TMI Blog2019 (8) TMI 532X X X X Extracts X X X X X X X X Extracts X X X X ..... porate 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 WITH WRIT PETITION (CIVIL) NO.195 OF 2019 WITH WRIT PETITION (CIVIL) NO.197 OF 2019 WITH WRIT PETITION (CIVIL) NO.196 OF 2019 WITH WRIT PETITION (CIVIL) NO.243 OF 2019 WITH WRIT PETITION (CIVIL) NO.198 OF 2019 WITH WRIT PETITION (CIVIL) NO.199 OF 2019 WITH WRIT PETITION (CIVIL) NO.200 OF 2019 WITH WRIT PETITION (CIVIL) NO.309 OF 2019 WITH WRIT PETITION (CIVIL) NO.217 OF 2019 WITH WRIT PETITION (CIVIL) NO.230 OF 2019 WITH WRIT PETITION (CIVIL) NO.304 OF 2019 WITH WRIT PETITION (CIVIL) NO.258 OF 2019 WITH WRIT PETITION (CIVIL) NO.221 OF 2019 WITH WRIT PETITION (CIVIL) NO.229 OF 2019 WITH WRIT PETITION (CIVIL) NO.241 OF 2019 WITH WRIT PETITION (CIVIL) NO.293 OF 2019 WITH WRIT PETITION (CIVIL) NO.310 OF 2019 WITH WRIT PETITION (CIVIL) NO.242 OF 2019 WITH WRIT PETITION (CIVIL) NO.280 OF 2019 WITH WRIT PETITION (CIVIL) NO.261 OF 2019 WITH WRIT PETITION (CIVIL) NO.263 OF 2019 WITH WRIT PETITION (CIVIL) NO.272 OF 2019 WITH WRIT PETITION (CIVIL) NO.362 OF 2019 WITH WRIT PETITION (CIVIL) NO.358 OF 2019 WITH WRIT PETITION (CIVIL) NO.281 OF 2019 WITH WRIT PETITION (CIVIL) NO.277 OF 2019 WITH WRIT PETITION (CIVIL) NO.311 OF 2019 WITH WRIT PETITION (CIVIL) NO.279 OF 2019 WITH WRIT PETITION (CI ..... 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X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the real estate developer. In addition, being financial creditors, they are entitled to be represented in the Committee of Creditors by authorised representatives. The amendments so made to the Code are as follows: PROVISIONS OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016 BEING CHALLENGED 1. Explanation to Section 5(8)(f): 5. Definitions In this part, unless the context otherwise requires, (8) financial debt means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes- (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; Explanation. - For the purposes of this sub- clause,- (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and (ii) the expressions, allottee and real estate project shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nic means, from the financial creditor he represents, for voting in accordance therewith, to ensure that the appropriate voting instructions of the financial creditor he represents is correctly recorded by the interim resolution professional or resolution professional, as the case may be. Explanation For the purposes of this section, the electronic means shall be such as may be specified. 2. The Code was passed by the Parliament on 28th May, 2016. Several petitions were then filed against real estate developers under the Code by allottees who had entered into assured returns / committed returns agreements with these developers, whereby, upon payment of a substantial portion of the total sale consideration upfront at the time of execution of the agreement, the developer undertook to pay a certain amount to allottees on a monthly basis from the date of execution of the agreement till the date of handing over of possession to the allottees. The National Company Law Appellate Tribunal (hereinafter referred to as NCLAT ) on 21st July, 2017 in Nikhil Mehta and Sons (HUF) v. AMR Infrastructure Ltd., (Company Appeal (AT) (Insolvency) No. 07 of 2017) held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 (hereinafter referred to as the Amendment Act ) incorporating the aforesaid amendments as were provided for by the Amendment Ordinance. 5. Dr. Abhishek Manu Singhvi, learned Senior Advocate, leading the charge on behalf of the real estate developers, has argued that the treatment of allottees as financial creditors violates two facets of Article 14. One, that the amendment is discriminatory inasmuch as it treats unequals equally, and equals unequally, having no intelligible differentia; and two, that there is no nexus with the objects sought to be achieved by the Code. In fact, according to the learned senior counsel the amendments fly in the face of the objects sought to be achieved by the Code, i.e. to maximise value of assets so that the shareholders of a corporate debtor do not suffer from bad management or poor management. In the facts of the present cases, according to Dr. Singhvi, the bad eggs alone have been looked at, and entities like his client and many others before us, who have completed building projects in time and are in every way compliant with the law, can yet be jeopardised by Section 7 petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific legislation and that the enactment of a sledgehammer to kill a gnat would render the impugned amendments excessive, disproportionate and violative of Articles 14 and 19(1)(g) of the Constitution on this score also. In addition, the learned senior counsel scoffed at the Union s stand, in their counter affidavit before this Court, that the amendments made are clarificatory in nature. According to Dr. Singhvi, by no stretch of imagination could allottees who have parted with money as sale consideration for an apartment be included within the definition of financial creditor as originally enacted by Section 5(7). In fact, the very need for a deeming fiction is so that Parliament brings in persons who are not financial creditors, by forcibly inserting a square peg in a round hole. He read to us this Court s judgment in Swiss Ribbons v. Union of India (2019) 4 SCC 17, in copious detail, in order to drive home the point that not a single one of several characteristics of financial creditors stated in that judgment would apply to allottees/home buyers. On the contrary, if at all they could be assimilated to anybody, it would be to operational creditors, in which event it would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial creditor. According to him, there is no debt as defined under the Code; there is no borrowing as there is no temporary handing over of money which has then to be returned; there is no disbursal and no sum raised which has then to be handed back. Equally, the commercial effect of a borrowing must be qua transactions in which money is later replaced by money. According to him, in the present case, at the time that the agreement is made between the allottee and the real estate developer, what is agreed is that in return for money paid by the allottee, a flat/apartment would be allotted. It is only in the event of breach of the agreement on the part of the real estate developer that monies are to be refunded, which does not bring allottees within the definition of financial creditor . He also argued, adopting Dr. Singhvi s arguments, that all other categories of financial creditors would involve these elements, and if read noscitur a sociis with the other clauses, Section 5(8) of the Code would also make it clear that persons can only be included if there is a borrowing, at the end of which the borrowing is returned - with or without interest. He thus agreed with Dr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recalcitrant States to immediately set up the requisite authorities under RERA and made an impassioned plea that the words claims as may be specified in Section 15(1)(c) of the Code be struck down. According to him, real estate developers and borrowers are treated as equals when they are, in fact, unequals. Also, real estate developers are discriminated against when compared with other entities supplying goods or services. The amendments made are, therefore, excessive and disproportionate being manifestly arbitrary. He also buttressed Dr. Singhvi s argument that a square peg is fitted into a round hole as none of the identifying traits of financial creditors as explained in Swiss Ribbons (supra) are present insofar as allottees are concerned. He added that, in any case, RERA looks after all possible difficulties of allottees, who may in addition, invoke the arbitration clause for resolution of disputes with the real estate developer contained in most agreements. 10. Shri Krishnan Venugopal, learned Senior Advocate, who followed Shri Gopal Sankaranarayanan, placed before us the Global Derivatives Study Group and extracts from Philip Wood s Project Finance, Subordinated De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... most, the fundamental difference between financial and operational creditors was ignored. Secondly, he contended that by treating home buyers, who are in substance operational creditors, as financial creditors, infracts the principle of equitable treatment of similarly situated creditors. Further, the UNCITRAL Legislative Guide states that recognition of existing creditor s rights before the commencement of the insolvency proceedings by the insolvency law is important. He contended that by treating a home buyer as a financial creditor, the Code creates rights which such home buyer never had earlier. He further contended that by involving such persons in the negotiation process by putting them on the Committee of Creditors would infract the principle that, given their number and the diverse interests that they have, coupled with no knowledge or any commercial expertise of the corporate debtor, they should not and ought not to be allowed to participate in the Committee of Creditors. Also, insolvency law and other laws should be harmoniously construed, which harmony is disrupted when the Code is applied to cases which should really fall under RERA. Shri Bhandari was followed by Shri J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Act only prospectively, either from 2018 itself or at the very earliest from 1st December, 2016. He also argued that if this Court were to uphold the vires of the Amendment Act, his clients ought to be at liberty to take various defences under the agreement between his client and allottees, which this Court should make clear in the event of allottees knocking at the doors of the NCLT. 12. Mrs. Madhavi Divan, learned Additional Solicitor General, relying strongly upon Swiss Ribbons (supra), argued that the Amendment Act would clearly be covered by the ratio laid down by this Court in Swiss Ribbons (supra), which is that sufficient play in the joints must be given to the legislature when it comes to economic legislation, and every experiment that the legislature bona fide undertakes should not be interfered with by the Court. She referred copiously to the Insolvency Committee Report which led to the enactment of the Amendment Act, and stated that the real reason for including allottees as financial creditors is because, in substance, they finance the project in which they will ultimately be given flats/apartments. She contended that a cursory look at the agreement between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the Code afresh and argued that Section 5(8)(f), even read without the explanation, would, on its plain language, include real estate development agreements. For this purpose, she relied upon the definition of payment