Holding

The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 is constitutionally valid, does not infringe Articles 14, 19(1)(g) (with 19(6)) or 300‑A, and the Code prevails over RERA in any conflict.

Summary

The Supreme Court considered a batch of writ petitions challenging the constitutional validity of the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, which classifies home‑buyers/allottees of real‑estate projects as "financial creditors" under the Code, thereby permitting them to invoke Section 7 and to be represented on the Committee of Creditors. The petitioners argued that the amendment violated Articles 14, 19(1)(g) (read with 19(6)) and 300‑A of the Constitution and that the Real Estate (Regulation and Development) Act, 2016 (RERA) should prevail over the Code. The Court held that the amendment is a valid exercise of legislative power, that the classification rests on an intelligible differentia and serves the objects of the Code, and that the Code, being a later and general statute, prevails over RERA in case of conflict. The Court also clarified that the explanatory addition to Section 5(8)(f) is merely clarificatory and does not expand the original provision. Consequently, the amendment was upheld and all the writ petitions and the civil appeal were disposed of.

Issues considered

The amendment to the Insolvency and Bankruptcy Code that deems home‑buyers/allottees as financial creditors is constitutionally valid.
Whether the amendment infringes Articles 14, 19(1)(g) read with 19(6), or Article 300‑A of the Constitution.
Whether the Real Estate (Regulation and Development) Act, 2016 overrides the Insolvency and Bankruptcy Code in case of conflict.
The proper interpretation of Section 5(8)(f) of the Code and the effect of the deeming fiction added by the amendment.

Legislation cited

Consumer Protection Act, 1986
Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016s. Regulation 16, s. Regulation 16‑A, s. Regulation 16‑B, s. Regulation 25, s. Regulation 9A
Insolvency and Bankruptcy Code, 2016s. 14, s. 21(6A)(b), s. 25A, s. 30(2)(e), s. 5(21), s. 5(7), s. 5(8), s. 5(8)(f), s. 7, s. 88, s. 89
Insolvency and Bankruptcy Code (Second Amendment) Act, 2018s. 21(6A)(b), s. 25A, s. 5(8)(f) explanation
Real Estate (Regulation and Development) Act, 2016s. 2, s. 20-39, s. 41-58, s. 71-78, s. 81-92, s. 88, s. 89

Subjects

Insolvency and Bankruptcy CodeSecond Amendment Act 2018Financial creditorHomebuyerReal Estate (Regulation and Development) ActConstitutional challengeArticle 14Article 19(1)(g)Article 300-ACommittee of CreditorsDeeming fictionEconomic legislation

Judgment

[2019] 10 S.C.R. 381 381

PIONEER URBAN LAND AND INFRASTRUCTURE A
LIMITED & ANR.
v.
UNION OF INDIA & ORS.
(Writ Petition (Civil) No. 43 of 2019) B
AUGUST 09, 2019
[R.F. NARIMAN, SANJIV KHANNA AND SURYA KANT, JJ.]
Insolvency and Bankruptcy Code, 2016:
ss. 5(8)(f), 21(6A)(b) and 25A – Amendments made to the Code C
vide Amendment Act, which deem allottees of real estate projects to
be “financial creditors” so that they may initiate insolvency
proceedings u/s. 7 against the real estate developer and being
financial creditors, were entitled to be represented in the Committee
of Creditors by authorised representatives – Constitutional validity
D
of amendments made to the Code – Held: Constitutionality of the
Amendment Act is upheld – Amendment to the Code does not infringe
Arts. 14, 19(1)(g) r/w Art. 19(6), or 300-A – Constitution of India –
Arts. 14, 19(1)(g) r/w Art. 19(6), 300-A – Insolvency and Bankruptcy
Code (Second Amendment) Act, 2018.
s.7 – Amendment to the Code whereby home buyers categorized E
as financial creditors under the Code – Reasons for amendment –
Held: Insolvency Law Committee found that delay in completion of
flats/apartments has become a common phenomenon, and amounts
raised from homebuyers contributes significantly to financing of
the construction of such flats/apartments – Thus, it was important, F
to clarify that homebuyers are treated as financial creditors so that
they can trigger the Code u/s. 7 and have their rightful place in the
Committee of Creditors when it comes to making important decisions
as to execution of the real estate project in which homebuyers are
ultimately to be housed – Insolvency and Bankruptcy Code (Second
Amendment) Act, 2018. G

Insolvency and Bankruptcy Code vis-à-vis Real Estate
(Regulation and Development) Act (RERA) – Held: Real Estate
(Regulation and Development) Act is to be read harmoniously with
the Code, as amended by the Amendment Act – In case of conflict,
H
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382 SUPREME COURT REPORTS [2019] 10 S.C.R.

