SCI (19.01.2021) Manish Kumar Vs. Union of India & Ors. [Writ Petition (C) No.26 of 2020] The Insolvency and Bankruptcy Code (Amendment) Act, 2020, among others, inserted three provisos to section 7(1), an additional explanation to section 11, and section 32A in the Insolvency and Bankruptcy Code, 2016 (Code). These provisions were challenged in these writ petitions under Article 32 of the Constitution of India. The Hon’ble Supreme Court, in its 465-page judgment, while upholding these amendments, made important findings and observations, and issued directions as under:
Excerpts of the order;
# 1. The petitioners have approached this Court under Article 32 of the Constitution of India. They call in question Sections 3, 4 and 10 of the Insolvency and Bankruptcy Code (Amendment) Act 2020 (hereinafter referred to as ‘the impugned amendments’, for short). Section 3 of the impugned amendment, amends Section 7(1) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘the Code’, for short). Section 4 of the impugned amendment, incorporates an additional Explanation in Section 11 of the Code. Section 10 of the impugned amendment inserts Section 32A in the Code.
# 52. While, on the basis, furnished under law, for impugning the plenary legislation, we may notice two grounds, which have been urged before us by some of the petitioners. It has been urged that the law was created by way of pandering to the real estate lobby and succumbing to their pressure or by way of placating their vested interests. Such an argument is nothing but a thinly disguised attempt at questioning the law of the Legislature based on malice. A law is made by a body of elected representatives of the people. When they act in their legislative capacity, what is being rolled out is ordinary law. Should the same legislators sit to amend the Constitution, they would be acting as members of the Constituent Assembly. Whether it is ordinary legislation or an amendment to the Constitution, the activity is one of making the law. While malice may furnish a ground in an appropriate case to veto administrative action it is trite that malice does not furnish a ground to attack a plenary law [See in this regard K. Nagaraj and others v. State of Andhra Pradesh and another and State of Himachal Pradesh v. Narain Singh].
# 54. A supreme legislature cannot be cribbed, cabined or confined by the doctrine of promissory estoppel or estoppel. It acts as a sovereign body. The theory of promissory estoppel, on the one hand, has witnessed an incredible trajectory of growth but it is incontestable that it serves as an effective deterrent to prevent injustice from a Government or its agencies which seek to resile from a representation made by them, without just cause [See in this regard Union of India and others v. Godfrey Philips India Ltd. – Paragraph-13].
# 120. Be that as it may, as we have noticed the question must be decided with reference to real nature of the real estate project in which the applicant is an allottee. If it is in the case of an apartment, then necessarily all persons to whom allotment had been made would be treated as allottees for calculating the figure mentioned in the impugned proviso. The word ‘allotment’ does mean allotment in the sense of documented booking as is mentioned in Section 11(1)(b) in regard to apartment or plot with which we are largely concerned. Such detail regarding the quarterly up-to-date list of the number and the types of apartments are to be uploaded as provided in Section 11. It is this information incidentally, which is the reservoir of data which the legislature intends that the allottees can use even though it is not necessarily confined to them. The allottee would also include a person who acquires the allotment either through sale, transfer or otherwise. The transferee of the allotment is contemplated. There can be no difficulty in including such assignee of the allotment as also the allottee for the purpose of complying with the threshold requirement under the impugned proviso. Thus, all allottees and all assignees of allotment would qualify both to be considered for the purpose of calculating the total number of allottees but confined to the particular real estate project and therefore for arriving at the figure of 100 allottees or one-tenth of the allottees as the case may be. Then, there is a third category, which is introduced by the expression ‘sold’ (whether as ‘leasehold’ or ‘freehold’ or otherwise transferred by the Promoter). Here a question may arise, if the word ‘sold’ is applied to the expression ‘plot’, then undoubtedly the transferee would be an allottee. If the sale is to the allottee in a real estate project which is a hybrid project consisting of development of land into plots and also development of buildings as is contemplated under Section 2(zk) then the transferee of the plot undoubtedly would be an allottee. He may have a complaint regarding the default by the promoter in the matter of development of the plot under hybrid project. As far as sale whether ‘freehold’ or ‘leasehold’ of an apartment or a building is concerned, once an apartment or building is sold, it presupposes that the construction of the building or the apartment is complete ordinarily. No doubt, he may also have complaints against the promoter which may be addressed under the RERA. For the purpose of the proviso in question, going by the definition, undoubtedly, such transferee of an apartment or building, is to be treated as an allottee. Let us take an example. A Promoter constructs several apartments. An apartment is defined so as to include ‘flat’. It can be residential or commercial. Assume that the Promoter has constructed and completed construction, five out of the fifteen floors (which constitutes the project), on the basis of the occupation certificate, as different from the completion certificate, as the latter certificate is given only on the completion of the project. He assigns and transfers the apartment to those allottees to whom he allotted the apartment when he has completed the construction. Such transferees would be allottees under the RERA. The question, however, may arise from the point of view of the impugned proviso as to what is the common feature between such an allottee to whom the constructed apartment is already handed over after sale and the allottee of the remaining floors where there is no construction or only construction which is pronouncedly lagging behind the schedule. The question may arise whether banding together such allottees under the definition clause make out the case of over inclusive classification. Are unequals being treated equally?
