Holding

The Court held that no preferential payment to home buyers can be ordered during the CIRP, that the IBC must be applied as per its statutory timeline, and that the CIRP should be revived with a fresh period and a reconstituted Committee of Creditors, while barring JIL/JAL and their promoters from participation under Section 29A.

Summary

Jaypee Infratech Ltd (JIL) defaulted on a loan from IDBI Bank, prompting the bank to initiate a Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC). Home buyers filed a writ petition alleging that the CIRP ignored their interests and sought a pro‑rata refund of the Rs 750 crore deposited by JIL. The Supreme Court held that directing a preferential payment to home buyers during the CIRP would be impermissible and would prejudice secured creditors, especially since only 8% of buyers sought refunds while 92% wanted possession. The Court also noted that the IBC aims to protect lenders and that the RBI’s Internal Advisory Committee had correctly recommended a CIRP against JIL’s holding company, JAL. Consequently, the Court ordered the revival of the CIRP, a fresh 180‑day period, reconstitution of the Committee of Creditors to include home buyers as financial creditors under the amended IBC, and barred JIL/JAL and their promoters from participating under Section 29A. The deposited amount was to be transferred to the NCLT for further proceedings, and the petitions were disposed of.

Issues considered

Whether the Court can direct a preferential payment to home buyers during the pendency of a CIRP under the IBC.
Whether home buyers qualify as financial creditors entitled to voting rights in the Committee of Creditors.
Whether the amendment to the IBC (Ordinance of June 2018) can be applied retrospectively to revive the CIRP.
Whether JIL/JAL and their promoters are ineligible to participate in the resolution process under Section 29A of the IBC.

Legislation cited

Banking Regulation Act, 1949s. 35AA, s. 35AB
Companies Act, 2013
Constitution of Indias. Article 142, s. Article 32
Consumer Protection Act, 1986
Insolvency and Bankruptcy Code, 2016s. 17, s. 18, s. 20, s. 21(6), s. 21(6A)(b), s. 3(30), s. 3(31), s. 5(7), s. 5(8), s. 7
Real Estate (Regulation and Development) Act, 2016

Judgment

1044 [2018]REPORTS
SUPREME COURT 12 S.C.R. 1044 [2018] 12 S.C.R.

A CHITRA SHARMA AND ORS.
v.
UNION OF INDIA AND ORS.
(Writ Petition (Civil) No.744 of 2017)
B AUGUST 09, 2018
[DIPAK MISRA, CJI, A. M. KHANWILKAR AND
DR. D. Y. CHANDRACHUD, JJ.]

C Insolvency and Bankruptcy Code, 2016 – ss.3(30), 3(31), 5(7),
5(8), 7, 17, 18, 20, 21(6) and 21(6A)(b) – JIL, a high-tech township
developer defaulted in repayment of its dues to IDBI bank – Bank
sought the initiation of a Corporate Insolvency Resolution Process
(CIRP) against JIL – For submission of claims, JIL separated home
buyers from financial and operational creditors – Writ Petition by
D home buyers who pleaded that their interest was getting ignored as
only financial and operational creditors were recognized by CIRP
– They further pleaded for pro-rata disbursement of the amount
deposited by the JIL among buyers who sought a refund – Held:
Plea cannot be accepted – Firstly, during the pendency of the CIRP,
E as a matter of law, it was impermissible for the Court to direct a
preferential payment to be made to a particular class of financial
creditors, whether secured or unsecured – Directing disbursement
of amount to home buyers who seek refund would be manifestly
improper and cause injustice to the secured creditors since it would
amount to a preferential disbursement to a class of creditors –
F Secondly, only 8% of the home buyers have sought refund of their
monies, while 92% preferred possession of the homes which they
have purchased – Allowing a refund to one class of financial
creditors would not be in the overall interest of a composite plan
formulated under the provisions of the IBC – Thirdly, one of the
G major reasons for the enactment of the IBC was to protect the interest
of lenders i.e. banks and financial institutions, who are answerable
to their stakeholders – Fourthly, the RBI constituted an Internal
Advisory Committee (IAC), which recommended to also initiate a
CIRP against JAL (the holding company of JIL) under the IBC –
Banking Regulation Act, 1949 – ss. 35AA and 35AB (enacted by
H amendment 2017) – Constitution of India – Art.32.
1044
CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS. 1045

JIL, a high-tech township developer defaulted in A
repayment of its dues to IDBI bank. Bank sought the initiation
of a Corporate Insolvency Resolution Process (CIRP) against
JIL. Pursuant thereto, a petition u/s.7 of the Act was filed against
the JIL by the bank before the National Company Law Tribunal
(NCLT). JIL called for submission of claims by creditors and
B
released a press note clarifying that home buyers were required
to fill a separate form as they could not be treated at par with
financial and operational creditors. Thereafter, proceedings
u/Art.32 were initiated to protect the interest of the home buyers.
Petitioners pleaded that CIRP was ignoring the interest of the
home buyers and was only recognizing financial and operational C
creditors. The Court had directed JAL, the holding company of
JIL to deposit a sum of Rs.2,000/- crores. However, only Rs.750
crores were deposited. Home buyers sought interim directions
to facilitate a pro-rata disbursement of this amount among buyers
who sought a refund.
D
Disposing of the petitions, the Court
HELD: This Court is conscious of the fact that the claim of
the home buyers who seek a refund of monies deserves to be
considered with empathy. Yet, after due consideration to the plea
and on the balance, this Court is not inclined to accede to it for E
more than one reason. Firstly, during the pendency of the
Corporate Insolvency Resolution Process (CIRP), it would as a
matter of law, be impermissible for the Court to direct a
preferential payment being made to a particular class of financial
creditors, whether secured or unsecured. For the present,
question as to whether the home buyers are unsecured creditors F
or secured creditors is left open. Directing disbursement of the
amount of Rs 750 crores to the home buyers who seek refund
would be manifestly improper and cause injustice to the secured
creditors since it would amount to a preferential disbursement
to a class of creditors. Once recourse to the discipline of the G
Insolvency and Bankruptcy Code, 2016 (IBC) is taken, it is
necessary that its statutory provisions be followed to facilitate
the conclusion of the resolution process. Secondly, the figures
made available presently, indicate that 8% of the home buyers
have sought a refund of their monies while 92% would evidently
H
1046 SUPREME COURT REPORTS [2018] 12 S.C.R.

A prefer possession of the homes which they have purchased. This
Court cannot be unmindful of the interests of 92% of the home
buyers many of whom would also have obtained loans to secure a
home. They would have a legitimate grievance if the corpus of
Rs 750 crores (together with accrued interest) is distributed to
the home buyers who seek a refund. The purpose of the process
B
envisaged by the IBC for the evaluation and approval of a
resolution plan is to form a composite approach to deal with the
financial situation of the corporate debtor. Allowing a refund to
one class of financial creditors will not be in the overall interest
of a composite plan being formulated under the provisions of the
C IBC. Thirdly during the course of the hearing, the Court has
been apprised of the concerns of the secured creditors, chief
among them being the IDBI bank limited. In its submissions
before this Court, IDBI bank has emphasised that one of the
major reasons for the enactment of the IBC was to protect the
interest of lenders. The debt owing to the banks and financial
D
institutions has been secured by the assets of JIL, to protect
their interests. This debt originates in the public deposits of the
banks and financial institutions, who are answerable to their
stakeholders. Fourthly, the RBI has moved this Court for
permission to initiate an insolvency resolution process.
E Parliament enacted the Banking Regulation (Amendment) Act
2017 by introducing Section 35 AA and Section 35 AB into the
Banking Regulation Act 1949. The amendment empowers the
Central government to authorise RBI to issue directions to any
banking company to initiate an insolvency resolution process in
respect of a default as understood under the IBC. Such an order
F
was issued by the Central government. The RBI constituted an
Internal Advisory Committee (IAC) consisting primarily of its
independent directors. The IAC took up for consideration
accounts which were classified either partly or wholly non-
performing from amongst the top 500 exposures in the banking
G system. As a first step, the IAC recommended all such non-
performing asset accounts with fund and non-fund based
outstandings exceeding Rs 5,000 crores. The IAC has initially
taken up twelve accounts involving total exposure of Rs1,79,769
crores. JIL was one of the twelve accounts in respect of which
H
CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS. 1047

directions have been issued to banks for initiating insolvency A
resolution. Subsequently, the IAC recommended that in respect
of those accounts where 60% or more had been classified as
NPAs, banks may be directed to implement a viable resolution
plan, failing which the accounts may be directed for a reference
under the IBC. JAL was one such entity. No viable resolution
B
plan could be found as a result of which it is also required to be
referred for CIRP. RBI has carried out this exercise as a matter
of economic policy in its capacity as the prime banking institution
in the country, entrusted with a supervisory role, and the power
to issue binding directions. [Para 40] [1081-C-H; 1082-A-H]
C
2. JAL was classified under the SMA – II category
(demands overdue for more than 60 days) by banks and as an
NPA. RBI is right that any further delay in resolution would
adversely impact a viable resolution being found for JAL and
JIL. The facts which have emerged before the Court from the
application filed by the RBI clearly indicate the financial distress D
of JAL and JIL. The apprehensions of the home-buyers in regard
to their financial incapacity is borne out by RBI, as a responsible
institution has urged before the Court. The IBC has been enacted
in the form of a comprehensive bankruptcy law and with a specific
legislative intent. With the amendment brought about by the
E
Ordinance promulgated in June 2018, the interests of the home
buyers have been sought to be safeguarded. Accordingly, the
request made on behalf of the RBI to allow it to follow the
recommendations of the IAC to initiate a CIRP against JAL under
the IBC is accepted. [Para 41] [1083-B-D]
F
M/s. Shantistar Builders v. Narayan Khimalal Totame
(1990) 1 SCC 520 ; R. K. Garg v Union of India
(1981) 4 SCC 675 : [1982] 1 SCR 947 ; Peerless
General Finance and Investment Co. Ltd. v RBI
(1992) 2 SCC 343 : [1992] 1 SCR 406 ; TN Generation
and Distribution Corpn. Ltd. v CSEPDI-Trishe G
Consortium (2017) 4 SCC 318 : [2016] 7 SCR 495
– referred to.

H
1048 SUPREME COURT REPORTS [2018] 12 S.C.R.

