right of suitand the right of appeal. There is an inherent right in everyperson to bring suit of civil nature and unless the suit is barredby statute one may, at one’s peril, bring suit of one’s choice.It is no answer to suit, howsoever frivolous to claim, that thelaw confers no such right to sue. suit for its maintainabilityrequires no authority of law and it is enough that no statutebars the suit.But the position in regard to appeals is quite theopposite. The right of appeal inheres in no one and thereforean appeal for its maintainability must have the clear authorityof law. That explains why the right of appeal is described as acreature of statute.”

60. The requirement of pre-deposit of any amount at thefirst instance of proceedings is not to be found in any of thedecisions cited on behalf of the respondent. All these cases relateto appeals. The amount of deposit of 75% of the demand, at theinitial proceeding itself sounds unreasonable and oppressive, moreparticularly when the secured assets/the management thereofalong with the right to transfer such interest has been taken overby the secured creditor or in some cases property is also sold.Requirement of deposit of such heavy amount on the basis of aone-sided claim alone, cannot be said to be reasonable conditionat 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 theamount and the fact of default and classifying the dues as NPAswithout participation/association of the borrower in the process.Such an onerous and oppressive condition should not be leftoperative in expectation of reasonable exercise of discretion bythe authority concerned. Placed in situation as indicated above,where it may not be possible for the borrower to raise any amountto make the deposit, his secured assets having already been takenpossession of or sold, such rider to approach the Tribunal at thefirst instance of proceedings, captioned as appeal, renders theremedy illusory and nugatory.

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64. The condition of pre-deposit in the present case is badrendering the remedy illusory on the grounds that: (i) it is imposedwhile approaching the adjudicating authority of the first instance,not in appeal, (ii) there is no determination of the amount due asyet, (iii) the secured assets or their management with transferableinterest is already taken over and under control of the securedcreditor, (iv) no special reason for double security in respect of anamount yet to be determined and settled, (v) 75% of the amountclaimed by no means would be meagre amount, and (vi) it willleave the borrower in position where it would not be possible forhim to raise any funds to make deposit of 75% of the undetermineddemand. Such conditions are not alone onerous and oppressivebut also unreasonable and arbitrary. Therefore, in our view, sub-section (2) of Section 17 of the Act is unreasonable, arbitrary andviolative of Article 14 of the Constitution.”

(Emphasis supplied)

313. Thus, right to sue is not created by the statute. It is aninherent right unless is barred by some law. Therefore, the principle thata right to take advantage of statute not being an accrued right may notapply. We may also use this occasion to repel the argument based onMardia Chemicals(supra) that the application under Section 7 is akinto civil suit. The context of the application under Section 17 ofSARFAESI Act is completely different from that of the code. Theapplication under Section 17 of the SARFAESI was found to be in lieuof suit. The allottee has other remedies unlike the applicant under

ASection 17. All the assets of the debtor are taken over. The situationcannot be compared. No doubt, the argument of the learned ASG isbased on the right under Section 7 of the Code being mere right to takeadvantage of statute. In Abbott(supra), in the context of savingenactment, the Court observed that mere right assuming it to exist inthe members of the public or any class, then, to take advantage of anBenactment, without any act done by the individual, towards availinghimself of that right, could not be treated as an accrued right under theenactment. Therefore, the stand appears to be that the right under Section7 is mere right to take advantage of an enactment. It is the furthercase of the Union, apparently that, only upon an application being filedCand what is more, it is admitted under Section 7(5), that vested rightwould accrue.

314. We do not think that the principles which have been laiddown, may apply in the case of vested right of action. We take theview that plaintiff has vested right, depending on whether there is aDcause of action and period of limitation, which has begun to run, whichnecessarily involves, the existence of vested right. In the case of anapplication under Section 7 of the Code, we may notice that it is valuableright, no doubt, statutory in nature. It cannot be the law that Statutecannot create vested rights. Should the ingredients which the Legislaturecontemplate exist in favour of person as an action in law, it can also beEdescribed as vested right. The application, under Section 7, is anapplication, which attracts the period of limitation, which has alreadybeen noticed. It commences from the time when the right to sue accrues.In every case, where the period of limitation began to run, in respect ofdebt prior to the Code coming into being, the right to sue would haveFarisen earlier. In this regard we may refer toIsha Valimohamed (supra).

315. In regard to the effect of this finding on the challenge to thefirst and the second provisos in Section 7, we must immediately observethat the impugned first and second provisos have only prospectiveoperation. We have already found that the provisos first and second areGvalid. They can survive, even if the third proviso is struck down. Thethird proviso is on the other hand dependant on the first and secondprovisos and cannot survive their invalidation. The vested right cannotexist merely by reason of Section 7. It must depend upon the vestitivefacts which would create the right in conjunction with Section 7. Weneed not probe the matter further in those cases where only the first andH

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, though there are noapplications filed under Section 7 before the amendment, the third provisois also challenged, which cannot be countenanced.

316. There is, in our view, right which is vested in the caseswhere, the petitioners have filed application, fulfilling the requirementsunder unamended Section 7 of the Code. The very act of filing theapplication, even satisfies the apparent test propounded by the AdditionalSolicitor General, that the right under Section 7 is only one to takeadvantage of the statute and unless advantage is actually availed it doesnot create an accrued right. When applications were filed under theunamended provisions of Section 7, at any rate it would transform into avested right. The vested right is to proceed with the action till its logicaland legal conclusion. We are unable to accept the stand of the learnedASG, that vested right to emerge still require an order under Section7(5) of the Code. It is no doubt stage, when the authority finds there isdefault and takes the matter forward including appointing to begin withthe IRP and ordering moratorium. In this regard, it is to be noted that inthe scheme of the Code, what takes place before admission, is that theapplicant tries to establish the debt and default. This is akin to the stageof trial in suit. No doubt, this happens only if the application is freefrom defects. But this is far cry from saying that vested right ofaction did not inhere even on the version of the ASG upon the act of thecreditor invoking the Code.

