SC Upholds Constitutional validity of Sections 3 and 10 of the Insolvency and Bankruptcy Code (Amendment) Act, 2020

Supreme Court delivers its verdict on petitions challenging the constitutional validity of Sections 3 and 10 of the Insolvency and Bankruptcy Code (Amendment) Act, 2020 

Delivering its judgement, a bench of Justice RF Nariman, Navin Sinha and KM Joseph was of the view that the amendments under contention are not violative of the right to equality under the Indian Constitution.

Section 3 of the IBC(Amendment) Act 2020 introduced a threshold limit for the homebuyers to initiate insolvency proceedings. Section 10 inserted Section 32A in the IBC, whereby the liability of a Corporate Debtor, will cease to exist on the date a Resolution Plan is approved.

According to the amended Section 3, Homebuyers can move an application for insolvency only when 100 real estate allottees under the same real estate project or 10 percent of the total allottees of such project come together. The petitioner organisation - Association of Karvy Investors was of the view that this puts a stringent and onersous condition on an individual financial creditor and negatively affects its rights to initiate insolvency proceedings.

"Section 3 of the Impugned act seeks to differentiate between the creditors as referred to under Sub Section 6A and those referred to under Sub Section 6, without any substantial difference existing in law. As a consequence thereof Section 3 of the Impugned Act is violative of Article 14 of the Constitution of India and is liable to be struck down."

The petitioners also highlighted the logistical and practical difficulties accruing out of the amendment made to section 3. A simple example given by them in this regard was that the individual investors are spread out across the country and their contact details are not available in public domain.

In response the Supreme Court upheld the legislature's law making  power to impair and take away vested rights.

However, the court  provided two reliefs to the petitioner.

The petitioner association was exempted from the stipulation of paying court fees if they moved the application for default within a period of 2 months from today.

the Adjudicating Authority shall condone the delay in regard to the period,during which,the earlier applications filed by them were pending before the Adjudicating Authority.