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SUPREME COURT OF INDIA
DIPAK MISRA, CJI., A.M. KHANWILKAR, D.Y. CHANDRACHUD, JJ.
CHITRA SHARMA AND ORS. – Petitioners
VERSUS
UNION OF INDIA AND ORS. – Respondents
WRIT PETITION (CIVIL) NO 744 OF 2017 WITH WRIT PETITION (CIVIL) NO 782 OF 2017 WITH WRIT PETITION (CIVIL) NO 783 OF 2017 WITH SPECIAL LEAVE PETITION (CIVIL) NO 24001 OF 2017 WITH WRIT PETITION (CIVIL) NO 803 OF 2017 WITH WRIT PETITION (CIVIL) NO 805 OF 2017 WITH SPECIAL LEAVE PETITION (CIVIL) NO 24002 OF 2017 WITH WRIT PETITION (CIVIL) NO 950 OF 2017 WITH WRIT PETITION (CIVIL) NO 860 OF 2017 WITH SPECIAL LEAVE PETITION (CIVIL) NO 36396 OF 2017 WITH SPECIAL LEAVE PETITION (CIVIL) D NO 33267 OF 2017 AND WITH WRIT PETITION (CIVIL) NO 511 OF 2018
Decided On : 09-08-2018
(1990) 1 SCC 520 – Relied upon
Insolvency and Bankruptcy Code 2016 – Section 5(7) and 5(8) – Financial creditors and financial debt – Amounts raised from allottees under real estate projects – amounts raised from allottees under real estate projects – Deemed to be amounts “having a commercial effect of a borrowing” or financial debts – Allottees therefore brought within purview of ‘financial creditors’. (Para 27)
Insolvency and Bankruptcy Code 2016 – Section 7 and 21 r/w Regulation 16A – Being financial creditors, home buyers entitled to be represented in committee of creditors (CoC) with voting share proportionate to the extent of their financial debt. (Para 28)
Section 29 A and 30 – Persons responsible for insolvency of the corporate debtor – Debarred from participating in the resolution process – Held, promoters of JAL/JIL not entitled to participate in the JIL resolution process – Moreover JAL/JIL lacking financial capacity and resources to complete unfinished projects – Hence they cannot be ;permitted to participate in the resolution process (Para 31, 32, 35)
Section 29 A and 30 – Extended term of CIRP of 270 days ending on 12 May 2018 – Home buyers getting statutory right to be on CoC only on 6 June 2018 – Court exercising power under Article 142 for limited purpose of recommencing the resolution process afresh – Held, it would be necessary to revive the period prescribed by the statute by another 180 days commencing from the date of this order – JIL or JAL and the erstwhile promoters debarred from participating in the process. (Para 39)
Administration of justice – Judicial propriety – When Parliament has created specific mechanism of CIRP, the Court should not appoint a Committee to oversee the CIRP and assume the task of supervising the work of the Committee. (Para 39)
Banking Regulation Act 1949 – Section 35 AA and Section 35 AB – RBI authorized to issue binding directions to any banking company to initiate an insolvency resolution process in respect of a default in terms of IBC – Proceedings against JIL/JAL initiated accordingly – RBI carrying out exercise expected of it. (Para 40)
(1981) 4 SCC 675; (1992) 2 SCC 343; (2017) 4 SCC 318 – Relied upon
Facts of the case:
IDBI Bank Limited instituted a petition under Section 7 of the Insolvency and Bankruptcy Code 2016 [IBC] against JIL [CP (IB) 77/ALB/2017)] before the National Company Law Tribunal [NCLT] at its Bench at Allahabad. The bank sought the initiation of a Corporate Insolvency Resolution Process [CIRP] against JIL. JIL filed its objections opposing admission of the petition. However, according to the petitioners, JIL withdrew its objections and furnished its consent for a resolution plan under the provisions of the IBC. IDBI Bank claimed that JIL had committed a default of Rs. 526.11 crores in the repayment of its dues. On 9 August 2017, NCLT initiated the CIRP in respect of JIL. An order of moratorium was issued under Section 14 by which the institution of suits and the continuation of pending proceedings, including execution proceedings was prohibited. An Interim Resolution Professional [IRP] was appointed under the provisions of the IBC. On 14 August 2017, JIL, in pursuance of the order of NCLT called for submissions of claims by creditors: financial creditors in Form-C, operational creditors in Form -B, workmen and employees in Form -E and other creditors in Form -F. On 16 August 2017, the Insolvency and Bankruptcy Board of India made an amendment to its regulations and Regulation 9(a) was inserted to include claims by other creditors. On 18 August 2017, the Board released a press note clarifying that home buyers could fill in Form -F as they could not be treated at par with financial and operational creditors.