317. In P.D. Aggrawal & others v. State of U.P and others.100,the Court was dealing with challenge to statutory rules, inter alia, bywhich temporary Assistant Engineers who were working continuouslysince the date of their appointment in the cadre of Assistant Engineerwere deprived of their services from the date of substantial appointmentto the temporary post for the purpose of seniority. This Court in thecontext of rules and the impact it had held as follows:

“18. It has been held by this Court in E.P. Royappa v. State ofTamil Nadu [AIR 1974 SC 555, 583 : (1974) 4 SCC 3 : 1974 SCC(L&S) 165] , Maneka Gandhi v. Union of India [AIR 1978 SC597, 624 : (1978) 1 SCC 248] that there should not be arbitrarinessin State action and the State action must ensure fairness andequality of treatment. It is open to judicial review whether any

100 (1987) 3 SCC 622

Arule or provision of any Act has violated the principles of equalityand non-arbitrariness and thereby invaded the rights of citizensguaranteed 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 fromBthe officers appointed to the temporary posts in the cadre throughPublic Service Commission i.e. after selection by Public ServiceCommission, the substantive character of their appointment. Theseamendments are not only disadvantageous to the future recruitsagainst temporary vacancies but they were made applicableCretrospectively from March 1, 1962 even to existing officersrecruited against temporary vacancies through Public ServiceCommission. As has been stated hereinbefore that the Governmenthas power to make retrospective amendments to the Rules but ifthe Rules purport to take away the vested rights and are arbitraryand not reasonable then such retrospective amendments are subjectDto judicial scrutiny if they have infringed Articles 14 and 16 of theConstitution.”

318. We may notice two aspects. Firstly, it was challenge to astatutory rule. The Court went on to observe that it could be the overturnedif it is arbitrary. We have already taken note that in regard to the challengeEto law made by the legislature under Article 14 that what is required isthat law must be manifestly arbitrary. The said concept has beenexplained in Shayara Bano(supra) (paragraph-101).

319. In Darshan Singh v. Ram Pal Singh and Ors.101, theappellants challenged certain alienations as being contrary to customFunder the State law of the year 1920. The matter was at the appellatestage in suits filed by the appellants.

320. In 1973, the law was amended. On the basis of same, theHigh Court dismissed the suit on the basis of that, after the amendingAct came into force there could not be challenge to the transfer. TheGcontentions of the appellants was that the amending Act could not beread as retrospective. The original enactment permitted challenging thetransfer on the ground that the transfer was contrary to custom. It wasthis right which was sought to be subjected to certain conditions.

321. We may notice that this case did not involve challenge tothe amendment. In the course of the judgement, the Court took the viewwhat was taken away was the basic right to ‘contest’, the transferirrespective of whether it was in suit or appeal. The Court concludedthat by the amending Act the custom was done away with.

322. In K.S. Paripoornan v. State of Kerala102, the ConstitutionBench had to consider whether Section 23 (I-A) and introduced by theamending Act 1984 was retrospective. In the majority judgement by S.C. Agrawal, J., we notice the following:

“64. statute dealing with substantive rights differs from statutewhich relates to procedure or evidence or is declaratory in natureinasmuch as while statute dealing with substantive rights is primafacie prospective unless it is expressly or by necessary implicationmade to have retrospective effect, statute concerned mainlywith matters of procedure or evidence or which is declaratory innature has to be construed as retrospective unless there is clearindication that such was not the intention of the legislature. Astatute is regarded retrospective if it operates on cases or factscoming into existence before its commencement in the sense thatit affects, even if for the future only, the character or consequencesof transactions previously entered into or of other past conduct.By virtue of the presumption against retrospective applicability oflaws dealing with substantive rights transactions are neitherinvalidated by reason of their failure to comply with formalrequirements subsequently imposed, nor open to attack underpowers of avoidance subsequently conferred. They are also notrendered valid by subsequent relaxations of the law, whetherrelating to form or to substance. Similarly, provisions in which acontrary intention does not appear neither impose new liabilitiesin respect of events taking place before their commencement,nor relieve persons from liabilities then existing, and the view thatexisting obligations were not intended to be affected has beentaken in varying degrees even of provisions expressly prohibitingproceedings. (See: Halsbury’s Laws of England, 4th Edn. Vol. 44,paras 921, 922, 925 and 926).”

(Emphasis supplied)

A323. In State Bank’s Staff Union (Madras Circle) v. Union ofIndia and others103, an award was passed by the Industrial Tribunal,which was impugned before the High Court. When the matter was sopending, the State Bank of India Act came to be amended. The contentionof the appellants was that the amendment was intended to nullify thedecision of the High Court, which was repelled. The Court alsoBconsidered the power of the sovereign Legislature to make retrospectivelegislation. The Court held as follows:

“21. Every sovereign legislature possesses the right to makeretrospective legislation. The power to make laws includes thepower to give it retrospective effect. Craies on Statute Law (7thEdn.) at p. 387 defines retrospective statutes in the following words:

“A statute is to be deemed to be retrospective, whichtakes away or impairs any vested right acquired under existinglaws, or creates new obligation, or imposes new duty, orattaches new disability in respect to transactions orconsiderations already past.”

22. Judicial Dictionary (13th Edn.) by K.J. Aiyar,Butterworth, p. 857, states that the word “retrospective” whenused with reference to an enactment may mean (i) affecting anexisting contract; or (ii) reopening up of past, closed and completedEtransaction; or (iii) affecting accrued rights and remedies; or (iv)affecting procedure. Words and Phrases, Permanent Edn., Vol.37-A, pp. 224-25, defines “retrospective or retroactive law” asone which takes away or impairs vested or accrued rights acquiredunder existing laws. retroactive law takes away or impairs vestedrights acquired under existing laws, or creates new obligation,Fimposes new duty, or attaches new disability, in respect totransactions or considerations already past.