which would include recompense and on the definition in Collin s English dictionary of borrow which is to obtain or receive money on loan for temporary use intending to give either money or something equivalent back to the lender . In the facts of these cases, she contended that the something equivalent would be the flat/apartment. She also relied upon the definition of commercial to show that the profit element is important. She stressed the fact that the time value of money is present qua both allottee and builder as the allottee would pay less than he would have to for a complete flat/apartment, in which case the entire consideration for the flat/apartment would have to be paid upfront; as against instalments while it is being completed. Qua the builder, she contended that the time value of money would be the money paid by way of advances by allottees which would be used to finance the building of the flats/apartments in the project. She also re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iving a reply from the real estate developer, would then easily be able to decide whether a real estate developer owes money in the form of compensation payable for late completion of the project, and/or refund of money paid by the allottee. It would be open for the real estate developer in its defence to say that no amount is due and payable from the allottee, in that, the allottee is himself in breach of conditions laid down by the agreement read with the RERA, and rules and regulations made thereunder. According to her, therefore, the NCLT would be able to decide such applications in the same manner as would be decided in the case of banks and financial institutions. She also rebutted the argument that the collegiality of creditors will be affected by inserting home buyers into their committee by stating that home buyers, like banks and financial institutions, and unlike other operational creditors, are vitally concerned with the well-being of the corporate debtor, as otherwise the real estate project would never come to fruition. In rebutting the challenge to Section 21(6A) and Section 25A, she said there may be teething problems with regard to how an authorised representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te developer long after RERA has come into force. This has been done, for example, by defining Completion Certificate to include partial completion certificates of projects (or parts of projects), so that such partial certificates given to the real estate developer before coming into force of RERA would make the provisions of RERA inapplicable. Also, it has been pointed out that real estate developers have been successful in arguing that RERA has now shut out the consumer fora so far as allottees are concerned, and referred to stay orders by which consumer fora for a long period of time were unable to proceed with cases filed by allottees before them, until the National Consumer Disputes Redressal Commission finally decided that the Consumer Protection Act, 1986 was an additional remedy and continued to be an additional remedy to the remedies provided under RERA. They also pointed out that the authorities themselves under RERA jostled the allottees about, as when an allottee went to the Real Estate Regulatory Authority and obtained orders against developers, such orders were nullified by some Appellate Tribunal orders, stating that they should be sent to the adjudicating officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t comes to economic legislation. Apart from the presumption of constitutionality which arises in such cases, the legislative judgment in economic choices must be given a certain degree of deference by the courts. In paragraph 120 of the said judgment, this Court held: 120. The Insolvency Code is a legislation which deals with economic matters and, in the larger sense, deals with the economy of the country as a whole. Earlier experiments, as we have seen, in terms of legislations having failed, trial having led to repeated errors , ultimately led to the enactment of the Code. The experiment contained in the Code, judged by the generality of its provisions and not by so- called crudities and inequities that have been pointed out by the petitioners, passes constitutional muster. To stay experimentation in things economic is a grave responsibility, and denial of the right to experiment is fraught with serious consequences to the nation. We have also seen that the working of the Code is being monitored by the Central Government by Expert Committees that have been set up in this behalf. Amendments have been made in the short period in which the Code has operated, both to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporate insolvency resolution process ( CIRP ), second, the right to be on the committee of creditors ( CoC ) and third, the guarantee of receiving at least the liquidation value under the resolution plan. Recent cases like Chitra Sharma v. Union of India and Bikram Chatterji v. Union of India have evidenced the stance of the Hon ble Supreme Court in safeguarding the rights of home buyers under the Code due to their current disadvantageous position. 1.3 To completely understand the issue, it is imperative that the peculiarity of the Indian real estate sector is highlighted. Delay in completion of under-construction apartments has become a common phenomenon and the records indicate that out of 782 construction projects in India monitored by the Ministry of Statistics and Programme Implementation, Government of India, a total of 215 projects are delayed with the time over-run ranging from 1 to 261 months. Another study released by the Associated Chambers of Commerce and Industry of India, revealed that 826 housing projects are running behind schedule across 14 states as of December 2016. Further, the Committee agreed that it is well understood that amounts raised under hom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay require liquidity against an asset and the financer in return sell it back by way of a forward contract. The difference between the two prices would imply the rate of return to the financer. (emphasis supplied) 1. 6 Thus, not all forward sale or purchase are financial transactions, but if they are structured as a tool or means for raising finance, there is no doubt that the amount raised may be classified as financial debt under section 5(8)(f). Drawing an analogy, in the case of home buyers, the amounts raised under the contracts of home buyers are in effect for the purposes of raising finance, and are a means of raising finance. Thus, the Committee deemed it prudent to clarify that such amounts raised under a real estate project from a home buyer fall within entry (f) of section 5(8). 1.7 Further, it may be noted that the amount of money given by home buyers as advances for their purchase is usually very high, and frequent delays in delivery of possession may thus, have a huge impact. For example, in Chitra Sharma v. Union of India the amount of debts owed to home buyers, which was paid by them as advances, was claimed to be INR Fifteen Thousand Crore, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation in meetings of security holders, deposit holders, and all other classes of financial creditors which exceed a certain number, through an authorised representative. This can be done by adding a new provision to section 21 of the Code. Such a representative may either be a trustee or an agent appointed under the terms of the debt agreement of such creditors, otherwise an insolvency professional may be appointed by the NCLT for each such class of financial creditors. Additionally, the representative shall act and attend the meetings on behalf of the respective class of financial creditors and shall vote on behalf of each of the financial creditor to the extent of the voting share of each such creditor, and as per their instructions. To ensure adequate representation by the authorised representative of the financial creditors, a specific provision laying down the rights and duties of such authorised representatives may be inserted. Further, the requisite threshold for the number of creditors and manner of voting may be specified by IBBI through regulations to enable efficient voting by the representative. Also, regulation 25 may also be amended to enable voting through electroni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to secured, financial creditors are being put on the Committee of Creditors. If there is otherwise good reason as to why this particular group of unsecured creditors, like deposit holders, should be part of the Committee of Creditors, it is difficult to appreciate how such a group can be excluded. The Real Estate (Regulation and Development) Act, 2016 (RERA) and its impact on the real estate sector 20. The Statement of Objects and Reasons of RERA reads as follows: STATEMENT OF OBJECTS AND REASONS 1. The real estate sector plays a catalytic role in fulfilling the need and demand for housing and infrastructure in the country. While the sector has grown significantly in recent years, it has been largely unregulated, with absence of professionalism and standardisation and lack of adequate consumer protection. Though the Consumer Protection Act, 1986 is available as a forum to the buyers in the real estate market, the recourse is only curative and is not adequate to address all the concerns of buyers and promoters in that sector. The lack of standardisation has been a constraint to the healthy and orderly growth of industry. Therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Regulatory Authority, the adjudicating officer and the Appellate Tribunal, consequent upon which the aforesaid Sections were brought into force one year later - in the hope and expectation that the appropriate Government would set up the aforesaid authorities within the period of one year from 1st May, 2016. The relevant provisions of RERA are set out hereunder: 2. Definitions. --In this Act, unless the context otherwise requires, - (a) adjudicating officer means the adjudicating officer appointed under sub-section (1) of section 71; xxx xxx xxx (d) allottee in relation to a real estate project, means the person to whom a plot, apartment or building, as the case may be, has been allotted, sold (whether as freehold or leasehold) or otherwise transferred by the promoter, and includes the person who subsequently acquires the said allotment through sale, transfer or otherwise but does not include a person to whom such plot, apartment or building, as the case may be, is given on rent; (e) apartment whether called block, chamber, dwelling unit, flat, office, showroom, shop, godown, premises, suit, tenement, unit or by any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on the date of commencement of this Act and for which the completion certificate has not been issued, the promoter shall make an application to the Authority for registration of the said project within