A Case Law Reference

(1990) 1 SCC 520 referred to Para 25

[1982] 1 SCR 947 referred to Para 40

[1992] 1 SCR 406 referred to Para 40
B
[2016] 7 SCR 495 referred to Para 40

CIVIL ORIGINAL/APPELLATE JURISDICTION: Writ Petition
(Civil) No. 744 of 2017.
C Under Article 32 of the Constitution of India

WITH

Writ Petition (Civil) Nos.782 and 783 of 2017, Special Leave
Petition (Civil) No. 24001 of 2017, Writ Petition (Civil) Nos. 803 and 805
D of 2017, Special Leave Petition (Civil) No. 24002 of 2017, Writ Petition
(Civil) Nos.950 and 860 of 2017, Special Leave Petition (Civil) No. 36396
of 2017, Special Leave Petition (Civil) D. No. 33267 of 2017 and Writ
Petition (Civil) No. 511 of 2018.

Tushar Mehta, ASG, Ajit Kumar Sinha, Fali S. Nariman,
E S. B. Upadhyay, Ms. Madhavi Divan, C. A. Sundaram, Colin Gonsalves,
Sidharth Luthra, Anand Grover, V. Giri, Ms. V. Mohana, Parag P. Tripathi,
Jayant Bhushan, Sr. Advs., Pawanshree Agrawal, (AC), S. K. Gokula
Krishnan, Karri Ventata Reddy, Ms. Revathy Raghava, Manoj Goel,
Shuvodeep Roy, Fuzail Ahmad Ayyub, Ashwarya Sinha, Ms. Priyanka
F Sinha, Ms. Mohini Priya, Arun Monga, Ms. Divya Sharma, Suryajyoti
Singh Paul, Gopal Jha, Mehul M. Gupta, R. P. Gupta, Ms. Mohna,
Ms. Geetali Talukdar, Samarendra Nath Verma, Karunakar Mahalik,
Shovan Mishra, Kaushik Choudhury, Shantanu Sagar, Ms. Sujeeta
Srivastava, Ashok Kumar Jain, Pankaj Jain, Bijoy Kumar Jain, Bishwajit
Dubey, Ms. Srideepa Bhattacharyya, Manpreet Lamba (for M/s. Cyril
G Amarchand Mangaldas), Sandeep Devashish Das, Anupam Lal Das,
Vishal Gupta, Anirudh Singh, Krishanu Barua, Subhash Sharma, Abhishek
Raj, Sumeet Sharma, Paras Chaudhary, Kabir Singh, Sidharth Agarwal,
Ms. Adishree, Ms. Swarupama Chaturvedi, B. N. Dubey, Sarvjit Pratap

H
CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS. 1049

Singh, Karan Bhariok, Ratik Sharma, Akash Tyagi, M/s. Unuc Legal A
Llp, Ajit Sharma, Bijoy Kumar Jain, Varinder Kumar Sharma, Syed Shahid
Rizvi, Harish V. Shankar, Mrs. Anil Katiyar, Mrs. Taruna Singh Gohil,
Amit Sharma, Naveen Kumar, Vishnu Sharma, Ms. Anupama Sharma,
Ms. Sonali Negi, Mohit Rai, Akhileshwar Jha, Mangaljit Mukherjee,
Mrs. Debarpita Basu Mukherjee, B. P. Yadav, Mrs. Sarla Chandra, Arun
B
K. Sinha, Ms. Prerna Mehta, Rohit Singh, Sachin Patil, Partha Sil,
Ms. Kavita Jha, Vaibhav Kulkarni, Udit Naresh, M. A. Krishna Moorthy,
K. K. Mohan, Raj Kishor Choudhary, Rajiv K. Virmani, Atul Malhotra,
Gaurav Jain, Yadav Narender Singh, Abhishek Singh, Mukesh Kumar
Verma, Ashok Mathur, R. Sudhindra, Saumya Mehrotra, Rabin Majumder,
Ms. Shashi Kiran, Satish Chandra, Manoj Jain, Sanjay Maurya, Anup C
Jain, Abhishek Baid, Praneet Das, Sarthak Guru, Kedar Nath Tripathy,
T. Harish Kumar, Talha Abdul Rahman, Abhijat P. Medh, Ms. Sanya
Talwar, Rajat Navet, Pradeep Kumar Bakshi, Mukesh Kumar Maroria,
Ravindra Kumar, Pawan Upadhyay, Nishant Kumar, Ratik Sharma,
Ms. Sharmila Upadhyay, Ms. Madhusmita Bora, Pawan Kishore Singh,
D
Ram Krishna, Sandeep Bisht, Ranjan Kumar Pandey, Hitesh Kumar
Sharma, S. K. Rajora, Praveen Swarup, Shekhar Kumar, Ms. Supriya
Juneja, Bharat Monga, Balaji Srinivasan, Rajeev Kumar Bansal, Abhishek
Yadav, Amarjit Singh Bedi, Dr. Lalit Bhasin, Ms. Palak Chadha,
Ms. Shireen Shukla, Mudit Sharma, Raghavendra Mohan Bajaj,
Ms. Garima Bajaj, Nakul Dewan, Ejaz Maqbool, Kunwar Aditya Singh, E
P. V. Dinesh, Ramakant Rai, Ms. Mehak Suri, Arjun Garg, Sarvam Ritam
Khare, Ms. Vrinda Kapoor, Md. Rashid Saeed, Ms. Manjeet Chawla,
Ms. Liz Mathew, Ms. Sujeeta Srivastava, Apoorv Shukla, Kunal Cheema,
Sudhir Naagar, Mrs. Gargi Khanna, Arun Aggarwal, Gaurav Agarwal,
Anindya Prasad Kumar, Ms. Tishampati Sen, Ms. Rashmi Nandakumar,
F
Pukhrambam Ramesh Kumar, Ms. Praveena Gautam, Neeraj Kumar
Gupta, Himanshu Shekhar, Dharmendra Kumar Sinha, Ms. Aparna Bhat,
Ms. Anne Mathew, Ms. Anannya Ghosh, Amit Pawan, Ambhoj Kumar
Sinha, Alok Shukla, Wajeeh Shafiq, Vikas Upadhyay, Vidit Monga, Jasbir
Singh Malik, Ms. Usha Nandini, Sushil Kumar Singh, Ms. Tasneem
Ahmadi, Sudhir Kumar Gupta, Abhinav Gupta, Ms. Mahima Rathi, G
Subodh S. Patil, Umakant Mishra, Sibo Sankar Mishra, Shiv Sagar Tiwari,
Shishir Pinaki, Ms. Shashi Kiran, Ms. Priya Sharma, Prathvi Raj Chauhan,
Arjun Sain, Sanjay Kumar Dubey, Yunus Malik, Ms. Renu Verma, Anish

H
1050 SUPREME COURT REPORTS [2018] 12 S.C.R.

A Maheshwari, Ms. Farha Malik, Samir Malik, Ms. Ruchi Kohli, Sonam
Sharma, Ms. Rakhi Ray, Rajender Prasad, Rahul Narayan, Ms. Puja
Sharma, Ms. Garima Sharma, Mohit Chaudhary, Suchit Mohanty, Prakash
Ranjan Nayak, Niraj Gupta, Ms. Anshu C., Mukesh Jain, Md. Shahid
Anwar, Ms. Mona Dikshit, Ms. Yamini Dikshit, Mayank Pandey,
Purushottam Sharma Tripathi, Ravi Chandra Prakash, Mukesh Kumar
B
Singh, Ms. Vani Vyas, Ms. Sushama Singh, Mohit Koushik, Mr. Abhishek
Tripathi, M/s. Ravi Chandra Prakash & Co., Kaushik Choudhury, Girish
Chand Tyagi, Brijesh Tyagi, Lalit Chahar, Kailash Prashad Pandey,
Ms. Prerna Singh, Ravi Kishor, Niraj Singh, Guntur Prabhakar,
Ms. Geetanjali Mohan, Gaurav Kejriwal, Deepak Goel, Christopher
C D’souza, Prabhat Rai, Prashant Tyagi, Braj Kishore Mishra, Binay Kumar
Das, Ms. Asha Jain Madan, Anil Nag, Arun Singh, Y. Lokesh, Anil Kumar
Tandale, Aneesh Mittal, Ms. Shreya Sharma, Amarjit Singh Bedi, Ajay
Marwah, Mool Singh, Anand, Abhijit Sengupta, Subhashis Biswas, Abhay
Kumar, Anivesh Bharadwaj, A. Lakshminarayanan, Vaibhav Kumar,
Ujjal Banerjee, Ms. Udita Singh, Somesh Chandra Jha, Shashank Shekhar
D
Singh, Sandeep Devashish Das, Ms. Surbhi Sharma, S. K. Bhattacharya,
L. K. Paonam, Mrs. Tomthinnganbi Koijam, Niraj Bobby Paonam, Rahul
Sharma, Santosh K. Sethi, Arjun Jaidka, Mithilesh Kumar Singh,
Krishna Kumar Singh, Ajay Jain, Pranay Jain, Jinendra Jain, I. C. Jain,
Ms. Aastha Chopra, Ajay Singh, Jay Bhati, Gagan Gupta, Saurabh Gupta,
E Bhargava V. Desai, Ajay Sharma, Rajesh P., Sunil Malhotra, P. N. Puri,
Rajat Malhotra, Mrs. Reeta Dewan Puri, Chander Shekhar Ashri,
Ayush Sharma, Sandeep Devashish Das, Sahil Sethi, Shivam Sharma,
Ms. Astha Sharma, Syed Shahid Ansari Rizvi, Harish V. Shankar, Arvind
Kr. Sharma, Sumant Batra, Syed Sarfaraz Karim, Abhinav Shrivastava,
Rahul Guptak, R.P. Singh, Rachit Mittal, Ms. Tanvi Aggarwal, Ankit
F
Khera, Mrs. K. Enatoli Sema, Amit Kumar Singh, Ashutosh Dubey,
Sushil Pandey, Rajendra, Ms. Rashmi Dubey, Samarendra Nath Verma,
Anil Kr. Mishra, A. Rohen Singh, Naveen Kumar, Anil Kumar Mishra,
A. Rohen Singh, Randhin K. Singh, Naveen Kr., Ms. Kanika Sehgal,
Dr. Lalit Bhasin, Ms. Sureen Shukla, P. V. Yogeswaran, Vivek Sarin,
G Aakarshan Aditya, Rashid Saeed, Lalit Chauhan, Ms. Sonal Gupta,
Ms. Aishwarya Dash, Saurabh Kirpal, Advs. for the
appearing parties.