23. In Advanced Law Lexicon by P. Ramanath Aiyar (3rdEdn., 2005) the expressions “retroactive” and “retrospective” havebeen defined as follows at p. 4124, Vol. 4:

“Retroactive. — Acting backward; affecting what is past.(Of statute, ruling, etc.) extending in scope or effect tomatters that have occurred in the past. — Also termedretrospective. (Black’s Law Dictionary, 7th Edn., 1999)

103 AIR 2005 SC 3446 / (2005) 7 SCC 584

‘“Retroactivity” is term often used by lawyers but rarelydefined. On analysis it soon becomes apparent, moreover, that itis used to cover at least two distinct concepts. The first, whichmay be called “true retroactivity”, consists in the application of anew rule of law to an act or transaction which was completedbefore the rule was promulgated. The second concept, which willbe referred to as “quasi-retroactivity”, occurs when new rule oflaw is applied to an act or transaction in the process ofcompletion…. The foundation of these concepts is the distinctionbetween 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 past time.

‘Retrospective’ is somewhat ambiguous and that good dealof confusion has been caused by the fact that it is used in moresenses than one. In general, however, the courts regard asretrospective any statute which operates on cases or facts cominginto existence before its commencement in the sense that it affects,even if for the future only, the character or consequences oftransactions previously entered into or of other past conduct. Thus,a statute is not retrospective merely because it affects existingrights; nor is it retrospective merely because part of the requisitefor its action is drawn from time antecedent to its passing.”(Vol. 44, Halsbury’s Laws of England, 4th Edn., p. 570, para921.)

xxx

25. In Harvard Law Review, Vol. 73, p. 692 it was observedthat:

“It is necessary that the legislature should be able to cureinadvertent defects in statutes or their administration by makingwhat has been aptly called ‘small repairs’. Moreover, the individualwho claims that vested right has arisen from the defect is seekinga windfall since had the legislature’s or administrator’s action hadthe effect it was intended to and could have had, no such rightwould have arisen. Thus the interest in the retroactive curing of

such defect in the administration of the Government outweighsthe individual’s interest in benefiting from the defect.”

26. The above passage was quoted with approval by theConstitution Bench of this Court in the case of Asstt. Commr. ofUrban Land Tax v. Buckingham and Carnatic Co. Ltd. [(1969)2 SCC 55] In considering the question as to whether the legislativepower to amend provision with retrospective operation has beenreasonably exercised or not, various factors have to be considered.It was observed in the case of Stott v. Stott Realty Co. [284 NW635] as noted in Words and Phrases, Permanent Edn., Vol. 37-A, p. 2250 that:

“The constitutional prohibition of the passage of ‘retroactivelaws’ refers only to retroactive laws that injuriously affect somesubstantial or vested right, and does not refer to those remediesadopted by legislative body for the purpose of providing rule tosecure for its citizens the enjoyment of some natural right, equitableand just in itself, but which they were not able to enforce on accountof defects in the law or its omission to provide the relief necessaryto secure such right.”

27.Craies on Statute Law (7th Edn.) at p. 396 observesthat:

“If statute is passed for the purpose of protecting thepublic against some evil or abuse, it may be allowed to operateretrospectively, although by such operation it will deprive someperson or persons of vested right.”

(Emphasis supplied)

324. The Court also repelled the argument that vested rights cannotbe taken away by the Legislature by way of retrospective legislation. Inparagraph-35, the Court held as follows:

“31. Learned counsel for the appellant submitted that vested rightscannot be taken away by the legislature by way of retrospectivelegislation. The plea is without substance. Whenever anyamendment is brought in force retrospectively or any provision ofthe Act is deleted retrospectively, in this process rights of someare bound to be affected one way or the other. In every case theexercise by the legislature by introducing new provision or deleting

an existing provision with retrospective effect per se does notamount to violation of Article 14 of the Constitution. The legislaturecan change, as observed by this Court in Cauvery Water DisputesTribunal, Re [1993 Supp (1) SCC 96 (2)] the basis on which adecision is given by the Court and thus change the law in general,which will affect class of persons and events at large. It cannot,however, set aside an individual decision inter partes and affecttheir rights and liabilities alone. Such an act on the part of thelegislature amounts to exercising the judicial power by the Stateand to function as an appellate court or tribunal, which is againstthe 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 theGeneral Clauses Act, 1897. Section 6 makes it clear that the rights orprivileges which may be asserted are subject to the law not being couchedcontrary to such rights/privileges. In this case it is precisely because the3[rd] proviso covers the applications filed prior to the amendment whichhad not been admitted, that the petitioners have challenged the provision.

READING DOWN

326. Further, the appeal to invoke the principle of reading downthe proviso is untenable. In his judgment for the majority Sawant, J. inDelhi Transport Corpn. v. D.T.C. Mazdoor Congress104 held asfollows:

“255. It is thus clear that the doctrine of reading down or ofrecasting the statute can be applied in limited situations. It isessentially used, firstly, for saving statute from being struck downon account of its unconstitutionality. It is an extension of theprinciple that when two interpretations are possible — onerendering it constitutional and the other making it unconstitutional,the former should be preferred. The unconstitutionality may springfrom either the incompetence of the legislature to enact the statuteor from its violation of any of the provisions of the Constitution.The second situation which summons its aid is where the provisionsof the statute are vague and ambiguous and it is possible to gather

Athe intentions of the legislature from the object of the statute, thecontext in which the provision occurs and the purpose for which itis made. However, when the provision is cast in definite andunambiguous language and its intention is clear, it is not permissibleeither to mend or bend it even if such recasting is in accord withgood reason and conscience. In such circumstances, it is notBpossible for the court to remake the statute. Its only duty is tostrike it down and leave it to the legislature if it so desires, toamend it. What is further, if the remaking of the statute by thecourts is to lead to its distortion that course is to be scrupulouslyavoided. One of the situations further where the doctrine canCnever be called into play is where the statute requires extensiveadditions and deletions. Not only it is no part of the court’s duty toundertake such exercise, but it is beyond its jurisdiction to do so.”

