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TMI Blog2019 (8) TMI 532X X X X Extracts X X X X X X X X Extracts X X X X ..... .185 OF 2019 WITH WRIT PETITION (CIVIL) NO.177 OF 2019 WITH WRIT PETITION (CIVIL) NO.214 OF 2019 WITH WRIT PETITION (CIVIL) NO.303 OF 2019 WITH WRIT PETITION (CIVIL) NO.195 OF 2019 WITH WRIT PETITION (CIVIL) NO.197 OF 2019 WITH WRIT PETITION (CIVIL) NO.196 OF 2019 WITH WRIT PETITION (CIVIL) NO.243 OF 2019 WITH WRIT PETITION (CIVIL) NO.198 OF 2019 WITH WRIT PETITION (CIVIL) NO.199 OF 2019 WITH WRIT PETITION (CIVIL) NO.200 OF 2019 WITH WRIT PETITION (CIVIL) NO.309 OF 2019 WITH WRIT PETITION (CIVIL) NO.217 OF 2019 WITH WRIT PETITION (CIVIL) NO.230 OF 2019 WITH WRIT PETITION (CIVIL) NO.304 OF 2019 WITH WRIT PETITION (CIVIL) NO.258 OF 2019 WITH WRIT PETITION (CIVIL) NO.221 OF 2019 WITH WRIT PETITION (CIVIL) NO.229 OF 2019 WITH WRIT PETITION (CIVIL) NO.241 OF 2019 WITH WRIT PETITION (CIVIL) NO.293 OF 2019 WITH WRIT PETITION (CIVIL) NO.310 OF 2019 WITH WRIT PETITION (CIVIL) NO.242 OF 2019 WITH WRIT PETITION (CIVIL) NO.280 OF 2019 WITH WRIT PETITION (CIVIL) NO.261 OF 2019 WITH WRIT PETITION (CIVIL) NO.263 OF 2019 WITH WRIT PETITION (CIVIL) NO.272 OF 2019 WITH WRIT PETITION (CIVIL) NO.362 OF 2019 WITH WRIT PETITION (CIVIL) NO.358 OF 2019 WITH WRIT PETITION (CIVIL) NO.281 OF 2019 WITH WRIT P ..... 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X X X X Extracts X X X X X X X X Extracts X X X X ..... te projects to be "financial creditors" so that they may trigger the Code, under Section 7 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 amendments so made to the Code are as follows: PROVISIONS OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016 BEING CHALLENGED 1. Explanation to Section 5(8)(f): "5. Definitions In this part, unless the context otherwise requires, - (8) "financial debt" means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes- (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; Explanation. - For the purposes of this sub- clause,- (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and (ii) the expressions, "allottee" and "real estate project" shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herewith, to ensure that the appropriate voting instructions of the financial creditor he represents is correctly recorded by the interim resolution professional or resolution professional, as the case may be. Explanation - For the purposes of this section, the "electronic means" shall be such as may be specified."" 2. The Code was passed by the Parliament on 28th May, 2016. Several petitions were then filed against real estate developers under the Code by allottees who had entered into "assured returns / committed returns" agreements with these developers, whereby, upon payment of a substantial portion of the total sale consideration upfront at the time of execution of the agreement, the developer undertook to pay a certain amount to allottees on a monthly basis from the date of execution of the agreement till the date of handing over of possession to the allottees. The National Company Law Appellate Tribunal (hereinafter referred to as "NCLAT") on 21st July, 2017 in Nikhil Mehta and Sons (HUF) v. AMR Infrastructure Ltd., (Company Appeal (AT) (Insolvency) No. 07 of 2017) held that amounts raised by developers under assured return schemes had the "commercial effect of a borrowin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the aforesaid amendments as were provided for by the Amendment Ordinance. 5. Dr. Abhishek Manu Singhvi, learned Senior Advocate, leading the charge on behalf of the real estate developers, has argued that the treatment of allottees as financial creditors violates two facets of Article 14. One, that the amendment is discriminatory inasmuch as it treats unequals equally, and equals unequally, having no intelligible differentia; and two, that there is no nexus with the objects sought to be achieved by the Code. In fact, according to the learned senior counsel the amendments fly in the face of the objects sought to be achieved by the Code, i.e. to maximise value of assets so that the shareholders of a corporate debtor do not suffer from bad management or poor management. In the facts of the present cases, according to Dr. Singhvi, the "bad eggs" alone have been looked at, and entities like his client and many others before us, who have completed building projects in time and are in every way compliant with the law, can yet be jeopardised by Section 7 petitions filed under the Code to blackmail them into making payments which would divert funds which are otherwise to be used for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isproportionate and violative of Articles 14 and 19(1)(g) of the Constitution on this score also. In addition, the learned senior counsel scoffed at the Union's stand, in their counter affidavit before this Court, that the amendments made are clarificatory in nature. According to Dr. Singhvi, by no stretch of imagination could allottees who have parted with money as sale consideration for an apartment be included within the definition of "financial creditor" as originally enacted by Section 5(7). In fact, the very need for a deeming fiction is so that Parliament brings in persons who are not financial creditors, by forcibly inserting a square peg in a round hole. He read to us this Court's judgment in Swiss Ribbons v. Union of India (2019) 4 SCC 17, in copious detail, in order to drive home the point that not a single one of several characteristics of financial creditors stated in that judgment would apply to allottees/home buyers. On the contrary, if at all they could be assimilated to anybody, it would be to operational creditors, in which event it would be enough to state that there is a pre-existing dispute between the parties, as a result of which the Code cannot get triggered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f money which has then to be returned; there is no "disbursal" and no "sum raised" which has then to be handed back. Equally, the commercial effect of a borrowing must be qua transactions in which money is later replaced by money. According to him, in the present case, at the time that the agreement is made between the allottee and the real estate developer, what is agreed is that in return for money paid by the allottee, a flat/apartment would be allotted. It is only in the event of breach of the agreement on the part of the real estate developer that monies are to be refunded, which does not bring allottees within the definition of "financial creditor". He also argued, adopting Dr. Singhvi's arguments, that all other categories of financial creditors would involve these elements, and if read noscitur a sociis with the other clauses, Section 5(8) of the Code would also make it clear that persons can only be included if there is a borrowing, at the end of which the borrowing is returned - with or without interest. He thus agreed with Dr. Singhvi's argument that what was sought to be inserted by the amendment is a square peg in a round hole. 8. Shri Jayant Bhushan, learned Senior A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1)(c) of the Code be struck down. According to him, real estate developers and borrowers are treated as equals when they are, in fact, unequals. Also, real estate developers are discriminated against when compared with other entities supplying goods or services. The amendments made are, therefore, excessive and disproportionate being manifestly arbitrary. He also buttressed Dr. Singhvi's argument that a square peg is fitted into a round hole as none of the identifying traits of financial creditors as explained in Swiss Ribbons (supra) are present insofar as allottees are concerned. He added that, in any case, RERA looks after all possible difficulties of allottees, who may in addition, invoke the arbitration clause for resolution of disputes with the real estate developer contained in most agreements. 10. Shri Krishnan Venugopal, learned Senior Advocate, who followed Shri Gopal Sankaranarayanan, placed before us the Global Derivatives Study Group and extracts from Philip Wood's Project Finance, Subordinated Debt and State Loans; and Principles of International Insolvency by the same author. He then relied on 'The ACT Borrower's Guide to the LMA's Investment Grade Agreements' produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors, as financial creditors, infracts the principle of equitable treatment of similarly situated creditors. Further, the UNCITRAL Legislative Guide states that recognition of existing creditor's rights before the commencement of the insolvency proceedings by the insolvency law is important. He contended that by treating a home buyer as a financial creditor, the Code creates rights which such home buyer never had earlier. He further contended that by involving such persons in the negotiation process by putting them on the Committee of Creditors would infract the principle that, given their number and the diverse interests that they have, coupled with no knowledge or any commercial expertise of the corporate debtor, they should not and ought not to be allowed to participate in the Committee of Creditors. Also, insolvency law and other laws should be harmoniously construed, which harmony is disrupted when the Code is applied to cases which should really fall under RERA. Shri Bhandari was followed by Shri J. Gupta, who argued that instead of deeming that allottees/home buyers be regarded as financial creditors, they ought to be regarded as operational creditors in which case, defences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clients ought to be at liberty to take various defences under the agreement between his client and allottees, which this Court should make clear in the event of allottees knocking at the doors of the NCLT. 12. Mrs. Madhavi Divan, learned Additional Solicitor General, relying strongly upon Swiss Ribbons (supra), argued that the Amendment Act would clearly be covered by the ratio laid down by this Court in Swiss Ribbons (supra), which is that sufficient play in the joints must be given to the legislature when it comes to economic legislation, and every experiment that the legislature bona fide undertakes should not be interfered with by the Court. She referred copiously to the Insolvency Committee Report which led to the enactment of the Amendment Act, and stated that the real reason for including allottees as financial creditors is because, in substance, they finance the project in which they will ultimately be given flats/apartments. She contended that a cursory look at the agreement between developers and such allottees would show that at every stage in the building process, certain amounts have to be paid which are then supposed to be utilised in constructing the apartments/fl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied upon the definition of "payment" which would include "recompense" and on the definition in Collin's English dictionary of "borrow" which is "to obtain or receive money on loan for