Recognition of homebuyers under IBC: Is amendment ordinance 2019 invalid per se? - The Daily Guardian
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Recognition of homebuyers under IBC: Is amendment ordinance 2019 invalid per se?

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Prior to the advent of the Insolvency and Bankruptcy Code 2016 (herein referred as IBC), the homebuyer(s) were aggrieved to attain timely justice against the real estate developers’ lethargic conduct in the form of delaying the delivery of the possession of flat/homes due to part-construction or other akin issues. Even though there are remedies available to the Homebuyers under RERA and Consumer law but those are not as effective and expeditious as IBC. In Swiss Ribbons Pvt. Ltd. v. Union Of India, the Hon’ble Mr. Justice Rohinton F. Nariman beautifully drew the comparisons between numerous economic legislations like Sick Industrial Companies (Special Provisions) Act 1985, The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 & the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 with IBC and held that the IBC is much more efficacious and expeditious in terms of revival, rehabilitation or repayment of payment to creditors.

RECOGNITION OF HOMEBUYERS UNDER IBC

The homebuyers under IBC were first recognized in Nikhil Mehta and Sons (HUF) v. AMR Infrastructure wherein the NCLAT on 21.07.2017 held that the amount raised by developers from the allottees were deemed to have the effect of ‘commercial effect of a borrowing’ as the amount raised was shown as commitment charges under financial cost, therefore, the court held the allottees to be financial creditors under the code.

The Insolvency and Bankruptcy Code (Amendment) Ordinance 2019 recognized homebuyers under the purview of financial creditors under Section 7 of IBC and gave them the right to be a part in the decision-making process by incorporating them in the committee of creditors (COC). The Apex court in Chitra Sharma and ors. v. Union of India and ors. protected the interests of Homebuyers who were left in lurch after the imposition of moratorium against the Jaypee Infratech Ltd. (JIL) by IDBI as the homebuyers had no locus standi in the CIRP. The court observed that the liquidation and disposal of corporate debtor’s assets would deprive the homebuyers of their right to own a home. Therefore, the court held the applicability of IBC (amendment) ordinance 2018 as prospective in nature and recognized homebuyers as financial creditors under IBC.

Subsequently, the real estate developers challenged the constitutional validity of the Insolvency and Bankruptcy (Second) Amendment 2018 and the Supreme court in Pioneer Urban Land and Infrastructure Ltd. v. Union of India upheld the constitutional validity of the Second amendment to the IBC and subsumed allottees/homebuyers under Section 5 (8) (f) of the code. The court held that the amendment does not infringe Articles 14, 19(1)(g), Article 19(6) and Article 300-A of the Indian constitution. The court also widened the homebuyer’s horizon to avail distinct remedies under distinct statutes by observing that the remedies under RERA and Consumer law are concurrent in nature which must be harmoniously construed with IBC.

MINIMUM THRESHOLD ON HOMEBUYERS UNDER SECTION 7 OF IBC

The Ministry of Law and Justice on 28.12.2019 introduced the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 (herein referred as amendment ordinance) which imposed a minimum threshold on the aggrieved homebuyers under proviso 3 of the ordinance to initiate Corporate Insolvency Resolution Process (CIRP) by either 10% of the total homebuyers or 100 homebuyers (whichever is less) against the real-estate developer under that housing project.

This amendment ordinance was challenged in the Supreme court in Manish Kumar v. Union of India on the following grounds like a) violation of Article 14 and Article 21, b) creation of a class within a class under Section 7 of IBC which is unconstitutional and manifestly arbitrary, c) no intelligible differentia in the ordinance as there is no nexus with the object of the amendment ordinance, d) a sinister motive to overturn the law set out by this court for homebuyers. Subsequently, the court issued the notice to the challenge and directed a status quo on the amendment ordinance on 13.01.2020.

GROUNDS TO CHALLENGE THE IBC AMENDMENT ORDINANCE 2019

There are numerous grounds which are enumerated below which can invalidate the IBC amendment ordinance 2019:

CREATION OF A ‘SEPARATE CLASS WITHIN A CLASS’

The homebuyers are recognized under Section 5(8)(f) of the IBC 2016 which is also constitutionally upheld by the Apex court in Pioneer Urban Land and Infrastructure Ltd. (Supra) but the present amendment ordinance strives to create a separate class of financial creditor by unfairly treating homebuyers as a separate class of financial creditor by imposing a new condition on them which is in violation to Article 14. Any imposition of a condition in a class which separates them from the rest of the class is held to be ultra vires the constitution as evident from State of U.P and Ors. v/s Committee of Management, Mata Tapeshwari Saraswathi Vidya Mandir and Ors. (2010) 1 SCC 639.