H
CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS. 1051

The Judgment of the Court was delivered by A
DR. D. Y. CHANDRACHUD, J. 1. Permission to file the Special
Leave Petitions is granted.
2. These proceedings have been initiated under Article 32 of the
Constitution for protecting the interests of home buyers in projects floated
by Jaypee Infratech Limited1. JIL is a special purpose vehicle created B
by its holding company, Jaiprakash Associates Limited2.
3. IDBI Bank Limited instituted a petition under Section 7 of the
Insolvency and Bankruptcy Code 20163against JIL4 before the National
Company Law Tribunal5 at its Bench at Allahabad. The bank sought the
initiation of a Corporate Insolvency Resolution Process6 against JIL.
JIL filed its objections opposing admission of the petition. However, C
according to the petitioners, JIL withdrew its objections and furnished its
consent for a resolution plan under the provisions of the IBC. IDBI
Bank claimed that JIL had committed a default of Rs. 526.11 crores in
the repayment of its dues. On 9 August 2017, NCLT initiated the CIRP
in respect of JIL. An order of moratorium was issued under Section 14 D
by which the institution of suits and the continuation of pending
proceedings, including execution proceedings was prohibited. An Interim
Resolution Professional7 was appointed under the provisions of the IBC.
On 14 August 2017, JIL, in pursuance of the order of NCLT called for
submissions of claims by creditors: financial creditors in Form-C,
operational creditors in Form -B, workmen and employees in Form -E E
and other creditors in Form -F. On 16 August 2017, the Insolvency and
Bankruptcy Board of India made an amendment to its regulations and
Regulation 9(a) was inserted to include claims by other creditors. On 18
August 2017, the Board released a press note clarifying that home buyers
could fill in Form -F as they could not be treated at par with financial and F
operational creditors.
4. These proceedings were instituted for the following reliefs:
(i) A declaration that Sections 6,7,10,14 and 53 of the Code are ultra
vires insofar as only financial or operational creditors are
recognized, disregarding other stakeholders such as the home
buyers; G
1
JIL
2
JAL
3
IBC
4
CP (IB) 77/ALB/2017)
5
NCLT
6
CIRP H
7
IRP
1052 SUPREME COURT REPORTS [2018] 12 S.C.R.

A (ii) The order dated 9 August 2017 of the NCLT be set aside;
(iii) The Union of India be directed to notify under Section 14(3) that
the provisions for moratorium contained under Section 14(1)(a)
shall not apply to consumers and that the home buyers be allowed
to exercise the rights available to them under the Consumer
B Protection Act 1986 and the Real Estate (Regulation and
Development) Act 2016;
(iv) A forensic audit of JIL and JAL be conducted for the period from
2009 to 2017; and
(v) A direction be issued to the Union of India to protect the interests
C of home buyers in the larger public interest.
5. As the above narration indicates, the grievance with which this
Court was moved under Article 32 was that the CIRP ignores the interests
of vital stakeholders in building projects, chief among whom are individuals
who have invested their wealth in pursuit of the human desire to own a
D home. The IBC, in the submission of the petitioners, recognized only
three categories or classes namely (i) corporate debtors; (ii) financial
creditors and (iii) operational creditors. Not being protected by the IBC,
the petitioners contended that the rights conferred upon them by special
enactments including the Consumer Protection Act 1986 and by RERA
E could not be divested. Suspension of the right to seek redressal before
an adjudicatory forum under Section 14(1)(a) would, it was asserted,
leave the home buyers without a remedy. Section 238 of the IBC gives
it an overriding effect over other laws in existence.
6. The petition before this Court has grown in size to incorporate
F as many as 646 persons who claim to be home buyers. Arrayed before
the Court as respondents to these proceedings, besides JIL, JAL and the
Union of India are statutory authorities (including the Reserve Bank of
India), banks and welfare associations representing home buyers. A large
number of intervention applications have been filed.
7. The home buyers invested in residential projects (“high-tech”
G
townships as they were described) proposed by JIL and JAL in the
National Capital Region. The townships were to be ready for possession
within thirty to thirty-six months of the booking by a prospective buyer.
Relying on the representations of the developers, individual purchasers
invested in the residential projects. A large number of them have obtained
H
CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS. 1053
[DR. D.Y. CHANDRACHUD, J.]

loans from financial institutions. As a result of the delay in handing over A
possession, numerous flat buyers filed consumer complaints before the
State and National Consumer Disputes Redressal Commissions. In June
2017, RBI is stated to have published a list of the top 12 defaulters in the
country including JIL which was declared to be in default of an amount
approximately of Rs. 8,000 crores to its lenders.
B
8. This Court was moved in the exercise of its jurisdiction under
Article 32 to protect the interests of home buyers, who had been left in
the lurch. When the petition was instituted, they had no locus in the
CIRP. Liquidation would leave the home buyers to face an uncertain
future. The disposal of assets would, it is apprehended, deprive them of
their right to own a home. Faced with a situation of human distress, C
occasioned by the failure of the developers to meet their contractual
obligations and a legal regime as it then stood under the IBC which
provided no solace to home buyers, this Court issued notice on 4
September 2017 in a batch of writ petitions. Proceedings before the
NCLT at Allahabad were directed to remain stayed until further orders. D
The Court further directed that a copy of the proceedings be served on
the office of the learned Attorney General for India. Applications for
impleadment and intervention were allowed.
9. On 11 September 2017, IDBI Bank Limited file an application
for vacating the ad-interim order dated 4 September 2017. The Attorney E
General submitted before this Court that the order of stay would result
in a consequence which was unintended: control of JIL would be restored
to the erstwhile management. Such a consequence would affect the
rights of creditors and of the consumers as well. In the meantime, as a
result of the ad-interim stay, the IRP had handed over records to JIL.
Counsel for the home buyers contended that if the order of stay was F
being modified to enable the IRP to take back control, it was necessary
to have their representative on the Committee of Creditors8. The regime
of the Act did not at that stage include any representation for the home
buyers on the CoC.
10. Accordingly, on 11 September 2017, this Court modified its G
earlier order dated 4 September 2017 in the following terms:
a) The IRP shall forthwith take over the Management of JIL.
The IRP shall formulate and submit an Interim Resolution Plan
8
CoC H
1054 SUPREME COURT REPORTS [2018] 12 S.C.R.

A within 45 days before this Court. The Interim Resolution Plan
shall make all necessary provisions to protect the interests of the
home buyers;
b) Mr.Shekhar Naphade, learned senior counsel along with
Ms.Shubhangi Tuli, Advocate-on-Record, shall participate in the
B meetings of the Committee of Creditors under Section 21 of the
Insolvency and Bankruptcy Code, 2016 to espouse the cause of
the home buyers and protect their interests;
c) The Managing Director and the Directors of JIL and JAL shall
not leave India without the prior permission of this Court;
C d) JAL which is not a party to the insolvency proceedings, shall
deposit a sum of Rs.2,000 crores (Rupees two thousand crores)
before this Court on or before 27.10.2017. For the said purpose, if
any assets or property of JAL have to be sold, that should be done
after obtaining prior approval of this Court. Any person who was
D a Director or Managing Director of JIL or JAL on the date of the
institution of the insolvency proceedings against JIL as well as the
present Directors/Managing Director shall also not leave the
country without prior permission of this Court. The foregoing
restraint shall not apply to nominee Directors of lending institutions
(IDBI/ICICI/SBI);
E
e) All suits and proceeding instituted against JIL shall in terms of
Section 14(1)(a) remain stayed as we have directed the IRP to
remain in Management. Be it clarified that we have passed this
order keeping in view the provisions of the Act and also the interest
of the home buyers.”
F
11. The above interim directions indicate that three significant
aspects were the foundation of the order:
First, following the discipline of the IBC, the IRP was permitted
to take over management of JIL and to proceed to formulate an interim
resolution plan within a stipulated period;
G
Second, the IRP was directed to ensure that necessary provisions
were made to protect the interests of home buyers. To facilitate the
views of the home buyers being placed before the CoC this Court
nominated a senior counsel practicing before this Court to participate in
those meetings under Section 21 of the IBC;
H
CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS. 1055
[DR. D.Y. CHANDRACHUD, J.]

Third, JAL as the holding company of JIL was directed to deposit A
a sum of Rs 2,000 crores on or before 27 October 2017.
In formulating these directions, the Court initiated steps to protect
the interests of the home buyers. At that stage, it must be noted, the
CoC as constituted under Section 21 of the IBC did not include a
representative of the home buyers. Nor were the home buyers regarded B
as financial creditors under the IBC. The mechanism evolved by the
Court was intended to provide a workable arrangement under the then
prevailing regime so that the interests of the home buyers would not be
ignored.
12. By an order dated 23 October 2017 leave was granted to the C
IRP to file an action plan and an information memorandum in a sealed
cover before this Court.
13. JAL moved an application before this Court for vacating the
direction for deposit of Rs 2,000 crores or for a modification that would
enable JAL to transfer its rights under a concession agreement in respect D
of the Yamuna Expressway (between NOIDA and Agra. This request
was seriously opposed by the Attorney General as well as by counsel
appearing on behalf of IDBI Bank and the Yamuna Expressway
Industrial Development Authority. Counsel for the IRP drew the attention
of the Court to the fact that the rights under the concession agreement
belong to JIL which was subject to proceedings under the IBC as a E
result of which such a request for alienation could not be permitted. By
its order dated 25 October 2017, this Court declined to modify the direction
for deposit of an amount of Rs 2,000 crores. However, time to do so
was extended until 5 November 2017.
14. On 30 November 2017 this Court directed that the home buyers F
may approach the amicus curiae9 appointed in the case. The amicus
curiae was to open a web portal on which details of the home buyers
would be uploaded. All directors were required to remain present in this
Court on the next date to disclose their personal assets on affidavit. The
directors were present before this Court on 22 November 2017 when a G
statement was made on behalf of JAL of its readiness to deposit a sum
of Rs 275 crores. By its order dated 22 November 2017 this Court
permitted JAL to deposit a demand draft of Rs 275 crores during the
course of the day and directed that a further sum of Rs 150 crores be
deposited by 13 December 2017 and of Rs 125 crores by 31 December
H
1056 SUPREME COURT REPORTS [2018] 12 S.C.R.