# 121. A mere charge of either under inclusiveness or over inclusiveness which is not difficult to make hardly suffices to persuade the court to strike down a law. There is a wide latitude allowed in the legislature in these matters. The examination cannot be extended to find out whether there is mathematical precision or wooden equality established. The working of the statute may produce further issues, all of it may not be fully perceived as which may not be wholly foreseen by the law giver. The freedom to experiment must be conceded to the legislature, particularly, in economic laws. If problems emerge in the working of law and which require legislative intervention, the court cannot be oblivious to the power of the legislative to respond by stepping in with necessary amendment. There is nothing like a perfect law and as with all human institutions there are bound to be imperfections. What is significant is however for the court ruling on constitutionality, the law must present a clear departure from constitutional limits.
# 123. We have noticed Section 11 (1) (b) of RERA. It contemplates details of booking qua apartments and plots. This is sufficient to reject the argument that it could be based on a total number of the units promised. What is required is allotment and not promised flats as per a brochure. It is also not the total constructed units. This is as what is relevant under the impugned provisos read with Section 5(8)(f) explanation and section 2 (d) of RERA read with Section 11(1)(b) and the rules made thereunder is the ‘booking’ of apartments or plots. What is allotted or booked may be more than what is constructed if there is a mismatch at any given point of time. It is the number of units allotted. Now, the allotment and the agreement to sell are not irreconcilable with each other and may signify the same.
# 124. The further contention that 10 percent is dynamic and what is 1/10 in the morning may fall short by night if more allotment is made, is untenable in law. The provisions of the Companies Act, 1913 (Section 153-C),Section 399 of the Companies Act, 1956 and Section 244 of the Companies Act, 2013 contain similar provisions. The mere difficulties in given cases, to comply with a law can hardly furnish a ground to strike it down. As to what would constitute the real estate project, it must depend on the terms & conditions and scope of a particular real estate project in which allottees are a part of. These are factual matters to be considered in the facts of each case.
# 135. It is indisputable that in order to successfully move an application under Section 7 that there must be a default which must be in a sum of Rs.1 crore. It is equally clear that the amount of Rs.1 crore need not be owed by the corporate debtor in favour of the applicant. It must be noted that the Explanation existed even prior to the provisos being inserted. It is open to a financial creditor, to move an application in the company of another financial creditor or more than one other financial creditor. In fact, a perusal of the Rules, which we have already extracted, would indicate that irrespective of the number of applicants the Court Fee would remain Rs. 25,000/-. This answers the alleged vagueness about court fees where the provisos are given effect to. Thus, dehors the impugned provisos in terms of the Explanation in sub-Section 7(1), a financial debt need not be owed to the applicant and as joint application by more than one applicant was and is contemplated, the resultant position would be that any number of applicants, without any amount being due to them, could move an application under Section 7, provided that they are financial creditors and there is a default in a sum of Rs.1 crore even if the said amount is owed to none of the applicants but to any another financial creditor. This position has not undergone any change even with the insertion of the provisos. In other words, even though the provisos require that in the case of a real estate project, being conducted by a corporate debtor, an application can be filed by either one hundred allottees or allottees constituting one-tenth of the allottees, whichever is less, if they are able to establish a default in regard to a financial creditor and it is not necessary that there must be default qua any of the applicants. We have taken an extreme example to illustrate how the Code can possibly be worked.