a period of three months from the date of commencement of this Act: Provided further that if the Authority thinks necessary, in the interest of allottees, for projects which are developed beyond the planning area but with the requisite permission of the local authority, it may, by order, direct the promoter of such project to register with the Authority, and the provisions of this Act or the rules and regulations made thereunder, shall apply to such projects from that stage of registration. (2) Notwithstanding anything contained in sub- section (1), no registration of the real estate project shall be required- (a) where the area of land proposed to be developed does not exceed five hundred square meters or the number of apartments proposed to be developed does not exceed eight inclusive of all phases: Provided that, if the appropriate Government considers it necessary, it may, reduce the threshold below five hundred square meters or eight ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in the proposed project and the proposed facilities to be provided thereof including firefighting facilities, drinking water facilities, emergency evacuation services, use of renewable energy; (f) the location details of the project, with clear demarcation of land dedicated for the project along with its boundaries including the latitude and longitude of the end points of the project; (g) proforma of the allotment letter, agreement for sale, and the conveyance deed proposed to be signed with the allottees; (h) the number, type and the carpet area of apartments for sale in the project along with the area of the exclusive balcony or verandah areas and the exclusive open terrace areas apartment with the apartment, if any; (i) the number and areas of garage for sale in the project; (j) the names and addresses of his real estate agents, if any, for the proposed project; (k) the names and addresses of the contractors, architect, structural engineer, if any and other persons concerned with the development of the proposed project; (l) a declaration, supported by an affidavit, which shall be signed by the promo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... web based online system for submitting applications for registration of projects within a period of one year from the date of its establishment. 5. Grant of registration.- On receipt of the application under sub-section (1) of section 4, the Authority shall within a period of thirty days. (a) grant registration subject to the provisions of this Act and the rules and regulations made thereunder, and provide a registration number, including a Login Id and password to the applicant for accessing the website of the Authority and to create his web page and to fill therein the details of the proposed project; or (b) reject the application for reasons to be recorded in writing, if such application does not conform to the provisions of this Act or the rules or regulations made thereunder: Provided that no application shall be rejected unless the applicant has been given an opportunity of being heard in the matter. (2) If the Authority fails to grant the registration or reject the application, as the case may be, as provided under sub-section (1), the project shall be deemed to have been registered, and the Authority shall within a per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice including any of the following practices, namely:- (A) the practice of making any statement, whether in writing or by visible representation which,- (i) falsely represents that the services are of a particular standard or grade; (ii) represents that the promoter has approval or affiliation which such promoter does not have; (iii) makes a false or misleading representation concerning the services; (B) the promoter permits the publication of any advertisement or prospectus whether in any newspaper or otherwise of services that are not intended to be offered; (d) the promoter indulges in any fraudulent practices. (2) The registration granted to the promoter under section 5 shall not be revoked unless the Authority has given to the promoter not less than thirty days notice, in writing, stating the grounds on which it is proposed to revoke the registration, and has considered any cause shown by the promoter within the period of that notice against the proposed revocation. (3) The Authority may, instead of revoking the registration under sub-section (1), permit it to remain in force subject to suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proposed project as provided under sub-section (2) of section 4, in all the fields as provided, for public viewing, including- (a) details of the registration granted by the Authority; (b) quarterly up-to-date the list of number and types of apartments or plots, as the case may be, booked; (c) quarterly up-to-date the list of number of garages booked; (d) quarterly up-to-date the list of approvals taken and the approvals which are pending subsequent to commencement certificate; (e) quarterly up-to-date status of the project; and (f) such other information and documents as may be specified by the regulations made by the Authority. (2) The advertisement or prospectus issued or published by the promoter shall mention prominently the website address of the Authority, wherein all details of the registered project have been entered and include the registration number obtained from the Authority and such other matters incidental thereto. (3) The promoter at the time of the booking and issue of allotment letter shall be responsible to make available to the allottee, the following information, namel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee months of the majority of allottees having booked their plot or apartment or building, as the case may be, in the project; (f) execute a registered conveyance deed of the apartment, plot or building, as the case may be, in favour of the allottee along with the undivided proportionate title in the common areas to the association of allottees or competent authority, as the case may be, as provided under section 17 of this Act; (g) pay all outgoings until he transfers the physical possession of the real estate project to the allottee or the associations of allottees, as the case may be, which he has collected from the allottees, for the payment of outgoings (including land cost, ground rent, municipal or other local taxes, charges for water or electricity, maintenance charges, including mortgage loan and interest on mortgages or other encumbrances and such other liabilities payable to competent authorities, banks and financial institutions, which are related to the project): Provided that where any promoter fails to pay all or any of the outgoings collected by him from the allottees or any liability, mortgage loan and interest thereon before transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be handed over, the rates of interest payable by the promoter to the allottee and the allottee to the promoter in case of default, and such other particulars, as may be prescribed. xxx xxx xxx 18. Return of amount and compensation --(1) If the promoter fails to complete or is unable to give possession of an apartment, plot or building,- (a) in accordance with the terms of the agreement for sale or, as the case may be, duly completed by the date specified therein; or (b) due to discontinuance of his business as a developer on account of suspension or revocation of the registration under this Act or for any other reason, he shall be liable on demand to the allottees, in case the allottee wishes to withdraw from the project, without prejudice to any other remedy available, to return the amount received by him in respect of that apartment, plot, building, as the case may be, with interest at such rate as may be prescribed in this behalf including compensation in the manner as provided under this Act: Provided that where an allottee does not intend to withdraw from the project, he shall be paid, by the promoter, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der. (5) The allottee shall be entitled to have the necessary documents and plans, including that of common areas, after handing over the physical possession of the apartment or plot or building as the case may be, by the promoter. (6) Every allottee, who has entered into an agreement or sale to take an apartment, plot or building as the case may be, under section 13, shall be responsible to make necessary payments in the manner and within the time as specified in the said agreement for sale and shall pay at the proper time and place, the share of the registration charges, municipal taxes, water and electricity charges, maintenance charges, ground rent, and other charges, if any. (7) The allottee shall be liable to pay interest, at such rate as may be prescribed, for any delay in payment towards any amount or charges to be paid under sub-section (6). (8) The obligations of the allottee under sub-section (6) and the liability towards interest under sub- section (7) may be reduced when mutually agreed to between the promoter and such allottee. (9) Every allottee of the apartment, plot or building as the case may be, shall partici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt with the Authority or the adjudicating officer, as the case may be, for any violation or contravention of the provisions of this Act or the rules and regulations made thereunder against any promoter allottee or real estate agent, as the case may be. Explanation.-For the purpose of this sub-section person shall include the association of allottees or any voluntary consumer association registered under any law for the time being in force. (2) The form, manner and fees for filing complaint under sub-section (1) shall be such as may be prescribed. xxx xxx xxx 34. Functions of Authority --The functions of the Authority shall include- (a) to register and regulate real estate projects and real estate agents registered under this Act; (b) to publish and maintain a website of records, for public viewing, of all real estate projects for which registration has been given, with such details as may be prescribed, including information provided in the application for which registration has been granted; (c) to maintain a database, on its website, for public viewing, and enter the names and photographs of promoters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be guided by the principles of natural justice and, subject to the other provisions of this Act and the rules made thereunder, the Authority shall have powers to regulate its own procedure. (3) Where an issue is raised relating to agreement, action, omission, practice or procedure that- (a) has an appreciable prevention, restriction or distortion of competition in connection with the development of a real estate project; or (b) has effect of market power of monopoly situation being abused for affecting interest of allottees adversely, then the Authority, may suo motu, make reference in respect of such issue to the Competition Commission of India. 