A 2017. A restraint was imposed on the alienation of the properties and
assets of the directors and their families. The earlier direction for the
deposit of Rs 2,000 crores was maintained. In pursuance of the order
dated 22 November 2017 an amount of Rs 150 crores was deposited, as
noticed in the order dated 15 December 2017.
B 15. On 10 January 2018 RBI moved an Interlocutory Application
before this Court seeking leave to move the NCLT against JAL under
the provisions of the IBC. While observing that the application filed by
the RBI would be considered at a later stage, this Court issued directions
to JAL to file details of its housing projects on affidavit. The amicus
curiae was permitted to open a separate web portal reflecting the details
C of the home buyers of JAL.
16. When the proceedings were listed before this Court on 21
March 2018, JAL stated through its counsel that an amount of Rs 550
crores had been deposited with the Registry. Counsel for JAL stated
that only 8% of the home buyers are interested in seeking a refund while
D others have expressed the desire to seek possession of their flats. The
Court indicated in its order that presently it was concerned with those
home buyers who sought a refund while the grievances of those who
wished to have possession of their flats would be considered at a
subsequent stage. Since the order for the deposit of Rs 2,000 crores
E had not been complied with despite the end of the deadline under the
previous directions, the Court issued further directions. As agreed by
the Managing Director of JAL, an instalment of Rs 100 crores was to
be deposited by 15 April 2018 while a second instalment in the like amount
was directed to be deposited by 10 May 2018. The amicus curiae in
formed the Court that information gathered from the web portal indicated
F that an amount of Rs 1300 crores was required to be refunded by way
of principal alone to the home buyers who were seeking refunds. The
amicus curiae was requested to submit a project-wise chart to the Court,
indicating the number of persons and the stage of completion. One of
the grievances of the home buyers was that the developer was making
G demands towards monthly instalments despite being unable to complete
construction. Consequently, a direction was issued restraining the
developer from raising demands towards outstanding or future instalments
in respect of those flat buyers who had expressed a desire to obtain
refunds. By the order of this Court, the IRP was permitted to finalise
the resolution plan. However, the plan would, this Court directed, be
H
CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS. 1057
[DR. D.Y. CHANDRACHUD, J.]

implemented only with its leave. The NCLT was permitted to decide A
the proceedings subject to the directions which were issued.
17. On 16 April 2018, the Court was apprised of the fact that JAL
had deposited the first instalment of Rs 100 crores. We may note at this
stage, that JAL had submitted before the Court that it should be permitted
to participate as one of the intending bidders in the resolution plan which B
was being formulated by the IRP. Dealing with the submission, this
Court allowed JAL to submit a representation to the competent
authority, though with the clarification that the Court had not expressed
any opinion on that issue. This Court also directed that if the amount as
directed was not deposited within the time specified, steps would be
taken to attach the personal properties of the directors. C

18. On 16 May 2018, the Court was apprised of the fact that an
amount of Rs 750 crores was deposited by JAL. A further direction
was issued for the deposit of Rs 1000 crores by 15 June 2018 subject to
which, a stay was granted of further proceedings only in so far as the
liquidation is concerned. D

19. We may note at this stage that both in its earlier order dated
21 March 2018 as well as in the subsequent order dated 16 May 2018,
this Court had recorded the request of the home buyers for a pro-rata
disbursement of the amount which was deposited by JAL. No direction
for disbursement has been issued and the request was deferred for being E
considered.
20. On 13 July 2018, certain proposals were made by JAL before
this Court for permission to alienate specific assets to secure compliance
with the interim directions of this Court for deposit of Rs 2,000 crores.
This proposal was seriously opposed by counsel for the petitioners and F
home buyers, besides the financial institutions. Observing that the Court
was not inclined to entertain the proposals mooted by the JAL, the
proceedings were directed to be listed on 16 July 2018 “exclusively for
the purpose of considering the issue of the rights of the home buyers and
the capability of JAL and JIL to construct the projects.” G
21. Section 12(1) of the IBC envisages that the CIRP has to be
completed within a period of 180 days from the date of admission of the
application. However, a window is provided to the resolution professional
to seek an extension of a further period of 90 days upon a resolution
from the CoC. The extension can be provided only once.
H
1058 SUPREME COURT REPORTS [2018] 12 S.C.R.

A 22. In the case of JIL, the period for completing the CIRP was to
end on 6 February 2018. Based on the approval of the CoC an extension
of 90 days was sought and granted by the NCLT by an order dated 12
February 2018. The extended period was to end on 12 May 2018. During
the course of the process, the IRP invited expressions of interest in
pursuance of which ten applicants including JAL submitted resolution
B
plans. The IRP had made it clear while inviting applications for
Expressions of Interest that the resolution plan to be submitted by the
applicants must protect the interests of home buyers and provide for
expeditious completion of the work of construction. The bid submitted
by JAL was found to be ineligible in view of the bar contained in Section
C 29 A of the IBC and was not opened. Of the resolution plans submitted
by nine resolution applicants, five were found not to be compliant with
the IBC and were not presented to the CoC for consideration. After
initial negotiations, a discussion took place with four resolution applicants,
these being:
D (a) JSW Infrastructure Limited & IBC Knowledge Park Ltd.
(JSW-IBC);
(b) Adani Infrastructure and Developers Pvt. Ltd. (Adani);
(c) Lakshdeep investments & Finance Pvt. Ltd. along with
Sh.Sudhir Valia and relatives (Lakshdeep); and
E
(d) Cube Highways and Infrastructure Pte. Ltd., Kotak Investment
Advisors Ltd and I Squared Asia Advisors Pte Ltd (Cube-Kotak-
I Squared).
Subsequently JSW was found to be ineligible under Section
F 29A.Hence, the resolution plans of the remaining three applicants were
taken up for consideration. Counsel for the IRP has drawn the attention
of the Court to the fact that none of the remaining three applicants
proposed to bring in any funds for refund of the amounts paid by the
home buyers to JIL. At a meeting held on 9 April 2018, the CoC decided
to shortlist the resolution plan of Lakshdeep for negotiation.
G Lakshdeep submitted a resolution plan on 1 May 2018 and a meeting
of the CoC was scheduled on 7 May 2018 to consider it under Section
30(4). In the meantime, in pursuance of the liberty granted by this Court
on 16 April 2018,JAL submitted a representation on 6 May 2018. The
CoC considered the resolution plan of Lakshdeep and the representation
of JAL. JAL was permitted to present its plan before the CoC. The
H
CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS. 1059
[DR. D.Y. CHANDRACHUD, J.]

resolution plan submitted by JAL was rejected as a result of the statutory A
bar contained in Section 29A and since it failed to convince the CoC of
its ability to tie up funds for construction. The CoC resolved to put the
resolution plan of Lakshdeep for voting on 8 May 2018. However,
when the plan was taken up, only 6 % of the votes cast were in favour
of Lakshdeep, as against a three-fourth majority which was then needed
B
under Section 30 (4) (the present requirement is of two-thirds, following
the amendment to the IBC which has taken effect from 6 June 2018).
Accordingly, the IRP informed the NCLT that no resolution plan was
approved by the CoC within a period of 270 days which came to an end
on 12 May 2018.
23. The total financial debt due to the financial creditors on the C
date of the commencement of corporate insolvency (9 August 2017)
stood at Rs 9,984.70 crores.
24. Section 33(1) of the IBC postulates that liquidation follows
upon the rejection of a resolution plan:
D
“33. Initiation of liquidation.
(1) Where the Adjudicating Authority, -
(a) before the expiry of the insolvency resolution process period
or the maximum period permitted for completion of the corporate
insolvency resolution process under section 12 or the fast track E
corporate insolvency resolution process under section 56, as the
case may be, does not receive a resolution plan under sub-section
(6) of section 30; or
(b) rejects the resolution plan under section 31 for the non-
compliance of the requirements specified therein, it shall - F
(i) pass an order requiring the corporate debtor to be liquidated in
the manner as laid down in this Chapter;
(ii) issue a public announcement stating that the corporate debtor
is in liquidation; and
G
(iii) require such order to be sent to the authority with which the
corporate debtor is registered. “
In terms of the provisions of Section 33(1), where the resolution
plan has been rejected under Section 31, the NCLT is required to pass
an order for the liquidation of the corporate debtor. H
1060 SUPREME COURT REPORTS [2018] 12 S.C.R.

A 25. During the course of the hearing, there has been a unanimity
of opinion that the liquidation of JIL will not subserve the interests of the
home buyers. The home buyers have made valuable investments by
contributing hard earned monies in the hope of obtaining a roof over
their heads. A home for the family is a basic human yearning. In diverse
contexts it has been held by this Court to be a part of the right to life, as
B
a fundamental constitutional guarantee10.All the counsel for the home
buyers have earnestly appealed to the Court to exercise its jurisdiction
to ensure complete justice to the home buyers instead of leaving them to
the mercy of a liquidation process. The Court appreciates the substance
in that plea, understanding at the same time, the need to abide by the
C discipline of the law.
26. Now, it is in this background that it would be necessary for the
Court to understand and evaluate the provisions of the IBC which have
a bearing on the issue at hand. The IBC is intended to consolidate and
amend the laws relating to reorganisation and insolvency resolution of
D corporate persons, partnership firms and individuals in a time bound
manner to achieve a maximisation of the value of the assets of such
persons and to promote entrepreneurship, availability of credit and balance
the interests of all the stakeholders. The enactment of the IBC has
created a paradigm shift in the regulatory framework and processes
governing corporate insolvency. The IBC reflects a fundamental change
E in the basic premise of a “debtor in possession” to a “creditor in
possession”. The resolution process is market driven. Resolution
professionals are appointed or replaced by the CoC to conduct the entire
process within 180 days, which can be extended for a further period of
90 days. A moratorium would operate during the process. Failure of the
F resolution process leads to liquidation. Primacy is given in the process
to commercial decisions. The success of the process is contingent upon
the competence of the IRP and the CoC. The responsibilities entrusted
to the IRP include managing the affairs of the corporate debtor, engaging
experts or professionals, constituting a CoC, preparation of an information
memorandum, determination of the liquidation value and enterprise value,
G inviting expressions of interest, permitting resolution applicants to submit
plans which would be placed before the CoC where the applicant is
found to be eligible (Sections 17, 18, 20, 23, 25, 26, 29 and 30). The CoC
comprises of all financial creditors and authorised representatives of
certain categories of persons and classes of creditors under Section
H
CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS. 1061
[DR. D.Y. CHANDRACHUD, J.]

