2019 Supreme(SC) 843

SUPREME COURT OF INDIA
R.F. Nariman, Sanjiv Khanna, Surya Kant, JJ.
Pioneer Urban Land and Infrastructure Limited & Anr. – Petitioners
Versus
Union of India & Ors. – Respondents
WRIT PETITION (CIVIL) NOs. 43, 99, 124, 121, 129, 1486, 130, 135, 201, 147, 193, 156, 183, 166, 163, 194, 176, 205, 173, 189, 188, 185, 177, 214, 303, 195, 197, 196, 243, 198, 199, 200, 309, 217, 230, 304, 258, 221, 229, 241, 293, 310, 242, 280, 261, 263, 272, 362, 358, 281, 277, 311, 279, 283, 366, 287, 284 , 312, 294, 989, 320, 321, 319, 386, 396, 345, 328, 347, 344, 369, 916, 350, 353, 355, 361, 354, 402, 412, 357, 411, 505, 374, 377, 389, 829, 640, 454, 409, 398, 407, 441, 426, 410, 418, 485, 425, 535, 437, 442, 468, 491, 566, 457, 614, 544, 483, 669, 529, 492, 532, 540, 522, 503, 506, 513, 530, 555, 634, 580, 587, 682, 585, 613, 571, 578, 600, 589, 610, 648, 673, 629, 638, 597, 636, 632, 642, 644, 655, 643, 668, 671, 678, 702, 704, 694, 822, 807, 713, 714, 990, 824, 739, 745, 806, 846, 904, 800, 808, 805, 821, 831, 950, 850, 830, 858, 840, 877, 868, 855, 871, 927, 861, 860, 878, 913, 909, 905, 922, 918 & 919, 941 of 2019
Decided On : 09-08-2019

IMPORTANT POINTS
The Amendment Act to the Code does not infringe Articles 14, 19(1)(g) read with Article 19(6), or 300-A of the Constitution of India.
The RERA is to be read harmoniously with the Code, as amended by the Amendment Act. It is only in the event of conflict that the Code will prevail over the RERA. Remedies that are given to allottees of flats/apartments are therefore concurrent remedies, such allottees of flats/apartments being in a position to avail of remedies under the Consumer Protection Act, 1986, RERA as well as the triggering of the Code.
Section 5(8)(f) as it originally appeared in the Code being a residuary provision, always subsumed within it allottees of flats/apartments. The explanation together with the deeming fiction added by the Amendment Act is only clarificatory of this position in law.

Headnote:

(a) Interpretation of statute - Economic statute - Legislature must be given free play in the joints when it comes to economic legislation - Apart from presumption of constitutionality of legislation, legislative judgment in economic choices must be given a certain degree of deference by the courts. (Para 15)

       (b) Insolvency and Bankruptcy Code, 2016 - Legislative history - Insolvency Committee Report - Need to treat home buyers as financial creditors in view of their significant contribution to financing of construction of flats/apartments - Need also to put such home buyers on Committee of Creditors. (Para 18, 19)

       (c) Real Estate (Regulation and Development) Act, 2016 - Sections 13, 18, 19 - Section 13 requiring deposit of 70% of the amounts realised from allottees in a separate account to be spent only towards cost of construction and land - Section 18 requiring the promoter to return the amount received by him from allottees failing completion of the apartment to the allottees with prescribed interest - Under Section 19, allottee is entitled to claim possession of the apartment, plot or building, as the case may be, or refund of amount paid along with interest in accordance with the terms of the agreement for sale. (Para 22)

       (d) Interpretation of statute - Section 238 and Section 5(8)(f), Insolvency and Bankruptcy Code, 2016 and section 88, Real Estate (Regulation and Development) Act, 2016 - The non-obstante clause in RERA coming into force on 1st May 20116 - The non-obstante clause in RERA coning into force on 1st December, 2016 - Held, the Code shall have prevalence over RERA - Further, remedies under RERA intended to be additional and not exclusive remedies - Authorities under RERA would come into force only on 1 May 2017 whereas provisions of the Code became effective from 1st December, 2016 - Provisions of RERA held to be in addition to the Code - harmonious construction. (Para 24, 26, 28)