A the Code will prevail over RERA – It cannot be said that RERA is a
special enactment which deals with real estate development projects
and must, thus, be given precedence over the Code, which is only a
general enactment dealing with insolvency generally – Parliament
was aware of RERA, and applied some of its definition provisions
so that they could apply when the Code is to be interpreted – RERA
B
is in addition to and not in derogation of the provisions of any
other law for the time being in force – Also the remedies under
RERA to allottees were intended to be additional and not exclusive
remedies – Code and RERA operate in completely different spheres
– Code deals with a proceeding in rem in which the focus is the
C rehabilitation of the corporate debtor by means of a resolution plan
which puts the same or another management in the saddle, subject
to the provisions of the Code, whereas, RERA protects the interests
of the individual investor in real estate projects by requiring the
promoter to strictly adhere to its provisions – Real Estate (Regulation
and Development) Act, 2016.
D
ss. 5(7), 5(8) and 5(21) – Financial Creditors and Operational
Creditors – Explanation of – Held: Financial creditor is defined u/
s. 5(7) as a person to whom a financial debt is owed and a financial
debt is defined in s. 5(8) to mean a debt which is disbursed against
consideration for the time value of money – An operational creditor
E means a person to whom an operational debt is owed and an
operational debt u/s. 5(21) means a claim in respect of provision of
goods or services – Financial creditor may trigger the Code either
by itself or jointly with other financial creditors or such persons as
may be notified by the Central Government when “default” occurs.
F ss. 5(8)(f), 21(6A)(b), 25A – Plea that treating home buyers/
allottees to be financial creditor is violative of Arts. 14, 19(1)(g)
and Art. 300-A; that the amendment is discriminatory inasmuch as
it treats unequals equally, and equals unequally, having no intelligible
differentia; and that there is no nexus with the objects sought to be
G achieved by the Code – Held: Amendment Act to the Code does not
infringe Arts 14, 19(1)(g) rw Art. 19(6), or 300-A – Home buyers/
allottees give advance to the real estate developer and thereby
finance the real estate project at hand, are really financial creditors
– Objects of the Code are sub-served by treating allottees as financial
creditors – Code is, thus a beneficial legislation which can be
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PIONEER URBAN LAND AND INFRASTRUCTURE LTD. 383
& ANR. v. UNION OF INDIA & ORS.

invoked by unsecured creditors like allottees against the corporate A
debtor so that a replaced management may then carry out the real
estate project as originally envisaged – It cannot be said that Art.
19(1)(g) has been infracted and not saved by Art. 19(6) as the
Amendment Act is made in public interest – There is no unreasonable
restriction on the petitioner’s fundamental right u/Art. 19(1)(g) –
B
Also, there is no infraction of Art. 300-A as no person is deprived
of its property without authority of a constitutionally valid law –
Furthermore, it cannot be said that classifying real estate developers
is not founded upon an intelligible differentia which distinguishes
them from other operational creditors – Allottees, being individual
financial creditors like debenture holders and fixed deposit holders C
and classified as such, show that they within the larger class of
financial creditors, there being no infraction of Art. 14 – Insolvency
and Bankruptcy Code (Second Amendment) Act, 2018 – Constitution
of India – Arts 14, 19(1)(g) rw Art 19(6), or 300-A.
s. 7 – Application u/s. 7 by allottee/home buyer – Effect of – D
Held: Code is not meant to be a debt recovery mechanism – It is a
proceeding in rem which, after being triggered, goes completely
outside the control of the allottee who triggers it – Thus, any allottee/
home buyer who prefers an application u/s. 7 takes the risk of his
flat/apartment not being completed in the near future, in the event
of there being a breach on the part of the developer – Under the E
Code, he may never get a refund of the entire principal, let alone
interest – After the petition is admitted u/s. 7, a resolution plan is
taken up, usually by another developer, who has to pass muster
under the Code and must further go through challenges before NCLT
and NCLAT before the new management can take over and either F
complete construction, or pay out or refund amounts – Thus, given
the bona fides of the allottee who moves an application u/s. 7, it is
only such allottee who has completely lost faith in the management
of the real estate developer who would come before NCLT under
the Code.
G
ss. 21(6A) and 25A – Committee of creditors – Rights and
duties of authorized representatives of financial creditors –
Challenge to ss. 21(6A) and 25A – Held: Allottees may not be a
homogenous group, yet there are only two ways in which they can
vote on the Committee of Creditors, either to approve or to
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384 SUPREME COURT REPORTS [2019] 10 S.C.R.