NO INTELLIGIBLE DIFFERENTIA WITH THE OBJECT OF THE CODE

The legislative intention behind the amendment ordinance 2019 for homebuyers looks to restrain the homebuyers to misuse the IBC 2016 against the real estate developers but the Apex court in Pioneer Urban Land and Infrastructure Ltd. (Supra) held that the IBC being a beneficial legislation can be triggered by the allottees to put the real estate allottees back on its feet. Therefore, this amendment is not in nexus with the object sought in the amendment ordinance 2019 and there seems no intelligible differentia.

DEPRIVATION OF RIGHT TO OWN A HOME

A bar on a single or a certain number of homebuyers which are below the minimum threshold level to initiate insolvency proceedings against real estate developers as prescribed under the amendment ordinance 2019, deeply affects their right to seek expeditious justice. A certain number of homebuyers strive to purchase home from their hard-earned money so as to get roof on their heads and when a default or a delay in construction of the real estate project is committed by the developer, then it creates a situation of human distress to those and other homebuyers which evidently affects their right to own a home. As held in Chitra Sharma (supra), “A home for a family is a basic human yearning” and the right to own a home comes under the ambit of right to life as enshrined under Article 21.

RETROSPECTIVE EFFECT UNMAINTAINABLE

The amendment ordinance 2019 seeks to apply on the pending proceedings initiated by the Homebuyers in NCLT, therefore, the amendment brings a retrospective effect which further puts on hold the disposal of plethora of homebuyer’s petitions including cases which are listed at final adjudication stage, therefore delaying the disposal of a pending case leads to delay in adjudicating justice.

ASSISTANCE OF SECTION 12-A FOR BONAFIDE DEVELOPERS

The insertion of section 12-A in the IBC 2016 provides for the withdrawal of insolvency proceedings initiated against any corporate debtor by any class of creditor i.e., Financial creditor or Operational creditor prior to the initiation of expression of interest by the resolution professional on a settlement reached between the creditor and the corporate debtor.

Therefore, a genuine developer who seeks to stop the proceedings initiated by the homebuyer can settle with the homebuyer by repaying their hard-earned money prior to the initiation of expression of interest by the resolution professional.

CONCLUSION

The amendment ordinance 2019 unreasonably puts a minimum threshold on the homebuyers which not only creates a separate class within the financial creditors but also deprives them to the timely possession of the home or a refund of the amount paid by the homebuyer to the developer. The ordinance was introduced with the motive to restrict the misutilization of the code by the homebuyers against the developers but this issue was elaborately adjudicated in the Pioneer case and it was held that this is a beneficial legislation for homebuyers. The retrospective effect of the ordinance sets back a plethora of pending homebuyer’s cases and it contravenes the well settled principle of “Justice delayed is justice denied”. If the homebuyer unreasonably initiates the IBC proceedings against the developer, then the developer is always vested with the power to settle the dispute with the homebuyer and to withdraw the insolvency proceedings initiated against them under Section 12A of the code.

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GAUHATI HIGH COURT QUASHES NO-CONFIDENCE MOTION AGAINST GRAM PANCHAYAT PRESIDENT CITING PARTICIPATION OF MEMBER DISQUALIFIED FOR HAVING THREE CHILDREN

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The Gauhati High Court in the case Jugitawali Pawe v State of Assam and 15 ors observed and quashed a resolution expressing no-confidence in the petitioner – the President of a Gram Panchayat, as a result of which she as removed from office. It was stated that it is as per the citing no compliance with Assam Panchayat Act, 1994, reading with Rule 62 of the Assam Panchayat (Constitution) Rules, 1995.

It was preferred by the petitioner to the materials available on record to argue that one of the members of the Gaon Panchayat, the respondent. The respondent voted against the petitioner and had given birth to her third child the previous year. Moreover, by virtue of Section 111(2)(a) of the Assam Panchayat Act, 1994, reading with Rule 62 of the Assam Panchayat (Constitution) Rules, 1995, the petitioner stood automatically disqualified on the date of voting. Following, which her vote was taken by passing No-confidence motion.

