2019 (8) TMI 532 - SC - Insolvency and Bankruptcy

Constitutional validity of amendments made to the Insolvency and Bankruptcy Code, 2016 - allottees of real estate projects deemed to be “financial creditors” - corporate debtor - Code for reorganization and insolvency resolution of corporate debtors

HELD THAT:- Even by a process of harmonious construction, RERA and the Code must be held to co-exist, and, in the event of a clash, RERA must give way to the Code. RERA, therefore, cannot be held to be a special statute which, in the case of a conflict, would override the general statute, viz. the Code - As a matter of fact, the Code and RERA operate in completely different spheres. The Code deals with a proceeding in rem in which the focus is the rehabilitation of the corporate debtor. This is to take place by replacing the management of the corporate debtor by means of a resolution plan which must be accepted by 66% of the Committee of Creditors, which is now put at the helm of affairs, in deciding the fate of the corporate debtor. Such resolution plan then puts the same or another management in the saddle, subject to the provisions of the Code, so that the corporate debtor may be pulled out of the woods and may continue as a going concern, thus benefitting all stakeholders involved. It is only as a last resort that winding up of the corporate debtor is resorted to, so that its assets may be liquidated and paid out in the manner provided by Section 53 of the Code - That another parallel remedy is available is recognised by RERA itself in the proviso to Section 71(1), by which an allottee may continue with an application already filed before the Consumer Protection fora, he being given the choice to withdraw such complaint and file an application before the adjudicating officer under RERA read with Section 88.

In Swiss Ribbons [2019 (1) TMI 1508 - SUPREME COURT], this Court while repelling a challenge to the constitutional validity of the Code based on a purported infraction of Article 14, differentiated between financial and operational creditors. In so doing, it made it clear that the context of the decision dealt with banks and financial institutions as financial creditors as opposed to operational creditors who could be corporations or individuals to whom monies were owed for goods and/or services - The principle contained in Swiss Ribbons (supra), that far greater deference is accorded to economic legislation, as the legislature is given free play in the joints and is at liberty to conduct economic experiments in public interest, finds an early application in STATE OF GUJARAT VERSUS AMBICA MILLS LTD. AHMEDABAD [1974 (3) TMI 108 - SUPREME COURT], and applies on all fours in this case.

The Amendment Act to the Code does not infringe Articles 14, 19(1)(g) read with Article 19(6), or 300-A of the Constitution of India - The RERA is to be read harmoniously with the Code, as amended by the Amendment Act. It is only in the event of conflict that the Code will prevail over the RERA. Remedies that are given to allottees of flats/apartments are therefore concurrent remedies, such allottees of flats/apartments being in a position to avail of remedies under the Consumer Protection Act, 1986, RERA as well as the triggering of the Code - Section 5(8)(f) as it originally appeared in the Code being a residuary provision, always subsumed within it allottees of flats/apartments. The explanation together with the deeming fiction added by the Amendment Act is only clarificatory of this position in law.