temporary use intending to give either money or something equivalent back to the lender". In the facts of these cases, she contended that the "something equivalent" would be the flat/apartment. She also relied upon the definition of "commercial" to show that the profit element is important. She stressed the fact that the "time value of money" is present qua both allottee and builder as the allottee would pay less than he would have to for a complete flat/apartment, in which case the entire consideration for the flat/apartment would have to be paid upfront; as against instalments while it is being completed. Qua the builder, she contended that the time value of money would be the money paid by way of advances by allottees which would be used to finance the building of the flats/apartments in the project. She also relied strongly upon Section 18 of RERA to show that in order to be a financial creditor, it is enough that a right recognised by Section 18 in favour of the allottee to payment would exist, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject, and/or refund of money paid by the allottee. It would be open for the real estate developer in its defence to say that no amount is due and payable from the allottee, in that, the allottee is himself in breach of conditions laid down by the agreement read with the RERA, and rules and regulations made thereunder. According to her, therefore, the NCLT would be able to decide such applications in the same manner as would be decided in the case of banks and financial institutions. She also rebutted the argument that the collegiality of creditors will be affected by inserting home buyers into their committee by stating that home buyers, like banks and financial institutions, and unlike other operational creditors, are vitally concerned with the well-being of the corporate debtor, as otherwise the real estate project would never come to fruition. In rebutting the challenge to Section 21(6A) and Section 25A, she said there may be teething problems with regard to how an authorised representative is to vote on the Committee of Creditors, but stated that the legislature is in the process of ironing out these creases and referred to the recent Insolvency and Bankruptcy Code (Amendment) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such partial certificates given to the real estate developer before coming into force of RERA would make the provisions of RERA inapplicable. Also, it has been pointed out that real estate developers have been successful in arguing that RERA has now shut out the consumer fora so far as allottees are concerned, and referred to stay orders by which consumer fora for a long period of time were unable to proceed with cases filed by allottees before them, until the National Consumer Disputes Redressal Commission finally decided that the Consumer Protection Act, 1986 was an additional remedy and continued to be an additional remedy to the remedies provided under RERA. They also pointed out that the authorities themselves under RERA jostled the allottees about, as when an allottee went to the Real Estate Regulatory Authority and obtained orders against developers, such orders were nullified by some Appellate Tribunal orders, stating that they should be sent to the adjudicating officer who alone could decide disputes between allottees and real estate developers. Separately, in answer to the argument that the admission of a Section 7 application would be fatal to the management of the corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 120 of the said judgment, this Court held: "120. The Insolvency Code is a legislation which deals with economic matters and, in the larger sense, deals with the economy of the country as a whole. Earlier experiments, as we have seen, in terms of legislations having failed, "trial" having led to repeated "errors", ultimately led to the enactment of the Code. The experiment contained in the Code, judged by the generality of its provisions and not by so- called crudities and inequities that have been pointed out by the petitioners, passes constitutional muster. To stay experimentation in things economic is a grave responsibility, and denial of the right to experiment is fraught with serious consequences to the nation. We have also seen that the working of the Code is being monitored by the Central Government by Expert Committees that have been set up in this behalf. Amendments have been made in the short period in which the Code has operated, both to the Code itself as well as to subordinate legislation made under it. This process is an ongoing process which involves all stakeholders, including the petitioners." It is in this background that the constitutional challenge to the Amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidenced the stance of the Hon'ble Supreme Court in safeguarding the rights of home buyers under the Code due to their current disadvantageous position. 1.3 To completely understand the issue, it is imperative that the peculiarity of the Indian real estate sector is highlighted. Delay in completion of under-construction apartments has become a common phenomenon and the records indicate that out of 782 construction projects in India monitored by the Ministry of Statistics and Programme Implementation, Government of India, a total of 215 projects are delayed with the time over-run ranging from 1 to 261 months. Another study released by the Associated Chambers of Commerce and Industry of India, revealed that 826 housing projects are running behind schedule across 14 states as of December 2016. Further, the Committee agreed that it is well understood that amounts raised under home buyer contracts is a significant amount, which contributes to the financing of construction of an asset in the future. 1.4 The current definition of 'financial debt' under section 5(8) of the Code uses the words "includes", thus the kinds of financial debts illustrated are not exhaustive. The phrase "di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for raising finance, there is no doubt that the amount raised may be classified as financial debt under section 5(8)(f). Drawing an analogy, in the case of home buyers, the amounts raised under the contracts of home buyers are in effect for the purposes of raising finance, and are a means of raising finance. Thus, the Committee deemed it prudent to clarify that such amounts raised under a real estate project from a home buyer fall within entry (f) of section 5(8). 1.7 Further, it may be noted that the amount of money given by home buyers as advances for their purchase is usually very high, and frequent delays in delivery of possession may thus, have a huge impact. For example, in Chitra Sharma v. Union of India the amount of debts owed to home buyers, which was paid by them as advances, was claimed to be INR Fifteen Thousand Crore, more than what was due to banks. Despite this, banks are in a more favourable position under the Code since they are financial creditors. Moreover, the general practice is that these contracts are structured unilaterally by construction companies with little or no say of the home buyers. A denial of the right of a class of creditors based on technicali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional may be appointed by the NCLT for each such class of financial creditors. Additionally, the representative shall act and attend the meetings on behalf of the respective class of financial creditors and shall vote on behalf of each of the financial creditor to the extent of the voting share of each such creditor, and as per their instructions. To ensure adequate representation by the authorised representative of the financial creditors, a specific provision laying down the rights and duties of such authorised representatives may be inserted. Further, the requisite threshold for the number of creditors and manner of voting may be specified by IBBI through regulations to enable efficient voting by the representative. Also, regulation 25 may also be amended to enable voting through electronic means such as e-mail, to address any technical issues which may arise due to a large number of creditors voting at the same time." 18. It can be seen that the Insolvency Law Committee found, as a matter of fact, that delay in completion of flats/apartments has become a common phenomenon, and that amounts raised from home buyers contributes significantly to the financing of the construction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easons of RERA reads as follows: STATEMENT OF OBJECTS AND REASONS "1. The real estate sector plays a catalytic role in fulfilling the need and demand for housing and infrastructure in the country. While the sector has grown significantly in recent years, it has been largely unregulated, with absence of professionalism and standardisation and lack of adequate consumer protection. Though the Consumer Protection Act, 1986 is available as a forum to the buyers in the real estate market, the recourse is only curative and is not adequate to address all the concerns of buyers and promoters in that sector. The lack of standardisation has been a constraint to the healthy and orderly growth of industry. Therefore, the need for regulating the sector has been emphasised in various forums. 2. In view of the above, it becomes necessary to have a Central legislation, namely, the Real Estate (Regulation and Development) Bill, 2013 in the interests of effective consumer protection, uniformity and standardisation of business practices and transactions in the real estate sector. The proposed Bill provides for the establishment of the Real Estate Regulatory Authority (the Authority) for regulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inted under sub-section (1) of section 71; xxx xxx xxx (d) "allottee" in relation to a real estate project, means the person to whom a plot, apartment or building, as the case may be, has been allotted, sold (whether as freehold or leasehold) or otherwise transferred by the promoter, and includes the person who subsequently acquires the said allotment through sale, transfer or otherwise but does not include a person to whom such plot, apartment or building, as the case may be, is given on rent; (e) "apartment" whether called block, chamber, dwelling unit, flat, office, showroom, shop, godown, premises, suit, tenement, unit or by any other name, means a separate and self-contained part of any immovable property, including one or more rooms or enclosed spaces, located on one or more floors or any part thereof, in a building or on a plot of land, used or intended to be used for any residential or commercial use such as residence, office, shop, showroom or godown or for carrying an any business, occupation, profession or trade, or for any other type of use ancillary to the purpose specified; xxx xxx xxx (g) "appropriate Government" means in respect of matters relating to, - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registration. (2) Notwithstanding anything contained in sub- section (1), no registration of the real estate project shall be required- (a) where the area of land proposed to be developed does not exceed five hundred square meters or the number of apartments proposed to be developed does not exceed eight inclusive of all phases: Provided that, if the appropriate Government considers it necessary, it may, reduce the threshold below five hundred square meters or eight apartments, as the case may be, inclusive of all phases, for exemption from registration under this Act; (b) where the promoter has received completion certificate for a real estate project prior to commencement of this Act; (c) for the purpose of renovation or repair or re- development which does not involve marketing, advertising selling or new allotment of any apartment, plot or building, as the case may be, under the real estate project. Explanation. -For the purpose of this section, where the real estate project is to be developed in phases, every such phase shall be considered a stand alone real estate project, and the promoter shall obtain registration under this Act for each phase separately. 4. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mes and addresses of his real estate agents, if any, for the proposed project; (k) the names and addresses of the contractors, architect, structural engineer, if any and other persons concerned with the development of the proposed project; (l) a declaration, supported by an affidavit, which shall be signed by the promoter or any person authorised by the promoter, stating:- (A) that he has a legal title to the land on which the development is proposed along with legally valid documents with authentication of such title, if such land is owned by another person; (B) that the land is free from all encumbrances, or as the case may be details of the encumbrances on such land including any rights, title, interest or name of any party in or over such land along with details; (C) the time period within which he undertakes to complete the project or phase thereof, as the case may be; (D) that seventy per cent. of the amounts realised for the real estate project from the allottees, from time to time, shall be deposited in a separate account to be maintained in a scheduled bank to cover the cost of construction and the land cost and shall be used only for that purpose: Provided t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or reject the application, as the case may be, as provided under sub-section (1), the project shall be deemed to have been registered, and the Authority shall within a period of seven days of the expiry of the said period of thirty days specified under sub- section (1), provide a registration number and a Login Id and password to the promoter for accessing the website of the Authority and to create his web page and to fill therein the details of the proposed project. (3) The registration granted under this section shall be valid for a period declared by the promoter under sub-clause (C) of clause (1) of sub-section (2) of section 4 for completion of the project or phase thereof, as the case may be. 6. Extension of registration.-- The registration granted under section 5 may be extended by the Authority on an application made by the promoter due to force majeure, in such form and on payment of such fee as may be prescribed: Provided that the Authority may in reasonable circumstances, without default on the part of the promoter, based on the facts of each case, and for reasons to be recorded in writing, extend the registration granted to a project for such time as it considers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to such further terms and conditions as it thinks fit to impose in the interest of the allottees, and any such terms and conditions so imposed shall be binding upon the promoter. (4) The Authority, upon the revocation of the registration,- (a) shall debar the promoter from accessing its website in relation to that project and specify his name in the list of defaulters and display his photograph on its website and also inform the other Real Estate Regulatory Authority in other States and Union territories about such revocation or registration; (b) shall facilitate the remaining development works to be carried out in accordance with the provisions of section 8; (c) shall direct the bank holding the project back account, specified under sub clause (D) of clause (I) of sub-section (2) of section 4, to freeze the account, and thereafter take such further necessary actions, including consequent de- freezing of the said account, towards facilitating the remaining development works in accordance with the provisions of section 8; (d) may, to protect the interest of allottees or in the public interest, issue such directions as it may deem necessary. 8. Obligation of Authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cified by the regulations made by the Authority; (b) the stage wise time schedule of completion of the project, including the provisions for civic infrastructure like water, sanitation and electricity. (4) The promoter shall- (a) be responsible for all obligations, responsibilities and functions under the provisions of this Act or the rules and regulations made thereunder or to the allottees as per the agreement for sale, or to the association of allottees, as the case may be, till the conveyance of all the apartments, plots or buildings, as the case may be, to the allottees, or the common areas to the association of allottees or the competent authority, as the case may be: Provided that the responsibility of the promoter, with respect to the structural defect or any other defect for such period as is referred to in sub- section (3) of section 14, shall continue even after the conveyance deed of all the apartments, plots or buildings, as the case may be, to the allottees are executed. (b) be responsible to obtain the completion certificate or the occupancy certificate, or both, as applicable, from the relevant competent authority as per local laws or other laws for the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re payable and be liable for the cost of any legal proceedings which may be taken therefor by such authority or person; (h) after he executes an agreement for sale for any apartment, plot or building, as the case may be, not mortgage or create a charge on such apartment, plot or building, as the case may be, and if any such mortgage or charge is made or created then notwithstanding anything contained in any other law for the time being in force, it shall not affect the right and interest of the allottee who has taken or agreed to take such apartment, plot or building, as the case may be; (5) The promoter may cancel the allotment only in terms of the agreement for sale: Provided that the allottee may approach the Authority for relief, if he is aggrieved by such cancellation and such cancellation is not in accordance with the terms of the agreement for sale, unilateral and without any sufficient cause. (6) The promoter shall prepare and maintain all such other details as may be specified, from time to time, by regulations made by the Authority. xxx xxx xxx 13. No deposit or advance to be taken by promoter without first entering into agreement for sale. (1) A promoter shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be barred by limitation provided under any law for the time being in force. (3) If the promoter fails to discharge any other obligations imposed on him under this Act or the rules or regulations made thereunder or in accordance with the terms and conditions of the agreement for sale, he shall be liable to pay such compensation to the allottees, in the manner as provided under this Act. 19. Rights and duties of allottees --(1) The allottee shall be entitled to obtain the information relating to sanctioned plans, layout plans along with the specifications, approved by the competent authority and such other information as provided in this Act or the rules and regulations made thereunder or the agreement for sale signed with the promoter. (2) The allottee shall be entitled to know stage-wise time schedule of completion of the project, including the provisions for water, sanitation, electricity and other amenities and services as agreed to between the promoter and the allottee in accordance with the terms and conditions of the agreement for sale. (3) The allottee shall be entitled to claim the possession of apartment, plot or building, as the case may be, and the association of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be, as provided under sub-section (1) of section 17 of this Act. 20. Establishment and incorporation of Real Estate Regulatory Authority -- (1) The appropriate Government shall, within a period of one year from the date of coming into force of this Act, by notification, establish an Authority to be known as the Real Estate Regulatory Authority to exercise the powers conferred on it and to perform the functions assigned to it under this Act: Provided that the appropriate Government of two or more States or Union territories may, if it deems fit, establish one single Authority: Provided further that, the appropriate Government may, if it deems fit, establish more than one Authority in a State or Union territory, as the case may be: Provided also that until the establishment of a Regulatory Authority under this section, the appropriate Government shall, by order, designate any Regulatory Authority or any officer preferably the Secretary of the department dealing with Housing, as the Regulatory Authority for the purposes under this Act: Provided also that after the establishment of the Regulatory Authority, all applications, complaints or cases pending with the Regulatory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensure compliance of the obligations cast upon the promoters, the allottees and the real estate agents under this Act and the rules and regulations made thereunder; (g) to ensure compliance of its regulations or orders or directions made in exercise of its powers under this Act; (h) to perform such other functions as may be entrusted to the Authority by the appropriate Government as may be necessary to carry out the provisions of this Act. xxx xxx xxx 36. Power to issue interim orders. --Where during an inquiry, the Authority is satisfied that an act in contravention of this Act, or the rules and regulations made thereunder, has been committed and continues to be committed or that such act is about to be committed, the Authority may, by order, restrain any promoter, allottee or real estate agent from carrying on such act until the conclusion of such inquiry of until further orders, without giving notice to such party, where the Authority deems it necessary. 