# 140. The rationale behind, confining allottees to the same real estate project, is to promote the object of the Code. Once the threshold requirement can pass muster when tested in the anvil of a challenge based on Articles 14, 19 and 21, then, there is both logic and reason behind the legislative value judgment that the allottees, who must join the application under the impugned provisos, must be related to the same real estate project. The connection with the same real estate project is crucial to the determination of the critical mass, which Legislature has in mind, as a part of its scheme, to streamline the working of the Code. If it is to embrace the total number of allottees of all projects, which a Promoter of a real estate project, may be having, in one sense, it will make the task of the applicant himself, more cumbersome. It becomes a sword, which will cut both ways. This is for the reason that the complaints, relating to different projects, may be different. With regard to one project of a Promoter of real estate project, maybe, in the advanced stage, the allottees in a particular project, may not have much of a complaint. The complaint, in relation to yet another project, may be more serious. If the complaint in respect of the latter, attracts the attention of a critical mass of allottees, and the proposed applicant is part of that project in the said project, then, it may be easier for the allottees to fulfil the statutory mantra in the impugned provisos, with the junction of like minded souls. If, on the other hand, the requirement was to make a search for allottees of different projects, as would be the case, if the entirety of the allottees, under different projects, were to be reckoned, the task would have been much more cumbersome. The requirement of the allottees, being drawn from the same project, stands to reason and also does not suffer from any constitutional blemish, as pointed out.
# 141. The question, then arises, as to the alleged lack of clarity about the point of time, at which the requirements of the impugned provisos, are to be met. Is it sufficient, if the required number of allottees join together and file an application under Section 7 and fulfil the requirements, at the time of presentation? Or, is it necessary that the application must conform the numerical strength, under the new proviso, even after filing of the application, and till the date, the application is admitted under Section 7(5)? There can be no doubt that the requirement of a threshold under the impugned proviso, in Section 7(1), must be fulfilled as on the date of the filing of the application. In this regard, we find support from an early judgment of this Court, which was rendered under Section 153-C of the Companies Act, 1913. Section 153-C is the predecessor to Sections 397 and 398 read with Section 399 of the Companies Act, 1956. Its most recent avatar is contained in Sections 241 and 242 of the Companies Act, 2013 read with Section 244. In fact, Section 399 (3) of the Companies Act, 1956, read as follows:
“399(3) Where any members of a company are entitled to make an application in virtue of sub-section (1), any one or more of them having obtained the consent in writing of the rest, may make the application on behalf and for the benefit of all of them.”
# 146. Similarly, Section 15 of RERA interdicts transfer or assignment of his majority rights and liabilities to a third party, without obtaining the prior written consent of two-thirds of the allottees and also without the prior written approval of the Authority. A similar Explanation, as is found in Section 14, which we have already described, is to be found in Section 15. Such an Explanation is, however, not found in the definition of ‘allottee’ in Section 2(d) of RERA. The object of the Explanation, both in Sections 14 and 15, is apparent. It is to avoid defeating the object, which would occur, if members of the same family, monopolises a project or associated and related concerns of a company, firm or association, corner the allotments. It is also possible that they may be hand-in-glove with the Promoter, which would result in defeating the rights of the other allottees, as the figure of two-thirds, would cease to represent the interest of the actual two-third majority, which is intended by the Legislature, be it in a matter or alterations or additions in the sanctioned plans or layout plans, etc., or in the matter of the Promoter getting out of the project in regard to his majority rights, by transfer or assignment. These Explanations are intended to hold the Promoter responsible to the sanctioned plans as also to prevent the Promoter from wriggling out of his majority rights, without a real majority, as would be represented by two-thirds of the separate allottees, agreeing to the same. We cannot read the Explanations in Sections 14 and 15 into the definition of ‘allotee’ in Section 2(d), as, in Sections 14 and 15, a perusal of Explanations, makes it clear that they are enacted for the purpose of Sections 14 and 15, respectively. We would have to take the definition of the ‘allottee’ from Section 2(d), as it is. Therefore, 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.