39. Rectification of orders. --The Authority may, at any time within a period of two years from the date of the order made under this Act, with a view to rectifying any mistake apparent from the record, amend any order passed by it, and shall make such amendment, if the mistake is brought to its notice by the parties: Provided that no such amendment shall be made in respect of any order against which an appeal has been preferred under this Act: Provided further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufficient cause from preferring the appeal in time. Explanation.-The expression High Court means the High Court of a State or Union territory where the real estate project is situated. (2) No appeal shall lie against any decision or order made by the Appellate Tribunal with the consent of the parties. 59. Punishment for nonregistration under section 3.-- (1) If any promoter contravenes the provisions of section 3, he shall be liable to a penalty which may extend up to ten per cent of the estimated cost of the real estate project as determined by the Authority. (2) If any promoter does not comply with the orders, decisions or directions issued under sub-section (1) or continues to violate the provisions of section 3, he shall be punishable with imprisonment for a term which may extend up to three years or with fine which may extend up to a further ten per cent of the estimated cost of the real estate project, or with both. 60. Penalty for contravention of section 4. --If any promoter provides false information or contravenes the provisions of section 4, he shall be liable to a penalty which may extend up to five per cent. of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the person has failed to comply with the provisions of any of the sections specified in sub-section (1), he may direct to pay such compensation or interest, as the case may be, as he thinks fit in accordance with the provisions of any of those sections. xxx xxx xxx 72. Factors to be taken into account by the adjudicating officer.-- While adjudging the quantum of compensation or interest, as the case may be, under section 71, the adjudicating officer shall have due regard to the following factors, namely:- (a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (b) the amount of loss caused as a result of the default; (c) the repetitive nature of the default; (d) such other factors which the adjudicating officer considers necessary to the case in furtherance of justice. xxx xxx xxx 79. Bar of jurisdiction. --No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Authority or the adjudicating officer or the Appellate Tribunal is empowered by or under this Act to determine and no i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yond 10% of the estimated cost as advance payment cannot be taken without first entering into an agreement for sale. Importantly, the agreement for sale will now no longer be a one-sided contract of adhesion, but in such form as may be prescribed, which balances the rights and obligations of both the promoter and the allottees. Importantly, under Section 18, if the promoter fails to complete or is unable to give possession of an apartment, plot or building in accordance with the terms of the agreement for sale, he must return the amount received by him in respect of such apartment etc. with such interest as may be prescribed and must, in addition, compensate the allottee in case of any loss caused to him. Under Section 19, the allottee shall be entitled to claim possession of the apartment, plot or building, as the case may be, or refund of amount paid along with interest in accordance with the terms of the agreement for sale. In addition, all allottees are to be responsible for making necessary payments in instalments within the time specified in the agreement for sale and shall be liable to pay interest at such rate as may be prescribed for any delay in such payment. Under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te development projects and must, therefore, be given precedence over the Code, which is only a general enactment dealing with insolvency generally. From the introduction of the explanation to Section 5(8)(f) of the Code, it is clear that Parliament was aware of RERA, and applied some of its definition provisions so that they could apply when the Code is to be interpreted. The fact that RERA is in addition to and not in derogation of the provisions of any other law for the time being in force, also makes it clear that the remedies under RERA to allottees were intended to be additional and not exclusive remedies. Also, it is important to remember that as the authorities under RERA were to be set up within one year from 1st May, 2016, remedies before those authorities would come into effect only on and from 1st May, 2017 making it clear that the provisions of the Code, which came into force on 1st December, 2016, would apply in addition to the RERA. 25. In KSL Industries Ltd. v. Arihant Threads Ltd. (2015) 1 SCC 166, a Three Judge Bench of this Court held that the Sick Industries Companies (Special Provisions) Act, 1985 (hereinafter referred to as the Sick Act ) would pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om being overridden by the later Act i.e. the RDDB Act. 38. We, thus, find a harmonious scheme in relation to the proceedings for reconstruction of the company under SICA, which includes the reconstruction of debts and even the sale or lease of the sick company's properties for the purpose, which may or may not be a part of the security executed by the sick company in favour of a bank or a financial institution on the one hand, and the provisions of the RDDB Act, which deal with recovery of debts due to banks or financial institutions, if necessary by enforcing the security charged with the bank or financial institution, on the other. xxx xxx xxx 48. In view of the observations of this Court in the decisions referred to and relied on by the learned counsel for the parties we find that, the purpose of the two enactments is entirely different. As observed earlier, the purpose of one is to provide ameliorative measures for reconstruction of sick companies, and the purpose of the other is to provide for speedy recovery of debts of banks and financial institutions. Both the Acts are special in this sense. However, with reference to the specific pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was departed from in KSL Industries (supra) only because of the presence of a Section like Section 88 of RERA contained in the Recovery Act, which makes it clear that the Act is meant to be in addition to and not in derogation of other statutes. In the present case, it is clear that both tests are satisfied, namely, that the Code as amended, is both later in point of time than RERA, and must be given precedence over RERA, given Section 88 of RERA. 27. In fact, in Bank of India v. Ketan Parekh (2008) 8 SCC 148, this Court held that Section 9A of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 (hereinafter referred to as the Special Court Act ) must be considered to be legislation that is subsequent to the Recovery Act, since Section 9A was introduced by amendment, into the Special Court Act after the Recovery Act. Needless to add, both statutes contained non-obstante clauses. This Court held: 28. In the present case, both the two Acts i.e. the Act of 1992 and the Act of 1993 start with the non obstante clause. Section 34 of the Act of 1993 starts with non obstante clause, likewise Section 9-A (sic 13) of the Act of 1992. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RA is to see that real estate projects come to fruition within the stated period and to see that allottees of such projects are not left in the lurch and are finally able to realise their dream of a home, or be paid compensation if such dream is shattered, or at least get back monies that they had advanced towards the project with interest. At the same time, recalcitrant allottees are not to be tolerated, as they must also perform their part of the bargain, namely, to pay instalments as and when they become due and payable. Given the different spheres within which these two enactments operate, different parallel remedies are given to allottees under RERA to see that their flat/apartment is constructed and delivered to them in time, barring which compensation for the same and/or refund of amounts paid together with interest at the very least comes their way. If, however, the allottee wants that the corporate debtor s management itself be removed and replaced, so that the corporate debtor can be rehabilitated, he may prefer a Section 7 application under the Code. That another parallel remedy is available is recognised by RERA itself in the proviso to Section 71(1), by which an allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the Explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor - it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under sub-section (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in Part III, particulars of the financial debt in Part IV and documents, records and evidence of default in Part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to asce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise. (emphasis supplied) 31. Likewise, in Swiss Ribbons (supra), 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. In certain circumstances, financial creditors could also be individuals, such as debenture holders and fixed deposit holders, who were then spoken of as follows: 42. A perusal of the definition of financial creditor and financial debt makes it clear that a financial debt is a debt together with interest, if any, which is disbursed against the consideration for time value of money. It may further be money that is borrowed or raised in any of the manners prescribed in Section 5(8) or otherwise, as Section 5(8) is an inclusiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stees or agents. For other classes of creditors which exceed a certain threshold in number, like home buyers or security-holders for whom no trustee or agent has already been appointed under a debt instrument or otherwise, an insolvency professional (other than IRP) shall be appointed by NCLT on the request of IRP. It is to be noted that as the agent or trustee or insolvency professional i.e. the authorised representative for the creditors discussed above and executors, guarantors, etc. as discussed in Para 9 of this Report, shall be a part of the CoC, they cannot be related parties to the corporate debtor in line with the spirit of proviso to Section 21(2). *** 10.8. In light of the deliberation above, the Committee felt that a mechanism requires to be provided in the Code to mandate representation in meetings of security-holders, deposit-holders, and all other classes of financial creditors which exceed a certain number, through an authorised representative. This can be done by adding a new provision to Section 21 of the Code. Such a representative may either be a trustee or an agent appointed under the terms of the debt agreement of such creditors, otherwis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (6-B) The remuneration payable to the authorised representative- (i) under clauses (a) and (c) of sub-section (6-A), if any, shall be as per the terms of the financial debt or the relevant documentation; and (ii) under clause (b) of sub-section (6-A) shall be as specified which shall form part of the insolvency resolution process costs. 