37. Powers of Authority to issue directions. --The Authority may, for the purpose of discharging its functions under the provisions of this Act or rules or regulations made thereunder, issue such directions from time t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may be, issues any order or directs any person to do any act, or refrain from doing any act, which it is empowered to do under this Act or the rules or regulations made thereunder, then in case of failure by any person to comply with such order or direction, the same shall be enforced, in such manner as may be prescribed. xxx xxx xxx 43. Establishment of Real Estate Appellate Tribunal-- (1) The appropriate Government shall, within a period of one year from the date of coming into force of this Act, by notification, establish an Appellate Tribunal to be known as the - (name of the State/Union territory) Real Estate Appellate Tribunal. xxx xxx xxx 44. Application for settlement of disputes and appeals to Appellate Tribunal-- (1) The appropriate Government or the competent authority or any person aggrieved by any direction or order or decision of the Authority or the adjudicating officer may prefer an appeal to the Appellate Tribunal. xxx xxx xxx 58. Appeal to High Court. --(1) Any person aggrieved by any decision or order of the Appellate Tribunal, may, file an appeal to the High Court, within a period of sixty days from the date of communication of the decision or orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e complaint in respect of matters covered under sections 12, 14, 18 and section 19 is pending before the Consumer Disputes Redressal Forum or the Consumer Disputes Redressal Commission or the National Consumer Redressal Commission, established under section 9 of the Consumer Protection Act, 1986, (68 of 1986), on or before the commencement of this Act, he may, with the permission of such Forum or Commission, as the case may be, withdraw the complaint pending before it and file an application before the adjudicating officer under this Act. (2) The application for adjudging compensation under sub-section (1), shall be dealt with by the adjudicating officer as expeditiously as possible and dispose of the same within a period of sixty days from the date of receipt of the application: Provided that where any such application could not be disposed of within the said period of sixty days, the adjudicating officer shall record his reasons in writing for not disposing of the application within that period. (3) While holding an inquiry the adjudicating officer shall have power to summon and enforce the attendance of any person acquainted with the facts and circumstances of the case to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and that 70% of the amounts realised for the project from allottees, from time to time, shall be deposited in a separate account, which would be spent only to defray the cost of construction and land cost for that particular project. Registration is granted by the authority only when it is satisfied that the promoter is a bona fide promoter who is likely to perform his part of the bargain satisfactorily. Registration of the project enures only for a certain period and can only be extended due to force majeure events for a maximum period of one year by the authority, on being satisfied that such events have, in fact, taken place. Registration once granted, may be revoked if it is found that the promoter defaults in complying with the various statutory requirements or indulges in unfair practices or irregularities. Importantly, upon revocation of registration, the authority is to facilitate the remaining development work, which can then be carried out either by the "competent authority" as defined by the RERA or by the association of allottees or otherwise. The promoter at the time of booking and issue of allotment letters has to make available to the allottees information, inter a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the provisions of any other law for time being in force and under Section 89, RERA is to have effect notwithstanding anything inconsistent contained in any other law for the time being in force. The Insolvency and Bankruptcy Code, 2016 vis-à-vis the Real Estate (Regulation and Development) Act, 2016 23. Section 238 of the Code reads as follows: "238. The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law." 24. It is significant to note that there is no provision similar to that of Section 88 of RERA in the Code, which is meant to be a complete and exhaustive statement of the law insofar as its subject matter is concerned. Also, the non-obstante clause of RERA came into force on 1st May, 2016, as opposed to the non- obstante clause of the Code which came into force on 1st December, 2016. Further, the amendment with which we are concerned has come into force only on 6th June, 2018. Given these circumstances, it is a little difficult to accede to arguments made on behalf of learned senior counsel for the Petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e RDDB Act w.e.f. 17-1-2000 by Act 1 of 2000. There is no doubt that when an Act provides, as here, that its provisions shall be in addition to and not in derogation of another law or laws, it means that the legislature intends that such an enactment shall coexist along with the other Acts. It is clearly not the intention of the legislature, in such a case, to annul or detract from the provisions of other laws. The term "in derogation of" means "in abrogation or repeal of". The Black's Law Dictionary sets forth the following meaning for "derogation": "derogation.-The partial repeal or abrogation of a law by a later Act that limits its scope or impairs its utility and force." It is clear that sub-section (1) contains a non obstante clause, which gives the overriding effect to the RDDB Act. Sub-section (2) acts in the nature of an exception to such an overriding effect. It states that this overriding effect is in relation to certain laws and that the RDDB Act shall be in addition to and not in abrogation of, such laws. SICA is undoubtedly one such law. 37. The effect of sub-section (2) must necessarily be to preserve the powers of the authorities under SICA and save the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat Parliament intended the proceedings under SICA for reconstruction of a sick company to go on and for that purpose further intended that all the other proceedings against the company and its properties should be stayed pending the process of reconstruction. While the term "proceedings" under Section 22 of SICA did not originally include the RDDB Act, which was not there in existence. Section 22 covers proceedings under the RDDB Act." 26. In view of Section 34(2) of the Recovery Act, this Court held that despite the fact that the non-obstante clause contained in the Recovery Act is later in time than the non-obstante clause contained in the Sick Act, in the event of a conflict, the Recovery Act i.e. the later Act must give way to the Sick Act i.e. the earlier Act. Several judgments were referred to in which ordinarily a later Act containing a non-obstante clause must be held to have primacy over an earlier Act containing a non-obstante clause, as Parliament must be deemed to be aware of the fact that the later Act is intended to override all earlier statutes including those which contained non-obstante clauses. This statement of the law was departed from in KSL & Industries (sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , would override the general statute, viz. the Code. 29. As a matter of fact, the Code and RERA operate in completely different spheres. The Code deals with a proceeding in rem in which the focus is the rehabilitation of the corporate debtor. This is to take place by replacing the management of the corporate debtor by means of a resolution plan which must be accepted by 66% of the Committee of Creditors, which is now put at the helm of affairs, in deciding the fate of the corporate debtor. Such resolution plan then puts the same or another management in the saddle, subject to the provisions of the Code, so that the corporate debtor may be pulled out of the woods and may continue as a going concern, thus benefitting all stakeholders involved. It is only as a last resort that winding up of the corporate debtor is resorted to, so that its assets may be liquidated and paid out in the manner provided by Section 53 of the Code. On the other hand, RERA protects the interests of the individual investor in real estate projects by requiring the promoter to strictly adhere to its provisions. The object of RERA is to see that real estate projects come to fruition within the stated period and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent amount. For the meaning of "debt", we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a "claim" and for the meaning of "claim", we have to go back to Section 3(6) which defines "claim" to mean a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or more (Section 4). The corporate insolvency resolution process may be triggered by the corporate debtor itself or a financial creditor or operational creditor. A distinction is made by the Code between debts owed to financial creditors and operational creditors. A financial creditor has been defined under Section 5(7) as a person to whom a financial debt is owed and a financial debt is defined in Section 5(8) to mean a debt which is disbursed against consideration for the time value of money. As opposed to this, an operational creditor means a person to whom an operational debt is owed and an operational debt under Section 5(21) means a claim in respect of provision of goods or services. 28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the Explanation to Section 7(1), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing-i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code. 30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is "due" i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise." (emphasis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied to within the specified period. What is important is that at this stage, if an application is filed before the adjudicating authority for initiating the corporate insolvency resolution process, the corporate debtor can prove that the debt is disputed. When the debt is so disputed, such application would be rejected. xxx xxx xxx 46. However, the Insolvency Law Committee (ILC), in its Report of March 2018 dealt with debenture-holders and fixed deposit-holders, who are also financial creditors, and are numerous. The Report then went on to state: "10.6. For certain securities, a trustee or an agent may already be appointed as per the terms of the security instrument. For example, a debenture trustee would be appointed if debentures exceeding 500 have been issued [Section 71(5), Companies Act, 2013] or if secured debentures are issued [Rule 18(1)(c), Companies (Share Capital and Debenture) Rules, 2014]. Such creditors may be represented through such pre-appointed trustees or agents. For other classes of creditors which exceed a certain threshold in number, like home buyers or security-holders for whom no trustee or agent has already been appointed under a debt instrument or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is owed to a class of creditors exceeding the number as may be specified, other than the creditors covered under clause (a) or sub-section (6), the interim resolution professional shall make an application to the adjudicating authority along with the list of all financial creditors, containing the name of an insolvency professional, other than the interim resolution professional, to act as their authorised representative who shall be appointed by the adjudicating authority prior to the first meeting of the Committee of Creditors; (c) is represented by a guardian, executor or administrator, such person shall act as authorised representative on behalf of such financial creditors, and such authorised representative under clause (a) or clause (b) or clause (c) shall attend the meetings of the Committee of Creditors, and vote on behalf of each financial creditor to the extent of his voting share. (6-B) The remuneration payable to the authorised representative- (i) under clauses (a) and (c) of sub-section (6-A), if any, shall be as per the terms of the financial debt or the relevant documentation; and (ii) under clause (b) of sub-section (6-A) shall be as specified which shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umber of creditors in the class Fee per meeting of the committee (Rs) 10-100 15,000 101-1000 20,000 More than 1000 25,000 (9) The authorised representative shall circulate the agenda to creditors in a class and announce the voting window at least twenty-four hours before the window opens for voting instructions and keep the voting window open for at least twelve hours. 