These proceedings were instituted for the following reliefs:
(i) A declaration that Sections 6,7,10,14 and 53 of the Code are ultra vires in so far as only financial or operational creditors are recognized, disregarding other stakeholders such as the home buyers;
(ii) The order dated 9 August 2017 of the NCLT be set aside;
(iii) The Union of India be directed to notify under Section 14(3) that the provisions for moratorium contained under Section 14(1)(a) shall not apply to consumers and that the home buyers be allowed to exercise the rights available to them under the Consumer Protection Act 1986 and the Real Estate (Regulation and Development) Act 2016;
(iv) A forensic audit of JIL and JAL be conducted for the period from 2009 to 2017; and
(v) A direction be issued to the Union of India to protect the interests of home buyers in the larger public interest.
Finding of the Court:
In view of the home buyers statutorily becoming ‘financial creditors’, the CIRP should be initiated afresh. The initial period of 180 days for the conclusion of the CIRP in respect of JIL shall commence from the date of this order.
JIL/JAL and their promoters shall be ineligible to participate in the CIRP.
RBI allowed to direct the banks to initiate corporate insolvency resolution proceedings against JAL under the IBC
The amount of Rs 750 crores deposited by JAL/JIL shall together with the interest accrued thereon be transferred to the NCLT and continue to remain invested and shall abide by such directions as may be issued by the NCLT.
Result: Proceedings disposed of.
JUDGMENT
Dr. D.Y. CHANDRACHUD, J
1. Permission to file the Special Leave Petitions is granted.
2. These proceedings have been initiated under Article 32 of the Constitution for protecting the interests of home buyers in projects floated by Jaypee Infratech Limited [JIL]. JIL is a special purpose vehicle created by its holding company, Jaiprakash Associates Limited[JAL].
3. IDBI Bank Limited instituted a petition under Section 7 of the Insolvency and Bankruptcy Code 2016 [IBC] against JIL [CP (IB) 77/ALB/2017) ] before the National Company Law Tribunal [NCLT] at its Bench at Allahabad. The bank sought the initiation of a Corporate Insolvency Resolution Process [CIRP] against JIL. JIL filed its objections opposing admission of the petition. However, according to the petitioners, JIL withdrew its objections and furnished its consent for a resolution plan under the provisions of the IBC. IDBI Bank claimed that JIL had committed a default of Rs. 526.11 crores in the repayment of its dues. On 9 August 2017, NCLT initiated the CIRP in respect of JIL. An order of moratorium was issued under Section 14 by which the institution of suits and the continuation of pending proceedings, including execution proceedings was prohibited. An Interim Resolution Professional [IRP] was appointed under the provisions of the IBC. On 14 August 2017, JIL, in pursuance of the order of NCLT called for submissions of claims by creditors: financial creditors in Form-C, operational creditors in Form -B, workmen and employees in Form -E and other creditors in Form -F. On 16 August 2017, the Insolvency and Bankruptcy Board of India made an amendment to its regulations and Regulation 9(a) was inserted to include claims by other creditors. On 18 August 2017, the Board released a press note clarifying that home buyers could fill in Form -F as they could not be treated at par with financial and operational creditors.
4. These proceedings were instituted for the following reliefs:
(i) A declaration that Sections 6,7,10,14 and 53 of the Code are ultra vires in so far as only financial or operational creditors are recognized, disregarding other stakeholders such as the home buyers;
(ii) The order dated 9 August 2017 of the NCLT be set aside;
(iii) The Union of India be directed to notify under Section 14(3) that the provisions for moratorium contained under Section 14(1)(a) shall not apply to consumers and that the home buyers be allowed to exercise the rights available to them under the Consumer Protection Act 1986 and the Real Estate (Regulation and Development) Act 2016;
(iv) A forensic audit of JIL and JAL be conducted for the period from 2009 to 2017; and
(v) A direction be issued to the Union of India to protect the interests of home buyers in the larger public interest.
5. As the above narration indicates, the grievance with which this Court was moved under Article 32 was that the CIRP ignores the interests of vital stakeholders in building projects, chief among whom are individuals who have invested their wealth in pursuit of the human desire to own a home. The IBC, in the submission of the petitioners, recognized only three categories or classes namely (i) corporate debtors; (ii) financial creditors and (iii) operational creditors. Not being protected by the IBC, the petitioners contended that the rights conferred upon them by special enactments including the Consumer Protection Act 1986 and by RERA could not be divested. Suspension of the right to seek redressal before an adjudicatory forum under Section 14(1)(a) would, it was asserted, leave the home buyers without a remedy. Section 238 of the IBC gives it an overriding effect over other laws in existence.
6. The petition before this Court has grown in size to incorporate as many as 646 persons who claim to be home buyers. Arrayed before the Court as respondents to these proceedings, besides JIL, JAL an
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