21(6) and Section 21(6A)(b). The CoC is responsible for approving crucial A
decisions and actions of the IRP, while managing the affairs of the
corporate debtor under Section 28. The resolution plan approved by 66
% of the voting share in the CoC is submitted by the IRP to the NCLT
for its approval. When the NCLT is satisfied that the plan approved by
the CoC meets the requirement of Section 30(2) it will approve the plan,
B
which will be binding on all stakeholders (Sections 21, 22, 24, 25,27, 28
and 30).
Protecting Home Buyers:
27. The IBC, as it was originally enacted, did not contain an
adequate recognition of the interests of home buyers in real estate C
projects. Home buyers are vital stakeholders. The process of corporate
insolvency resolution directly impacts upon their rights and interests. Yet
the IBC, as initially crafted, did not protect them. The concerns of the
home buyers have been sought to be assuaged by the Insolvency and
Bankruptcy (Amendment) Ordinance, 2018 which came into force on 6
June 2018. As a result of the Ordinance, home buyers are brought D
within the purview of financial creditors under the IBC.
The expressions “secured creditor” and “security interest” are
defined in Section 3(30) and (31) thus:
“(30) “secured creditor” means a creditor in favour of whom E
security interest is created;
(31) “security interest” means right, title or interest or a claim to
property, created in favour of, or provided for a secured creditor
by a transaction which secures payment or performance of an
obligation and includes mortgage, charge, hypothecation, F
assignment and encumbrance or any other agreement or
arrangement securing payment or performance of any obligation
of any person;
Provided that security interest shall not include a performance
guarantee;”
G
The expression ‘financial creditor’ is defined in Section 5(7) thus:
“(7) “financial creditor” means any person to whom a financial
debt is owed and includes a person to whom such debt has been
legally assigned or transferred”
H
1062 SUPREME COURT REPORTS [2018] 12 S.C.R.

A The expression ‘financial debt’ is defined in Section 5(8) thus:
(8) “financial debt” means a debt alongwith interest, if any, which
is disbursed against the consideration for the time value of money
and includes–
…
B (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
C 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
D Development) Act, 2016 (16 of 2016);”
As a result of the amendment brought about in the definition of
‘financial debt’, amounts raised from allottees under real estate projects
are deemed to be amounts “having a commercial effect of a borrowing”.
Hence outstandings to allottees in real estate projects are statutorily
E regarded as financial debts. Such allottees are brought within the purview
of the definition of ‘financial creditors’.
28. Section 7 of the IBC creates a statutory right in favour of
financial creditors to initiate the corporate resolution process. Section 7
reads thus:
F
“7. Initiation of corporate insolvency resolution process by financial
creditor.
(1) A financial creditor either by itself or jointly with other financial
creditors, or any other person on behalf of the financial creditor,
as may be notified by the Central Government] may file an
G
application for initiating corporate insolvency resolution process
against a corporate debtor before the Adjudicating Authority when
a default has occurred.

H
CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS. 1063
[DR. D.Y. CHANDRACHUD, J.]

Explanation. - For the purposes of this sub-section, a default A
includes a default in respect of a financial debt owed not only to
the applicant financial creditor but to any other financial creditor
of the corporate debtor.
(2) The financial creditor shall make an application under sub-
section (1) in such form and manner and accompanied with such B
fee as may be prescribed.
(3) The financial creditor shall, along with the application
furnish –
(a) record of the default recorded with the information utility or
such other record or evidence of default as may be specified; C

(b)the name of the resolution professional proposed to act as an
interim resolution professional; and
(c) any other information as may be specified by the Board.
(4) The Adjudicating Authority shall, within fourteen days of the D
receipt of the application under sub-section (2), ascertain the
existence of a default from the records of an information utility or
on the basis of other evidence furnished by the financial creditor
under sub-section (3).
(5) Where the Adjudicating Authority is satisfied that – E
(a) a default has occurred and the application under sub-section
(2) is complete, and there is no disciplinary proceedings pending
against the proposed resolution professional, it may, by order, admit
such application; or
(b) default has not occurred or the application under sub-section F
(2) is incomplete or any disciplinary proceeding is pending against
the proposed resolution professional, it may, by order, reject such
application:
Provided that the Adjudicating Authority shall, before rejecting
the application under clause (b) of sub-section (5), give a notice G
to the applicant to rectify the defect in his application within seven
days of receipt of such notice from the Adjudicating Authority.

H
1064 SUPREME COURT REPORTS [2018] 12 S.C.R.

A (6) The corporate insolvency resolution process shall commence
from the date of admission of the application under sub-section
(5).
(7) The Adjudicating Authority shall communicate-
(a) the order under clause (a) of sub-section (5) to the financial
B creditor and the corporate debtor;
(b) the order under clause (b) of sub-section (5) to the financial
creditor, within seven days of admission or rejection of such
application, as the case may be.”
Being financial creditors under the IBC, allottees in real estate
C
projects necessarily constitute a part of the CoC. Section 21 contains
provisions for the constitution of the CoC. In so far as is material, Section
21 is extracted below:
“21. Committee of creditors.
D (1) The interim resolution professional shall after collation of all
claims received against the corporate debtor and determination
of the financial position of the corporate debtor, constitute a com-
mittee of creditors.
…
E (3) Subject to sub-sections (6) and (6A), where] the corporate
debtor owes financial debts to two or more financial creditors as
part of a consortium or agreement, each such financial creditor
shall be part of the committee of creditors and their voting share
shall be determined on the basis of the financial debts owed to
them.
F
(4) Where any person is a financial creditor as well as an
operational creditor, -
(a) such person shall be a financial creditor to the extent of the
financial debt owed by the corporate debtor, and shall be included
G in the committee of creditors, with voting share proportionate to
the extent of financial debts owed to such creditor;
(b) such person shall be considered to be an operational creditor
to the extent of the operational debt owed by the corporate debtor
to such creditor.
H .....
CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS. 1065
[DR. D.Y. CHANDRACHUD, J.]

(6) Where the terms of the financial debt extended as part of a A
consortium arrangement or syndicated facility provide for a single
trustee or agent to act for all financial creditors, each financial
creditor may-
(a) authorise the trustee or agent to act on his behalf in the
committee of creditors to the extent of his voting share; B
(b) represent himself in the committee of creditors to the extent
of his voting share;
(c) appoint an insolvency professional (other than the resolution
professional) at his own cost to represent himself in the committee
of creditors to the extent of his voting share; or C
(d) exercise his right to vote to the extent of his voting share with
one or more financial creditors jointly or severally.
[ (6A) Where a financial debt— (a) is in the form of securities or
deposits and the terms of the financial debt provide for appointment
of a trustee or agent to act as authorised representative for all the D
financial creditors, such trustee or agent shall act on behalf of
such financial creditors;
(b) is owed to a class of creditors exceeding the number as may
be specified, other than the creditors covered under clause (a) or
subsection (6), the interim resolution professional shall make an E
application to the Adjudicating Authority along with the list of all
financial creditors, containing the name of an insolvency
professional, other than the interim resolution professional, to actas
their authorised representative who shall be appointed by the
Adjudicating Authority prior to the first meeting of the committee
F
of creditors;
(c) is represented by a guardian, executor or administrator, such
person shall act as authorised representative on behalf of such
financial creditors, and such authorised representative under clause
(a) or clause (b) or clause (c) shall attend the meetings of the
committee of creditors, and vote on behalf of each financial G
creditor to the extent of his voting share.
…
(7) The Board may specify the manner of voting and the
determining of the voting share in respect of financial debts covered
under sub-sections (6) and (6A).” H
1066 SUPREME COURT REPORTS [2018] 12 S.C.R.

A Financial creditors are entitled to a voting share proportionate to
the extent of the financial debt owed. Regulation 16A contains provisions
for the selection of an authorised representative to represent financial
creditors in the class. Regulation 16A is in the following terms:
“16A. Authorised representative.
B (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:
C 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 shall apply to the
Adjudicating Authority for appointment of the authorised
D representatives selected under sub-regulation (1) within two days
of the verification of claims received under sub-regulation (1) of
regulation 12.
(3) Any delay in appointment of the authorised representative for
any class of creditors shall not affect the validity of any decision
E taken by the committee.
(4) The interim resolution professional shall provide the list of
creditors in each class to the respective authorised representative
appointed by the Adjudicating Authority.
(5) The interim resolution professional or the resolution
F
professional, as the case may be, shall provide an updated list of
creditors in each class to the respective authorised representative
as and when the list is updated.
Clarification: The authorised representative shall have no role in
receipt or verification of claims of creditors of the class he
G represents.
(6) The interim resolution professional or the resolution
professional, as the case may be, shall provide electronic means
of communication between the authorised representative and the
creditors in the class.
H
CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS. 1067
[DR. D.Y. CHANDRACHUD, J.]

(7) The voting share of a creditor in a class shall be in A
proportion to the financial debt which includes an interest
at the rate of eight per cent per annum unless a different
rate has been agreed to between the parties.
(8) The authorised representative of creditors in a class shall be
entitled to receive fee for every meeting of the committee attended B
by him in the following manner, namely: -
Number of creditors in Fee per meeting of
the class the committee (Rs)

10-100 15,000 C

101-1000 20,000
More than 1000 25,000
(9) The authorised representative shall circulate the agenda to
creditors in a class and announce the voting window at least D
twenty-four hours before the window opens for voting instructions
and keep the voting window open for at least twelve hours.”
(emphasis supplied)
The voting share of a creditor in a class is proportional to the
financial debt together with interest at 8 per cent per annum. E
On 13 July 2018, a circular has been issued by the Insolvency and
Bankruptcy Board of India to facilitate the process of appointing an
authorised representative for classes of creditors governed by Section
21(6A)(b) of the IBC. In so far as is material, the circular states thus:
“2. Section 21 (6A)(b) of the Code read with regulation 16A of F
the Regulations provide for a simplified mechanism of
representation of financial creditors through authorised
representatives, as detailed in Para 1 above, and are, therefore,
matters of procedure. It is necessary that an ongoing corporate
insolvency resolution process, where creditors belonging to a class G
are otherwise not represented in the CoC, uses this simplified
mechanism, irrespective of the stage of the process. The resolution
professional, who exercises the powers and performs the duties
as vested or conferred on the interim resolution professional under
section 23(2) of the Code, shall facilitate representation through
authorised representative(s). H
1068 SUPREME COURT REPORTS [2018] 12 S.C.R.