48. Also, Regulations 16-A and 16-B of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (the CIRP Regulations) were added, with effect from 4-7-2018, as follows: 16-A. Authorised representative.-(1) The interim resolution professional shall select the insolvency professional, who is the choice of the highest number of financial creditors in the class in Form CA received under sub-regulation (1) of Regulation 12, to act as the authorised representative of the creditors of the respective class: Provided that the choice for an insolvency professional to act as authorised representative in Form CA received under sub-regulation (2) of Regulation 12 shall not be considered. (2) The interim resolution professional shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, the committee shall consist of only the authorised representative(s). 49. It is obvious that debenture-holders and persons with home loans may be numerous and, therefore, have been statutorily dealt with by the aforesaid change made in the Code as well as the Regulations. However, as a general rule, it is correct to say that financial creditors, which involve banks and financial institutions, would certainly be smaller in number than operational creditors of a corporate debtor. xxx xxx xxx 61. Insofar as set-off and counterclaim is concerned, a set-off of amounts due from financial creditors is a rarity. Usually, financial debts point only in one way- amounts lent have to be repaid. However, it is not as if a legitimate set-off is not to be considered at all. Such set-off may be considered at the stage of filing of proof of claims during the resolution process by the resolution professional, his decision being subject to challenge before the adjudicating authority under Section 60. The Article 14 Challenge (I): Discrimination 32. Learned counsel for the Petitioners have emphasised that treating allottees to be financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... islature is free to recognise degrees of harm and may confine its restrictions to those cases where the need is deemed to be the clearest; (e) that in order to sustain the presumption of constitutionality the court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation; and (f) that while good faith and knowledge of the existing conditions on the part of a legislature are to be presumed, if there is nothing on the face of the law or the surrounding circumstances brought to the notice of the court on which the classification may reasonably be regarded as based, the presumption of constitutionality cannot be carried to the extent of always holding that there must be some undisclosed and un- known reasons for subjecting certain individuals or corporations to hostile or discriminating legislation. (at page 297, 298) 34. This principle has been re-iterated by this Court in State of Bihar v. Shree Baidyanath Ayurved Bhawan (P) Ltd. (2005) 2 SCC 762 at 783 and more recently in Karnataka Live Band Restaurants As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th respect to the purpose but others who are not so situated as well. In other words, this type of classification imposes a burden upon a wider range of individuals than are included in the class of those attended with mischief at which the law aims. Herod ordering the death of all male children born on a particular day because one of them would someday bring about his downfall employed such a classification. 56. The first question, therefore, is, whether the exclusion of establishments carrying on business or trade and employing less than 50 persons makes the classification under- inclusive, when it is seen that all factories employing 10 or 20 persons, as the case may be, have been included and that the purpose of the law is to get in unpaid accumulations for the welfare of the labour. Since the classification does not include all who are similarly situated with respect to the purpose of the law, the classification might appear, at first blush, to be unreasonable. But the Court has recognised the very real difficulties under which legislatures operate - difficulties arising out of both the nature of the legislative process and of the society which legislation attempts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beyond the easy ken of the Court [ See General Theory of Law and State , p. 161] . It depends to a great extent upon an assessment of the local condition of these concerns which the legislature alone was competent to make. 36. In V.C. Shukla v. State (Delhi Administration) 1980 Supp. SCC 249, this Court further elaborated: 11. In a diverse society and a large democracy such as ours where the expanding needs of the nation change with the temper of the times, it is extremely difficult for any legislation to make laws applicable to all persons alike. Some amount of classification is, therefore, necessary to administer various spheres of the activities of the State. It is well settled that in applying Article 14 mathematical precision or nicety or perfect equanimity are not required. Similarity rather than identity of treatment is enough. The courts should not make a doctrinaire approach in construing Article 14 so as to destroy or frustrate any beneficial legislation. What Article 14 prohibits is hostile discrimination and not reasonable classification for the purpose of legislation. Furthermore, the legislature which is in the best position to understand the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be treated alike both in privileges conferred and liabilities imposed. Since the State, in exercise of its governmental power, has, of necessity, to make laws operating differently on different groups of persons within its territory to attain particular ends in giving effect to its policies, it is recognised that the State must possess the power of distinguishing and classifying persons or things to be subjected to such laws. It is, however, required that the classification must satisfy two conditions, namely, (i) it is founded on an intelligible differentia which distinguishes those that are grouped together from others; and (ii) the differentia must have a rational relation to the object sought to be achieved by the Act. It is not the requirement that the classification should be scientifically perfect or logically complete. Classification would be justified if it is not palpably arbitrary. (See : Re, Special Courts Bill, 1978 [(1979) 1 SCC 380 : (1979) 2 SCR 476, 534-36] .) If there is equality and uniformity within each group, the law will not be condemned as discriminative, though due to some fortuitous circumstance arising out of a peculiar situation some included in a clas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P) Ltd. v. Mill Mazdoor Sabha [AIR 1967 SC 691 : (1967) 1 SCR 15] at SCR p. 36. While referring to the observations made in Collector of Customs v. Nathella Sampathu Chetty [AIR 1962 SC 316 : (1962) 3 SCR 786 : (1962) 1 Cri LJ 364] at SCR pp. 829-30 it is submitted that the intent of Parliament shall not be defeated merely for the reason that it may operate a bit harshly on a small section of public where it may be necessary to make such provisions of achieving the desired objectives to ensure that the nefarious activities of smuggling, etc. had to be necessarily curbed. In Fatehchand Himmatlal [(1977) 2 SCC 670] where debts of the agriculturists were wiped off, this Court observed: 44. Every cause claims its martyr and if the law, necessitated by practical considerations, makes generalizations which hurt a few, it cannot be helped by the Court. Otherwise, the enforcement of the Debt Relief Act will turn into an enquiry into scrupulous and unscrupulous creditors, frustrating through endless litigation, the instant relief to the indebted which is the promise of the legislature. (SCC p. 689, para 44) The principle contained in Swiss Ribbons (supra), that far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over and completes the project, while always taking the risk that if no one were to come forward, corporate death must ensue and the allottee must then stand in line to receive whatever is given to him in winding up. Given the reasons of the Insolvency Committee Report, which show that experience of the real estate sector in this country has not been encouraging, in that huge amounts are advanced by ordinary people to finance housing projects which end up in massive delays on the part of the developer or even worse, i.e. failure of the project itself, and given the state of facts which was existing at the time of the legislation, as adverted to by the Insolvency Committee Report, it is clear that any alleged discrimination has to meet the tests laid down in Ram Krishna Dalmia (supra), V.C. Shukla (supra), Shri Ambica Mills (supra), Venkateshwara Theatre (supra) and Mardia Chemicals (supra). 40. It is impossible to say that classifying real estate developers is not founded upon an intelligible differentia which distinguishes them from other operational creditors, nor is it possible to say that such classification is palpably arbitrary having no rational relation to the obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money. Likewise, the developer who benefits from the amounts disbursed also gains from the time value of money. The fact that the allottee makes such payments in instalments which are co-terminus with phases of completion of the real estate project does not any the less make such payments as payments involving exchange , i.e. advances paid only in order to obtain a flat/apartment. What is predominant, insofar as the real estate developer is concerned, is the fact that such instalment payments are used as a means of finance qua the real estate project. One other vital difference with operational debts is the fact that the documentary evidence for amounts being due and payable by the real estate developer is there in the form of the information provided by the real estate developer compulsorily under RERA. This information, like the information from information utilities under the Code, makes it easy for home buyers/allottees to approach the NCLT under Section 7 of the Code to trigger the Code on the real estate developer s own information given on its webpage as to delay in construction, etc. It is these fundamental differences between the real estate developer and the supplier of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esolution plans, such individuals, by virtue of being financial creditors, have a right to be on the Committee of Creditors to safeguard their interest. Also, the question that is to be asked when a debenture holder or fixed deposit holder prefers a Section 7 application under the Code will be asked in the case of allottees of real estate developers is a debt due in fact or in law? Thus, allottees, being individual financial creditors like debenture holders and fixed deposit holders and classified as such, show that they within the larger class of financial creditors, there being no infraction of Article 14 on this score. 