16-B. Committee with only creditors in a class. - Where the corporate debtor has only creditors in a class and no other financial creditor eligible to join the committee, the committee shall consist of only the authorised representative(s)." 49. It is obvious that debenture-holders and persons with home loans may be numerous and, therefore, have been statutorily dealt with by the aforesaid change made in the Code as well as the Regulations. However, as a general rule, it is correct to say that financial creditors, which involve banks and financial institutions, would certainly be smaller in number than operational creditors of a corporate debtor. xxx xxx xxx 61. Insofar as set-off and counterclaim is concerned, a set-off of amounts due from financial creditors is a rarity. Usually, financial debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a presumption in favour of the constitutionality of an enactment and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles; (c) that it must be presumed that the legislature understands and correctly appreciates the need of its own people, that its laws are directed to problems made manifest by experience and that its discriminations are based on adequate grounds; (d) that the legislature is free to recognise degrees of harm and may confine its restrictions to those cases where the need is deemed to be the clearest; (e) that in order to sustain the presumption of constitutionality the court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation; and (f) that while good faith and knowledge of the existing conditions on the part of a legislature are to be presumed, if there is nothing on the face of the law or the surrounding circumstances brought to the notice of the court on which the classification may reasonably be regarded as based, the presumption of consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o tainted whom the classification does not include. In other words, a classification is bad as under-inclusive when a State benefits or burdens persons in a manner that furthers a legitimate purpose but does not confer the same benefit or place the same burden on others who are similarly situated. A classification is over-inclusive when it includes not only those who are similarly situated with respect to the purpose but others who are not so situated as well. In other words, this type of classification imposes a burden upon a wider range of individuals than are included in the class of those attended with mischief at which the law aims. Herod ordering the death of all male children born on a particular day because one of them would someday bring about his downfall employed such a classification. 56. The first question, therefore, is, whether the exclusion of establishments carrying on business or trade and employing less than 50 persons makes the classification under- inclusive, when it is seen that all factories employing 10 or 20 persons, as the case may be, have been included and that the purpose of the law is to get in unpaid accumulations for the welfare of the labour. Sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. [See "General Theory of Law and State", p. 161] xxx xxx xxx 71. The Court must be aware of its own remoteness and lack of familiarity with local problems. Classification is dependent on the peculiar needs and specific difficulties of the community. The needs and difficulties of the community are constituted out of facts and opinions beyond the easy ken of the Court [ See "General Theory of Law and State", p. 161] . It depends to a great extent upon an assessment of the local condition of these concerns which the legislature alone was competent to make." 36. In V.C. Shukla v. State (Delhi Administration) 1980 Supp. SCC 249, this Court further elaborated: "11. In a diverse society and a large democracy such as ours where the expanding needs of the nation change with the temper of the times, it is extremely difficult for any legislation to make laws applicable to all persons alike. Some amount of classification is, therefore, necessary to administer various spheres of the activities of the State. It is well settled that in applying Article 14 mathematical precision or nicety or perfect equanimity are not required. Similarity rather than identity of treatment is enough. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... civil rights of all persons within the territories of India. It is a basic principle of republicanism. The phrase "equal protection of laws" is adopted from the Fourteenth Amendment to the U.S. Constitution. The right conferred by Article 14 postulates that all persons similarly circumstanced shall be treated alike both in privileges conferred and liabilities imposed. Since the State, in exercise of its governmental power, has, of necessity, to make laws operating differently on different groups of persons within its territory to attain particular ends in giving effect to its policies, it is recognised that the State must possess the power of distinguishing and classifying persons or things to be subjected to such laws. It is, however, required that the classification must satisfy two conditions, namely, (i) it is founded on an intelligible differentia which distinguishes those that are grouped together from others; and (ii) the differentia must have a rational relation to the object sought to be achieved by the Act. It is not the requirement that the classification should be scientifically perfect or logically complete. Classification would be justified if it is not palpably arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c, if otherwise made in the larger public interest. This Court said: "74. A reference has also been made for similar observations in Srinivasa Enterprises v. Union of India [(1980) 4 SCC 507] at SCC pp. 513-14 and in Jalan Trading Co. (P) Ltd. v. Mill Mazdoor Sabha [AIR 1967 SC 691 : (1967) 1 SCR 15] at SCR p. 36. While referring to the observations made in Collector of Customs v. Nathella Sampathu Chetty [AIR 1962 SC 316 : (1962) 3 SCR 786 : (1962) 1 Cri LJ 364] at SCR pp. 829-30 it is submitted that the intent of Parliament shall not be defeated merely for the reason that it may operate a bit harshly on a small section of public where it may be necessary to make such provisions of achieving the desired objectives to ensure that the nefarious activities of smuggling, etc. had to be necessarily curbed. In Fatehchand Himmatlal [(1977) 2 SCC 670] where debts of the agriculturists were wiped off, this Court observed: "44. Every cause claims its martyr and if the law, necessitated by practical considerations, makes generalizations which hurt a few, it cannot be helped by the Court. Otherwise, the enforcement of the Debt Relief Act will turn into an enquiry into scrupulous and unscr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 7 of the Code, it is only such allottee who has completely lost faith in the management of the real estate developer who would come before the NCLT under the Code hoping that some other developer takes over and completes the project, while always taking the risk that if no one were to come forward, corporate death must ensue and the allottee must then stand in line to receive whatever is given to him in winding up. Given the reasons of the Insolvency Committee Report, which show that experience of the real estate sector in this country has not been encouraging, in that huge amounts are advanced by ordinary people to finance housing projects which end up in massive delays on the part of the developer or even worse, i.e. failure of the project itself, and given the state of facts which was existing at the time of the legislation, as adverted to by the Insolvency Committee Report, it is clear that any alleged discrimination has to meet the tests laid down in Ram Krishna Dalmia (supra), V.C. Shukla (supra), Shri Ambica Mills (supra), Venkateshwara Theatre (supra) and Mardia Chemicals (supra). 40. It is impossible to say that classifying real estate developers is not founded u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreed at a time when the flat/apartment is non-existent or incomplete, is significantly less than the price the buyer would have to pay for a ready/complete flat/apartment, and therefore, he gains the time value of money. Likewise, the developer who benefits from the amounts disbursed also gains from the time value of money. The fact that the allottee makes such payments in instalments which are co-terminus with phases of completion of the real estate project does not any the less make such payments as payments involving "exchange", i.e. advances paid only in order to obtain a flat/apartment. What is predominant, insofar as the real estate developer is concerned, is the fact that such instalment payments are used as a means of finance qua the real estate project. One other vital difference with operational debts is the fact that the documentary evidence for amounts being due and payable by the real estate developer is there in the form of the information provided by the real estate developer compulsorily under RERA. This information, like the information from information utilities under the Code, makes it easy for home buyers/allottees to approach the NCLT under Section 7 of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are thus not directly involved or interested in assessing the viability of the corporate debtors. Though not having the expertise or information to be in a position to evaluate feasibility and viability of resolution plans, such individuals, by virtue of being financial creditors, have a right to be on the Committee of Creditors to safeguard their interest. Also, the question that is to be asked when a debenture holder or fixed deposit holder prefers a Section 7 application under the Code will be asked in the case of allottees of real estate developers - is a debt due in fact or in law? Thus, allottees, being individual financial creditors like debenture holders and fixed deposit holders and classified as such, show that they within the larger class of financial creditors, there being no infraction of Article 14 on this score. 