327. Now, the terms of the proviso are clear. It does not admitof more than one interpretation at least in terms of the matter coveredDby it. The only area left is the impact of the withdrawal which is tohappen.

328. We may also notice the judgment of this Court in Vijay v.State of Maharashtra105. The appellant was elected as member ofthe Panchayat in 2000 and elected as the Sarpanch. He was furtherEelected as Councillor of the Zila Parishad. An amendment was madewith effect from 8.8.2003. Under the marginal note Disqualifications,Section 14, inter alia, disentitled person from continuing as PanchayatMember if he was elected Councillor of the Zila Parishad. This Courtfound that it was disqualifying law intended to have retrospective effect.We may notice para 12 which reads as follows:F

“12. The appellant was elected in terms of the provisions of astatute. The right to be elected was created by statute and, thus,can be taken away by statute. It is now well settled that when aliteral reading of the provision giving retrospective effect does notproduce absurdity or anomaly, the same would not be construedGto be only prospective. The negation is not rigid rule and varieswith the intention and purport of the legislature, but to apply it insuch case is doctrine of fairness. When law is enacted forthe benefit of the community as whole, even in the absence of

provision, the statute may be held to be retrospective in nature.The appellant does not and cannot question the competence ofthe legislature in this behalf.”

The case did not involve challenge to the law. What is significantis the statement that the right created by Statute, can be taken awayby statute.

329. We find that qua the financial creditors covered by the thirdproviso, having invoked, at any rate unamended Section 7, they had avested right.

330. They had undoubtedly vested right to have their actionscarried to its logical and legal end. No doubt, the question of admissionof the application arises under Section 7(5) of the Code. It is open to theAdjudication Authority to reject the application but that does not meanthat the applicants had no vested right of action. The possibility of aplaint being rejected under Order VII Rule 11 or an appeal being dismissedunder Order XLI Rule 11 without notice being issued to the respondentor the fact that the suit can be dismissed at later stages, cannot detractfrom the right of the plaintiff or the appellant, being substantive right.The same principle should suffice to reject the contention, based onadmission under Section 7(5) alone, giving rise to the vested right inregard to an applicant under Section 7 of the Code.

331. vested right is not limited to property rights. right ofaction should conditions otherwise exist, can also be vested right. Sucha right can be created by Statute and even on repeal of such aStatute, should conditions otherwise exist, giving right under the repealedStatute, the right would remain an accrued right [SeeIsha Valimohamed(supra)].

332. No doubt, there may not be vested right as regard mereprocedure and while limitation, ordinarily, belongs to the domain ofprocedure, should new law shorten the existing period of limitation, sucha law would not operate in regard to the right of action which is vested[See Shanti Misra (supra)]. party may not have vested right ofForum as distinct from the vested right of action [See Shanti Misra(supra)].

333. Every sovereign Legislature is clothed with competence tomake retrospective laws. It is open to the Legislature, while makingretrospective law, to take away vested rights. If vested right can be

Ataken away by retrospective law, there can be no reason why theLegislature cannot modify the vested rights [See State Bank’s StaffUnion (Madras Circle) (supra)].

334. In an action, where the law is not challenged, the Court wouldordinarily proceed as follows. It will presume that law, which affectsBsubstantive rights, are meant to have prospective operation only. In thesame way, as regards procedural laws or the laws relating to merematter of procedure or of Forum, they carry retrospective impact.

335. Statute is not retrospective merely because it affectsexisting rights. This is, however, in regard to the future operation of lawCqua the existing rights. If the existing right is modified or take away andit is to have operation only from the date of new law, it would obviouslyhave only prospective operation and it would not be retrospective law.

336. Declaratory, clarificatory or curative Statutes are allowed tohold sway in the past. The very nature of the said laws involve theDaspect of public interest which requires sovereign Legislature to removedefects, clarify aspects which create doubt. The declaratory law againhas the effect of the legislative intention being made clear. It may not beapposite in the case of these Statutes to paint them with the taint ofretrospectivity.E337. What then is retrospectivity? It is ordinarily the new lawbeing applied to cases or facts, which came into existence prior to theenacting of the law. retrospective law, in other words, either supplantsan existing law or creates new one and the Legislature contemplatesthat the new law would apply in respect of completed transaction. Itmay amount to reopening, in other words, what is accomplished underFthe earlier law, if there was one, or creating new law, which applies toa past transaction.

338. “A Statute is to be deemed to be retrospective, which takesaway or impairs any vested right acquired under any existing laws orcreates new obligation or imposes new duty or attaches newGdisability in respect to transactions or considerations already passed”.[See Craies on State Law, 7[th] Edition, Page-387].

339. In Halsbury’s Laws of England, 4[th] Edition, Page-570,paragraph-921, it is, inter alia, stated as follows - “In general, however,court regarded as retrospective, any Statute, which operates on casesHor 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 Statute made by the sovereign Legislature is foundto have retrospective operation and the challenge is made under Article14 of the Constitution, (i) the Court must consider whether the law, in itsretrospectivity, manifests forbidden classification. (ii) Whether the law,in its retrospectivity, produces manifests arbitrariness, (iii) if law isalleged to be violative of Article 19(1)(g), firstly, the Court, in an actionby citizen, would, in the first place, find whether the right claimed,falls, within the ambit of Article 19(1)(g). The Court will further enquireas to whether such law is made, inter alia, by way of placing reasonablerestrictions by looking into the public interest. In the case of law, whichis 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 violativeof Fundamental Rights under Article 14, necessarily the Court mustenquire whether it is capricious, irrational, disproportionate, excessiveand, finally, without any determining principle. [see Shayara Bano case(supra)] The right of citizen, or for that matter, any person under Article14, is right which is personal to him.