It was prayed by the petitioner in the plea for setting aside the impugned resolution and for issuance of a direction to restore his client back in the office. Thereafter, to initiate fresh proceedings, liberty should be granted to the respondent, following the due process.

It was agreed by the Counsel representing for the respondent that the said member of the panchayat had been disqualified but retained on the ground that the disqualification would have no bearing on the petitioner’s case, as the impugned resolution was passed before the declaration of petitioner disqualification.

In the present case, It was noticed by Justice Suman Shyam the member had voted against the petitioner and without her vote. The petitioner would not have been ousted from office. Justice Shyam also found no dispute about the fact that the member had incurred disqualification under the law prior the date of adoption of the impugned resolution. Justice Shyam found it unnecessary to delve into other aspects of the matter which includes the procedural formalities for declaring the member a disqualified candidate.

It is observed that the impugned resolution was declared to be vitiated and liable to be set aside. Further, the Court restored the petitioner to the office of the President of the Bongalmara Gaon Panchayat with immediate effect and it was stated by the court that the order will not stand in the way should the authorities or any member of the Gaon Panchayat propose a fresh motion of “no-confidence” against the petitioner and the due process of law needs to be followed.

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Halt DDA’s demolition action against jhuggis in Nizamuddin’s Gyaspur area, orders Delhi High Court

As per the JJ Rehabilitation and Relocation Policy 2015 and the Delhi Urban Shelter Improvement Board, the residents who can establish their residence prior to 01.01.2015 are eligible for rehabilitation under the JJ Rehabilitation and Relocation Policy 2015.

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plea in Delhi High Court seeking repatriation of 56 pregnant nurses

The Delhi High Court in the case Manoj Gupta & Ors. v. DDA & Ors observed and has ordered status quo on the Delhi Development Authority’s proposal to demolish jhuggi clusters in city’s Gyaspur area in Hazrat Nizamuddin. The vacation bench comprising of Justice Neena Bansal Krishna observed in the petition filled by the residents and the court granted an interim relief.

It was ordered by the court status quo till July 11, the next date of hearing.

The bench orally remarked that a ten-day delay in demolition won’t make a difference but if today it is demolished and later, we come to know that they were entitled, who’s going to… the bench will consider it on July 11, 2022 but in the Meanwhile, some protections are entitled them. Adding this, Status quo be maintained. If since 1995, they have been there, heavens won’t come down if for 10 more days they are protected.

In the plea the petitioner stated that the T-Huts settlement in the area, which was stated by the authorities to vacate. It has been in existence for almost two decades and compromise of 32 jhuggis or households.

In the plea it was alleged that the bulldozers have been parked around the camp and a DDA official has orally asked them to vacate the area and it is noted that till date no proper notice have been sent to them nor has DDA conducted any survey of the area.

Furthermore, the DDA did not provide any alternate arrangement for their rehabilitation which resulted in extreme distress among the residents.

Moreover, it was admitted by the petitioner that the land in question belongs to DDA and they may seek that status-quo to be maintained at the site. It was urged that the residents should not be physically dispose or evicted from the demolition site until the survey is conducted and rehabilitation is provided to the residents as per the DUSIB policy of 2015.

As per the JJ Rehabilitation and Relocation Policy 2015 and the Delhi Urban Shelter Improvement Board. The residents who can establish their residence prior to 01.01.2015 are eligible for rehabilitation under the JJ Rehabilitation and Relocation Policy 2015.

It is observed that in the case Ajay Maken v. Union of India, Reliance is placed on the Supreme Court decision and the High Court decision in the case Sudama Singh & Ors. v. Government of Delhi & Anr, it was held in the case that that removal of jhuggis without ensuring relocation would amount of gross violation of Fundamental Rights under Article 21 of the Constitution. Further, it was held that the agencies conducting the demolitions ought to conduct survey before undertaking any demolition.

It is submitted that these observations would apply across the board, in the entire NCT of Delhi.

Advocates Vrinda Bhandari, Shiyaz Razaq, Kaoliangpou Kamei, Jepi Y Chisho and Paul Kumar Kalai, represented the petitioner.