A 3. It is, accordingly, clarified that wherever the approval of
resolution plan under regulation 39 (3) of the Regulations is at
least 15 days away, the resolution professional shall expeditiously
obtain, by electronic means, the choice of the insolvency
professional from creditors in a class to act as the authorised
representative of the class and proceed further in the manner as
B
specified in regulation 16 A of the Regulations.”
The case of JAL:
29. Mr FS Nariman, learned senior counsel appearing on behalf
of JAL tendered a note of submissions before this Court seeking to
C explain the perspective of the developers. JAL is stated to be a public
listed company with 5.57 lakh individual shareholders and fifteen directors
(including eight independent directors and two nominee directors of
lenders). In 2003, JAL was allotted rights for the construction of an
expressway from NOIDA to Agra. A concession agreement was entered
into with the Yamuna Expressway Industrial Development Authority. A
D special purpose vehicle, JIL was set up. Finance was obtained from a
consortium of banks – IDBI Bank being the lead bank – against a partial
mortgage of lands acquired in the NOIDA-Agra sector and a pledge of
51% of the shareholding held by JAL. A housing plan was envisaged
for the construction of real estate projects in two locations of the land
E acquired: 1,162 acres in Wish Town, NOIDA and 1,355 acres in Mirzapur.
JAL has stated that it has still to provide possession to 21,532 home
buyers. According to JAL:
“7. Till date:
(i) Construction of 106 Towers (out of remaining 228 towers)-
F consisting of 11,336 units/flats is 50% to 90% complete, and
(ii) Construction of 50 Towers consisting of 6,500 units is be-
tween 25% to 50% complete, and
(iii) Construction of 72 Towers is less than 25% complete.
G On the basis of the above the expectation and undertaking is to
accommodate approximately 500 home buyers out of the remaining
21,532 home buyers every single month starting July 2018.”
JAL has sought to assure that it would double the strength of
existing workers for the construction of its projects. JAL has also stated
H
CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS. 1069
[DR. D.Y. CHANDRACHUD, J.]

that it would deposit post-dated cheques of Rs 600 crores with the A
Registry of this Court. However, this is subject to the condition that the
Court should allow it to dispose of “identified cement assets” including
its cement plan at Rewa in Madhya Pradesh. In order to enable it to do
so, JAL has sought a direction to the NCLT at Allahabad to decide the
application filed before it for sanctioning a scheme of arrangement,
B
propounded pursuant to a master restructuring agreement signed and
accepted by the 32 creditors. JAL seeks to continue the stay of liquidation
proceedings against its deposit of post-dated cheques of Rs 600 crores.
JAL also seeks a stay on the direction of this Court allowing the IRP to
remain in management.
30. Having carefully considered the proposal submitted on behalf C
of JAL by Mr FS Nariman, learned senior counsel we are not inclined to
accept it. As we shall explain, accepting the proposal submitted on
behalf of JAL would cause serious prejudice to the discipline of the
IBC and would set at naught the salutary provisions of the statute. In
order to enable the Court to explain the position, a reference is necessary D
to the provisions of Section 29 A of the IBC which reads as follows:
29A. Persons not eligible to be resolution applicant. A person shall
not be eligible to submit a resolution plan, if such person, or any
other person acting jointly or in concert with such person— (a) is
an undischarged insolvent; E
(b) is a wilful defaulter in accordance with the guidelines of the
Reserve Bank of India issued under the Banking Regulation Act,
1949 (10 of 1949);
(c) at the time of submission of the resolution plan has an account,
or an account of a corporate debtor under the management or F
control of such person or of whom such person is a promoter,
classified as non-performing asset in accordance with the guidelines
of the Reserve Bank of India issued under the Banking Regulation
Act, 1949 (10 of 1949) or the guidelines of a financial sector
regulator issued under any other law for the time being in force, G
and at least a period of one year has lapsed from the date of such
classification till the date of commencement of the corporate
insolvency resolution process of the corporate debtor:
Provided that the person shall be eligible to submit a resolution
plan if such person makes payment of all overdue amounts with
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1070 SUPREME COURT REPORTS [2018] 12 S.C.R.

A interest thereon and charges relating to nonperforming asset
accounts before submission of resolution plan:
Provided further that nothing in this clause shall apply to a resolution
applicant where such applicant is a financial entity and is not a
related party to the corporate debtor.
B Explanation I- For the purposes of this proviso, the expression
“related party” shall not include a financial entity, regulated by a
financial sector regulator, if it is a financial creditor of the corporate
debtor and is a related party of the corporate debtor solely on
account of conversion or substitution of debt into equity shares or
C instruments convertible into equity shares, prior to the insolvency
commencement date.
Explanation II.— For the purposes of this clause, where a
resolution applicant has an account, or an account of a corporate
debtor under the management or control of such person or of
D whom such person is a promoter, classified as non-performing
asset and such account was acquired pursuant to a prior resolution
plan approved under this Code, then, the provisions of this clause
shall not apply to such resolution applicant for a period of three
years from the date of approval of such resolution plan by the
Adjudicating Authority under this Code;]
E
(d) has been convicted for any offence punishable with
imprisonment –
(i) for two years or more under any Act specified under the Twelfth
Schedule; or
F (ii) for seven years or more under any law for the time being in
force:
Provided that this clause shall not apply to a person after the
expiry of a period of two years from the date of his release from
imprisonment :
G Provided further that this clause shall not apply in relation to a
connected person referred to in clause(iii) of Explanation I;
(e) is disqualified to act as a director under the Companies Act,
2013 (18 of 2013):

H
CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS. 1071
[DR. D.Y. CHANDRACHUD, J.]

Provided that this clause shall not apply in relation to a connected A
person referred to in clause (iii) of Explanation I;
(f) is prohibited by the Securities and Exchange Board of India
from trading in securities or accessing the securities markets;
(g) has been a promoter or in the management or control of a
corporate debtor in which a preferential transaction, undervalued B
transaction, extortionate credit transaction or fraudulent transaction
has taken place and in respect of which an order has been made
by the Adjudicating Authority under this Code:
Provided that this clause shall not apply if a preferential transaction,
undervalued transaction, extortionate credit transaction or C
fraudulent transaction has taken place prior to the acquisition of
the corporate debtor by the resolution applicant pursuant to a
resolution plan approved under this Code or pursuant to a scheme
or plan approved by a financial sector regulator or a court, and
such resolution applicant has not otherwise contributed to the D
preferential transaction, undervalued transaction, extortionate
credit transaction or fraudulent transaction;
(h) has executed a guarantee in favour of a creditor in respect of
a corporate debtor against which an application for insolvency
resolution made by such creditor has been admitted under this E
Code and such guarantee has been invoked by the creditor and
remains unpaid in full or part];
(i) 5[is] subject to any disability, corresponding to clauses (a) to
(h), under any law in a jurisdiction outside India; or
(j) has a connected person not eligible under clauses (a) to (i). F
Explanation 6[I]. — For the purposes of this clause, the expression
“connected person” means—
(i) any person who is the promoter or in the management or
control of the resolution applicant; or
G
(ii) any person who shall be the promoter or in management or
control of the business of the corporate debtor during the
implementation of the resolution plan; or

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A (iii) the holding company, subsidiary company, associate company
or related party of a person referred to in clauses (i) and (ii):
Provided that nothing in clause (iii) of Explanation I shall apply to
a resolution applicant where such applicant is a financial entity
and is not a related party of the corporate debtor:
B Provided further that the expression “related party” shall not
include a financial entity, regulated by a financial sector regulator,
if it is a financial creditor of the corporate debtor and is a related
party of the corporate debtor solely on account of conversion or
substitution of debt into equity shares or instruments convertible
C into equity shares, prior to the insolvency commencement date;
Explanation II—For the purposes of this section, “financial entity”
shall mean the following entities which meet such criteria or
conditions as the Central Government may, in consultation with
the financial sector regulator, notify in this behalf, namely:—
D (a) a scheduled bank;
(b) any entity regulated by a foreign central bank or a securities
market regulator or other financial sector regulator of a jurisdiction
outside India which jurisdiction is compliant with the Financial
Action Task Force Standards and is a signatory to the International
E Organisation of Securities Commissions Multilateral Memorandum
of Understanding;
(c) any investment vehicle, registered foreign institutional investor,
registered foreign portfolio investor or a foreign venture capital
investor, where the terms shall have the meaning assigned to them
F in regulation 2 of the Foreign Exchange Management (Transfer
or Issue of Security by a Person Resident Outside India)
Regulations, 2017 made under the Foreign Exchange Management
Act, 1999 (42 of1999);
(d) an asset reconstruction company register with the Reserve
G Bank of India under section 3 of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (54 of 2002);
(e) an Alternate Investment Fund registered with Securities and
Exchange Board of India;
H
CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS. 1073
[DR. D.Y. CHANDRACHUD, J.]

(f) such categories of persons as may be notified by the Central A
Government.”
31. Parliament has introduced Section 29 A into the IBC with a
specific purpose. The provisions of Section 29 A are intended to ensure
that among others, persons responsible for insolvency of the corporate
debtor do not participate in the resolution process. The Statement of B
Objects and Reasons appended to the Insolvency and Bankruptcy Code
(Amendment) Bill 2017, which was ultimately enacted as Act 8 of 2018,
states thus:
“2. The provisions for insolvency resolution and liquidation of a
corporate person in the Code did not restrict or bar any person C
from submitting a resolution plan or participating in the acquisition
process of the assets of a company at the time of liquidation.
Concerns have been raised that persons who, with their
misconduct contributed to defaults of companies or are
otherwise undesirable, may misuse this situation due to lack
of prohibition or restrictions to participate in the resolution D
or liquidation process, and gain or regain control of the
corporate debtor. This may undermine the processes laid
down in the Code as the unscrupulous person would be
seen to be rewarded at the expense of creditors. In addition,
in order to check that the undesirable persons who may E
have submitted their resolution plans in the absence of such
a provision, responsibility is also being entrusted on the committee
of creditors to give a reasonable period to repay overdue amounts
and become eligible.” (emphasis supplied)
Parliament was evidently concerned over the fact that persons F
whose misconduct has contributed to defaults on the part of bidder
companies misuse the absence of a bar on their participation in the
resolution process to gain an entry. Parliament was of the view that to
allow such persons to participate in the resolution process would
undermine the salutary object and purpose of the Act. It was in this
background that Section 29 A has now specified a list of persons who G
are not eligible to be resolution applicants.
32. Clauses (c) and (g) of Section 29 A would operate as a bar to
the promoters of JAL/JIL participating in the resolution process. Under
clause (c), a person who at the time of the submission of the resolution
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1074 SUPREME COURT REPORTS [2018] 12 S.C.R.