342. The golden thread which runs through the grounds makingup the Doctrine of Manifest arbitrariness Injustice, undoubtedly, consistsof total absence of public interest, of which the sovereign Legislature asthe supreme law giver, is the undoubted custodian. Though made in thecontext of the power of the Court in England, in regard to taking intoconsideration the concept of fairness, while deciding upon the issue ofretrospectivity, we would think the following passage in the Principles ofStatutory Interpretation by Justice G.P. Singh, made relying upon theJudgment of the House of Lords in L’Office Cherifien Des Phosphatesand another And Yamashita-Shinnihon Steamship Co. Ltd.106, wouldfurnish safe and fairly comprehensive guide, even in the matter ofdetermining the constitutionality of retrospective law. Hence, we referto the same and would approve of the same.

“… It was observed that the question of fairness will have to beanswered in respect of particular statute by taking into accountvarious factors viz., value of the rights which the statute affects;extent to which that value is diminishedor extinguished by the

Asuggested retrospective effect of the statute; unfairness ofadversely affecting the rights; clarity of the language used byParliament and the circumstances in which the legislation wascreated.“All these factors must be weighed together to provide adirect answer to the question whether the consequences of readingthe statue with the suggested degree of retrospectivity is so unfairBthat the words used by Parliament cannot have been intended tomean what they might appear to say.”

(Emphasis supplied)

343. Having laid down the principles, we shall now apply the sameCto the facts of the present cases before us. As far as the nature of theright in question is concerned, which would include the value of therights, it is right of action. The right of action is, undoubtedly, vestedright. The role of the applicant essentially fades out after the admissionof the application is made under Section 7(5). The scheme of the Codehas been unraveled by us. The right, which is given, is right in rem. ItDis not mere personal right, in the sense that it is right in rem. Theapplicant is not even required to plead the default qua him as the defaultto any financial creditor, in the requisite sum, provided it is not barredunder Article 137, suffices. The consequences of the application wouldbe that it may land the applicant and also all the stakeholders, in liquidationEof the corporate debtor.344. As far as, the manner, in which, the value of the right isaffected or if we may use the word ‘impaired’, it is another mostsignificant aspect, to be borne in mind. The manner, in which, particularStatute carrying retrospective effect, will impair, the rights will dependFon the facts of each case. We have, for instance, noticed the clearunfairness, which, the Rule in question carried qua set of employeesin regard to their vested right, inP.D. Aggrawal (supra). The vestedright, in fact, consisted of the right to have certain period reckoned forthe purpose of seniority. As far as the clarity of the language used, theredoes not appear to be any ambiguity, and what Parliament intended is,Gcompletely free from doubt. The only area where any ambiguity can besaid 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 inwhich the legislation is created. It is here that the mischief rule and theaspect of public interest looms large. At the end of the day, the tussle isHbetween the individual right versus the public interest. Now, public interest

is concept, which is capable of embracing, within its scope, the interestof different sections of the public. This would include the sections of thepublic to which the applicant himself belongs. Public interest would,undoubtedly, also encompass, the economy of the country, which can beunderstood in terms of all the objects, for which the Code was enacted.They would include the speed with which the Code is worked. It wouldinclude, also, safeguarding the interests of all the stakeholders. This maynecessarily include the corporate debtor as stakeholder, being protectedfrom applications, which are perceived as frivolous or not representing acritical mass.

345. We have noticed the statistics which has been made availableby the Union. On the eve of the ordinance on the 27.12.2019, it wouldappear that 2201 applications, came to be moved, during period ofnearly eighteen months as in comparison to 253 applications during thepreceding period representing nearly 10-fold increase.

346. Now, the third proviso, thus, indeed, does not say that as onthe date of filing of the applications, the law was what is contained in thefirst and the second provisos. In that sense, it could be said that it wasnot retrospective. We have found that when invoking the unamendedSection 7 applications stood moved, they evinced creation of vested rightsto continue with the proceeding. The applications were, no doubt, at thestage, prior to the admission under Section 7(5). It is at this stage thatthrough the device of the third proviso, the Parliament has applied theprinciple of first and second proviso of threshold requirement, in respectof pending applications, which is made to appear as it would have operationin the future. Now here we must address an argument of the 3[rd] provisogoing to mere procedure. The financial creditors covered by the 3[rd] provisowere clothed with statutory right under Section 7. This right wasavailable to be exercised by an individual creditor, by himself or jointlywith others. The imposition of threshold requirement being mandatoryand irreducible minimum even, if it is to be achieved as and after thedate of the amendment, constitutes an intrusion into the substantive rightof action vested in the individual creditor. The action of the creditor wasnot 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 3[rd] proviso) impairs the past action qua the future. Wewould find as follows. Imposing the threshold requirement under the 3[rd]proviso, is not mere matter of procedure. It impairs vested rights. It

Ahas conditioned the right instead, in the manner provided in the first andthe second proviso. We have already upheld the first and second proviso,which, in fact, operates only in the future. In that sense, the Legislaturehas purported to equate persons who had not filed applications withpersons like the petitioners who had filed the applications under theunamended law.B

347. At this point, we must notice one argument, which is that, theLaw Giver has discriminated between applicants under Section 7, whichwere pending at different stages. We may notice, in this regard, however,that all the applicants share the common characteristic of being applicantsin applications which were not admitted. In fact, most of the applicationsCwould appear to have been filed in the year 2019. Enquiring further intothe different stages in these applications, would go against the principlethat the Court does not look to mathematical nicety or perfection in thelaw. The Court also bears in mind, the principle that the law is an economicmeasure.DCLARITY REGARDING ‘WITHDRAWAL’ UNDER THETHIRD PROVISO

348. One of the aspects to be considered is the clarity of aretrospective law. The requirement of compliance with the thresholdnumerical requirements under the first and second proviso is an integralEand inseparable part of the third proviso. Let us have look at theconsequences that follow if the numerical strength cannot be cobbled upby the applicant. The proviso declares that in such an eventuality theapplication will be treated as withdrawn before admission. Rule 8, asnoticed by us, provides for power with the Tribunal to allow withdrawalFbefore admission. Does it mean that an applicant can file freshapplication after gathering together the requisite numbers? What is theimpact of withdrawal under provisions under the general law? What isthe impact of the law relating to the Limitation Act in respect of theapplication which has been withdrawn?