# 147. As far as the situation projected about, there being no clarity regarding whether, if there is a joint allotment of an apartment to more than one person, is it to be taken as only one allottee or as many allottees as there are joint allottees, it would appear to us, on a proper understanding of the definition of the word ‘allottee’ in Section 2(d) and the object, for which the requirement of hundred allottees or one-tenth has been put, and also, not being oblivious to Section 399(2) of the Companies Act, 1956, as also the Explanation in Section 244(1) of the Companies Act, 2013, in the case of a joint allotment of an apartment, plot or a building to more than one person, the allotment can only be treated as a single allotment. This for the reason that the object of the Statute, admittedly, is to ensure that there is a critical mass of persons (allottees), who agree that the time is ripe to invoke the Code and to submit to the inexorable processes under the Code, with all its attendant perils. The object of maintaining speed in the CIRP and also the balancing of interest of all the stakeholders, would be promoted by the view that as in the case of the Companies Acts, 1956 and 2013, that for the purpose of complying with the impugned provisos in Section 7(1), while the allottee can be of any of the categories, fulfilling the description of an allottee in Section 2(d) of RERA, as interpreted earlier by us joint allottees of a single apartment, will be treated as only one allottee. Any other view can lead to clear abuse and defeating of the object of the Code. If, for instance, a single apartment is taken in the name of hundred persons, a single allottee, who in turn comprise of relatives or family members or friends, can move an application, even though the position ante would be restored, which means that only the allottee qua one apartment, plot or building, is before the Authority and it would not really represent a critical mass of the allottees in the real estate project concerned. Therefore, we have no hesitation in rejecting the contentions of the petitioner on having made the said interpretation.
# 151. The Central Government, having regard to the scheme of Companies Act, is intricately interconnected with the management of the companies. It had powers of investigation into the affairs of the companies under Section 235 and Section 237. The purport of Sections 397 and 398 include the conduct of the affairs of the company in any manner prejudicial to the public interest or also, no doubt, prejudicial to member or members. In such circumstances, clothing the Central Government with the power to waive the requirement and permitting the application to be presented by even a single member, is in sync with the scheme of the Companies Act. The role of the Central Government is different under the Code. In fact, the Central Government does not have any role, as such under the Code. It acts only through the designated Authorities under the Code. The Code is about insolvency resolution and on failure liquidation. The scheme of the Code is unique and its objects are vividly different from that of the Companies Act. Consequently, if the Legislature felt that threshold requirement representing a critical mass of allottees, alone would satisfy the requirement of a valid institution of an application under Section 7, it cannot be dubbed as either discriminatory or arbitrary.
# 157. . . . . . The inevitable conclusion is that unlike in an ordinary civil suit or in a consumer complaint, the drastic consequences, as the inexorable liquidation of the corporate debtor, contemplated under the Code, is the inevitable consequence, of the application reaching the stage of Section 33 of the Code. Liquidation could take place even earlier under Section 33(4). As to whether the procedure contemplated in Order I Rule 8 is suitable, more appropriate and even more fair, is a matter, entirely in the realm of legislative choice and policy. Having regard to the scheme of the Code, which we have detailed above, there cannot be scintilla of doubt that what the petitioners are seeking to persuade us to hold, is to make a foray into the forbidden territory of legislative value judgment. This is all the more so, when the dangers lurking behind full play to Order I Rule 8 being given appear to be fairly clear. We have, therefore, no hesitation in rejecting this contention, which no doubt, at first blush, may appear attractive. We only need add that invalidating a law made by a competent Legislature, on the basis of what the Court may be induced to conclude, as a better arrangement or a more wise and even fairer system, is constitutionally impermissible. If, the impugned provisions are otherwise not infirm, they must pass muster.
# 160. It is clear that impugned provisos do not set at nought the ruling of this Court in Pioneer (supra). In a challenge by real estate developers upholding the provisions in the manner done including the explanation in Section 5 (8)(f) and allaying the apprehension about abuse by individual allottees cannot detract from the law giver amending the very law on its understanding of the working of the Code at the instance of certain groups of applicants and impact it produces on the economy and the frustration of the sublime goals of the law.
