CHALLENGE TO IBC ORDINANCE DATED 28 DECEMBER, 2019 AND 'STATUS QUO’

The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 was promulgated on December 28, 2019. The ordinance amends the IBC Code, 2016. The Ordinance inter alia introduces minimum thresholds for certain classes of financial creditors for initiating the insolvency resolution process and assumes relevance to the allottees of the real estate projects. The Ordinance inter alia provides that in case of real estate projects, if the allottee (person to whom a plot, apartment, or building has been allotted or sold) wishes to initiate the resolution process against the builder company, the application for the same can be filed jointly by at least 100 allottees of the same real estate project, or 10% of the total allottees under the same real estate project, whichever is less.

Intervention By the Hon’ble Supreme Court – Petitions were filed by many allottees before the Hon’ble Supreme Court challenging the constitutional validity of the said Ordinance insofar it amends Section 7 of the Insolvency and Bankruptcy Code, 2016 for allottees/homebuyers introducing the aforesaid threshold/minimum numbers. Hon’ble Supreme Court on 13 January, 2020 in Writ Petition (Civil) No. 26/2020 and other connected matters intervened and issued notice to Union of India seeking response. The Hon’ble Supreme Court further directed to maintain ‘Status quo’ with respect to the pending applications in the meantime.

Applicability of ‘status quo’ order on all pending application: The aforesaid Order of Hon’ble Supreme Court has also invited some debate to the effect whether ‘Status quo’ is applicable on all pending applications before the NCLT or is only restricted to the applications (before NCLT) of allottees who have challenged the said Ordinance before the Hon’ble Supreme Court.
In our view the ‘Status quo’ granted by the Hon’ble Supreme Court is not applicable universally and is restricted only to the pending applications (before NCLT) of allottees who have challenged the said Ordinance before the Hon’ble Supreme Court. There are 3 reasons for this view:
1. The Hon’ble Supreme Court did not stay the operation of the ordinance or the proviso introduced by the said ordinance providing for the threshold/minimum no of allottees to make application. Which also means that new application(s) before the NCLT can be filed only and only by the allottees/homebuyers meeting the minimum requirement introduced by the ordinance.
2. Secondly, the Order, which is reproduced below does not use the word ‘all’ before ‘applications’ “Issue notice.
3. Thirdly, judicial experience suggests that interim relief is normally confined by the Hon’ble Courts to the parties before them.

Advocate Harsh Tayal