42. The presumption that the legislature has understood and correctly appreciated the need of its people and that the amendment to the Code is directed to problems made manifest by experience, as was pointed out by the Insolvency Law Committee findings (supra) demonstrates that the presumption of constitutionality that attaches to the Amendment Act has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .No. FINDINGS IN SWISS RIBBONS W.R.T. RATIONALE BEHIND DISTINCTION BETWEEN FINANCIAL AND OPERATIONAL CREDITORS REASON FOR NON-APPLICABILITY OF DISTINCTION BETWEEN FCs and OCs (AS EXPLAINED IN SWISS RIBBONS) IN CASE OF HOMEBUYERS/ ALLOTTEES 1 Nature of security: "it is clear that most financial creditors, particularly banks and financial institutions, are secured creditors whereas most operational creditors are unsecured, payments for goods and services as well as payments to workers not being secured by mortgaged documents and the like." [Para 44] Real estate allottees/ homebuyers are unsecured creditors and are therefore more akin to OCs rather than FCs 2 "The nature of loan agreements with financial creditors is different from contracts with operational creditors for supplying goods and services. ● Financial creditors generally lend finance on a term loan or for working capital that enables the corporate debtor to either set up and/or operate its business. On the other hand, contracts with operational creditors are relatable to supply of goods and services in the operation of business. ● Financial contracts generally involve large sums of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he viability of the corporate debtor. They can, and therefore do, engage in restructuring of the loan as well as reorganization of the corporate debtor's business when there is financial stress, which are things operational creditors do not and cannot do. Thus, preserving the corporate debtor as a going concern, while ensuring maximum recovery for all creditors being the objective of the Code, financial creditors are clearly different from operational creditors and therefore, there is obviously an intelligible differentia between the two which has a direct relation to the objects sought to be achieved by the Code." [Para 45] Allottees are interested in securing their single time investment, and not the financial well-being of, or ensuring the continuity of, the corporate debtor as a going-concern. Further, allottees in different real estate projects of a corporate debtor, may have different interests confined only to that particular development, with no interest in the overall well-being or rearrangement or viability of the Company. If such allottees are vested with decision making powers concerning the business of the enterprise as a whole, it is unlikely that sound financial de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be taken having regard to the overall status of the entity which will undoubtedly defeat the very purpose and objective of the CIRP process. Interests of other stakeholders, including other financial creditors, suppliers, small creditors, labour, etc. are unlikely to be considered appropriately. 5 Regarding process for initiation of corporate insolvency resolution process: * Information with respect to debt incurred by financial debtors: "It is clear from these Sections that information in respect of debts incurred by financial debtors is easily available through information utilities which, under the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017 ["Information Utilities Regulations"], are to satisfy themselves that information provided as to the debt is accurate. This is done by giving notice to the corporate debtor who then has an opportunity to correct such information. Apart from the record maintained by such utility, Form I appended to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, makes it clear that the following are other sources which evidence a financial debt: (a) Particulars of security ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended on account of force majeure and other circumstances. As a result, in such a case, the right of the allottees to terminate/cancel their agreement with the developer and seek a refund of amounts paid would not have arisen in the first place. 45. As has been pointed out by us hereinabove, it is clear that the context of Swiss Ribbons (supra) was a challenge under Article 14 stating that financial creditors have been discriminated against because there is no real difference between financial and operational creditors, and that such artificial distinction made by the Code, not having been made anywhere else in the world, would be discriminatory, having no rational relation with the object sought to be achieved by the Code and would have, therefore, to be struck down under Article 14. As has been pointed out by us hereinabove, the context of this argument was financial institutions and banks on the one hand vis-à-vis operational creditors i.e. those who supply goods and services, on the other. It is in this context that the various differences that have been pointed out hereinabove were made. However, the judgment itself recognises - as has been pointed out by us hereinabo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uidator can sell the business of the corporate debtor as a going concern. (See ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] at para 83, fn 3). 28. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters/those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protects the corporate debtor's assets from further dilution, and also protects all its creditors and workers by seeing that the resol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UNCITRAL Legislative Guide. As will be pointed out hereinbelow, since allottees of real estate projects have always been subsumed within Section 5(8)(f), no new rights or claims have been created. It was also contended that since allottees are then said to have no expertise or knowledge in the working of the corporate debtor, they cannot participate effectively in the Committee of Creditors, and should therefore be kept out. The same answer as has been given hereinabove, i.e. that allottees, like individual financial creditors who are already on the Committee of Creditors, are to have a voice in determining the corporate debtor and their own future. This contention, therefore, also fails. 47. One other argument that is made on behalf of the counsel for the Petitioners is that allottees of flats/apartments who do not want refunds, but who want their flats/apartments constructed so that they may occupy and live in their flats/apartments, will be jeopardised, as a single allottee who does not want the flat/apartments, but wants a refund of amounts paid for reasons best known to him, can trigger the Code and upset the construction and handing over of such flats/apartments to the vast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and as the NCLT has to decide within a period of 14 days, there will only be a summary decision in which a complicated agreement entered into between home buyer and real estate developer will not be gone into in order to discover whether a debt is due and payable. Coupled with this argument, is the alternative argument that, given the fact that RERA adequately looks after the rights and interests of allottees, to apply the Code would then be manifestly arbitrary, as a management which may have infused large funds to develop the real estate project would then be summarily removed. A supplementary argument was made that this would also infract Article 19(1)(g) and 300-A, as a person who invests a huge sum of money from its own resources or borrowed resources, would then be left in the lurch the moment the insolvency resolution process is admitted. 50. The answer to these contentions is provided by reading some of the provisions of RERA. Under paragraph 3 of the Statement of Objects and Reasons of RERA, one of the important reasons for enacting the RERA is to "establish symmetry of information between the promoter and purchaser". This is achieved through Section 4, where every promo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age for the project, within fifteen days from the expiry of each quarter, namely:- (i) list of number and types of apartments or plots, booked; (ii) list of number of garages booked; (iii) status of the project- (A) Status of construction of each building with photographs; (B) Status of construction of each floor with photographs; (C) Status of construction of internal infrastructure and common areas with photographs. (iv) status of approvals,- (A) Approvals received; (B) Approvals applied and expected date of receipt; (C) Approvals to be applied and date planed for application; (D) Modifications, amendment or revisions, if any, issued by the competent authority with regard to any sanctioned plans, layout plans, specifications, license, permit or approval for the project;" Also, Rules 15 and 16 provide for interest payable by the promoter and timelines for refund as follows: "15. Interest payable by promoter and allottee- The rate of interest payable by the promoter to the allottee or by the allottee to the promoter, as the case may be, shall be the State Bank of India highest Marginal Cost of Lending Rate plus two per cent. Provided that in case the Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take possession of the flat/apartment under RERA, but wants to jump ship and really get back, by way of this coercive measure, monies already paid by it. Given the above, it is clear that it is very difficult to accede to the Petitioners' contention that a wholly one-sided and futile hearing will take place before the NCLT by trigger-happy allottees who would be able to ignite the process of removal of the management of the real estate project and/or lead the corporate debtor to its death. 51. At this juncture it is necessary to deal with the argument of the Petitioners that as the NCLT is given only 14 days in which to adjudicate on "default", the NCLT cannot, in such a summary proceeding, give detailed findings based on arguments raised by the allottees which are then countered with reference to a large number of documents and complicated statutory provisions, and which entail detailed arguments, which are then put forward by real estate developers. 