# 163. As far as allottees are concerned in regard to apartments and plots, Section 11(1)(b) of the RERA makes it mandatory for the promoter to make available information regarding the bookings. We have conflated bookings with allotments. We cannot proceed on the basis of the contention of the petitioners that the impugned provisos are unworkable and arbitrary on the basis that the court must take notice of the ‘reality’ which is that the promoters do not make available information as required of them. The burden it is well settled to prove all facts to successfully challenge the statute is always on the petitioner. There cannot be a priori reasoning, and there is no burden on the state. If there is defiance of the law by promoters, the allottees are not helpless. They can always seek proper redress in the appropriate forum. No doubt, we also would observe that it becomes the duty of all the authorities to ensure that the promoters will stringently abide by their duties under the act. Section 11(1)(b) of the RERA speaks about information being made available regarding bookings which can be understood as the ‘allotments’. . . . . .This aspect of the association of allottees is not a matter of mere trifle. The allottees cannot truly possess and enjoy their properties be it an apartment or building without their having right of common areas. The promoter is bound under Section 17 to transfer title to the common areas to the association. Section 19(9) of RERA makes it a duty on the part of the allottee to participate towards the formation of the association or cooperative society or the federation of the same. The possession of the common areas is also to be handed over to the association of the allottees. The law giver has therefore created a mechanism, namely, the association of allottees through which the allottees are expected to gather information about the status of the allotments including the names and addresses of the allottees. We cannot proceed on the basis in a case which involves a challenge to a statute that the information to be gathered under the statute will not be available on the basis that the statute will not be worked as contemplated by the law giver. Hence, we reject the contentions of the allottees.
# 188. We are of the view that the principles, which governed the legitimacy of the sub-class within a class, is based, essentially, on the very principles, which are discernible in regard to reasonable classification under Article 14. It is clear that the law does not interdict the creation of a class within a class absolutely. Should there be a rational basis for creating a sub-class within a class, then, it is not impermissible. This is the inevitable result of an analysis of the judgments relied upon by the petitioner themselves, viz., Sansar Chand Atri v. State of Punjab and another (supra). The decisions, which have been relied upon by the Union and which we have adverted to, clearly indicate that a class within a sub-class, is indeed not antithetical to the guarantee of equality under Article 14.
# 192. We will expatiate on these aspects. In the case of the allottees of a real estate project, it is the approach of the Legislature that in a real estate project there would be large number of allottees. There can be hundreds or even thousands of allottees in a project. If a single allottee, as a financial creditor, is allowed to move an application under Section 7, the interests of all the other allottees may be put in peril. This is for the reason that as stakeholders in the real estate project, having invested money and time and looking forward to obtaining possession of the flat or apartment and faced with the same state of affairs as the allottee, who moves the application under Section 7 of the Code, the other allottees may have a different take of the whole scenario. Some of them may approach the Authority under the RERA. Others may, instead, resort to the Fora under the Consumer Protection Act, though, the remedy of a civil suit is, no doubt, not ruled out. Ordinarily, the allottee would have the remedies available under RERA or the Consumer Protection Act, as the more effective option. In such circumstances, if the Legislature, taking into consideration, the sheer numbers of a group of creditors, viz., the allottees of real estate projects, finds this to be an intelligible differentia, which distinguishes the allottees from the other financial creditors, who are not found to possess the characteristics of numerosity, then, it is not for this Court to sit in judgment over the wisdom of such a measure.
# 196. The speed, with which the processes can be conducted and completed, is based on the volume of the litigation. The Adjudicating Authorities and the Appellate Bodies, viz., N.C.L.A.T., are authorities under other enactments, as well. They are hard-pressed for time. The matters, which are covered by the Code, may present convoluted facts. The issues may bristle with complications, both in points of law and also facts. If, out of a large body of financial creditors belonging to a sub-group, as for instance allottees of a real estate project, were to be given the freedom to activise the Code, then, the possibility of multiple individual actions, is a spectre, which the Legislature, must be presumed to be aware of. In other words, the Legislature became alive to the peril of entire object of the Code, being derailed by permitting the individual players crowding the docket of the Authorities under the Code, and resultantly, reviving the very state of affairs, which compelled the Legislature to script a new dawn in this area of law. Instead, having regard to the numerosity, the Legislature has thought it fit to adopt a balanced approach by not taking the allottee out of the fold of the financial creditors altogether. The allottee continues to be a financial creditor. All that is envisaged is the legislative value judgment that a critical mass is indispensable for allottees to be present before the Code, can be activised. The purport of the critical mass of applicants would ensure that a reasonable number of persons similarly circumstanced, form the view that despite the remedies available under the RERA or the Consumer Protection Act or a civil suit, the invoking of the Code is the only way out, in a particular case.