42. The presumption that the legislature has understood and correctly appreciated the need of its people and that the amendment to the Code is directed to problems made manifest by experience, as was pointed out by the Insolvency Law Committee findings (supra) demonstrates that the presumption of constitutionality that attaches to the Amendment Act has not been displaced by the Petitioners. 43. It was also argued with reference to Regulation 9A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . RATIONALE BEHIND DISTINCTION BETWEEN FINANCIAL AND OPERATIONAL CREDITORS REASON FOR NON-APPLICABILITY OF DISTINCTION BETWEEN FCs and OCs (AS EXPLAINED IN SWISS RIBBONS) IN CASE OF HOMEBUYERS/ ALLOTTEES 1 Nature of security : it is clear that most financial creditors, particularly banks and financial institutions, are secured creditors whereas most operational creditors are unsecured, payments for goods and services as well as payments to workers not being secured by mortgaged documents and the like. [Para 44] Real estate allottees/ homebuyers are unsecured creditors and are therefore more akin to OCs rather than FCs 2 The nature of loan agreements with financial creditors is different from contracts with operational creditors for supplying goods and services. ● Financial creditors generally lend finance on a term loan or for working capital that enables the corporate debtor to either set up and/or operate its business. On the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tands extended on account of force majeure circumstances and 3 Regarding role and involvement of FCs vis- -vis OCs : financial creditors are, from the very beginning, involved with assessing the viability of the corporate debtor. They can, and therefore do, engage in restructuring of the loan as well as reorganization of the corporate debtor s business when there is financial stress, which are things operational creditors do not and cannot do. Thus, preserving the corporate debtor as a going concern, while ensuring maximum recovery for all creditors being the objective of the Code, financial creditors are clearly different from operational creditors and therefore, there is obviously an intelligible differentia between the two which has a direct relation to the objects sought to be achieved by the Code. [Para 45] Allottees are interested in securing their single time investment, and not the financial well-being of, or ensuring the continuity of, the corporate debtor as a going-concern. Further, allottees in different real estate projects of a corporate debtor, may have different interests confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t real estate projects of a corporate debtor, may have different interests confined only to that particular development, with no interest in overall well-being or rearrangement or viability of the Company. If such allottees are vested with decision making powers concerning the business of the enterprise as a whole, it is unlikely that sound financial decisions will be taken having regard to the overall status of the entity which will undoubtedly defeat the very purpose and objective of the CIRP process. Interests of other stakeholders, including other financial creditors, suppliers, small creditors, labour, etc. are unlikely to be considered appropriately. 5 Regarding process for initiation of corporate insolvency resolution process: Information with respect to debt incurred by financial debtors: It is clear from these Sections that information in respect of debts incurred by financial debtors is easily available through information utilities which, under the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017 [ Information Utilities Regulations ], are to satisfy themselves that info ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of real estate allottees, amounts are also due and payable by the allottees to the developer i.e., payments owed to the developer as per the schedule under the Apartment Buyer s Agreement, interest on delayed payments. Set-off of amounts is therefore quite common in the case of allottees. ● In the case of real estate allottees, in most cases, the default has not yet occurred since the date of possession is often extended on account of force majeure and other circumstances. As a result, in such a case, the right of the allottees to terminate/cancel their agreement with the developer and seek a refund of amounts paid would not have arisen in the first place. 45. As has been pointed out by us hereinabove, it is clear that the context of Swiss Ribbons (supra) was a challenge under Article 14 stating that financial creditors have been discriminated against because there is no real difference between financial and operational creditors, and that such artificial distinction made by the Code, not having been made anywhere else in the world, would be discriminatory, having no rational relation with the object sought to be achieved by the Code ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t markets. Since more investment can be made with funds that have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern. (See ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] at para 83, fn 3). 28. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters/those who are in management. Thus, the resolution pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors, they should not be treated as financial creditors. We have already answered these questions in the context of discrimination and manifest arbitrariness and have found that, in point of fact, real estate allottees are really in the nature of financial creditors, and thus the UNCITRAL Legislative Guide has been followed, and not breached. Equally, it was argued that creating new creditors rights in Insolvency Law, as opposed to recognising existing creditors rights, will infract the UNCITRAL Legislative Guide. As will be pointed out hereinbelow, since allottees of real estate projects have always been subsumed within Section 5(8)(f), no new rights or claims have been created. It was also contended that since allottees are then said to have no expertise or knowledge in the working of the corporate debtor, they cannot participate effectively in the Committee of Creditors, and should therefore be kept out. The same answer as has been given hereinabove, i.e. that allottees, like individual financial creditors who are already on the Committee of Creditors, are to have a voice in determining the corporate debtor and their own future. This contention, therefore, also fails. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h must ensue is wholly incorrect. If the real estate project is otherwise viable, resolution plans from others may well be accepted and the best of these would then work in order to maximise the value of the assets of the corporate debtor. Corporate death, as has been stated in Swiss Ribbons (supra) is the last resort under the Code after all other available options have failed. This argument again need not deter us further. 49. It was then stated that there will be a flood of petitions before the NCLT, and as the NCLT has to decide within a period of 14 days, there will only be a summary decision in which a complicated agreement entered into between home buyer and real estate developer will not be gone into in order to discover whether a debt is due and payable. Coupled with this argument, is the alternative argument that, given the fact that RERA adequately looks after the rights and interests of allottees, to apply the Code would then be manifestly arbitrary, as a management which may have infused large funds to develop the real estate project would then be summarily removed. A supplementary argument was made that this would also infract Article 19(1)(g) and 300-A, as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Union Territories under RERA. Here, Rule 14 of these Rules speaks of details to be published on the website; and among other details, Rule 14(1)(d) states that the following details shall be uploaded by the promoter: 14. Details to be published on the website.- (1) The Authority shall ensure the following information, as applicable, shall be made available on its website in respect of each project registered under the Act, namely xxx xxx xxx (d) the promoter shall upload the following updates on the webpage for the project, within fifteen days from the expiry of each quarter, namely:- (i) list of number and types of apartments or plots, booked; (ii) list of number of garages booked; (iii) status of the project- (A) Status of construction of each building with photographs; (B) Status of construction of each floor with photographs; (C) Status of construction of internal infrastructure and common areas with photographs. (iv) status of approvals,- (A) Approvals received; (B) Approvals applied and expected date of receipt; (C) A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is important to point out, in answer to the arguments made by the Petitioners, that under Section 65 of the Code, the real estate developer can also point out that the insolvency resolution process under the Code has been invoked fraudulently, with malicious intent, or for any purpose other than the resolution of insolvency. This the real estate developer may do by pointing out, for example, that the allottee who has knocked at the doors of the NCLT is a speculative investor and not a person who is genuinely interested in purchasing a flat/apartment. They can also point out that in a real estate market which is falling, the allottee does not, in fact, want to go ahead with its obligation to take possession of the flat/apartment under RERA, but wants to jump ship and really get back, by way of this coercive measure, monies already paid by it. Given the above, it is clear that it is very difficult to accede to the Petitioners contention that a wholly one-sided and futile hearing will take place before the NCLT by trigger-happy allottees who would be able to ignite the process of removal of the management of the real estate project and/or lead the corporate debtor to its death. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompliance thereof. It is imperative to note that the provision is procedural, the object behind which is to dispose of applications under Section 34 expeditiously. One must remember the wise observation contained in Kailash [Kailash v. Nanhku, (2005) 4 SCC 480] , where the object of such a provision is only to expedite the hearing and not to scuttle the same. All rules of procedure are the handmaids of justice and if, in advancing the cause of justice, it is made clear that such provision should be construed as directory, then so be it. xxx xxx xxx 21. Section 80, though a procedural provision, has been held to be mandatory as it is conceived in public interest, the public purpose underlying it being the advancement of justice by giving the Government the opportunity to scrutinise and take immediate action to settle a just claim without driving the person who has issued a notice having to institute a suit involving considerable expenditure and delay. This is to be contrasted with Section 34(5), also a procedural provision, the infraction of which leads to no consequence. To construe such a provision as being mandatory would defeat the advancement of justice as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Committee of Creditors or, if there are more than 18 operational creditors, the highest in order of debt owed to operational creditors to the extent of the first 18 are then represented on the Committee of Creditors together, with a representative of the workers. If allottees who have funded a real estate project of the corporate debtor to the extent of 100% are neither financial creditors nor operational creditors, the mechanism of the Committee of Creditors, who is now to take decisions after the Code is triggered as to the future of the corporate debtor, will be non-existent in a case where there are no operational creditors and no secured creditors, because 100% of the project is funded by the allottees. Even otherwise, as correctly argued by the learned Additional Solicitor General, it would in fact be manifestly arbitrary to omit allottees from the Committee of Creditors when they are vitally interested in the future of the corporate debtor as they have funded anywhere from 50% to 100% of the project in most cases. 55. On this point, we were referred to the Insolvency and Bankruptcy Code (Amendment) Bill, 2019, which has just passed through the Parliament, to amend t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial creditors of the corporate debtor could be called to the NCLT so that the NCLT can then ascertain their views. If the vast majority of them were to state that they would prefer to remain outside the Code, then the Section 7 application filed by a single allottee ought to be dismissed. Another learned counsel stated that there should be a threshold limit by which at least 25% of the total number of allottees of the project should be reached before they could trigger the Code. Other learned counsel suggested that at the stage of the Section 7 application, an inquiry be made to see if the corporate debtor is otherwise well-managed and is solvent, in which case the Section 7 application ought to be dismissed. Shri Jayant Bhushan, learned Senior Advocate appearing on behalf of some of the Petitioners, also suggested that allottees ought not to be allowed to trigger the Code at all, but that if the Code is otherwise triggered, they can be members of the Committee of Creditors to take decisions that will be beneficial to them. It was also suggested that, before the Code is triggered by an allottee, there should be a finding of default from the authorities under RERA. This is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indu Women's Rights to Property Act was read down so as not to include agricultural land, which would be outside the Central Legislature's powers under the Government of India Act, 1935. This is done because it is presumed that the legislature did not intend to transgress constitutional limitations. While so reading down the word property , the Federal Court held: (SCC OnLine FC) If the restriction of the general words to purposes within the power of the legislature would be to leave an Act with nothing or next to nothing in it, or an Act different in kind, and not merely in degree, from an Act in which the general words were given the wider meaning, then it is plain that the Act as a whole must be held invalid, because in such circumstances it is impossible to assert with any confidence that the legislature intended the general words which it has used to be construed only in the narrower sense: Owners of SS Kalibia v. Wilson [Owners of SS Kalibia v. Wilson, (1910) 11 CLR 689 (Aust)] , Vacuum Oil Co. Pty. Ltd. v. Queensland [Vacuum Oil Co. Pty. Ltd.v. Queensland, (1934) 51 CLR 677 (Aust)] , R. v. Commonwealth Court of Conciliation and Arbitration, ex p Whybro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to strike it down and leave it to the legislature if it so desires, to amend it. What is further, if the remaking of the statute by the courts is to lead to its distortion that course is to be scrupulously avoided. One of the situations further where the doctrine can never be called into play is where the statute requires extensive additions and deletions. Not only it is no part of the court's duty to undertake such exercise, but it is beyond its jurisdiction to do so. (emphasis in original) 57. Given the fact that the Amendment Act has been held to be constitutionally valid, and considering that its language is clear and unambiguous, it is not possible to accede to the contentions of the Petitioners to read down the clear provisions of the Amendment Act in the manner suggested by them. Interpretation of Section 5(8)(f) of the Code 58. Section 5(8)(f) of the Code has been set out in the beginning of this judgment. What has been argued by learned counsel on behalf of the Petitioners is that Section 5(8)(f), as it originally stood, is an exhaustive provision which must be read noscitur a sociis, and if so read, sub-clause (f) must take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to non-payment of debt when whole or any part of the debt has become due and payable and is not paid by the corporate debtor. Learned counsel for the Petitioners relied upon the judgment in Union of India v. Raman Iron Foundry (1974) 2 SCC 231, and, in particular relied strongly upon the sentence reading: 11....Now the law is well settled that a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a court or other adjudicatory authority. It is precisely to do away with judgments such as Raman Iron Foundry (supra) that claim is defined to mean a right to payment or a right to remedy for breach of contract whether or not such right is reduced to judgment. What is clear, therefore, is that a debt is a liability or obligation in respect of a right to payment, even if it arises out of breach of contract, which is due from any person, notwithstanding that there is no adjudication of the said breach, followed by a judgment or decree or order. The expression payment is again an expression which is elastic enough to include recompense , and includes repayment. For this purpose, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a discounted value so far as the allottee is concerned (in the sense of the allottee having to pay less by way of instalments than he would if he were to pay for the ultimate price of the flat/apartment). 62. Shri Krishnan Venugopal took us to the ACT Borrower s Guide to the LMA s Investment Grade Agreements by Slaughter and May (Fifth Edition, 2017). In this book financial indebtedness is defined thus: Definition of Financial Indebtedness (Investment Grade Agreements) Financial Indebtedness means any indebtedness for or in respect of: (a)moneys borrowed; (b)any amount raised by acceptance under any acceptance credit facility or dematerialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d)the amount of any liability in respect of any lease or hire purchase contract which would, in accordance with GAAP, be treated as a balance sheet liability [(other than any liability in respect of a lease or hire purchase contract which would, in accordance with GAAP in force [ prior to 1 January 2019] / [pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A few strong Borrowers do achieve that position. Most, however are required to accept the catch-all and will therefore need to consider which of their liabilities might be caught by it, and whether specific exclusions might be required. 64. What is clear from what Shri Venugopal has read to us is that a wide range of transactions are subsumed by paragraph (f) and that the precise scope of paragraph (f) is uncertain. Equally, paragraph (f) seems to be a catch all provision which is really residuary in nature, and which would subsume within it transactions which do not, in fact, fall under any of the other sub- clauses of Section 5(8). 65. And now to the precise language of Section 5(8)(f). First and foremost, the sub-clause does appear to be a residuary provision which is catch all in nature. This is clear from the words any amount and any other transaction which means that amounts that are raised under transactions not covered by any of the other clauses, would amount to a financial debt if they had the commercial effect of a borrowing. The expression transaction is defined by Section 3(33) of the Code as follows: (33) transaction inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommercial effect . Commercial would generally involve transactions having profit as their main aim. Piecing the threads together, therefore, so long as an amount is raised under a real estate agreement, which is done with profit as the main aim, such amount would be subsumed within Section 5(8)(f) as the sale agreement between developer and home buyer would have the commercial effect of a borrowing, in that, money is paid in advance for temporary use so that a flat/apartment is given back to the lender. Both parties have commercial interests in the same the real estate developer seeking to make a profit on the sale of the apartment, and the flat/apartment purchaser profiting by the sale of the apartment. Thus construed, there can be no difficulty in stating that the amounts raised from allottees under real estate projects would, in fact, be subsumed within Section 5(8)(f) even without adverting to the explanation introduced by the Amendment Act. 68. However, Dr. Singhvi strongly relied upon the report of the Bankruptcy Law Reforms Committee of November, 2015 and in particular paragraph 3 of Box 5.2 Trigger for IRP which states that financial creditors are per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defined in the Act. The expression private college is defined in clause (8) of Section 2 which can, in the absence of any indication of a contrary intention, cover all colleges including professional and technical colleges. An indication about such an intention is, however, given in the Rules wherein the expression college has been defined in Rule 2(b) to mean and include Arts and Science College, Teachers' Training College, Physical Education College, Oriental College, School of Institute of Social Work and Music College. While enumerating the various types of colleges in Rule 2(b) the rule-making authority has deliberately refrained from including professional and technical colleges in the said definition. It has been urged that in Rule 2(b) the expression means and includes has been used which indicates that the definition is inclusive in nature and also covers categories which are not expressly mentioned therein. We are unable to agree. A particular expression is often defined by the Legislature by using the word means or the word includes . Sometimes the words means and includes are used. The use of the word means indicates that definition is a hard-and-fast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Directorate of College Education only are to be covered by the Act and the Rules and technical educational institutions in the State of Tamil Nadu which are controlled by the Director of Technical Education are not so covered. 