R.F. Nariman, J. - (1.) The large number of writ petitions that have been filed in this Court challenge the constitutional validity of amendments made to the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "the Code"), pursuant to a report prepared by the Insolvency Law Committee dated 26th March, 2018 (hereinafter referred to as the "Insolvency Committee Report"). The amendments so made 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 amendments so made to the Code are as follows: JUDGEMENT_36_LAWS(SC)8_2019_1.htmlJUDGEMENT_36_LAWS(SC)8_2019_1.html
(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 borrowing", which became clear from the developer's annual returns in which the amount raised was shown as "commitment charges" under the head "financial costs". As a result, such allottees were held to be "financial creditors" within the meaning of Section 5(7) of the Code.
(3.) On 9th August, 2017, 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 (hereinafter referred to as "NCLT") Allahabad Bench, alleging that Jaypee had defaulted on a loan of Rs. 526.11 crores. On 11th September, 2017, an order was passed by this Hon'ble Court in Chitra Sharma & Ors. v. Union of India (Writ Petition (Civil) No.744 of 2017) in the case of Jaypee Infratech Ltd. 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.;