# 197. The third distinguishing feature, which has been projected by the Union, is the difference in individuality in decision-making process, attributed to the allottees. This means that unlike a bank or a financial institution, where the decision-making process is more institutionalized, an individual allottee, left free to file an application under Section 7, would exhibit a high-level of subjectivity. As the learned ASG points out, and which is also part of the argument, based on both, numerosity and heterogeneity, what Parliament has instated upon is, the presence of the commendable value of exhibiting concern for the other allottees, who may think completely differently about the wisdom of invoking the Code. Here again, this distinguishing feature, which becomes an intelligible differentia, in the view of the Legislature, and which cannot be shown to be demonstrably a mere pretense, it bears a rational nexus with the objects of the Code, which we have already delineated. To recapitulate, the individual allottee, with a high-level of subjectivity in decision-making, may take a plunge at invoking the Code, without having a more global view of the consequences, which will follow.
# 213. The operational debtor, is concerned with the payment of the amount due to it for the goods and services supplied. 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. It cannot be in dispute that under the law, an allottee can seek remedies under the RERA. An allottee can also seek remedies under the Consumer Protection Act or even file a suit. No doubt, Section 71 of the RERA permits a person who has filed a complaint in respect of matters governed by Sections 12, 14, 18 and 19 of RERA to withdraw the complaint and file the same before the Adjudicating Officer under RERA. There are large number of cases where allottee seek refuge either under the RERA or under the Consumer Protection Act. An action under the Code by way of an application under Section 7 is an action in rem. The recovery of the amounts paid is not what is primarily contemplated under the Code. . . . . . . .What is of greater importance is the distinctions which we have already noted and the most vital point which sets them apart, in the matter of pronouncing on the vires of the provisos under Section 7 is the numerosity of the allottees, and what is more not being homogeneous in what they want in a particular situation, since the law has indeed endowed the allottees with different remedies, having different implications, be it under the Consumer Protection Act or under RERA. If the Legislature felt that having regard to the consequences of an application under the Code, when such a large group of persons, pull at each other, an additional threshold be erected for exercising the right under Section 7, certainly, it cannot suffer a constitutional veto at the hands of Court exercising judicial review of legislation.
# 214. It is to be noted also that it is not a case where the right of the allottee is completely taken away. All that has happened is a half-way house is built between extreme positions, viz., denying the right altogether to the allottee to move the application under Section 7 of the Code and giving an unbridled license to a single person to hold the real estate project and all the stakeholders thereunder hostage to a proceeding under the Code which must certainly pass inexorably within a stipulated period of time should circumstances exists under Section 33 into corporate death with the unavoidable consequence of all allottees and not merely the applicant under Section 7 being visited with payment out of the liquidation value, the amounts which are only due to the unsecured creditor.
# 220 . . . . . .The legislative understanding is clear that such creditors bearing the hallmark of large numbers, they need to be treated differently. If not, it would spell chaos and the objects of the Code would not be fulfilled. Insisting on a threshold for these categories of creditors would lead to the halt to indiscriminate litigation which would result in an uncontrollable docket explosion as far as the authorities. The debtor who is apparently stressed is relieved of the last straw on the camel’s back, as it were, by halting individual creditors whose views are not shared even by a reasonable number of its peers rushing in with applications. …… The legislative policy reflects an attempt at shielding the CD from what it considers would be either for frivolous or avoidable applications. The amendment is likely to ensure that the filing of an 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 regards the percentage of applicants contemplated under the proviso, it cannot be dubbed as an arbitrary or capricious figure. The legislature is not wanting in similar requirements under other laws. The object of speed in deciding CIRP proceedings would also be achieved by applying the threshold to debenture holders and security holders. The dividing line between wisdom or policy of the legislature and limitation placed by the Constitution must not be overlooked.
# 221. The contention based on the applicability of the Absurdity Doctrine on the Principle that the result which, `all mankind without speculation would unite in rejecting’ can have no application to the provision. The Code and object of the Code and the unique features which set apart the creditors involved in this case from the generality of the creditors, the challenge being to an economic measure and the consequential latitude that is owed to the legislature renders the Principle of Absurdity wholly inapposite.