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TELANGANA HIGH COURT: PLACE OF RESIDENCE OF THE ARBITRATOR WOULD NOT BE THE SEAT OF ARBITRATION

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The High Court of Telangana in the case M/s S. Square Infra v. Garneni Chalapathi Rao observed and held that the place of residence of the arbitrator would not determine the seat of arbitration.

The Single bench comprising of Justice P. Sree Sudha observed and held that merely because an arbitrator residing in Hyderabad has been appointed, it does not mean that only the Courts at Hyderabad would have the jurisdiction to decide all the matters arising out of arbitration agreement.

Facts of the Case:

In the present case, after the dispute arouse between the parties, the respondent sent a letter to the petitioner for nomination an arbitrator who is residing in Hyderabad. To its said notice, petitioner replied and declined the appointment of the arbitrator for the reason that there was no dispute which required the appointment of an arbitrator.

A suit was filled by the respondent before the VII Additional District Judge Sangareddy, seeking for relief of permanent injunction. An application was filled by the petitioner under Section 8 of the Arbitration & Conciliation Act and the parties referred to the arbitration.

An application was filled by the respondent under section 9 of the Arbitration & Conciliation Act before the Principal District Judge, Sangareddy, Subsequently, an application was filled by the petitioner for transferring the application from the Court at Sangareddy to Court at Hyderabad.

Contentions made by Parties:

On the following grounds, the petitioner sought the transfer of application.

An arbitrator residing in Hyderabad was nominated to respondent. However, only the courts in Hyderabad would have the jurisdiction to decide all the matters arising out of the arbitration.

It was stated that the nomination of an arbitrator residing in Hyderabad amounted to designating Hyderabad as the Seat of Arbitration.

On the following grounds, the respondent countered the submissions of the petitioner:

An application was filled by the petitioner under Section 8 of the A&C Act before the Court at Sangareddy. However, in terms of Section 42 of the A&C Act, only the court at Sangareddy would have the jurisdiction to decide all the matters arising out of arbitration.

Court Analysis:

The Court held that the seat of arbitration would not be decide by the place of residence of the arbitrator.

The argument of the petitioner was rejected by the court that since the respondent had initially nominated an arbitrator residing in Hyderabad, the Hyderabad Court would have the jurisdiction.

The court stated that merely because a party has nominated an arbitrator who resides in Hyderabad, the same would not designate Hyderabad as the Seat of arbitration in absence of any designation of the seat under the arbitration agreement.

It was further stated by the court that the application filled by the petitioner filled under Section 8 application before the Court at Sangareddy consequent to which the parties were referred to arbitration. Therefore, the Court would have the jurisdiction, in terms of Section 42 of the A&C Act.

The Transfer petition was dismissed by the Court.

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DELHI HIGH COURT REMANDS IN THE MATTER BACK TO ASSESSING OFFICER AFTER SETTING ASIDE: JUST 3 DAYS’ TIME GRANTED TO RESPOND TO THE INCOME TAX NOTICE

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plea in Delhi High Court seeking repatriation of 56 pregnant nurses

The Delhi High Court in the case Shubham Thakral Vs ITO, the Delhi bench comprising of Justice Manmohan and Justice Manmeet Pritam Singh Arora observed and remanded the matter back to the assessing officer as just 3 days’ time was granted to respond to the income tax notice.

In the present case, the petitioner/assessee assailed the notice under Section 148A (b) of the Income Tax Act, 1961 and the order passed under Section 148A (d) for the Assessment Year 2018–19.

It was contended by the assessee that only three days’ time was granted to the assessee to respond, as against the mandatory statutory period of at least seven days. However, despite of the fact that the annexure attached to the notice gave the petitioner eight days to respond, the e-filing submission portal was closed earlier, in violation of Section 148A (b) of the Income Tax Act.

Furthermore, the petitioner relied on the decision of Delhi High Court, in the case of Shri Sai Co-operative Thrift and Credit Society Ltd versus ITO, the Delhi High Court in the case held that under Section 148A (b), a minimum time of seven days has to be granted to the assessee to file its reply to the show cause notice.

No objections were raised by the department/respondent to the matter being returned to the Assessing Officer for a fresh decision in accordance with the law. Accordingly, the court set aside the order passed under Section 148A (d) for the Assessment Year 2018-19. The Assessing officer was directed by the court to pass a fresh reasoned order in accordance with the law after considering the reply of the petitioner, which was directed to be filed within a week.