A plan has an account which has been classified a Non-Performing Asset
under the guidelines of the RBI or of a financial regulator is subject to a
bar on participation for a stipulated period. Under clause (g), a person
who has been a promoter or in the management or control of a corporate
debtor in which a preferential transaction, undervalued transaction,
extortionate credit transaction or fraudulent transaction has taken place
B
and in respect of which an order has been made by the adjudicating
authority under the IBC is prohibited from participating. The Court must
bear in mind that Section 29 A has been enacted in the larger public
interest and to facilitate effective corporate governance. Parliament
rectified a loophole in the Act which allowed a back-door entry to
C erstwhile managements in the CIRP. Section 30 of the IBC, as amended,
also clarifies that a resolution plan of a person who is ineligible under
Section 29 A will not be considered by the CoC :
“30. Submission of resolution plan.
…
D
(4) The committee of creditors may approve a resolution plan by
a vote of not less than 4[sixty-six] per cent. of voting share of the
financial creditors, after considering its feasibility and viability, and
such other requirements as may be specified by the Board:

E Provided that the committee of creditors shall not approve a
resolution plan, submitted before the commencement of the
Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017
(Ord. 7 of 2017), where the resolution applicant is ineligible under
section 29A and may require the resolution professional to invite
a fresh resolution plan where no other resolution plan is available
F with it:
Provided further that where the resolution applicant referred to in
the first proviso is ineligible under clause (c) of section 29A, the
resolution applicant shall be allowed by the committee of creditors
such period, not exceeding thirty days, to make payment of overdue
G amounts in accordance with the proviso to clause (c) of section
29A: Provided also that nothing in the second proviso shall be
construed as extension of period for the purposes of the proviso
to sub-section (3) of section 12, and the corporate insolvency
resolution process shall be completed within the period specified
in that subsection]:
H
CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS. 1075
[DR. D.Y. CHANDRACHUD, J.]

Provided also that the eligibility criteria in section 29A as amended A
by the Insolvency and Bankruptcy Code (Amendment) Ordinance,
2018 shall apply to the resolution applicant who has not submitted
resolution plan as on the date of commencement of the Insolvency
and Bankruptcy Code (Amendment) Ordinance, 2018.”
33. Mr Anand Grover appearing on behalf of the home buyers B
has opposed the proposal submitted by JAL/JIL on the following grounds:
(i) Loans given to JAL have been classified as Non Performing
Assets which renders JAL ineligible as a resolution applicant/new
promoter under Section 29A(b) of the IBC;
(ii) In addition to Section 29A (b), JAL is also disqualified under C
Section 29A (g) of IBC. Section 29A(g) provides that a person who is
engaged in a fraudulent transaction should not be allowed to bid for
another company as such a person may again engage in fraudulent
transactions. In May 2018, the NCLT Allahabad set aside a fraudulent
transaction involving a mortgage of around 750 acres of JIL’s land in D
favour of the lenders of JAL. This mortgage was without any
consideration and the land of 750 acres may be worth INR 5,000 crores.
The matter is now before the NCLAT, which has specifically framed an
issue in this regard;
(iii) The RBIis already before this Court seeking initiation of E
insolvency proceedings against JAL. JAL’s proposal, although presented
under the garb of protecting the interest of homebuyers, is aimed at the
twin benefits of avoiding insolvency of JAL and regaining control of JIL,
thereby defeating RBI’s application for insolvency proceedings of JAL
as well as Section 29A of IBC;
F
(iv) The reasons pleaded by JAL/JIL to excuse their failure to
complete the housing projects such as the stay order granted by the
National Green Tribunal have been rejected by orders of the National
Consumer Disputes Redressal Commission as there was no stay. One
such order was passed by the NCDRC on 2 May 2016, in Developers
Township Property Owners Welfare Society v. Jaiprakash G
Associates Limited (Consumer Case No. 1479 OF 2015);
(v) The contention of JAL that they faced impediments on
account of the purported stay imposed by the NGT is patently incorrect
as the stay by the NGT was only on handing over possession without an
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1076 SUPREME COURT REPORTS [2018] 12 S.C.R.

A occupation certificate, which had no bearing on the construction.
Moreover, JAL carried out construction during that period as is
evidenced inter alia by the fact that they raised demands for
construction linked payments during this period;
(vi) During the pendency of the CIRP from 9 August 2017,
B construction work was done under the aegis of the IRP under whom
JAL was a mere contractor;
(vii) The claim by JAL that flats have been delivered is a
fractured claim as flats have been delivered in incomplete stages and
are not in accordance with the allotment letters. The flooring is not com-
C plete, doors and windows are missing, no objection certificates have not
been obtained from the Fire Department and the offer of possession is
being made without the occupation certificate;
viii) JAL does not have the capacity to deliver the flats and 22,000
homebuyers are suffering due to delays of more than four years in
D completion of various projects of JAL and JIL;
(ix) Under the contracts, JAL and JIL are jointly and severally
liable to deliver the flats. If JAL was serious about delivering the flats,
the present situation would not have arisen. Further, JAL would have
avoided the insolvency process of JIL and would not have cast the home
E buyers to the uncertainties of insolvency;
(x) There are serious doubts about the credentials of JAL which
has diverted funds from JIL towards its other businesses. The applicant
associations had appointed ASA Financial Services to conduct an audit
of JIL’s financials and the audit report demonstrates that JAL may have
F diverted more than INR 10,000 crore from JIL;
(xi) JAL is undergoing a serious financial crisis. This is clear
from the following facts:
(a) JAL has not yet honoured the order of this Court asking it to
deposit Rs 2,000 crore for protection of the interest of the home buyers.
G JAL has paid only Rs 750 crores out of Rs 2,000 crores, after the expiry
of almost 10 months from 11 September 2017 which was the date of the
initial order of this Court;
(b) JAL has failed to pay even the latest instalment of Rs 1,000
crores by 15 June 2018 in accordance with the order of this Court dated
H 16 May 2018;
CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS. 1077
[DR. D.Y. CHANDRACHUD, J.]

(c) JAL is a defaulter of more than 30 banks to the extent of A
around Rs 30,000 crores. JAL has also defaulted on fixed deposits, foreign
currency convertible bonds and payments to Noida Authority;
(d) Even in the latest proposal, the proposal to deposit Rs 600
crores is spread over time indicating that JAL has no resources; and
(e) The proposal of doubling the strength of workers from 4,000 B
to 8,000 would only mean doubling the strength from 17 workers per
tower to 35 workers per tower (228 towers to be built by 8,000
workers). This would amount to 2 workers in each floor of 4 flats (21,532
flats in 228 towers by 8,000 workers). At this rate, completion of flats
may take several years. C
34. Similar submissions have been urged on behalf of the home
buyers by other learned counsel.
35. The bar under Section 29A would preclude JAL/JIL from
being allowed to participate in the resolution process. Moreover, the
facts which have been drawn to the attention of the Court leave no D
manner of doubt that JAL/JIL lack the financial capacity and resources
to complete the unfinished projects. To allow them to participate in the
process of resolution will render the provisions of the Act nugatory. This
cannot be permitted by the Court.
36. But it has been submitted on behalf of JAL/JIL by Mr. F.S. E
Nariman, learned senior counsel that with the expiry of the time lines
prescribed in the IBC for the CIRP, the only option that would now
remain is to liquidate the corporate debtor. Mr Nariman submitted that
liquidation is not in the interest of the home buyers. In that event, in his
submission, the only way out would be to obviate the consequence of F
liquidation by envisaging an arrangement outside the provisions of the
IBC and not under it. It has been submitted that an ongoing project
which has provided over 11,200 homes to home buyers in 79 towers
should not, as far as possible, be stopped midway since that would affect
the interests of the remaining 21,532 buyers who await possession. Their
rights, it has been urged, are recognised and preserved under the Real G
Estate (Regulation and Development) Act 2016. Mr Nariman submitted
that unless a group of independent professionals, to be appointed by this
Court, comes to a conclusion that it is not financially viable at all for JIL/
JAL to complete the remaining work in a time bound manner, their role
as developers should not be discounted. Hence it has been submitted
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1078 SUPREME COURT REPORTS [2018] 12 S.C.R.

A that an independent committee of experts should be constituted by this
Court to evaluate the financial capability of JAL/JIL to continue executing
the ongoing projects. In this background it has also been submitted that
following the opening of the web portal under the directions of the Court,
only 8% of the home buyers have opted for refunds while 92% have
chosen not to claim refunds thereby implying a confidence in the ability
B
of JIL/JAL to complete the project. JIL, it has been submitted, has
assets valued at Rs 17,116 crores by bank valuers to whom they were
submitted as security and even the distress value is Rs 14,548 crores.
Mr Nariman submitted that among the two sets of financial creditors of
JIL and JAL:
C (i) the creditors of JIL are headed by IDBI Bank apart from
which there are 12 other banks in the consortium;
(ii) the financial creditors of JAL await formal orders of the NCLT
to the scheme of arrangement which has been agreed to by all its 32
creditors under a Master Restructuring Arrangement.
D
37. We may note at this stage that counsel appearing on behalf of
the home buyers have uniformly opposed the proposal of JIL/JAL. The
home buyers have urged before this Court that they have no confidence
in the ability of either JIL or JAL to complete the outstanding projects.
The home buyers have urged that they have been left in the lurch by the
E developers who have miserably failed to fulfil their contractual obligation
by allotting flats on time.
38. On behalf of the IRP, Mr Parag Tripathi, learned senior counsel
submitted that essentially, the Court has two options before it. The first
option would be to revive the process of corporate insolvency by extending
F the time period of 270 days specified in the IBC in order to enable fresh
consideration to be made of the prospect for a resolution which would
now have take into account the interests of the home buyers under the
amended IBC. The second option would, it was urged, be for this Court,
in the exercise of its jurisdiction under Article 142 to appoint a Committee
G under its directions and supervision. The Committee would explore the
possibility of a resolution which would obviate the need for the liquidation
of the corporate debtor. The second option which has been proposed by
learned senior counsel for the IRP forms the basis of the additional
submissions tendered by Mr Nariman. As we have noted, Mr Nariman
urged that on the expiry of the time lines prescribed in the IBC for the
H
CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS. 1079
[DR. D.Y. CHANDRACHUD, J.]

completion of the resolution process the only available alternative is to A
proceed outside the provisions of the IBC.
39. In considering the rival submissions, several important facets
of the case need to be underscored. First and foremost, the CIRP was
initiated on 9 August 2017, following the order of the NCLT admitting
the proceedings. The period of 180 days for concluding the CIRP come B
to an end on 6 February 2018 and the extended period ended on 12 May
2018. When the CIRP was initiated and until the period of 270 days
concluded, the home buyers did not have the status of financial creditors
under the provisions of the IBC. They had no statutory voting rights in
the CoC. Under the interim directions of this Court, a workable
arrangement was sought to be put into place by appointing a C
representative of the home buyers on the CoC to facilitate their interests
being duly borne in mind. But the point to be noted is that in the absence
of a statutory recognition of the position of the home buyers as financial
creditors, the law did not allow for real and substantive entitlements to
them in the CoC. These statutory entitlements have been brought in by D
the Ordinance in order to recognise the vital interests of the home buyers
in a real estate project and to allow them a statutory status in the
insolvency resolution process. Unfortunately by the time that the
Ordinance came into being on 6 June 2018, the period of 270 days had
expired; the resolution plan of Lakshdeep was rejected and the IRP
informed NCLT that no resolution plan had been approved within the E
extended period of 270 days on 12 May 2018. Having regard to the
material change which has been brought about by the amendment of the
IBC by the Ordinance and the fact that this Court has been in seisin of
the proceedings to ensure that the home buyers are protected, we are of
the view that it is but appropriate and to do complete justice to secure F
the interests of all concerned that the CIRP should be revived and CoC
reconstituted as per the amended provisions to include the home buyers.
Tn the facts of the present case, recourse to the power under Article
142 would be warranted to render complete justice. Parliament has
undoubtedly provided a period of 180 days and an extended period of 90
days to complete the process. But in the present case a peculiar situation G
has arisen as a result of which the status of the home buyers which had
not been recognised prior to 6 June 2018 has now been expressly
recognised as a result of the amending Ordinance. Learned counsel for
the IRP submitted that in the CoC which will be reconstituted under the
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1080 SUPREME COURT REPORTS [2018] 12 S.C.R.

