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Pioneer Urban Land and Infrastructure Limited and Ors. Vs. Union of India (UOI) and Ors. - (Supreme Court) (09 Aug 2019)

Allottees of real estate projects are "financial creditors" and may trigger the IBC against the real estate developer



Writ petitions have been filed in present Court to challenge the constitutional validity of amendments made to the Code, pursuant to a report prepared by the Insolvency Law Committee dated 26th March, 2018 ("Insolvency Committee Report"). The amendments so made deem allottees of real estate projects to be "financial creditors" so that they may trigger the Insolvency and Bankruptcy Code, 2016, (IBC) under Section 7 of IBC thereof, against the real estate developer. In addition, being financial creditors, they are entitled to be represented in the Committee of Creditors by authorised representatives.

The IBC is a beneficial legislation which can be triggered to put the corporate debtor back on its feet in the interest of unsecured creditors like allottees, who are vitally interested in the financial health of the corporate debtor, so that a replaced management may then carry out the real estate project as originally envisaged and deliver the flat/apartment as soon as possible and/or pay compensation in the event of late delivery, or non-delivery, or refund amounts advanced together with interest. It cannot be said that Article 19(1)(g) of Constitution of India, 1950 has been infracted and not saved by Article 19(6) as the Amendment Act is made in public interest, and it cannot be said to be an unreasonable restriction on the Petitioner's fundamental right under Article 19(1)(g) of Constitution. Also, there is no infraction of Article 300-A, as no person is deprived of its property without authority of a constitutionally valid law.

Allottees/home buyers were included in the main provision, i.e. Section 5(8)(f) with effect from the inception of the Code, the explanation being added in 2018 merely to clarify doubts that had arisen. The Amendment Act to the Code does not infringe Articles 14, 19(1)(g) read with Article 19(6), or 300-A of the Constitution.

The Real Estate Regulatory Authority, 2016 (RERA) is to be read harmoniously with the Code, as amended by the Amendment Act. It is only in the event of conflict that the Code will prevail over the RERA. Remedies that are given to allottees of flats/apartments are therefore concurrent remedies, such allottees of flats/apartments being in a position to avail of remedies under the Consumer Protection Act, 1986, RERA as well as the triggering of the Code. Section 5(8)(f) as it originally appeared in the Code being a residuary provision, always subsumed within it allottees of flats/apartments. The explanation together with the deeming fiction added by the Amendment Act is only clarificatory of this position in law.

Given the declaration of the constitutional validity of the Amendment Act, it is absolutely necessary that the NCLT and the NCLAT are manned with sufficient members to deal with litigation that may arise under the Code generally, and from the real estate sector in particular. Appeals disposed off.


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