Protection for new owners, threshold for Homebuyers: SC upholds changes in IBC

Approach of Art.136 Cannot Be Adopted While Deciding Petitions by The High Court Under Art.227: SC

The Supreme Court heard 41 petitions which challenged the March 2020 amendment to the Insolvency and Bankruptcy Code, 2016 (IBC). The court upheld the changes which were:

  • New owners are not responsible for the actions of the previous management.
  • Homebuyers require a minimum threshold to initiate bankruptcy. 

Section 32A of the IBC extinguished the corporate debtor’s liability on the date on which the resolution plan gets approved by the tribunal and the new management takes over. The petitioner contended that this hindered the individual investors from recovering their claim and left them with the only option of opting for remedies under criminal law against the management.

The court however observed that the section was added to give the new management a fresh start leaving the burden of the old management’s actions. 

Another amendment had mandated that the National Company Law Tribunal (NCLT) admit insolvency petitions filed by 100 or at least 10% of the total home buyers or allottees of a real estate firm whichever is minimum. The petitioner contended that it was violation of Article 14 to differentiate in classification of individual creditors and other financial creditors. They also stated that the amendment has no relation to the object of the code and it weakens the rights of every creditor exception being financial institutions and bankers. They also questioned the applicability of threshold, they stated that the nature of allotment in projects is dynamic and it would be difficult to implement the said criteria.

The court disagreed and stated that the need for a threshold came for this category of creditors to put a stop on indiscriminate litigation.

The court also upheld the retrospective effect of the threshold for homebuyers. The applications that had not been admitted by the tribunal yet had to satisfy this criteria and the applicants would be given 30 days as per the amendment to comply with the requirement.

I am Kaveesha, a student of B.A LL.B (Hons.) from Dharmashastra National Law University, Jabalpur. Knowledge is like an endless ocean and I try to fill my cup with it as much as possible. I believe one should not only aspire to be a student of law but a student of justice as well.