G349. In the context of Civil suit, Order XXIII deals withwithdrawal and adjustment of suit. Order XXIII (1)(4b) prohibits freshsuit in respect of the same subject matter (cause of action), if suit iswithdrawn without permission of the Court under Order XXIII(1)(3).

350. In the facts of the case before us the third proviso does notindicate as to whether fresh application after complying with theH

requirement of the ingredients of the first and second proviso ismaintainable. It does not also indicate what would be the position even ifsuch application is maintainable by the same applicant, with regard tothe periods spent in the context of ruling of this Court that the LimitationAct applies and the relevant Article is Article 137 and therefore, anyapplication filed beyond the period of three years from the date of thedefault is barred.

351. The other way of looking at these issues is that Order XXIII(1)applies only in the case of civil suit. In regard to the application underArticle 137 which is what an application under Section 7 of the Code is,it could it be said that Order XXIII(1) is inapplicable. Secondly, could itnot be said that it is not case of voluntary withdrawal by the applicantand the withdrawal of the application is declared by the Legislature, andtherefore, 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 withoutjurisdiction. —

(1) In computing the period of limitation for any suit the time duringwhich the plaintiff has been prosecuting with due diligence anothercivil proceeding, whether in court of first instance or of appealor revision, against the defendant shall be excluded, where theproceeding relates to the same matter in issue and is prosecutedin good faith in court which, from defect of jurisdiction or othercause of like nature, is unable to entertain it.

(2) In computing the period of limitation for any application, thetime during which the applicant has been prosecuting with duediligence another civil proceeding, whether in court of firstinstance or of appeal or revision, against the same party for thesame relief shall be excluded, where such proceeding is prosecutedin good faith in court which, from defect of jurisdiction or othercause of like nature, is unable to entertain it.

(3) Notwithstanding anything contained in rule 2 of Order XXIIIof the Code of Civil Procedure, 1908 (5 of 1908), the provisionsof sub-section (1) shall apply in relation to fresh suit institutedon permission granted by the court under rule 1 of that Orderwhere such permission is granted on the ground that the first suit

Amust fail by reason of defect in the jurisdiction of the court orother cause of like nature.

Explanation.— For the purposes of this section,—

(a) in excluding the time during which former civil proceedingwas pending, the day on which that proceeding was instituted andBthe day on which it ended shall both be counted;

(b) plaintiff or an applicant resisting an appeal shall be deemedto be prosecuting proceeding;

(c) misjoinder of parties or of causes of action shall be deemed toCbe cause of like nature with defect of jurisdiction.”353. perusal of 14(1) shows that it is intended to exclude time inregard to civil suit. Section 14(2) covers cases relating to the applicationsfor which period of limitation is fixed. It contemplates that if such applicantcomes to Court late with time barred application but is able to showDthat he has been prosecuting with due diligence another civil proceeding,for the same relief, the period, when he was so prosecuting the otherproceeding, can be excluded where the proceeding was prosecuted ingood faith in Court which from defect of jurisdiction or other cause oflike 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). InEother words, it relates to civil suits. It enables plaintiff in subsequentsuit to exclude the period which was consumed in prosecuting an earliercivil suit which latter suit stood withdrawn with permission granted bythe Court. Therefore, in regard to applications, including applicationsunder Article 137, it appears, the Law Giver has not contemplatedFexpressly excluding the time spent in pursuing another proceeding whichstood withdrawn.

354. In regard to power of withdrawal as already noticed Rule 8of the Insolvency and Bankruptcy (Application of Adjudicating AuthorityRule), 2016 reads as follows:

G“Rule (8) withdrawal of application the adjudicating authority maypermit withdrawal of the application may not Rule 4,6,7 as thecase may be on request made by the applicant before itsadmission.”

355. The application made under Rule 4 is the application underHSection 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 theprinciple 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 Section7(1), default occurs when default qua any financial creditor is madeout, the cause of action can become different, in which case, even theprinciple of Order XXIII Rule 1, may not apply.

356. In this regard, since withdrawal is ordained by the thirdproviso, it would not be withdrawal under Rule 8 on request. Secondly,even for the principle based on public policy to apply to withdrawalunder Rule 8, there must be request and withdrawal. We do notpronounce on the effect of the same, viz., withdrawal on request. Sufficeit to conclude and hold that the withdrawal under the third proviso wouldnot bar fresh application by the same party after complying with theprovision of the first or second proviso as the case may be on the samedefault.

357. As far as Limitation is concerned, however, on the terms ofSection 14, since 14(1) read with 14(3), contemplates withdrawal of asuit with permission under Order XXIII Rule 1(4)(b) to enable exclusionof the period spent in suit which is withdrawn and Section 14(2) iswhat applies to applications including one under, Article 137, the periodspent in the application when it is withdrawn under the 3[rd] proviso cannotbe excluded under Section 14 (3) of the Limitation Act. However, it maybe open to point out that application is not being entertained within themeaning of Section 14(2) on account of the law that mandates itswithdrawal on account of the non-compliance of conditions for maintainingthe application it would be. However, we need not pronounce on it, aswe feel that having regard to the Explanation in Section 7, it will alwaysbe open to the applicant to set up different default to any financialcreditor and move afresh. This unique feature of the Code is highlyrelevant in determining the validity of the Amendment. The applicationunder Section 7 is not meant to be recovery mechanism. The Code, asis clear from its title, deals with insolvency resolution, to begin with. Ifthere is insolvency, the application, with reference to any of the largenumber of creditors, suffices.

358. Thus, withdrawal under the third proviso would not be bar afresh 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

Aalso exercise our power under Article 142 to direct that if freshapplications are filed by the petitioners after complying with the first andsecond proviso, then on applications being filed under Section 5, of theLimitation Act, in regard to the period of pendency of applications, theauthority shall condone the delay. As far as the period after the withdrawalunder the proviso, in view of the power again under Section 5 of theBLimitation Act, certainly we see no reason as to why the periods spentcannot be explained in terms of B.K. Educational Services (P) Ltd.(supra). In the above manner, we would interpret the implications ofwithdrawal.