       (e) Interpretation of statute - Insolvency and Bankruptcy Code, 2016 and Real Estate (Regulation and Development) Act, 2016 - Both operating in different fields - While Code focuses on the rehabilitation of the corporate debtor, RERA protects the interests of the individual investor in real estate projects - However, parallel remedies available to allottees - To demand refund of monies and compensation u/s 19, RERA - Or, rehabilitation of the corporate debtor u/s 7, Code - Or, to continue with complain under Consumer Protection Act. (Para 29)

       (f) Insolvency and Bankruptcy Code, 2016 - Section 5 - Financial creditor and Operational creditor - Financial creditor is a person to whom a financial debt, meaning a debt disbursed against consideration for the time value of money, is owed - Operational creditor, on the other hand means a person to whom an operational debt, i.e., a claim in respect of provision of goods or services is owed - Financial creditor could also be individuals, such as debenture holders and fixed deposit holders - Allottees held financial creditors vis-à-vis real estate developrs. (Para 30, 31, 43)

       (g) Insolvency and Bankruptcy Code, 2016 - Section 5 - Treating allottees as financial creditors vis-à-vis developers - Contention that treating real estate developers different than entities supplying and treating allottees as financial creditors like banks violates Article 14 of the Constitution rejected - Economic legislation cannot be held ultra vires on ground of under-inclusion. (Para 32, 35, 40)

       (h) Insolvency and Bankruptcy Code, 2016 - Not a recovery mechanism - It is a proceeding in rem - An allottee can trigger it but thereafter it goes completely outside his control - He may never get the refund of entire principal, let alone interest - Under RERA, the allottee may get full amount of refund and interest together with compensation and penalty, if any. (Para 39)

       (i) Insolvency and Bankruptcy Code, 2016 - Section 5(8)(f) - Validity - Code a beneficial legislation protecting interest of unsecured creditors like allottees - Held, Section 5(8)(f) is not manifestly arbitrary i.e. excessive, disproportionate or without adequate determining principle - Not violative of Article 14, Constitution of India - Having been made in public interest the provision held not infringing Article 19(1)(g) being saved by Article 19(6) - Also hled, there is no infraction of Article 300-A as no person is deprived of its property without authority of a constitutionally valid law. (Para 45)

       (j) Insolvency and Bankruptcy Code, 2016 - Section 5(8)(f) - Allottees always subsumed within Section 5(8)(f) - Held, amendment not creating any new rights or claims. (Para 46)

       (k) Insolvency and Bankruptcy Code, 2016 - Section 7(1) - Allottees not wanting refund but flat/apartment - After the Code is triggered by a single allottee, such allottees who do not want refund but flat can file application stating that in addition to the construction of their flat/apartment, they are also entitled to compensation under RERA and/or under the general law, and thus having a “claim” - They would have a voice in the Committee of Creditors as to future plans for completion of the project, and compensation for late delivery of the flat/apartment. (Para 47)

       (l) Insolvency and Bankruptcy Code, 2016 - Section 7 and 29A - Resolution plan may be submitted by same management - Even if another management takes over, the value of the project will be maximized - Corporate death is the last option. (Para 48)

       (m) Insolvency and Bankruptcy Code, 2016 - Section 7(4) and 64(1) - Timeline of 14 days and its extension not exceeding 10 days - No consequence provided for failure to adhere to the timeline - Timeline held directory, not mandatory. (Para 52)

       (n) Insolvency and Bankruptcy Board Code, 2016 - Section 21(6A) - In case of allottees financing the entire project the developer will have no financial or operational creditor and therefore Committee of Creditors will not exist to take decision on future of the project - Held, allottees rightly tteated as financial creditors. (Para 54)