# 243. Now, let us consider finally the impugned Explanation. The impugned Explanation came to be inserted by the impugned amendment. Apparently, interpreting Section 11, there appears to have been some cleavage of opinion. This is apparent from the case set up on behalf of the petitioners and the case set up on behalf of the Union of India. The intention of the Legislature was always to target the corporate debtor only insofar as it purported to prohibit application by the corporate debtor against itself, to prevent abuse of the provisions of the Code. It could never had been the intention of the Legislature to create an obstacle in the path of the corporate debtor, in any of the circumstances contained in Section 11, from maximizing its assets by trying to recover the liabilities due to it from others. Not only does it go against the basic common sense view but it would frustrate the very object of the Code, if a corporate debtor is prevented from invoking the provisions of the Code either by itself or through his resolution professional, who at later stage, may, don the mantle of its liquidator. The provisions of the impugned Explanation, thus, clearly amount to a clarificatory amendment. A clarificatory amendment, it is not even in dispute, is retrospective in nature. The Explanation merely makes the intention of the Legislature clear beyond the pale of doubt. The argument of the petitioners that the amendment came into force only on 28.12.2019 and, therefore, in respect to applications filed under Sections 7, 9 or 10, it will not have any bearing, cannot be accepted. The Explanation, in the facts of these cases, is clearly clarificatory in nature and it will certainly apply to all pending applications also.
# 257. We are of the clear view that no case whatsoever is made out to seek invalidation of Section 32A. The boundaries of this Court’s jurisdiction are clear. The wisdom of the legislation is not open to judicial review. Having regard to the object of the Code, the experience of the working of the code, the interests of all stakeholders including most importantly the imperative need to attract resolution applicants who would not shy away from offering reasonable and fair value as part of the resolution plan if the legislature thought that immunity be granted to the corporate debtor as also its property, it hardly furnishes a ground for this this Court to interfere. The provision is carefully thought out. It is not as if the wrongdoers are allowed to get away. They remain liable. The extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate. We must also not overlook the principle that the impugned provision is part of an economic measure. The reverence courts justifiably hold such laws in cannot but be applicable in the instant case as well. The provision deals with reference to offences committed prior to the commencement of the CIRP. With the admission of the application the management of the corporate debtor passes into the hands of the Interim Resolution Professional and thereafter into the hands of the Resolution Professional subject undoubtedly to the control by the Committee of Creditors. As far as protection afforded to the property is concerned there is clearly a rationale behind it. Having regard to the object of the statute we hardly see any manifest arbitrariness in the provision
# 258. It must be remembered that the immunity is premised on various conditions being fulfilled. There must be a resolution plan. It must be approved. There must be a change in the control of the corporate debtor. The new management cannot be the disguised avatar of the old management. It cannot even be the related party of the corporate debtor. The new management cannot be the subject matter of an investigation which has resulted in material showing abetment or conspiracy for the commission of the offence and the report or complaint filed thereto. These ingredients are also insisted upon for claiming exemption of the bar from actions against the property. Significantly every person who was associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of the offence in terms of the report submitted continues to be liable to be prosecuted and punished for the offence committed by the corporate debtor. The corporate debtor and its property in the context of the scheme of the code constitute a distinct subject matter justifying the special treatment accorded to them. Creation of a criminal offence as also abolishing criminal liability must ordinarily be left to the judgement of the legislature. Erecting a bar against action against the property of the corporate debtor when viewed in the larger context of the objectives sought to be achieved at the forefront of which is maximisation of the value of the assets which again is to be achieved at the earliest point of time cannot become the subject of judicial veto on the ground of violation of Article 14. We would be remiss if we did not remind ourselves that attaining public welfare very often needs delicate balancing of conflicting interests. As to what priority must be accorded to which interest must remain a legislative value judgement and if seemingly the legislature in its pursuit of the greater good appears to jettison the interests of some it cannot unless it strikingly ill squares with some constitutional mandate suffer invalidation.
# 259. There is no basis at all to impugn the Section on the ground that it violates Articles 19, 21 or 300A.
# 261. A perusal of the same, makes it clear that the third proviso is a one-time affair. It is intended only to deal with those applications, under Section 7, which were filed prior to 28.12.2019, when, by way of the impugned Ordinance, initially, the threshold requirements came to be introduced by the first and the second impugned provisos. In other words, the legislative intention was to ensure that no application under Section 7 could be filed after 28.12.2019, except upon complying with the requirements in the first and second provisos.