A disapprove of a proposed resolution plan – Under s. 25A(3A) the
authorised representative now casts his vote on behalf of all
financial creditors that he represents – If a decision taken by a vote
of more than 50% of the voting share of the financial creditors that
he represents is that a particular plan be either accepted or rejected,
it is clear that the minority of those who vote, and all others, will
B
now be bound by this decision – Legislature must be given freedom
to experiment – Thus, any challenge to machinery provisions
contained in ss. 21(6A) and 25A cannot be accepted.
s. 5(8)(f) – Interpretation of – Plea that s. 5(8)(f), as it
originally stood, is an exhaustive provision which must be read
C noscitur a sociis, and if so read, sub-clause (f) must take colour from
the other clauses of the provision; that an allottee under a real
estate project cannot fall within s. 5(8)(f), as it originally stood and
the explanation must then be read prospectively; that since s. 5(8)
is a “means and includes” definition clause, it is exhaustive , thus,
D to then introduce by way of amendment something extra by means
of a deeming fiction is not permissible – Held: Section 5(8)(f) as it
originally appeared in the Code being a residuary provision, always
subsumed within it allottees of flats/apartments – Explanation
together with the deeming fiction added by the Amendment Act is
only clarificatory of this position in law that had arisen as to whether
E home buyers/allottees were subsumed within s. 5(8)(f) – Explanation
added to s. 5(8)(f) does not in fact enlarge the scope of the original
Section – Thus, the allottees/home buyers were included in s. 5(8)(f)
with effect from the inception of the Code, the explanation being
added in 2018 merely to clarify doubts that had arisen.
F s. 5(8)(f) explanation – Effect of a deeming fiction – Held:
Deeming fiction that is used by the explanation is to put beyond
doubt the fact that allottees are to be regarded as financial creditors
within the enacting part contained in s. 5(8)(f) – Under the
explanation added to s. 5(8)(f), any amount raised from an allottee
G under a real estate project shall be deemed to be an amount having
the commercial effect of a borrowing – Although a deeming provision
is to deem what is not there in reality, thereby requiring the subject
matter to be treated as if it were real, yet several authorities and
judgments show that a deeming fiction can also be used to put
beyond doubt a particular construction that might otherwise be
H uncertain.
PIONEER URBAN LAND AND INFRASTRUCTURE LTD. 385
& ANR. v. UNION OF INDIA & ORS.

Real Estate (Regulation and Development) Act, 2016: ss. 2, A
20 to 39, 41 to 58, 71 to 78 and 81 to 92 – Impact of the RERA on
the real estate sector – Stated.
Doctrines/Principles: Doctrine of ‘Reading Down’ –
Application of – Matter pertaining to constitutional validity of the
Insolvency Code (Second Amendment) Act – Plea that if the B
constitutional validity of the impugned provisions is to be upheld,
then the amendment to the Insolvency and Bankruptcy Code needs
to be read-down so as to make it conform with Art. 14 and 19(1)(g)
and 300-A – Held: In application u/s. 7 made by an allottee, the
NCLT’s ‘satisfaction’ will be with both eyes open – NCLT will not
ignore a legitimate defences by a real estate developer – Furthermore, C
the Amendment Act has been held to be constitutionally valid, and
considering that its language is clear and unambiguous, there is no
necessity to read into or read down any of these provisions –
Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 –
Insolvency and Bankruptcy Code, 2016. D
Legislation: Economic legislation-Insolvency Code –
Legislature’s right to experiment in economic matters – Held:
Insolvency Code is a legislation which deals with economic matters
and, in the larger sense, deals with the economy of the country as a
whole – While dealing with economic legislation, the legislature E
must be given liberty – Legislative judgment in economic choices
must be given a certain degree of deference by the courts –
Insolvency and Bankruptcy Code, 2016.
Disposing of the Writ Petitions and Civil Appeals, the Court
HELD: Provisions of Insolvency And Bankruptcy Code, F
2016 being challenged
1. It is declared that the Insolvency and Bankruptcy Code
(Second Amendment) Act, 2018 is constitutionally valid.
[Para 88] [529-F]
G
2. (i) The Insolvency and Bankruptcy Code (Second
Amendment) Act, 2018 to the Insolvency and Bankruptcy Code,
2016 does not infringe Articles 14, 19(1)(g) read with Article 19(6),
or 300-A of the Constitution of India.