A amended IBC, the home buyers would have a substantial voting power
so as to be able to effectively protect their interests. Moreover, this
Court should follow the discipline of the IBC which has been enacted by
Parliament specifically to streamline the resolution of corporate
insolvencies. Matters involving corporate insolvencies require expert
determination. The legislature has made specific provisions which are
B
conceived in public interest and to facilitate good corporate governance.
The Court should not take upon itself the burden of supervising the
intricacies of the resolution process. Accepting the suggestion of Mr
Nariman (and one of the two options proposed by Mr Tripathi) of the
Court appointing a Committee to supervise the resolution process outside
C the IBC will involve the Court in an insuperable burden of evaluating
intricate matters of financial expertise on which Parliament has legislated
to create specific mechanisms. We are emphatically of the view that it
would not be appropriate for the Court to appoint a Committee to oversee
the CIRP and assume the task of supervising the work of the Committee.
We must particularly be careful not to supplant the mechanisms which
D
have been laid down in the IBC by substituting them with a mechanism
under judicial directions. Such a course of action would in our view not
be consistent with the need to ensure complete justice under Article 142,
under the regime of law. Hence, the power under Article 142 should be
utilised at the present stage for the limited purpose of recommencing the
E resolution process afresh from the stage of appointment of IRP by the
order dated 9 August 2017 and resultantly renew the period which has
been prescribed for the completion of the resolution process. We have
furnished above, the reasons for doing so. Chief amongst them is the
fact that in the present case the period of 270 days expired before the
Ordinance conferring a statutory status on home buyers as financial
F
creditors came into existence. In the circumstances, it would be necessary
to revive the period prescribed by the statute by another 180 days
commencing from the date of this order. During this period, the IRP
shall follow the provisions of the IBC afresh in all respects. A new CoC
should be constituted in accordance with the amended provisions of the
G IBC to enforce the statutory status of the allottees as financial creditors.
We also clarify that apart from the three bidders whose bids were found
to be eligible by the IRP, it would be open to the IRP to invite fresh bids
to facilitate a wider field of choice before the CoC. In that process, the
offers made by the intervenors in this proceedings can also be considered
by CoC anew. We are not inclined to evaluate the merits of the bids
H
CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS. 1081
[DR. D.Y. CHANDRACHUD, J.]

submitted by the bidders who were left in the fray, two of whom have A
intervened. All bids must follow the discipline of the IBC. We have,
however, not accepted the submission to allow JIL or JAL and the
erstwhile promoters to participate in the process. Their participation is
expressly prohibited by Section 29 A and we decline to make any exception
which would breach a salutary and express provision made in the IBC.
B
40. As we have stated earlier, an amount of Rs 750 crores is lying
in deposit before this Court pursuant to the interim directions, on which
interest has accrued. The home buyers have earnestly sought the
issuance of interim directions to facilitate a pro-rata disbursement of this
amount to those of the home buyers who seek a refund. We are keenly
conscious of the fact that the claim of the home buyers who seek a C
refund of monies deserves to be considered with empathy. Yet, having
given our anxious consideration to the plea and on the balance, we are
not inclined to accede to it for more than one reason. Firstly, during the
pendency of the CIRP, it would as a matter of law, be impermissible for
the Court to direct a preferential payment being made to a particular D
class of financial creditors, whether secured or unsecured. For the
present, we leave open the question as to whether the home buyers are
unsecured creditors (as was urged by Mr. Tripathi) or secured creditors
(as was urged by counsel appearing for them). Directing disbursement
of the amount of Rs 750 crores to the home buyers who seek refund
would be manifestly improper and cause injustice to the secured creditors E
since it would amount to a preferential disbursement to a class of creditors.
Once we have taken recourse to the discipline of the IBC, it is necessary
that its statutory provisions be followed to facilitate the conclusion of the
resolution process. Secondly, the figures which have been made available
presently, following the opening of the web portal by the amicus curiae, F
indicate that 8% of the home buyers have sought a refund of their monies
while 92% would evidently prefer possession of the homes which they
have purchased. We cannot be unmindful of the interests of 92% of the
home buyers many of whom would also have obtained loans to secure a
home. They would have a legitimate grievance if the corpus of Rs 750
crores (together with accrued interest) is distributed to the home buyers G
who seek a refund. The purpose of the process envisaged by the IBC
for the evaluation and approval of a resolution plan is to form a composite
approach to deal with the financial situation of the corporate debtor.
Allowing a refund to one class of financial creditors will not be in the
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1082 SUPREME COURT REPORTS [2018] 12 S.C.R.

A overall interest of a composite plan being formulated under the provisions
of the IBC. Thirdly during the course of the hearing, the Court has been
apprised of the concerns of the secured creditors, chief among them
being the IDBI bank limited. In its submissions before this Court, IDBI
bank has emphasised that one of the major reasons for the enactment of
the IBC was to protect the interest of lenders. The debt owing to the
B
banks and financial institutions has been secured by the assets of JIL, to
protect their interests. This debt originates in the public deposits of the
banks and financial institutions, who are answerable to their stakeholders.
Fourthly, the RBI has moved this Court for permission to initiate an
insolvency resolution process. Parliament enacted the Banking
C Regulation (Amendment) Act 2017 by introducing Section 35 AA and
Section 35 AB into the Banking Regulation Act 1949. The amendment
empowers the Central government to authorise RBI to issue directions
to any banking company to initiate an insolvency resolution process in
respect of a default as understood under the IBC. Such an order was
issued by the Central government on 5 May 2017. The RBI constituted
D
an Internal Advisory Committee (IAC) consisting primarily of its
independent directors. The IAC took up for consideration accounts
which were classified either partly or wholly non-performing from amongst
the top 500 exposures in the banking system as on 31 March 2017. As
a first step, the IAC recommended all such non-performing asset
E accounts with fund and non-fund based outstandings exceeding Rs 5,000
crores. The IAC has initially taken up twelve accounts involving total
exposure of Rs1,79,769 crores. JIL was one of the twelve accounts in
respect of which directions have been issued to banks for initiating
insolvency resolution. Subsequently, the IAC recommended that in
respect of those accounts where 60% or more had been classified as
F
NPAs as on 30 June 2017, banks may be directed to implement a viable
resolution plan within six months failing which the accounts may be
directed for a reference under the IBC by 31 December 2017. JAL
was one such entity. No viable resolution plan could be found as a result
of which it is also required to be referred for CIRP. RBI has carried out
G this exercise as a matter of economic policy in its capacity as the prime
banking institution in the country, entrusted with a supervisory role, and
the power to issue binding directions. The position of the RBI as an
expert regulatory body particularly in matters of economic and financial
policy has been reiterated in several decisions of this Court:[R.K. Garg
H
CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS. 1083
[DR. D.Y. CHANDRACHUD, J.]

v Union of India 11, Peerless General Finance and Investment A
Co.Ltd. v RBI12,T N Generation and Distribution Corpn. Ltd. v
CSEPDI-Trishe Consortium13"].
41. JAL was classified under the SMA – II category (demands
overdue for more than 60 days) by banks as early as on 3 October 2014
and as an NPA since 31 March 2015. We agree with the submission of B
the RBI that any further delay in resolution would adversely impact a
viable resolution being found for JAL and JIL. The facts which have
emerged before the Court from the application filed by the RBI clearly
indicate the financial distress of JAL and JIL. The apprehensions of the
home-buyers in regard to their financial incapacity is borne out by RBI,
as a responsible institution has urged before the Court. The IBC has C
been enacted in the form of a comprehensive bankruptcy law and with
a specific legislative intent. With the amendment brought about by the
Ordinance promulgated in June 2018, the interests of the home buyers
have been sought to be safeguarded. Accordingly, we accede to the
request made on behalf of the RBI to allow it to follow the D
recommendations of the IAC to initiate a CIRP against JAL under the
IBC.
42. We, accordingly, issue the following directions:
(i) In exercise of the power vested in this Court under Article 142 of
the Constitution, we direct that the initial period of 180 days for E
the conclusion of the CIRP in respect of JIL shall commence
from the date of this order. If it becomes necessary to apply for a
further extension of 90 days, we permit the NCLT to pass
appropriate orders in accordance with the provisions of the IBC;
(ii)We direct that a CoC shall be constituted afresh in F
accordance with the provisions of the Insolvency and Bankruptcy
(Amendment) Ordinance, 2018, more particularly the amended
definition of the expression “financial creditors”;
(iii) We permit the IRP to invite fresh expressions of interest for the
submission of resolution plans by applicants, in addition to the three G
short-listed bidders whose bids or, as the case may be, revised
bids may also be considered;
11
(1981) 4 SCC 675 at para 19
12
(1992) 2 SCC 343 at para 31
13
(2017) 4 SCC 318 at para 36
H
1084 SUPREME COURT REPORTS [2018] 12 S.C.R.

A (iv) JIL/JAL and their promoters shall be ineligible to participate in
the CIRP by virtue of the provisions of Section 29A;
(v) RBI is allowed, in terms of its application to this Court to direct
the banks to initiate corporate insolvency resolution proceedings
against JAL under the IBC;
B (vi) The amount of Rs 750 crores which has been deposited in this
Court by JAL/JIL shall together with the interest accrued thereon
be transferred to the NCLT and continue to remain invested and
shall abide by such directions as may be issued by the NCLT.
43. We see no reason to keep these proceedings pending before
C the Court any further. The proceedings shall stand disposed of. However,
we grant liberty to all concerned parties to adopt appropriate proceedings
in accordance with law, should it become necessary to do so in future.
Applications, if any, pending are also disposed of.

D
Ankit Gyan Petitions disposed of.

E

F

G

H