Supreme Court upholds threshold for homebuyers to maneuver NCLT

The Supreme Court on Tuesday upheld the Constitutional validity of the amendments to the Insolvency and Bankruptcy Code, 2016, which, amongst others, mandated that to set off an insolvency continuing in opposition to a defaulting builder in respect of an actual property mission, the appliance have to be filed by a minimal of 100 allottees or 10 p.c of the allottees, whichever was lesser.
A Bench of Justices R F Nariman, Navin Sinha and Okay M Joseph upheld the Constitutional validity of Sections 3, 4 and 10 launched by the Insolvency and Bankruptcy Code (Amendment) Act, 2020. Writing for the Bench, Justice Joseph famous: “Insisting on a threshold in regard to these categories of creditors would lead to the halt to indiscriminate litigation which would result in an uncontrollable docket explosion as far as authorities which work the Code are concerned … The legislative policy reflects an attempt at shielding corporate debtor from what it considers would be either for frivolous or avoidable applications”.
The court docket added that “what we mean by avoidable applications is a decision which would not be taken by similarly placed creditors keeping in mind the consequences that would ensue not only in regard to persons falling in the same category but also the generality of creditors and other stakeholders. All that the amendment is likely to ensure is that the filing of the application is preceded by a consensus at least by a minuscule percentage of similarly placed creditors that the time has come for undertaking a legal odyssey which is beset with perils for the applicants themselves apart from others. As far as the percentage of applicants contemplated under the proviso it is clear that it cannot be dubbed as an arbitrary or capricious figure”.
The Bench additionally turned down arguments in opposition to the adjustments requiring that the allottees, making such an software, have to be drawn from the identical mission.

The court docket additionally mentioned “it does not matter whether a person has one or more allotments in his name or in the name of his family members. As long as there are independent allotments made to him or his family members, all of them would qualify as separate allottees and they would count both in the calculation of the total allotments, as also in reckoning the figure of hundred allottees or one-tenth of the allottees, whichever is less”.
In the case of a joint allotment, it will possibly solely be handled as a single allotment, the Bench added.