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A ii The Real Estate (Regulation and Development) Act, 2016
is to be read harmoniously with the Code, as amended by the
Amendment Act. It is only in the event of conflict that the Code
will prevail over the RERA. Remedies that are given to allottees
of flats/apartments are therefore concurrent remedies, such
allottees of flats/apartments being in a position to avail of
B
remedies under the Consumer Protection Act, 1986, RERA as
well as the triggering of the Code.
iii Section 5(8)(f) as it originally appeared in the Code
being a residuary provision, always subsumed within it allottees
of flats/apartments. The explanation together with the deeming
C fiction added by the Amendment Act is only clarificatory of this
position in law. [Para 86] [528-G-H; 529-A-C]
The Legislature’s right to experiment in economic matters
3. Legislature must be given free play in the joints when it
D comes to economic legislation. Apart from the presumption of
constitutionality which arises in such cases, the legislative
judgment in economic choices must be given a certain degree of
deference by the courts. [Para 15] [429-E-F]
Raison d’être for the Insolvency Code (Second Amendment)
E Act of 2018
4. The Insolvency Committee Report is of importance in
understanding why the legislature thought it fit to categorise home
buyers as financial creditors under the Code. The Insolvency
Law Committee found that delay in completion of flats/apartments
F has become a common phenomenon, and that amounts raised
from home buyers contributes significantly to the financing of
the construction of such flats/apartments. This being the case, it
was important, thus, to clarify that home buyers are treated as
financial creditors so that they can trigger the Code u/s.7 and
have their rightful place on the Committee of Creditors when it
G comes to making important decisions as to the future of the
building construction company, which is the execution of the real
estate project in which such home buyers are ultimately to be
housed. [Para 16, 18] [430-D; 434-H; 435-A-B]

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PIONEER URBAN LAND AND INFRASTRUCTURE LTD. 387
& ANR. v. UNION OF INDIA & ORS.

Real Estate (Regulation and Development) Act, 2016 A
(RERA) and its impact on the real estate sector
5. Perusal of the provisions of the Real Estate (Regulation
and Development) Act, 2016 would show that, on and from the
coming into force of the RERA, all real estate projects (as defined)
would first have to be registered with the Real Estate Regulatory B
Authority, which, before registering such projects, would look
into all relevant details, including delay in completion of other
projects by the developer. Importantly, the promoter is now to
make a declaration supported by an affidavit, that he undertakes
to complete the project within a certain time period, and that
70% of the amounts realised for the project from allottees, from C
time to time, shall be deposited in a separate account, which would
be spent only to defray the cost of construction and land cost for
that particular project. Registration is granted by the authority
only when it is satisfied that the promoter is a bona fide promoter
who is likely to perform his part of the bargain satisfactorily. D
Registration of the project enures only for a certain period and
can only be extended due to force majeure events for a maximum
period of one year by the authority, on being satisfied that such
events have, in fact, taken place. Registration once granted, may
be revoked if it is found that the promoter defaults in complying
with the various statutory requirements or indulges in unfair E
practices or irregularities. Upon revocation of registration, the
authority is to facilitate the remaining development work, which
can then be carried out either by the “competent authority” as
defined by the RERA or by the association of allottees or
otherwise. The promoter at the time of booking and issue of F
allotment letters has to make available to the allottees
information, inter alia, as to the stage-wise time schedule of
completion of the project. Deposits or advances beyond 10% of
the estimated cost as advance payment cannot be taken without
first entering into an agreement for sale. The agreement for sale
will now no longer be a one-sided contract of adhesion, but in G
such form as may be prescribed, which balances the rights and
obligations of both the promoter and the allottees. Under Section
18, if the promoter fails to complete or is unable to give possession

