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Supreme Court upheld the threshold limit on homebuyers introduced in the Insolvency and Bankruptcy Code (Amendment) Act 2020 in order to shield the corporate debtor(builder) from avoidable and frivolous applications. The court dismissed the plea filed by multiple homebuyers against the threshold limit under IBC.

The apex court bench comprising Justice R F Nariman, Justice Navin Sinha, and Justice KM Joseph upheld Section 3 of the Insolvency and Bankruptcy (Amendment) Act which introduced provisos to Section 7 of IBC 2016 to mandate that there should be at least one hundred real estate allottees (homebuyers) or ten percent of the total number of allottees, whichever is lesser, to file an insolvency petition against a real estate project.

The plea filed by homebuyers claimed that such conditions on homebuyers amount to hostile discrimination and is violative of fundamental rights under Article 14 of the Constitution.

To which, the bench replied that the right provided under IBC to the homebuyers is not a personal right.

“When an allottee invests money in a real estate project, his primary and principal concern is that the project is completed and he gets possession of the apartment or the flat. The problem really arises as there are many stakeholders whose interests are affected,” the court said.

“Public interest is a concept, which is capable of embracing, within its scope, the interest of different sections of the public. This would include the sections of the public to which the applicant himself belongs. Public interest would, undoubtedly, also encompass, the economy of the country, which can be understood in terms of all the objects, for which the code was enacted,” stated the Supreme Court.

The top court also stated that an action under Section 7 of IBC is an action in rem and also cited the consequences that such insolvency applications may land the applicant as well as the stakeholders, in the liquidation of the corporate debtor.

“This may necessarily include the corporate debtor as a stakeholder, being protected from applications, which are perceived as frivolous or not representing a critical mass,” noted the bench.

Three judge bench also pointed out that homebuyer has remedies under RERA Act and Consumer Protection Act in case of non-delivery of apartment

Further, the court stated that the amendment introduced under IBC has sought to strike a balance between completely taking away an allottee’s right to initiate insolvency and giving an unbridled license to a single person to hold the real estate project and all the stakeholder thereunder hostage.


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