359. We would consider the aspect of public interest, which canCbe gathered from the conditions obtaining, when the impugnedamendment was made. Under the existing law, Section 7 of the Codepermitted filing of applications by single applicants. It has been realisedby the Legislature that there is dire need to condition the absolute right inrespect of certain classes of financial creditors. We have already upheld

Dthe classification enacted in the first and the second provisos. From thestandpoint of public interest, every application maintained by singleapplicant, is perceived as veritable threat to the fulfilment of theobjectives of the Code. The continuance of the applications could not,therefore, be in public interest. It is, as if, the Legislature intended toapply its brakes in the form of asking the applicants to obtain the consensusEof minimum number of similar stakeholders, before the applicationscould be further processed.

360. Let us consider the impugned proviso with differentwording. What, if the proviso provided for longer period of time tocomply with the requirement under the first and second provisos.? InFsuch scenario, once the numerical strength, contained in the first andsecond provisos, in regard to the persons covered by the same, hasbeen 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 doneunder the provisos read together. That vested right can be the subjectGmatter of retrospective law, cannot be doubted. Since, the law made,under the Constitution, must pass muster, under Articles 14, 19, 21 and300A of the Constitution, the issue really boils down to, whether or not,it is manifestly arbitrary. The further question would arise, under Article19, as to whether, the law would amount to reasonable restriction ofthe Right under Article 19(1)(g). The Doctrine of Fairness, indeed, hasH

been present in the mind of the courts, whenever law, described asretrospective, comes up for interpretation with or without challenge tothe law. In the context of challenge, on the ground of manifestarbitrariness, the test to be applied has been articulated as to whether itis capricious, irrational, does not disclose any principle, betrays absenceof proportionality or whether it is excessive. We must also not lose sightof the fact that the law in question is an economic measure. This is acase where the Law Giver has not left anything to speculation or doubt.We have already indicated about the effect of the proviso mandatingthe compulsory withdrawal of the application. We are of the view thatthis is case, where the law, in question, is retrospective, in that, contraryto 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 bysuperimposing this condition, not at the time, when the application wasfiled, which really is the relevant time to determine the question ofmaintainability of the application, with reference to what the law providedin regard to who can move the application but at the stage of the newlaw.

361. However, we cannot also lose sight of the fact that theLegislature has power to impair and take away vested rights. Thelimitation that flows, however, is from both Article 14 and 19 read withArticle 21. It flows from the Doctrine that the action of the State mustbe fair and reasonable. The question, as to validity of the retrospectivelaw, is matter to be judged on consideration of the facts, the period oftime, over which the retrospective law operates, the impact of the lawon the vested rights, the public interest, the nature of the right, which isthe 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 thefinancial creditors to move an application under Section 7. Though,Section 7 confers right upon the financial creditor to file the application,the proceedings are one in rem. We have already dealt with the scope ofthe Code and the consequences it can produce on the stakeholders andalso the real estate project. The Legislature was faced with the situation,where it felt that the requirement, as to maintainability of the applicationunder Section 7, must, in regard to pending applications, be modified inthe manner done. There is determining principle, namely, the perceptionfrom experience about how the entire object of the Code would standjeopardised if applications already filed could go on even when fair

Aand reasonable number of kindred souls are not available to support it.Once there is principle, it cannot be capricious, excessive ordisproportionate unless we find the time given under the proviso ismanifestly arbitrary. vested right under statute can be taken awayby retrospective law. right given under statute can be taken awayby another statute. We cannot ignore the fact that there was considerableBpublic interest behind such law. The sheer numbers, in whichapplications proliferated, combined with the results it could produce,cannot be brushed aside as an irrational or capricious aspect to havebeen guided by in making the law. Being an economic measure, thewider latitude available to the Law Giver, cannot be lost sight of.

363. The issue, which, however remains, is the period of 30 daysmade available. Is it reasonable to expect that single applicant could,under the aegis of the laws’ collect information, and furthermore, gatherthe support of fellow travellers, also inclined to support the applicant, asrequired? The third proviso does not provide for the applicant applyingDbefore the Tribunal and seeking extension of the period. It could be alsoargued that by granting such extensions, no harm is caused to thestakeholders, insofar as, all this is done before the admission of theapplication, with which alone, the consequences, including the appointmentof the Interim Resolution Professional and the passing of an Order ofMoratorium, would arise. But here again we would be foraying intoEareas of legislative value judgement and be proceeding on the basis ofwhat would be fairer law.

364. We have to take the law, therefore, as it is and deal with it onthe touchstone of, whether the law is manifestly arbitrary. We havealready, no doubt, found that by virtue of the statutory mechanism, thereFappears to be an information grid available under the law. Undoubtedly,we would have felt more reassured, if the period had been longer than itis. The law came as bolt from the blue as it were.

365. As regards the compelled withdrawal under the third provisoof the pending applications is concerned, we hold as follows. Once theGLegislature intended that the pending applications must be made compliantwith the threshold requirement, consequences for not doing so had to beprovided. Otherwise, it would have created complete uncertainty andthe applicant would have been dealt with in manifestly arbitrary manner.Providing for the consequence of withdrawal before admission, whichHwe 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 dubbedas arbitrary. No doubt, there is lack of clarity in this regard in the provisionbut on an understanding of the law, as we have expounded, the provisionwas capable of being understood in the manner done.

366. In regard to the first and the second provisos, they haveonly prospective operation. The creditors covered by these provisos,are not subjected to any time limit (except, no doubt, the bar under Article137 of the Limitation Act), in the matter of garnering the requisite support.However, prescribing time limit in regard to pending applications, cannotbe, per se, described as arbitrary, as otherwise, it would be an endlessand uncertain procedure. The applications would remain part of the docketand also become Damocles Sword overhanging the debtor and theother stakeholders with deleterious consequences also qua the objectsof the Code.