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A of an apartment, plot or building in accordance with the terms of
the agreement for sale, he must return the amount received by
him in respect of such apartment etc. with such interest as may
be prescribed and must, in addition, compensate the allottee in
case of any loss caused to him. Under Section 19, the allottee
shall be entitled to claim possession of the apartment, plot or
B
building, as the case may be, or refund of amount paid along with
interest in accordance with the terms of the agreement for sale.
In addition, all allottees are to be responsible for making
necessary payments in instalments within the time specified in
the agreement for sale and shall be liable to pay interest at such
C rate as may be prescribed for any delay in such payment. Under
Section 31, any aggrieved person may file a complaint with the
authority or the adjudicating officers set up by such authority
against any promoter, allottee or real estate agent, as the case
may be, for violation or contravention of the RERA, and rules
and regulations made thereunder. Also, if after adjudication a
D
promoter, allottee or real estate agent fails to pay interest, penalty
or compensation imposed on him by the authorities under the
RERA, the same shall be recoverable as arrears of land revenue.
Appeals may be filed to the Real Estate Appellate Tribunal against
decisions or orders of the authority or the adjudicating officer.
E From orders of the Appellate Tribunal, appeals may thereafter
be filed to the High Court. Stiff penalties are to be awarded for
breach and/or contravention of the provisions of the RERA.
Importantly, under Section 72, the adjudicating officer must first
determine that the complainant has established “default” on the
part of the respondent, after which consequential orders may then
F
follow. Under Section 88, the provisions of RERA are in addition
to and not in derogation of the provisions of any other law for
time being in force and under Section 89, RERA is to have effect
notwithstanding anything inconsistent contained in any other law
for the time being in force. [Para 22] [459-C-H; 460-A-G]
G Insolvency and Bankruptcy Code, 2016 vis-à-vis the Real
Estate (Regulation and Development) Act, 2016
6.1 There is no provision similar to that of Section 88 of
RERA in the Code, which is meant to be a complete and

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exhaustive statement of the law insofar as its subject matter is A
concerned. Also, the non-obstante clause of RERA came into
force on 1st May, 2016, as opposed to the non-obstante clause of
the Code which came into force on 1st December, 2016. Further,
the concerned amendment came into force only on 6th June, 2018.
Given these circumstances, it cannot be said that RERA is a
B
special enactment which deals with real estate development
projects and must, therefore, be given precedence over the Code,
which is only a general enactment dealing with insolvency
generally. From the introduction of the explanation to Section
5(8)(f) of the Code, it is clear that Parliament was aware of RERA,
and applied some of its definition provisions so that they could C
apply when the Code is to be interpreted. The fact that RERA is
in addition to and not in derogation of the provisions of any other
law for the time being in force, also makes it clear that the
remedies under RERA to allottees were intended to be additional
and not exclusive remedies. Also, as the authorities under RERA
D
were to be set up within one year from 1st May, 2016, remedies
before those authorities would come into effect only on and from
1st May, 2017 making it clear that the provisions of the Code,
which came into force on 1 st December, 2016, would apply in
addition to the RERA. The Code as amended, is both later in
point of time than RERA, and must be given precedence over E
RERA, given Section 88 of RERA. Thus, even by a process of
harmonious construction, RERA and the Code must be held to
co-exist, and, in the event of a clash, RERA must give way to the
Code. RERA, therefore, cannot be held to be a special statute
which, in the case of a conflict, would override the general statute,
F
viz. the Code. [Para 24, 26, 28] [461-B-F; 464-D; 465-B-C]
KSL & Industries Ltd. v. Arihant Threads Ltd. (2015) 1
SCC 166 ; Bank of India v. Ketan Parekh (2008) 8
SCC 148 : [2008] 9 SCR 346 – referred to.
6.2 The Code and RERA operate in completely different G
spheres. The Code deals with a proceeding in rem in which the
focus is the rehabilitation of the corporate debtor. This is to take
place by replacing the management of the corporate debtor by
means of a resolution plan which must be accepted by 66% of the