       (o) Insolvency and Bankruptcy Board Code, 2016 - Section 25A - Representative of allottees to cast his vote in accordance with decision taken by more than 50% voting share of the allottees which will bind all of them - The group being homogeneous or not makes no difference. (Para 55)

       (p) Interpretation of statute - Reading down - A provision in a constitutionally valid law, cast in definite and unambiguous language - Not permissible to read it down (either to mend or bend it), even if such recasting is in accord with good reason and conscience. (Para 56, 57)

       (q) Insolvency and Bankruptcy Code, 2016 - Section 5(8)(f) - A “catch all” provision residuary in nature - Would subsume within it transactions which do not fall under any of the other sub-clauses of Section 5(8) - “Any other transaction” - An arrangement in writing for transfer of funds to corporate debtor - Would include the kind of financing arrangement by allottees paying instalments at various stages of construction to real estate developers, so that they themselves then fund the project either partially or completely for temporary use so that a flat/apartment is given back to the lender (allottee) - Such transaction has a commercial effect of borrowing - Such transaction therefore would be subsumed within Section 5(8)(f). (Para 64, 65, 66, 67)

       (r) Interpretation of statute - Plain language of Section 5(8)(f) of Insolvency and Bankruptcy Code, 2016 - Cannot be negated by picking up a word from a huge report like that of Bankruptcy Law Reforms Committee of November, 2015. (Para 68)

       (s) Insolvency and Bankruptcy Code, 2016 - Section 5(8)(f) - Section 5(8)(f) Explanation - Added to the Code for clarifying the position of home buyers in view of differing judgments of different courts - Provision held ‘clarificatory’. (Para 69)

       (t) Interpretation of statute - Definition clause - “Means” and “includes” - Make the definition exhaustive - ‘Includes’ extends the definition contained in words which follow the expression “means” - However Legislature not precluded from inserting words into what may even be an exhaustive definition by way of amendment as in the case of section 5(8)(f), Insolvency and Bankruptcy Code, 2016 - Noscitur a sociis not applicable. (Para 72, 73, 74)

       (u) Insolvency and Bankruptcy Code, 2016 - Section 5(8)(f) - Deeming fiction - 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, a deeming fiction can also be used to put beyond doubt a particular construction that might otherwise be uncertain - Instantly “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” - Only clarificatory. (Para 81, 82, 83)

       (v) Interpretation of statute - Explanation - An explanation does not ordinarily enlarge the scope of original Section - But if it does, effect must be given to the legislative intent notwithstanding the fact that the legislature has named a provision as an explanation - Instantly Explanation only clarificatory to clarify that home buyers are financial creditors - Does not enlarge scope of the main provision. (Para 85)

       Facts of the case:

       Several petitions were filed against real estate developers under the Insolvency 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 held that amounts raised by developers under assured return schemes had the “commercial effect of a borrowing”. As a result, such allottees were held to be “financial creditors” within the meaning of Section 5(7) of the Code.

       Proceedings were initiated by IDBI Bank against a large real estate developer, Jaypee Infratech Ltd. under Section 7 of the Code before the National Company Law Tribunal Allahabad Bench, alleging that Jaypee had defaulted on a loan of Rs. 526.11 crores. On 11th September, 2017, an order was passed by Supreme Court appointing a representative of the home buyers, i.e. the allottees, to participate in meetings of the Committee of Creditors in order that their interests be protected.

       Qua another group of builders, namely, the Amrapali group, an order was passed by Supreme Court substantially on the same lines. The Supreme Court was only concerned with those home buyers who intend to obtain a refund of amounts advanced by them, being 8% of the total home buyers/allottees in Jaypee’s case. Given these orders by this Court, the Insolvency Committee Report suggested that amendments be made in the Code seeking to clarify, as a matter of law, that allottees of real estate projects are financial creditors. Parliament passed the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018.

       The amendments made in the Insolvency and Bankruptcy Code, deem allottees of real estate 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 constitutional validity of these amendments have been challenged in these petitions.

       Finding of the Court:

       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.

       Result: All writ petitions and appeals disposed of.