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MANISH KUMAR vs. UNION OF INDIA AND ANOTHER

SCR Citation: [2021] 14 S.C.R. 895
Year/Volume: 2021/ Volume 14
Date of Judgment: 19 January 2021
Petitioner: MANISH KUMAR
Disposal Nature: Others
Neutral Citation: 2021 INSC 28
Judgment Delivered by: Hon'ble Mr. Justice K.M. Joseph
Respondent: UNION OF INDIA AND ANOTHER
Case Type: WRIT PETITION (CIVIL) /26/2020
Order/Judgment: Judgment
1. Headnote

Insolvency and Bankruptcy Code (Amendment) Act, 2020 – s.3 –s.3 of the impugned amendment, amended s.7(1) of the Insolvency and Bankruptcy Code, 2016, incorporating three provisos to s.7(1) – Under the second proviso, a new threshold was declared for an allottee to move an application u/s.7 for trigerring the insolvency resolution process under the Code – The second proviso provided that for financial creditors who were allottees under a real estate project, an application for initiating corporate insolvency resolution process against the corporate debtor was to be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten per cent of the total number 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 that there is a critical mass of persons (allottees), who agree that the time is ripe to invoke the Code and to submit to the inexorable processes under the Code, with all its attendant perils – The rationale behind, confining allottees to the same real estate project, is to promote the object of the Code – Once the threshold requirement can pass muster when tested in the anvil of a challenge based on Arts. 14, 19 and 21, then, there is both logic and reason behind the legislative value judgment that the allottees, who must join the application under the impugned provisos, must be related to the same real estate project – Allottees under real estate projects are financial creditors, but they possess certain characteristics, which set them apart from generality of the financial creditors, such as numerosity; heterogeneity; and individuality in decision making – If a single allottee, as a financial creditor, is allowed to move an application u/s.7, the interests of all the other allottees may be put in peril – In the circumstances, if the Legislature, taking into consideration, the sheer numbers of a 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, who are not found to possess the characteristics of numerosity, then, it is not for this Court to sit in judgment over the wisdom of such a measure – The allottee continues to be a financial creditor – All that is envisaged is the legislative value judgment that a critical mass is indispensable for allottees to be present before the Code, can be activised – The purport of the critical mass of applicants would ensure that a reasonable number of persons similarly circumstanced, form the view that despite the remedies available under the RERA or the Consumer Protection Act or a civil suit, the invoking of the Code is the only way out, in a particular case – If the Legislature felt that having regard to the consequences of an application under the Code, when such a large group of persons, pull at each other, an additional threshold be erected for exercising the right u/s.7, certainly, it cannot suffer a constitutional veto at the hands of Court exercising judicial review of legislation – This is not a case where the right of the allottee is completely taken away – All that has happened is a half-way house is built between extreme positions, viz., denying the right altogether to the allottee to move the application u/s.7 of the Code and giving an unbridled license to a single person to hold the real estate project and all the stakeholders thereunder hostage to a proceeding under the 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 the Insolvency and Bankruptcy Code, 2016, incorporating three provisos to s.7(1) – The first proviso provided that for financial creditors, referred to in clauses (a) and (b) of sub-section (6A) of s.21, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such creditors in the same class or not less than ten per cent of the total number of such creditors in the same class, whichever is less – Challenge to – Held: The first proviso is invulnerable – The legislative understanding is clear that in regard to such creditors bearing the hallmark of large numbers they are required to be treated differently – If they are not treated differently it 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 the insertion of the impugned proviso – Insisting on a threshold in regard to these categories of creditors would lead to the halt to indiscriminate litigation which would result in an uncontrollable docket explosion as far as the authorities which work the Code are concerned – The debtor who is apparently stressed is relieved of the last straw on the camel’s back, as it were, by halting individual creditors whose views are not shared even by a reasonable number of its peers rushing in with applications – Again, as in the case of the allottees, this is not a situation where while treating them as financial creditors they are totally deprived of the right to apply under s.7 as part of the legislative scheme – The legislative policy reflects an attempt at shielding the corporate debtor from what it considers would be either for frivolous or avoidable applications – All that the amendment is likely to ensure is that the filing of the application is preceded by a consensus at least by a minuscule percentage of similarly placed creditors that the time has come for undertaking a legal odyssey which is beset with perils for the applicants themselves apart from others – As far as the percentage of applicants contemplated under the proviso it is clear that it cannot be dubbed as an arbitrary or capricious figure – Insolvency and Bankruptcy Code, 2016 – s.7. A Insolvency and Bankruptcy Code (Amendment) Act, 2020 – s.4 – s.4 of the impugned amendment, incorporated an additional Explanation in s.11 of the Code – While s.11 is about persons not entitled to make application for initiating corporate insolvency resolution process, the additional Explanation provided that nothing in section 11 prevented a corporate debtor from initiating corporate insolvency resolution process against another corporate debtor – Held: The provisions of the impugned Explanation clearly amount to a clarificatory amendment – A clarificatory amendment is retrospective in nature – The Explanation merely makes the intention of the Legislature clear beyond the pale of doubt – The argument of the petitioners that the amendment came into force only on 28.12.2019 and, therefore, in respect to applications filed under ss.7, 9 or 10, it will not have any bearing, cannot be accepted – The Explanation, in the facts of these cases, is clearly clarificatory in nature and it will certainly apply to all pending applications also – The intention of the Legislature was always to target the corporate debtor only insofar as it purported to prohibit application by the corporate debtor against itself, to prevent abuse of the provisions of the Code – It could never had been the intention of the Legislature to create an obstacle in the path of the corporate debtor, in any of the circumstances contained in s.11, from maximizing its assets by trying to recover the liabilities due 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 a corporate debtor is prevented from invoking the provisions of the Code either by itself or through his resolution professional, who at later stage, may, don the mantle of its liquidator – Insolvency