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A Committee of Creditors, which is now put at the helm of affairs,
in deciding the fate of the corporate debtor. Such resolution plan
then puts the same or another management in the saddle, subject
to the provisions of the Code, so that the corporate debtor may
be pulled out of the woods and may continue as a going concern,
thus benefitting all stakeholders involved. It is only as a last resort
B
that winding up of the corporate debtor is resorted to, so that its
assets may be liquidated and paid out in the manner provided by
Section 53 of the Code. On the other hand, RERA protects the
interests of the individual investor in real estate projects by
requiring the promoter to strictly adhere to its provisions. The
C object of RERA is to see that real estate projects come to fruition
within the stated period and to see that allottees of such projects
are not left in the lurch and are finally able to realise their dream
of a home, or be paid compensation if such dream is shattered, or
at least get back monies that they had advanced towards the
project with interest. At the same time, recalcitrant allottees are
D
not to be tolerated, as they must also perform their part of the
bargain, namely, to pay instalments as and when they become
due and payable. Given the different spheres within which these
two enactments operate, different parallel remedies are given to
allottees-under RERA to see that their flat/apartment is
E constructed and delivered to them in time, barring which
compensation for the same and/or refund of amounts paid
together with interest at the very least comes their way. If,
however, the allottee wants that the corporate debtor’s
management itself be removed and replaced, so that the corporate
debtor can be rehabilitated, he may prefer a Section 7 application
F
under the Code. That another parallel remedy is available is
recognised by RERA itself in the proviso to Section 71(1), by
which an allottee may continue with an application already filed
before the Consumer Protection fora, he being given the choice
to withdraw such complaint and file an application before the
G adjudicating officer under RERA read with Section 88.
[Para 29] [465-C-H; 466-A-B]
Swaraj Infrastructure Private Limited v. Kotak
Mahindra Bank Limited (2019) 3 SCC 620 : [2019] 1
SCR 682 – referred to.
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PIONEER URBAN LAND AND INFRASTRUCTURE LTD. 391
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Financial and Operational Creditors A
7. A financial creditor has been defined under Section 5(7)
of the Code as a person to whom a financial debt is owed and a
financial debt is defined in Section 5(8) to mean a debt which is
disbursed against consideration for the time value of money. As
opposed to this, an operational creditor means a person to whom B
an operational debt is owed and an operational debt under Section
5(21) means a claim in respect of provision of goods or services.
Financial creditor may trigger the Code either by itself or jointly
with other financial creditors or such persons as may be notified
by the Central Government when a “default” occurs.
[Para 30, 31] [466-H; 467-A; 469-C] C