367. Finally, the actual time provided. Is it manifestly unfair? Wouldnot six weeks, two months or even more lengthier periods, be more fair?Undoubtedly, it would be, from the point of view of the applicants. Anotherway to approach the problem is, was it impossible for the creditor/creditorsto seek information, get into touch with the other creditors and persuadethem to join him/them. As far as court fees is concerned, there is noextra liability as the amount remains the same, viz., Rs.25,000/-,irrespective of the number of applicants. If the condition in the thirdproviso was impossible to comply with, then, it would also be manifestlyarbitrary. As far as availability of information is concerned, be it themechanism of an Association of Allottees contemplated under the RERAor the requirement under the said Act to post details of the allotment, atleast, in law, the Legislature was not making capricious command. Soalso, is the case with the creditors covered by the first proviso, havingregard to the clear requirement of Section 88 of the Companies Act,2013. There are registers, which can be perused and informationgathered.

368. Another aspect of the matter is, if there is insolvency and itaffects creditors, ordinarily, self-interest would guide them into followingthe best course available to them. We have also seen the presence ofplural remedies. No doubt, calculation of one-tenth in case, may,undoubtedly, require the quantification of total number of creditors. This

Awould be necessary, no doubt, only if hundred creditors cannot be foundto 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 theCode, the factual matrix reflecting ten-fold increase in the applications,Bthe pressure on the dockets of the bodies, which are charged with theimperative duty to deal with matters with the highest speed, the impacton similar stakeholders in the category and the sheer largeness of theclass of creditors. The period could have been more fair to the petitionersby being longer but that is where we must bear in mind, the limits of ourjurisdiction. Where would the Court draw the line? We find it difficult toChold 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 thestatutory withdrawal of the application. Secondly, we must also bear inmind that the Code was enacted in the year 2016. The period of theDretrospective operation, would appear to be, spread over for period oftwo years and for the most part, it relates to period of one year. Wehave already found that the withdrawal under the third proviso, will notstand in the way of the applicant, invoking the same default and filing theapplication and even the principle of Order XXIII Rule 1 of the CPC willEnot apply and will not bar such application. As far as limitation isconcerned, we have explained as to what is to be the impact. The natureof the vested right and the impact of the law, the public interest, thesublime objects, which would be fulfilled, would, in the facts of this case,constrain us from interfering, even though, this Court may have differentview about the period of time, which is allowed to the applicant.F

371. Lastly, there remains question of court fees. As far ascourt fees is concerned, it is true that in the circumstances of the case,there is compelled withdrawal of the applications. The other side of thepicture is, even, according to the petitioners, the applications engagedthe Adjudicating Authority and time was spent on the applications. In theGcircumstances of these cases, we would resort to our power under Article142 of the Constitution to order as follows. We would direct that in caseapplications are moved by the applicants, who are petitioner before us,in regard to the very same corporate debtor, in the same real estateproject, as far as allottees are concerned, the applicants shall be exemptedHfrom the requirement of paying court fee. This would obviously be

one-time affair. We, however, further make it clear that exemption frompaying court fee, in the case of joint applicants, will be limited only toonce, to single application in future, in relation to the same subjectmatter, as per the application. To make it clear, in case where thereare more than one applicants in the pending application in respect of realestate project, if they combine in future application, they would standexempted. Secondly, in case, any of the applicants, if they were to movejointly with the requisite number under the second proviso, the exemptionwill be limited only to once. Meaning thereby, if exemption has beenavailed of by any one out of the joint applicants, in conjunction withothers, then, the other joint applicants cannot claim exemption. If thereare any applicants, falling under the first proviso, and who are amongthe petitioners, in regard to the same corporate debtor, they would alsobe entitled to the exemption from payment of the court fee.

RELIEF

372. We uphold the impugned amendments. However, this issubject to the following directions, which we issue under Article 142 ofthe Constitution of India:

i.If any of the petitioners move applications in respect of thesame default, as alleged in their applications, within periodof two months from today, also compliant with either thefirst or the second proviso under Section 7(1), as the casemay be, then, they will be exempted from the requirementof payment of court fees, in the manner, which we havedetailed in the paragraph just herein before.

ii.Secondly, we direct that if applications are moved underSection 7 by the petitioners, within period of two monthsfrom today, in compliance with either of the provisos, asthe case may be, and the application would be barred underArticle 137 of the Limitation Act, on the default alleged inthe applications, which were already filed, if the petitionerfile 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 andthe period of delay shall be condoned in regard to the period,during which, the earlier applications filed by them, whichis the subject matter of the third proviso, was pending beforethe Adjudicating Authority.

Aiii.We make it clear that the time limit of two months is fixedonly for conferring the benefits of exemption from courtfees and for condonation of the delay caused by theapplications pending before the Adjudicating Authority. Inother words, it is always open to the petitioners to fileapplications, even after the period of two months and seekBthe benefit of condonation of delay under Section 5 of theLimitation Act, in regard to the period, during which, theapplications were pending before the Adjudicating Authority,which were filed under the unamended Section 7, as alsothereafter.

373. The Writ Petitions and the Transferred Case will standdismissed subject to the aforesaid directions and the observationscontained in the Judgment, and we only make it clear that the benefits ofthe directions, under Article 142, will be available also to the petitionersin the Transferred Case.D

374. The intervention application (I.A.No.67473 of 2020 in WP(C)No.26 of 2020) is filed by allottees who have filed application underSection 7 on 20.9.2019. I.A. No.32863 of 2020 in WP(C) No.53 of 2020is filed by the allottee for impleadment. He has filed application underSection 7 of the Code on 19.12.2019. I.A. No.32869 of 2020 WP(C)ENo.53 of 2020 is filed by the allottees who have filed the same forimpleadment. 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 corporatedebtor for impleadment. All the above IAs are disposed of in terms ofthe judgment as aforesaid. We however make it clear that the directionswe have issued under Article 142 regarding court fees and aboutFcondonation of delay will apply to the applicants who are allottees.

Bibhuti Bhushan Bose

Writ Petitions and Transferred Case dismissed.