52. This Court, while dealing with timelines provided qua operational creditors, in Surendra Trading Company (supra), held that the timelines contained in the provisos to Section 7(5), Section 9(5) and Section 10(4) of the Code are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of justice by giving the Government the opportunity to scrutinise and take immediate action to settle a just claim without driving the person who has issued a notice having to institute a suit involving considerable expenditure and delay. This is to be contrasted with Section 34(5), also a procedural provision, the infraction of which leads to no consequence. To construe such a provision as being mandatory would defeat the advancement of justice as it would provide the consequence of dismissing an application filed without adhering to the requirements of Section 34(5), thereby scuttling the process of justice by burying the element of fairness." This argument must also therefore be rejected. Challenge to Section 21(6A) and 25A of the Code 53. In the challenge to Section 21(6A) and Section 25A of the Code, it has been argued by learned counsel for the Petitioners that the allottees would fall in the following five categories and cannot be said, therefore, to be a homogenous class. A glance at the five categories would show, they argue, that they have, in fact, conflicting interests. These five categories are stated to be as follows: a) "Those who have taken possession and ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly arbitrary to omit allottees from the Committee of Creditors when they are vitally interested in the future of the corporate debtor as they have funded anywhere from 50% to 100% of the project in most cases. 55. On this point, we were referred to the Insolvency and Bankruptcy Code (Amendment) Bill, 2019, which has just passed through the Parliament, to amend the provisions of the Code in various aspects. What is interesting is the insertion of Section 25A(3A) as follows: "5. In section 25A of the principal Act, after sub-section (3), the following sub-section shall be inserted, namely- "(3A) Notwithstanding anything to the contrary contained in sub-section (3), the authorised representative under sub-section (6A) of section 21 shall cast his vote on behalf of all the financial creditors he represents in accordance with the decision taken by a vote of more than fifty per cent of the voting share of the financial creditors he represents, who have cast their vote: Provided that for a vote to be cast in respect of an application under section 12A, the authorised representative shall cast his vote in accordance with the provisions of sub-section (3)." Given the fact that allot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de at all, but that if the Code is otherwise triggered, they can be members of the Committee of Creditors to take decisions that will be beneficial to them. It was also suggested that, before the Code is triggered by an allottee, there should be a finding of "default" from the authorities under RERA. This is not unknown to law, and this Court has itself stated, in another context, that a jurisdictional finding by the Telecom Regulatory Authority of India must first be obtained before the Competition Commission of India gives a finding on unfair competition in the telecom sector, and the case of Competition Commission of India v. Bharti Airtel Limited and Ors. (2019) 2 SCC 521 was relied upon for this purpose. All these arguments were really made based on the presumption that some allottees who may now want to back out of the transaction and get a return of their money owing to factors which may be endemic to them, or owing to the fact that the market may have slumped as a result of which the investment made by them in the flat/apartment would fall flat requiring them to pull out of the transaction, would then be able to trigger the Code mala fide, and a reading down of these provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly in the narrower sense: Owners of SS Kalibia v. Wilson [Owners of SS Kalibia v. Wilson, (1910) 11 CLR 689 (Aust)] , Vacuum Oil Co. Pty. Ltd. v. Queensland [Vacuum Oil Co. Pty. Ltd.v. Queensland, (1934) 51 CLR 677 (Aust)] , R. v. Commonwealth Court of Conciliation and Arbitration, ex p Whybrow & Co. [R. v. Commonwealth Court of Conciliation and Arbitration, ex p Whybrow & Co., (1910) 11 CLR 1 (Aust)] and British Imperial Oil Co. Ltd. v. Federal Commr. of Taxation [British Imperial Oil Co. Ltd. v. Federal Commr. of Taxation, (1925) 35 CLR 422 (Aust)] ." (emphasis in original) 51. This judgment was followed by a Constitution Bench of this Court in DTC v. Mazdoor Congress [DTC v. Mazdoor Congress, 1991 Supp (1) SCC 600 : 1991 SCC (L&S) 1213] . In that case, a question arose as to whether a particular regulation which conferred power on an authority to terminate the services of a permanent and confirmed employee by issuing a notice terminating his services, or by making payment in lieu of such notice without assigning any reasons and without any opportunity of hearing to the employee, could be said to be violative of the appellants' fundamental rights. Four of the learned Jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment. What has been argued by learned counsel on behalf of the Petitioners is that Section 5(8)(f), as it originally stood, is an exhaustive provision which must be read noscitur a sociis, and if so read, sub-clause (f) must take colour from the other clauses of the provision, all of which show that the sine qua non of a "financial debt" is a loan of money made with or without interest, which must then be returned as money. This, according to the learned counsel for the Petitioners, is clear from even a cursory reading of Section 5(8). Secondly, according to learned counsel for the Petitioners, by no stretch of imagination, could an allottee under a real estate project fall within Section 5(8)(f), as it originally stood and the explanation must then be read prospectively i.e. only on and from the date of the Amendment Act. Several sub-arguments were made on the effect of deeming fictions generally and on the functions of an explanation to a Section. Let us address all of these arguments. 59. First and foremost, a financial debt is defined as meaning a "debt". "Debt" is defined by Section 3(11) of the Code as follows: "3. Definitions.- In this Code, unless the context otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt" is again an expression which is elastic enough to include "recompense", and includes repayment. For this purpose, see Himachal Pradesh Housing and Urban Development Authority and Anr. v. Ranjit Singh Rana (2012) 4 SCC 505 (at paragraphs 13 and 14 therein), where the Webster's Comprehensive Dictionary (International Edn.) Vol. 2 and the Law Lexicon by P. Ramanatha Aiyar (2nd Edn., Reprint) are quoted. 61. The definition of "financial debt" in Section 5(8) then goes on to state that a "debt" must be "disbursed" against the consideration for time value of money. "Disbursement" is defined in Black's Law Dictionary (10th ed.) to mean: "1. The act of paying out money, commonly from a fund or in settlement of a debt or account payable. 2. The money so paid; an amount of money given for a particular purpose." In the present context, it is clear that the expression "disburse" would refer to the payment of instalments by the allottee to the real estate developer for the particular purpose of funding the real estate project in which the allottee is to be allotted a flat/apartment. The expression "disbursed" refers to money which has been paid against consideration for the "time value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 2019] / [prior to [ ]] /[ ] have been treated as an operating lease)]; (e)receivables sold or discounted (other than any receivables to the extent they are sold on a non -recourse basis); (f) any amount raised under any other transaction (including any forward sale or purchase agreement) of a type not referred to in any other paragraph of this definition having the commercial effect of a borrowing; (g)any derivative transaction entered into in connection with protection against or benefit form fluctuation in any rate or price (and, when calculating the value of any derivative transaction, only the marked to market value (or, if any actual amount is due as a result of the termination or close- out of that derivative transaction, that amount) shall be taken into account); (h)any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution; and (i) the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (a) to (h) above." 63. When compared with Section 5(8), it is clear that Section 5(8) seems to ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods or services, from or to the corporate debtor; As correctly argued by the learned Additional Solicitor General, the expression "any other transaction" would include an arrangement in writing for the transfer of funds to the corporate debtor and would thus clearly include the kind of financing arrangement by allottees to real estate developers when they pay instalments at various stages of construction, so that they themselves then fund the project either partially or completely. 66. Sub-clause (f) Section 5(8) thus read would subsume within it amounts raised under transactions which are not necessarily loan transactions, so long as they have the commercial effect of a borrowing. We were referred to Collins English Dictionary & Thesaurus (Second Edition, 2000) for the meaning of the expression "borrow" and the meaning of the expression "commercial". They are set out hereinbelow: "borrow-vb 1. to obtain or receive (something, such as money) on loan for temporary use, intending to give it, or something equivalent back to the lender. 2. to adopt (ideas, words, etc.) from another source; appropriate. 