Innoventive Industries v. ICICI Bank & Anr. (2018) 1
SCC 407 ; Swiss Ribbons v. Union of India (2019) 4
SCC 17 : [2019] 3 SCR 535 – relied on.
Article 14 Challenge (I): Discrimination D
8.1 The principle contained in Swiss Ribbons’s case, that
far greater deference is accorded to economic legislation, as the
legislature is given free play in the joints and is at liberty to
conduct economic experiments in public interest, applies on all
fours in the instant case. [Para 38] [482-A-B] E
8.2 The Code is not meant to be a debt recovery mechanism.
It is a proceeding in rem which, after being triggered, goes
completely outside the control of the allottee who triggers it.
Thus, any allottee/home buyer who prefers an application under
Section 7 of the Code takes the risk of his flat/apartment not F
being completed in the near future, in the event of there being a
breach on the part of the developer. Under the Code, he may
never get a refund of the entire principal, let alone interest. This
is because, the moment a petition is admitted under Section 7,
the resolution professional must first advertise for and find a
resolution plan by somebody, usually another developer, which G
has then to pass muster under the Code, i.e. that it must be
approved by at least 66% of the Committee of Creditors and
must further go through challenges before NCLT and NCLAT
before the new management can take over and either complete
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A construction, or pay out or refund amounts. Depending on the
kind of resolution plan that is approved, such home buyer/allottee
may have to wait for a very long period for the successful
completion of the project. He may never get his full money back
together with interest in the event that no suitable resolution
plan is forthcoming, in which case, winding up of the corporate
B
debtor alone would ensue. On the other hand, if such allottee
were to approach the Real Estate Regulatory Authority under
RERA, it is more than likely that the project would be completed
early by the persons mentioned therein, and/or full amount of
refund and interest together with compensation and penalty, if
C any, would be awarded. Thus, given the bona fides of the allottee
who moves an application under Section 7 of the Code, it is only
such allottee who has completely lost faith in the management of
the real estate developer who would come before the NCLT under
the Code hoping that some other developer takes over and
completes the project, while always taking the risk that if no one
D
were to come forward, corporate death must ensue and the
allottee must then stand in line to receive whatever is given to
him in winding up. Given the reasons of the Insolvency Committee
Report, which show that experience of the real estate sector in
this country has not been encouraging, in that huge amounts are
E advanced by ordinary people to finance housing projects which
end up in massive delays on the part of the developer or even
worse, i.e. failure of the project itself, and given the state of facts
which was existing at the time of the legislation, as adverted to
by the Insolvency Committee Report, it is clear that any alleged
discrimination has to meet the tests laid down in Ram Krishna
F
Dalmia’s case, V.C. Shukla’s case, Shri Ambica Mills’s case,
Venkateshwara Theatre’s case, and Mardia Chemicals’s case.
[Para 39] [482-B-H; 483-A-B]
Ram Krishna Dalmia v. Justice S.R. Tendolkar (1959)
SCR 279 ; State of Bihar v. Shree Baidyanath Ayurved
G Bhawan (P) Ltd. (2005) 2 SCC 762 : [2005] 1 SCR
334 ; Karnataka Live Band Restaurants Assn. v. State
of Karnataka (2018) 4 SCC 372 : [2018] 1 SCR 533;
State of Gujarat and Anr. v. Shri Ambica Mills Ltd.,
Ahmedabad, etc. (1974) 4 SCC 656 : [1974] 3 SCR
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760 ; Swiss Ribbons v. Union of India (2019) 4 SCC A
17 : [2019] 3 SCR 535 ; V.C. Shukla v. State (Delhi
Administration) (1980) Suppl. SCC 249 : [1980] SCR
500 ; Venkateshwara Theatre v. State of A.P. (1993) 3
SCC 677 : [1993] 3 SCR 616 ; Mardia Chemicals Ltd.
v. Union of India (2004) 4 SCC 311 : [2004] 3 SCR
B
982 - relied on.
8.3 It is impossible to say that classifying real estate
developers is not founded upon an intelligible differentia which
distinguishes them from other operational creditors, nor is it
possible to say that such classification is palpably arbitrary having
no rational relation to the objects of the Code. It was submitted C
that if at all real estate developers were to be brought within the
clutches of the Code, being like operational debtors, at best they
could have been brought in under this rubric and not as financial
debtors. In operational debts generally, when a person supplies
goods and services, such person is the creditor and the person D
who has to pay for such goods and services is the debtor. In the
case of real estate developers, the developer who is the supplier
of the flat/apartment is the debtor inasmuch as the home buyer/
allottee funds his own apartment by paying amounts in advance
to the developer for construction of the building in which his
apartment is to be found. Another vital difference between E
operational debts and allottees of real estate projects is that an
operational creditor has no interest in or stake in the corporate
debtor, unlike the case of an allottee of a real estate project, who
is vitally concerned with the financial health of the corporate
debtor, for otherwise, the real estate project may not be brought F
to fruition. Also, in such event, no compensation, nor refund
together with interest, which is the other option, will be
recoverable from the corporate debtor. One other important
distinction is that in an operational debt, there is no consideration
for the time value of money – the consideration of the debt is the
goods or services that are either sold or availed of from the G
operational creditor. Payments made in advance for goods and
services are not made to fund manufacture of such goods or
provision of such services. In real estate projects, money is raised
from the allottee, being raised against consideration for the time
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A value of money. Even the total consideration agreed at a time
when the flat/apartment is non-existent or incomplete, is
significantly less than the price the buyer would have to pay for a
ready/complete flat/apartment, and therefore, he gains the time
value of money. Likewise, the developer who benefits from the
amounts disbursed also gains from the time value of money. The
B
fact that the allottee makes such payments in instalments which
are co-terminus with phases of completion of the real estate
project does not any the less make such payments as payments
