Providing partial relief to homebuyers, the Supreme Court has issued a notice to the government of India on the petition filed by homebuyers against the amendment of the Insolvency and Bankruptcy Code (IBC) 2016 which introduced a minimum threshold for filing an application with the National Company Law Tribunal (NCLT) against a defaulting developer. “This basically means that the NCLT will have to maintain status quo with respect to the applications already filed by homebuyers and investors against defaulting developers," said Aditya Parolia of PSP Legal, Advocates & Solicitors.
However, the legality and constitutional validity of the amendment will be tested by the Supreme Court after hearing the government and the homebuyers, he added. The government recently amended the Insolvency and Bankruptcy Code (IBC) 2016 through an ordinance introducing a threshold of minimum 100 or 10%of allottees in a project or class of investors required that can approach the NCLT in order to start the liquidation process against the defaulting developer.
The Supreme Court after hearing the petition said that till further hearing the NCLT can’t reject the applications of the home buyers or investors for non-compliance of the new amendment brought in by the government introducing a minimum threshold for filing application under the Insolvency and Bankruptcy Code (2016).
The amendment required the existing applications which are yet to be accepted by NCLT to comply with the new regulations within 30 days of the passing of the ordinance. “This is certainly good news for home buyers as under the ordinance there was a clause which says all matter will be dismissed automatically within 30 days if they don’t meet the criteria. So, that has also been put on hold ," said Aditya Parolia of PSP Legal, Advocates and Solicitors. The Homebuyers were represented by the Advocate Piyush Singh and Advocate Aditya Parolia of PSP Legal, Advocates and Solicitors before the Supreme Court.
“However, there is no clarity on the threshold limit as of now as the bench didn’t comment on the same," said Parolia. Challenging the ordinance, group of homebuyers and investors had filed multiple writ petition with the Supreme Court challenging the amendment. Home buyers have argued that the amendment is arbitrary and discriminatory. Prior to this amendment even a single financial creditor, including a homebuyer, with claims of at least ₹1 lakh could move NCLT against the defaulting developer.
Clients of Karvy Private Wealth who saw defaults on their loans to builders introduced by Karvy have also challenged recent amendments to the Insolvency and Bankruptcy Code (IBC). "The Supreme Court has granted a partial stay on the 3rd provison of Section 3 today and issued a notice to the Union of India. This means that all the petitions that were filed before the amendment shall not be bound by the 30 day period given to satisfy the amendment.," said Advocate Srijan Sinha, a lawyer practicing in the Supreme Court.