71. On the other hand, the learned Additional Solicitor General countered this submission by reference to Krishi Utpadan Mandi Samiti v. Shankar Industries (1993) Supp (3) SCC 361 (2), where, at paragraphs 5 and 12, this Court held: 5. Section 2(a) of the Act defines agricultural produce and reads as under: 2. (a) agricultural produce means such items of produce of agriculture, horticulture, viticulture, apiculture, sericulture, pisciculture, animal husbandry or forest as are specified in the Schedule, and includes admixture of two or more of such items, and also includes any such item in processed form, and further includes gur, rab, shakkar, khandsari and jaggery. xxx xxx xxx 12. We have considered the arguments advanced on behalf of the parties and have perused the record. A perusal of the definition of agricultural produce under Section 2(a) of the Act shows that apart from items of produce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s concerned, as it ignores earlier precedents of larger and coordinate benches and is out of sync with later decisions on the same point. Equally, Dr. Singhvi s argument that sub-clauses (a) to (i) of Section 5(8) of the Code must all necessarily reflect the fact that a financial debt can only be a debt which is disbursed against the consideration for the time value of money, and which permeates clauses (a) to (i), cannot be accepted as a matter of statutory interpretation, as the expression and includes speaks of subject matters which may not necessarily be reflected in the main part of the definition. 73. In any event, as was correctly argued by learned Additional Solicitor General Mrs. Madhavi Divan, the legislature is not precluded by way of amendment from inserting words into what may even be an exhaustive definition. What is an exhaustive definition is exhaustive for purposes of interpretation of a statute by the Courts, which cannot bind the legislature when it adds something to the statute by way of amendment. On this score also, there is no substance in the aforesaid argument. 74. It was then argued, relying on a large number of judgments that Section 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the intention of clause (2) of Article 19 is to include a public law remedy in respect of a grievance that has a collective impact but not as an actionable claim under the common law by an individual and, therefore, the word defamation has to be understood in that context, as the associate words are incitement to an offence would so warrant. Mr Rao, learned Senior Counsel, astutely canvassed that unless the word defamation is understood in this manner applying the principle of noscitur a sociis, the cherished and natural right of freedom of speech and expression which has been recognised under Article 19(1)(a) would be absolutely at peril. Mr Narasimha, learned ASG would contend that the said rule of construction would not be applicable to understand the meaning of the term defamation . Be it noted, while construing the provision of Article 19(2), it is the duty of the Court to keep in view the exalted spirit, essential aspects, the value and philosophy of the Constitution. There is no doubt that the principle of noscitur a sociis can be taken recourse to in order to understand and interpret the Constitution but while applying the principle, one has to keep in mind the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey Phillips India Ltd. v. State of U.P. [Godfrey Phillips India Ltd. v. State of U.P., (2005) 2 SCC 515] , while expressing its opinion on the aforesaid rule of construction, opined: (SCC pp. 550 551, paras 81 83) 81. We are aware that the maxim of noscitur a sociis may be a treacherous one unless the societas to which the socii belong, are known. The risk may be present when there is no other factor except contiguity to suggest the societas . But where there is, as here, a term of wide denotation which is not free from ambiguity, the addition of the words such as including is sufficiently indicative of the societas. As we have said, the word includes in the present context indicates a commonality or shared features or attributes of the including word with the included. *** 83. Hence on an application of general principles of interpretation, we would hold that the word luxuries in Entry 62 of List II means the activity of enjoyment of or indulgence in that which is costly or which is generally recognised as being beyond the necessary requirements of an average member of society and not articles of luxury. 74. At this junc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not found in the other sub-clauses of Section 5(8). This contention must also, therefore, be rejected. 76. It remains to deal with arguments on the effect of a deeming fiction. Under the explanation added to Section 5(8)(f), any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing. 77. In every case in which a deeming fiction is to be construed, the observations of Lord Asquith in a concurring judgment in East End Dwellings Co. Ltd. v. Finsbury Borough Council (1952) Appeal Cases 109 are cited. These observations read as follows: If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it . The statute says that you must imagine a certain state of affairs. It does not say that, having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs. These observations have been fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m, the legal consequences that follow. 17. Sections 4 to 7 remained on the statute book unamended when the Validating Act was passed. Their provisions were mandatory. They had admittedly not been followed. The defect of not following these mandatory provisions in the case of the villages of Raipura and Ummedganj was not cured by the Validating Act. The curing of the defect was an essential requirement for the passing of a valid validating statute, as held by the Constitution Bench in the case of Prithvi Cotton Mills Ltd. [(1969) 2 SCC 283 : (1970) 1 SCR 388] It must, therefore, be held that the Validating Act is bad in law and it must be struck down. 81. It was in this context that it was stated that the fiction of a legal consequence cannot be deemed, whereas facts which preceded such consequence can so be deemed. In the present case, the deeming provision, as has been held by us, is only clarificatory of the true legal position as it already obtained. The present case does not concern itself with validating statutes at all. The ratio of this judgment, therefore, would have no application to this case. 82. Equally, in Daiichi Sankyo Company Limited ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to. After ascertaining the purpose full effect must be given to the statutory fiction and it should be carried to its logical conclusion and to that end it would be proper and even necessary to assume all those facts on which alone the fiction can operate. [Ed.: This latter sentence does not form part of what was observed by James, L.J. in ex p Walton, (1881) 17 Ch D 746 : (1881-85) All ER Rep 548 (CA) but is a paraphrase of what was observed by the Supreme Court in State of Bombay v. Pandurang Vinayak, 1953 SCR 773 at p. 778. See also Ali M.K. v. State of Kerala, (2003) 11 SCC 632 : 2004 SCC (L S) 136, SCC at p. 639, para 13.] [See Hill v. East and West India Dock Co. [(1884) 9 AC 448 (HL)] , State of Travancore-Cochin v. Shanmugha Vilas Cashewnut Factory [AIR 1953 SC 333] , American Home Products Corpn. v. Mac Laboratories (P) Ltd. [(1986) 1 SCC 465] and Parayankandiyal Eravath Kanapravan Kalliani Amma v. K. Devi [(1996) 4 SCC 76] .] In an oft quoted passage, Lord Asquith stated: If you are bidden to treat an imaginary state of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d them or not. (Per Lord President Cooper in Ferguson v. McMillan [1954 SLT 109] .) 16. Whether the word deemed when used in a statute established a conclusive or a rebuttable presumption depended upon the context (see St. Leon Village Consolidated School Distt. v. Ronceray [(1960) 23 DLR (2d) 32] ). . I regard its primary function as to bring in something which would otherwise be excluded. (Per Viscount Simonds in Barclays Bank v. IRC [1961 AC 509 : (1960) 3 WLR 280 : (1960) 2 All ER 817 (HL)] at AC p. 523.) Deems means is of opinion or considers or decides and there is no implication of steps to be taken before the opinion is formed or the decision is taken. [See R. v. Brixton Prison (Governor), ex p Soblen [(1963) 2 QB 243 : (1962) 3 WLR 1154 : (1962) 3 All ER 641 (CA)] at QB p. 315.] [Ed.: As observed in Ali M.K. v. State of Kerala, (2003) 11 SCC 632 : 2004 SCC (L S) 136, SCC at pp. 639-40, paras 13-16.] In the present case, it is clear that the deeming fiction that is used by the explanation is to put beyond doubt the fact that allottees are to be regarded as financial creditors within the enacting part contained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... triggering of the Code. iii. 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. Postscript 87. We have been informed that most of the States and Union Territories have established/appointed adjudicating officers, the Real Estate Regulatory Authority, as well as the Appellate Tribunal as under the RERA. Yet, despite the fact that 1st May, 2017 has long gone, some recalcitrant States and Union Territories have yet to do the needful. We direct that in those States in which the needful has not been done, in that, only interim or no adjudicating officer/Real Estate Regulatory Authority and/or Appellate Tribunal have been appointed/established, such States/Union Territories are directed to appoint permanent adjudicating officers, a Real Estate Regulatory Authority and Appellate Tribunal within a period of three months from the date of this judgment. Copies of this judgment be sent to the Chief Secretaries of all the States and Union Territories imm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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