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.