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2018 (8) TMI 661 - SC - Insolvency and BankruptcyProtecting the interests of home buyers in projects floated by Jaypee Infratech Limited (JIL) - IDBI Bank Limited instituted a petition under Section 7 of the Insolvency and Bankruptcy Code 2016 (IBC) against JIL (CP (IB) 77/ALB/2017)) before the National Company Law Tribunal (NCLT) at its Bench at Allahabad. The bank sought the initiation of a Corporate Insolvency Resolution Process (CIRP) against JIL. Held that - in the absence of a statutory recognition of the position of the home buyers as financial creditors, the law did not allow for real and substantive entitlements to them in the CoC. These statutory entitlements have been brought in by the Ordinance in order to recognise the vital interests of the home buyers in a real estate project and to allow them a statutory status in the insolvency resolution process. Unfortunately by the time that the Ordinance came into being on 6 June 2018, the period of 270 days had expired; the resolution plan of Lakshdeep was rejected and the IRP informed NCLT that no resolution plan had been approved within the extended period of 270 days on 12 May 2018. Having regard to the material change which has been brought about by the amendment of the IBC by the Ordinance and the fact that this Court has been in seisin of the proceedings to ensure that the home buyers are protected, we are of the view that it is but appropriate and to do complete justice to secure the interests of all concerned that the CIRP should be revived and CoC reconstituted as per the amended provisions to include the home buyers. In the facts of the present case, recourse to the power under Article 142 would be warranted to render complete justice. Parliament has undoubtedly provided a period of 180 days and an extended period of 90 days to complete the process. But in the present case a peculiar situation has arisen as a result of which the status of the home buyers which had not been recognised prior to 6 June 2018 has now been expressly recognised as a result of the amending Ordinance. A new CoC should be constituted in accordance with the amended provisions of the IBC to enforce the statutory status of the allottees as financial creditors. We also clarify that apart from the three bidders whose bids were found to be eligible by the IRP, it would be open to the IRP to invite fresh bids to facilitate a wider field of choice before the CoC. IRP permitted to invite fresh expressions of interest for the submission of resolution plans by applicants, in addition to the three short-listed bidders whose bids or, as the case may be, revised bids may also be considered.
Issues Involved:
1. Validity of Sections 6, 7, 10, 14, and 53 of the Insolvency and Bankruptcy Code (IBC) regarding recognition of home buyers. 2. Setting aside the NCLT order dated 9 August 2017. 3. Applicability of moratorium under Section 14(1)(a) to home buyers. 4. Conducting a forensic audit of JIL and JAL. 5. Protecting the interests of home buyers under the IBC. Detailed Analysis: 1. Validity of Sections 6, 7, 10, 14, and 53 of the IBC: The petitioners argued that these sections are ultra vires as they disregard stakeholders like home buyers. The Supreme Court acknowledged that the IBC initially did not protect home buyers, who are vital stakeholders. However, the Insolvency and Bankruptcy (Amendment) Ordinance, 2018, effective from 6 June 2018, amended the IBC to include home buyers as financial creditors. This amendment allows home buyers to initiate the corporate resolution process and participate in the Committee of Creditors (CoC). 2. Setting Aside the NCLT Order Dated 9 August 2017: The NCLT initiated the Corporate Insolvency Resolution Process (CIRP) against JIL on 9 August 2017, following IDBI Bank's petition. The Supreme Court noted that the CIRP was initiated without considering the interests of home buyers, as they were not recognized as financial creditors at that time. The Court decided to revive the CIRP and reconstitute the CoC to include home buyers, thereby ensuring their interests are protected under the amended IBC. 3. Applicability of Moratorium Under Section 14(1)(a) to Home Buyers: The petitioners sought a declaration that the moratorium under Section 14(1)(a) should not apply to home buyers, allowing them to exercise their rights under the Consumer Protection Act 1986 and the Real Estate (Regulation and Development) Act 2016 (RERA). The Court emphasized that the moratorium is essential to maintain the discipline of the IBC and prevent preferential treatment of any class of creditors. Therefore, the moratorium would continue to apply, but the interests of home buyers would be safeguarded through their inclusion as financial creditors in the CoC. 4. Conducting a Forensic Audit of JIL and JAL: The petitioners requested a forensic audit of JIL and JAL for the period from 2009 to 2017. The Court did not explicitly order a forensic audit but acknowledged the concerns regarding the financial conduct of JIL and JAL. The Court's focus was on ensuring the completion of ongoing projects and protecting the interests of home buyers through the CIRP. 5. Protecting the Interests of Home Buyers Under the IBC: The Supreme Court recognized the distress faced by home buyers due to the failure of developers to meet their obligations. The Court directed the revival of the CIRP with a reconstituted CoC that includes home buyers. The Court also allowed the Insolvency Resolution Professional (IRP) to invite fresh expressions of interest for resolution plans, excluding JIL/JAL and their promoters due to their ineligibility under Section 29A of the IBC. Conclusion: The Supreme Court's judgment focused on protecting the interests of home buyers by reviving the CIRP and reconstituting the CoC to include them as financial creditors. The Court emphasized the importance of following the discipline of the IBC and ensuring a fair resolution process. The judgment also allowed the RBI to initiate insolvency proceedings against JAL and directed the transfer of the deposited amount to the NCLT to be managed as per its directions. The proceedings were disposed of, with liberty granted to parties to seek appropriate legal recourse if necessary.
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