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ALLAHABAD HIGH COURT: ADVOCATES SHOULDN’T ADVISE CLIENTS TO REAGITATE MATTERS IF THERE IS NO ERROR APPARENT ON FACE OF RECORD

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The Allahabad High Court in the case Malhan and 17 Others Vs. State Of U.P. And Another observed and stated that an advocate should be given such a piece of advice when there is no error apparent on the face of the record nor was there any reason why the matter be re-agitated it was finally decided.

The bench comprising of Justice Dr. Kaushal Jayendra Thaker and Justice Vivek Varma observed while dealing with the civil review application wherein the bench observed the concerned advised his client to make a chance by filling the instant review application after a period of six year.

In the present case, a civil review petition was filled along with the application under section 5 of the Limitation Act, 1963., the application was filled for seeking condonation of delay in filling the application, the application was filled with a delay of six years i.e., 1900 days.

It was stated by the applicant that the review application could not be filled due to the blockage of public transportation on account of the COVID-19 guidelines.

Moreover, the court observed that the appeals were disposed of by the Apex Court in the year 2016 and only in 2020-2021, the pandemic struck India and furthermore, it cannot be said that due to the COVID guidelines the public transportation was blocked and however, the applicant could not come to Allahabad Court to file review.

Further, it was stated that the court asked the counsel for the review applicants to explain the delay in filling the review application, to which the council gave a strange reply that the counsel had advised the clients that they must take a chance by filling this review application after a period of six years.

Following this, the Court observed:

The court noted that an advocate should not give such an advice when there is no error apparent on the face of record nor was there any other reason that when the matter was finally decided, why the matter be re-agitated.

It was stated that the court has no reason to condone the delay of six years as the same was not explained as to why this review application is filed after such an inordinate delay.

The Court opined that the lapse in approaching the court within the time is understandable but a total inaction for long period of delay without any explanation whatsoever and that too in absence of showing any sincere attempt on the part of suiter, this would add to his negligence and the relevant factor going against him.

The court observed that careless and reckless is shown by the review applicant in approaching the court and due to the condemnation of delay in the application with a token cost of Rs.10,000/, the court dismissed the application.

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SUPREME COURT CRITICISES HIGH COURT: POSTING ANTICIPATORY BAIL PLEA AFTER TWO MONTHS CAN’T BE APPRECIATED

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The Supreme Court in the case Sanjay versus The State (NCT of Delhi) & ANR observed and stated that in the case where personal liberty is involved, the court is expected to pass orders at the earliest while taking into account the merits of the matter in one way or other. Further, the top court observed that posting of an application for anticipatory bail after a couple of months cannot be appreciated by the court.

The bench comprising of Justice C. T. Ravikumar and the Justice Sudhanshu Dhulia was hearing a June 2 SLP against the Delhi High Court in a petition filed under section 420, 467, 468, 471, 120-B, 34 of the Indian Penal Code, 1860 for seeking anticipatory bail in a 2022 FIR, a notice is issued. It was stated that the learned APP for the state is present and accepts the notice and seeks time to file status report. The High Court in the impugned order stated that Let the status report be filed by the state prior to the next date with an advance copy to the learned counsel for the petitioner. The matter is to be list on 31.08.2022.

It was noted by the bench comprising of Justice Ravikumar and the Justice Dhulia that in the captioned Special Leave Petition, the grievance of the petitioner is that the application for anticipatory bail moved by the petitioner, being Crl. M.A. No. 11480 of 2022 in Bail Application No. 1751 of 2022 without granting any interim protection, was posted to 31.08.2022. on 24.05.2022, the bail application was moved on.

However, the bench asserted that the bench is of the considered view that in a matter involving personal liberty, the Court is expected to to pass orders at the earliest while taking into account the merits of the matter in one way or other.

It was declared by the bench that at any rate posting an application for anticipatory bail after a couple of months cannot be appreciated by the court.

Further, the bench requested to the High Court to dispose off the application for anticipatory bail on its own merits and in accordance with law expeditiously, preferably within a period of three weeks after reopening of the Court. Adding to it, the bench stated that if the main application could not be disposed off, for any reason, within the stipulated time, relief sought for in the interlocutory and on and on its own merits, the application shall be considered.

While disposing of the SLP, the bench directed in its order that we grant interim protection from arrest to the petitioner herein, Till such time.

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