3. Not standard. to lend. 4. (intr) Golf. To putt the ball uphill of the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an important guide in understanding the provisions of the Code. However, where the provisions of the Code, as construed in the light of the objects of the Code, are clear, the fact that from a huge report one word is picked up to indicate that all financial creditors must have debtors who owe money "solely" from financial transactions cannot possibly have the effect of negating the plain language of Section 5(8)(f) of the Code. In fact, what is important is that the threshold limit to trigger the Code is purposely kept low - at only one lakh rupees - making it clear that small individuals may also trigger the Code as financial creditors (as financial creditors include debenture holders and bond holders), along with banks and financial institutions to whom crores of money may be due. 69. That this amendment is in fact clarificatory is also made clear by the Insolvency Committee Report, which expressly uses the word "clarify", indicating that the Insolvency Law Committee also thought that since there were differing judgments and doubts raised on whether home buyers would or would not be included within Section 5(8)(f), it was best to set these doubts at rest by explicitly stating th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment and Reclamation Corpn. Ltd. v. Presiding Officer, Labour Court [(1990) 3 SCC 682, 717 : 1991 SCC (L&S) 71] .) The word 'includes' when used, enlarges the meaning of the expression defined so as to comprehend not only such things as they signify according to their natural import but also those things which the clause declares that they shall include. The words "means and includes", on the other hand, indicate "an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions". (See : Dilworth v. Commissioner of Stamps [1899 AC 99, 105-106 : (1895-9) All ER Rep Ext 1576] (Lord Watson); Mahalakshmi Oil Mills v. State of A.P. [(1989) 1 SCC 164, 169 : 1989 SCC (Tax) 56] The use of the words "means and includes" in Rule 2(b) would, therefore, suggest that the definition of 'college' is intended to be exhaustive and not extensive and would cover only the educational institutions falling in the categories specified in Rule 2(b) and other educational institutions are not comprehended. Insofar as engineering colleges are concerned, their exclusion may be for the reason that the opening and running of the private engin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reafter it further 'includes taking any such item in processed form' and again for the third time the words used are 'and further includes gur, rab, shakkar, khandsari and jaggery'. It is a well settled rule of interpretation that where the legislature uses the words 'means' and 'includes' such definition is to be given a wider meaning and is not exhaustive or restricted to the items contained or included in such definition. Thus the meaning of 'agricultural produce' in the above definition is not restricted to any products of agriculture as specified in the Schedule but also includes such items which come into being in processed form and further includes such items which are called as gur, rab, shakkar, khandsari and jaggery." 72. This statement of the law, as can be seen from the quotation hereinabove, is without citation of any authority. In fact, in Jagir Singh & Ors. v. State of Bihar & Anr. (1976) 2 SCC 942 at paragraphs 11 and 19 to 21 and Mahalakshmi Oil Mills v. State of Andhra Pradesh & Ors. (1989) 1 SCC 164, at paragraphs 8 and 11 (which has been cited in P. Kasilingam (supra)), this Court set out definition sections where the expression "means" was followed by some wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that Section 5(8)(f) is clearly a residuary "catch all" provision, taking within it matters which are not subsumed within the other sub- clauses. Even otherwise, in Controller of Estate Duty v. Kantilal Trikamlal (1976) 4 SCC 643, this Court has held that when an expression is a residuary one, ejusdem generis will not apply. It was thus held: "21...We have also to stress the expression "other right" in the explanation which is of the widest import and cannot be constricted by reading it ejusdem generis with "debt". "Other right", in the context, is expressly meant considerably to widen the concept and therefore suggests a somewhat contrary intention to the application of the ejusdem generis rule. We may derive instruction from Green's construction of the identical expression in the English Act. [Section 45 (2)]. The learned author writes: "A disclaimer is an extinguishment of a right for this purpose. Although in the event the person disclaiming never has any right in the property, he has the right to obtain it, this inchoate right is a 'right' for the purposes of Section 45(2). The ejusdem generis rule does not apply to the words 'a debt or other right&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of construction and it cannot prevail in cases where it is clear that wider words have been deliberately used in order to make the scope of the defined word correspondingly wider. It is only where the intention of the legislature in associating wider words with words of narrower significance is doubtful, or otherwise not clear that the said rule of construction can be usefully applied. It can also be applied where the meaning of the words of wider import is doubtful; but, where the object of the legislature in using wider words is clear and free of ambiguity, the rule of construction in question cannot be pressed into service. 72. In Bank of India v. Vijay Transport [Bank of India v. Vijay Transport, 1988 Supp SCC 47 : AIR 1988 SC 151] , the Court was dealing with the contention that a literal interpretation is not always the only interpretation of a provision in a statute and the court has to look at the setting in which the words are used and the circumstances in which the law came to be passed to decide whether there is something implicit behind the words actually used which would control the literal meaning of the words used. For the said purpose, reliance was placed on R.L. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the words found in immediate connection with them. In this regard, we may refer to a passage from Justice G.P. Singh, Principles of Statutory Interpretation [ (13th Edn., 2012) 509.] where the learned author has referred to the lucid explanation given by Gajendragadkar, J. We think it appropriate to reproduce the passage: "It is a rule wider than the rule of ejusdem generis; rather the latter rule is only an application of the former. The rule has been lucidly explained by Gajendragadkar, J. in the following words: 'This rule, according to Maxwell [ Maxwell, Interpretation of Statutes (11th Edn., 1962) 321.] , means that when two or more words which are susceptible of analogous meaning are coupled together, they are understood to be used in their cognate sense. They take as it were their colour from each other, that is, the more general is restricted to a sense analogous to a less general.'" The learned author on further discussion has expressed the view that meaning of a word is to be judged from the company it keeps i.e. reference to words found in immediate connection with them. It applies when two or more words are susceptible of analogous meanings are coupled together, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment requires such subject matter be treated as if it were real. To similar effect are the observations in K. Kamaraja Nadar v. Kunju Thevar and Ors. AIR 1958 SC 687 at paragraph 28, where this Court put it thus: "The effect of such a legal fiction, however, is that a position which otherwise would not obtain is deemed to obtain under those circumstances." 79. It was also argued, relying upon Delhi Cloth & General Mills Co. Ltd. and Anr. v. State of Rajasthan and Ors. (1996) 2 SCC 449, that a deeming fiction can only be as to facts and cannot be the deeming of a legal position. It was further argued relying upon Daiichi Sankyo Company Limited v. Jayaram Chigurupati and Ors. (2010) 7 SCC 449, that a deeming provision cannot be destructive of the main provision and cannot be construed as such. 80. A closer look at Delhi Cloth & General Mills Co. Ltd. (supra) would show that the judgment in essence followed this Court's judgment in Shri Prithvi Cotton Mills Ltd. & Anr. v. Broach Borough Municipality & Ors. 1969 (2) SCC 283, in that the validating statute in question had not cured the defect that was pointed out. This becomes clear on a reading of paragraph 16 and 17 of the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way with the concept of a "financial creditor", we have already found that the deeming provision is only clarificatory of the fact that allottees are to be considered as "financial creditors" for the reasons already given by us hereinabove. 83. Although a deeming provision is to deem what is not there in reality, thereby requiring the subject matter to be treated as if it were real, yet several authorities and judgments show that a deeming fiction can also be used to put beyond doubt a particular construction that might otherwise be uncertain. Thus, Stroud's Judicial Dictionary of Words and Phrases (Seventh Edition, 2008), defines "deemed" as follows: "Deemed"-, as used in statutory definitions "to extend the denotation of the defined term to things it would not in ordinary parlance denote, is often a convenient device for reducing the verbiage or an enactment, but that does not mean that wherever it is used it has that effect; to deem means simply to judge or reach a conclusion about something, and the words 'deem' and 'deemed' when used in a statute thus simply state the effect or meaning which some matter or things has- the way in which it is to be adjudged ; this need not im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : (1951) 2 All ER 587 (HL)] at AC pp. 132-33.) '... The word "deemed" is used a great deal in modern legislation. Sometimes it is used to impose for the purposes of a statute an artificial construction of a word or phrase that would not otherwise prevail. Sometimes it is used to put beyond doubt a particular construction that might otherwise be uncertain. Sometimes it is used to give a comprehensive description that includes what is obvious, what is uncertain and what is, in the ordinary sense, impossible.' [Per Lord Radcliffe in St. Aubyn v. Attorney General (No. 2) [1952 AC 15 : (1951) 2 All ER 473 (HL)] , AC p. 53.] 14. 'Deemed', as used in statutory definitions [is meant] 'to extend the denotation of the defined term to things it would not in ordinary parlance denote, is often a convenient devise for reducing the verbiage of an enactment, but that does not mean that wherever it is used it has that effect; to deem means simply to judge or reach a conclusion about something, and the words "deem" and "deemed" when used in a statute thus simply state the effect or meaning which some matter or thing has - the way in which it is to be adjudged; this need not import artificialit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en found by us that the explanation was added by the Amendment Act only to clarify doubts that had arisen as to whether home buyers/allottees were subsumed within Section 5(8)(f). The explanation added to Section 5(8)(f) of the Code by the Amendment Act does not in fact enlarge the scope of the original Section as home buyers/allottees would be subsumed within Section 5(8)(f) as it originally stood as has been held by us hereinabove. As a matter of statutory interpretation, that interpretation, which accords with the objects of the statute in question, particularly when we are dealing with a beneficial legislation, is always the better interpretation or the "creative interpretation" which is the modern trend of authority, and which is reflected in the concurring judgment of Eera (through Dr. Manjula Krippendorf) v. State (NCT of Delhi) and Anr. (2017) 15 SCC 133 at paragraphs 122 and 127. This argument must, therefore, also be rejected. 86. We, therefore, hold that 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. Conclusion i. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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