and Bankruptcy Code, 2016 – s.11, Explanation 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 are acquired could be attached but that is pre-empted by s.32A – The petitioners contend that immunity granted to the corporate debtors and its assets acquired from the proceeds of crimes and any criminal liability arising from the offences of the erstwhile management for the offences committed prior to initiation of CIRP and approval of the resolution plan by the adjudicating authority further jeopardizes the interest of the allottees/creditors – Held: No case whatsoever is made out to seek invalidation of s.32A – The boundaries of this Court’s jurisdiction are clear – The wisdom of the legislation is not open to judicial review – Having regard to the object of the Code, the experience of the working of the code, the interests of all stakeholders including most importantly the imperative need to attract resolution applicants who would not shy away from offering reasonable and fair value as part of the resolution plan if the legislature thought that immunity be granted to the corporate debtor as also its property, it hardly furnishes a ground for this Court to interfere – The provision is carefully thought out – It is not as if the wrongdoers are allowed to get away – They remain liable – The extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate – The immunity is premised on various conditions being fulfilled – There must be a resolution plan – It must be approved – There must be a change in the control of the corporate debtor – The new management cannot be the disguised avatar of the old management – It cannot even be the related party of the corporate debtor – The new management cannot be the subject matter of an investigation which has resulted in material showing abetment or conspiracy for the commission of the offence and the report or complaint filed thereto – These ingredients are also insisted upon for claiming exemption of the bar from actions against the property – Significantly every person who was associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of the offence in terms of the report submitted continues to be liable to be prosecuted and punished for the offence committed by the corporate debtor – The corporate debtor and its property in the context of the scheme of the code constitute a distinct subject matter justifying the special treatment accorded to them – Creation of a criminal offence as also abolishing criminal liability must ordinarily be left to the judgement of the legislature – Attaining public welfare very often needs delicate balancing of conflicting interests – As to what priority must be accorded to which interest must remain a legislative value judgement and if seemingly the legislature in its pursuit of the greater good appears to jettison the interests of some it cannot unless it strikingly ill squares with some constitutional mandate suffer invalidation – There is no basis at all to impugn the Section on the ground that it violates 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 the Insolvency and Bankruptcy Code, 2016 – Amendment by s.3 of the impugned amendment incorporated three provisos to s.7(1) – The third proviso provided that where an application for initiating the corporate insolvency resolution process against a corporate debtor has been filed by a financial creditor referred to in the first and second provisos and has not been admitted by the Adjudicating Authority before the commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, such application shall be modified to comply with the requirements of the first or second proviso within thirty days of the commencement of the said Act, failing which the application shall be deemed to be withdrawn before its admission – Held: The third proviso is a one-time affair – It is intended only to deal with those applications, u/s.7, which were filed prior to 28.12.2019, when, by way of the impugned Ordinance, initially, the threshold requirements came to be introduced by the first and the second impugned provisos – In other words, the legislative intention was to ensure that no application u/s.7 could be filed after 28.12.2019, except upon complying with the requirements in the first and second provisos – The Legislature did not stop there – It has clearly intended that the threshold requirement it imposed, will apply to all those applications, which were filed, prior to 28.12.2019 as well, subject to the exception that the applications, so filed, had not been admitted, u/s.7(5) – In other words, the Legislature intended that in every application, filed under s.7, by the creditors covered by the first proviso and by the allottees governed by the second proviso, should also be embraced by the newly 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 which stood admitted as on the date of the Ordinance – It is also clear that the consequence of failure to comply with the threshold requirement, in regard to applications, which have been filed earlier, was that they would stand withdrawn – When applications were filed under the unamended provisions of s.7, at any rate it would transform into a vested right – The vested right is to proceed with the action till its logical and legal conclusion – No doubt, there may not be a vested right as regard mere procedure and while limitation, ordinarily, belongs to the domain of procedure, should new law shorten the existing period of limitation, such a law would not operate in regard to the right of action which is vested – Every sovereign Legislature is clothed with competence to make retrospective laws – It is open to the Legislature, while making retrospective law, to take away vested rights – If a vested right can be taken away by a retrospective law, there can be no reason why the Legislature cannot modify the vested rights – The imposition of a threshold requirement being a mandatory and irreducible minimum even, if it is to be achieved as and after the date of the amendment, constitutes an intrusion into the substantive right of action vested in the individual creditor – The action of the creditor was not a completed transaction – As regards his conduct in the past, viz., moving u/s.7, it is incomplete but the action was commenced – But the law (the 3 rd proviso) impairs the past action qua the future – Imposing the threshold requirement under the 3 rd proviso, is not a mere matter of procedure – It impairs vested rights – Prescribing a time limit in regard to pending applications, cannot be, per se, described as arbitrary, as otherwise, it would be an endless and uncertain procedure – The applications would remain part of the docket and also become a Damocles Sword overhanging the debtor and the other stakeholders with deleterious consequences also qua the 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 up with 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 assets of ailing concerns and also, the balancing the interests of all stakeholders.Amendment – Clarificatory amendment – Is retrospective in nature.Legislation – Plenary Legislation – Challenge to – Grounds – Discussed. Legislation – Plenary Legislation – Challenge to – On ground of malice – Held: While malice may furnish a ground in an appropriate case to veto administrative action, malice does not furnish a ground to attack a plenary law.

2. Case referred
3. Act
      No Data Found!!!!!
4. Keyword
  • Insolvency and Bankruptcy Code (Amendment) Act
  • 2020
5. Equivalent citation
    Citation(s) 2021 (5) SCC 1 = 2021 (5) Suppl. SCC 1 = 2021 (1) SCALE 646