Notice issued by SC on petitions challenging constitutionality of the conditions introduced by IBC(Amendment) Ordinance 2020 on the Homebuyers insolvency petition

A bench comprising Justices R F Nariman, Navin Sinha and B R Gavai issued notice on petition against the conditions introduced by IBC Ordinance 2029 and also ordered status quo on the petitioner’s applications pending in NCLTs.

Petition filed by Association of Karvy Investors challenged Section 3 of the Insolvency and Bankruptcy Code (Amendment) Act 2020. The said provision, adds certain provisos to Section 7 of the Insolvency and Bankruptcy Code (IBC) to state there should be at least one hundred real estate allottees or ten percentage of the total number of allottees, which ever is lesser, to maintain an insolvency petition in respect of a real estate project. The amendment also stated that the application of Section 3 of the amendment Act shall be retrospective, affecting pending applications.

The petitioner also mentioned that the classification made with respect to homebuyers is “arbitrary and discriminatory”.

“the classification as sought to be made vide the Impugned Act is without any intelligible differential and therefore is ultra vires Article 14 of the Constitution of India”, and reference is made to Pionner Ruling which upheld the right of a homebuyer to move insolvency petition against a defaulting builder.

The plea states that the condition is “onerous” for homebuyers, who are also covered under the definition of “financial creditors” under Section 5(7) of the IBC.