# 316. There is, in our view, a right which is vested in the cases where, the petitioners have filed application, fulfilling the requirements under unamended Section 7 of the Code. The very act of filing the application, even satisfies the apparent test propounded by the Additional Solicitor General, that the right under Section 7 is only one to take advantage of the statute and unless advantage is actually availed it does not create an accrued right. When applications were filed under the unamended provisions of Section 7, at any rate it would transform into a vested right. The vested right is to proceed with the action till its logical and legal conclusion.
# 332. No doubt, there may not be a vested right as regard mere procedure and while limitation, ordinarily, belongs to the domain of procedure, should new law shorten the existing period of limitation, such a law would not operate in regard to the right of action which is vested [See Shanti Misra (supra)]. A party may not have a vested right of Forum as distinct from the vested right of action [See Shanti Misra (supra)].
# 333. Every sovereign Legislature is clothed with competence to make retrospective laws. It is open to the Legislature, while making retrospective law, to take away vested rights. If a vested right can be taken away by a retrospective law, there can be no reason why the Legislature cannot modify the vested rights [See State Bank's Staff Union (Madras Circle) (supra)].
# 346. Now, the third proviso, thus, indeed, does not say that as on the date of filing of the applications, the law was what is contained in the first and the second provisos. In that sense, it could be said that it was not retrospective. We have found that when invoking the unamended Section 7 applications stood moved, they evinced creation of vested rights to continue with the proceeding. The applications were, no doubt, at the stage, prior to the admission under Section 7(5). It is at this stage that through the device of the third proviso, the Parliament has applied the principle of first and second proviso of threshold requirement, in respect of pending applications, which is made to appear as it would have operation in the future. . . . . . As regards his conduct in the past, viz., moving under Section 7, it is incomplete but the action was commenced. But the law (the 3rd proviso) impairs the past action qua the future. We would find as follows. Imposing the threshold requirement under the 3rd proviso, is not a mere matter of procedure. It impairs vested rights. It has conditioned the right instead, in the manner provided in the first and the second proviso. We have already upheld the first and second proviso, which, in fact, operates only in the future. In that sense, the Legislature has purported to equate persons who had not filed applications with persons like the petitioners who had filed the applications under the unamended law.
# 366. In regard to the first and the second provisos, they have only prospective operation. The creditors covered by these provisos, are not subjected to any time limit (except, no doubt, the bar under Article 137 of the Limitation Act), in the matter of garnering the requisite support. However, prescribing a time limit in regard to pending applications, cannot be, per se, described as arbitrary, as otherwise, it would be an endless and uncertain procedure. The applications would remain part of the docket and also become a Damocles Sword overhanging the debtor and the other stakeholders with deleterious consequences also qua the objects of the Code.
RELIEF
# 372. We uphold the impugned amendments. However, this is subject to the following directions, which we issue under Article 142 of the Constitution of India:
i. If any of the petitioners move applications in respect of the same default, as alleged in their applications, within a period of two months from today, also compliant with either the first or the second proviso under Section 7(1), as the case may be, then, they will be exempted from the requirement of payment of court fees, in the manner, which we have detailed in the paragraph just herein before.
ii. Secondly, we direct that if applications are moved under Section 7 by the petitioners, within a period of two months from today, in compliance with either of the provisos, as the case may be, and the application would be barred under Article 137 of the Limitation Act, on the default alleged in the applications, which were already filed, if the petitioner file applications under Section 5 of the Limitation Act, 1963, the period of time spent before the Adjudicating Authority, the Adjudicating Authority shall allow the applications and the period of delay shall be condoned in regard to the period, during which, the earlier applications filed by them, which is the subject matter of the third proviso, was pending before the Adjudicating Authority.
iii. We make it clear that the time limit of two months is fixed only for conferring the benefits of exemption from court fees and for condonation of the delay caused by the applications pending before the Adjudicating Authority. In other words, it is always open to the petitioners to file applications, even after the period of two months and seek the benefit of condonation of delay under Section 5 of the Limitation Act, in regard to the period, during which, the applications were pending before the Adjudicating Authority, which were filed under the unamended Section 7, as also thereafter.
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