involving “exchange”, i.e. advances paid only in order to obtain
a flat/apartment. What is predominant, insofar as the real estate
C developer is concerned, is the fact that such instalment payments
are used as a means of finance qua the real estate project. One
other vital difference with operational debts is the fact that the
documentary evidence for amounts being due and payable by the
real estate developer is there in the form of the information
provided by the real estate developer compulsorily under RERA.
D
This information, like the information from information utilities
under the Code, makes it easy for home buyers/allottees to
approach the NCLT under Section 7 of the Code to trigger the
Code on the real estate developer’s own information given on its
webpage as to delay in construction, etc. It is these fundamental
E differences between the real estate developer and the supplier
of goods and services that the legislature has focused upon and
included real estate developers as financial debtors. This being
the case, it is clear that there cannot be said to be any infraction
of equal protection of the laws. [Para 40] [483-C-H; 484-A-F]
F 8.4 Real estate developers are, in substance, persons who
avail finance from allottees who then fund the real estate
development project. The object of dividing debts into two
categories under the Code, namely, financial and operational
debts, is broadly to sub-divide debts into those in which money
is lent and those where debts are incurred on account of goods
G being sold or services being rendered. There is no doubt that
real estate developers fall squarely within the object of the Code
as originally enacted insofar as they are financial debtors and not
operational debtors. So far as unequals being treated as equals is
concerned, home buyers/allottees can be assimilated with other
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individual financial creditors like debenture holders and fixed A
deposit holders, who have advanced certain amounts to the
corporate debtor. For example, fixed deposit holders, though
financial creditors, would be like real estate allottees in that they
are unsecured creditors. Financial contracts in the case of these
individuals need not involve large sums of money. Debenture
B
holders and fixed deposit holders, unlike real estate holders, are
involved in seeing that they recover the amounts that are lent
and are thus not directly involved or interested in assessing the
viability of the corporate debtors. Though not having the
expertise or information to be in a position to evaluate feasibility
and viability of resolution plans, such individuals, by virtue of C
being financial creditors, have a right to be on the Committee of
Creditors to safeguard their interest. Also, the question that is
to be asked when a debenture holder or fixed deposit holder
prefers a Section 7 application under the Code will be asked in
the case of allottees of real estate developers – is a debt due in
D
fact or in law? Thus, allottees, being individual financial creditors
like debenture holders and fixed deposit holders and classified
as such, show that they within the larger class of financial creditors,
there being no infraction of Article 14 on this score.
[Para 41] [484-H; 485-A-F]
Nagpur Improvement Trust and Anr. v. Vithal Rao and E
Ors. (1973) 1 SCC 500 : [1973] 3 SCR 39 ;
Subramanian Swamy v. Director, Central Bureau of
Investigation and Anr. (2014) 8 SCC 682 : [2014] 6
SCR 873 – referred to.
8.5 The presumption that the legislature has understood F
and correctly appreciated the need of its people and that the
amendment to the Code is directed to problems made manifest
by experience, as was pointed out by the Insolvency Law
Committee findings, demonstrates that the presumption of
constitutionality that attaches to the Amendment Act has not been G
displaced by the Petitioners. [Para 42] [485-G]
8.6 Home buyers/allottees give advances to the real estate
developer and thereby finance the real estate project at hand,
are really financial creditors. The plea that homebuyers would
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A really fall within “other creditors” as a residuary class, who would
have to stand in line with their claims which would be made to
the resolution professional once the Code is triggered, cannot
be accepted. [Para 43] [485-H; 486-A, E-F]
Article 14 Challenge (II): Manifest arbitrariness; Article
B 19(1)(g) and Article 300-A
9.1 A reading of the paragraphs in Swiss Ribbons’s case will
show these very objects are sub-served by treating allottees as
financial creditors. The Code is thus a beneficial legislation which
can be triggered to put the corporate debtor back on its feet in
C the interest of unsecured creditors like allottees, who are vitally
interested in the financial health of the corporate debtor, so that
a replaced management may then carry out the real estate project
as originally envisaged and deliver the flat/apartment as soon as
possible and/or pay compensation in the event of late delivery,
or non-delivery, or refund amounts advanced together with
D interest. Thus, applying the Shayara Bano case test, it cannot be
said that a square peg has been forcibly fixed into a round hole so
as to render Section 5(8)(f) manifestly arbitrary i.e. excessive,
disproportionate or without adequate determining principle. For
the same reason, it cannot be said that Article 19(1)(g) has been
E infracted and not saved by Article 19(6) as the Amendment Act is
made in public interest, and it cannot be said to be an unreasonable
restriction on the Petitioner’s fundamental right under Article
19(1)(g). Also, there is no infraction of Article 300-A as no person
is deprived of its property without authority of a constitutionally
valid law.[Para 45] [494-D-G]
F
Swiss Ribbons v. Union of India (2019) 4 SCC 17 :
[2019] 3 SCR 535 ; Shayara Bano v. Union of India
(2017) 9 SCC 1 – relied on.
9.2 Real estate allottees are really in the nature of financial
G creditors, and thus the UNCITRAL Legislative Guide has been
followed, and not breached. Since allottees of real estate projects
have always been subsumed within Section 5(8)(f), no new rights
or claims have been created. Allottees, like individual financial
creditors who are already on the Committee of Creditors, are to

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have a voice in determining the corporate debtor and their own A
future. [Para 46] [495-B-D]
9.3 All the allottees of the project in question can either
join together under the explanation to Section 7(1) of the Code,
or file their own individual petitions after the Code gets triggered
by a single allottee, stating that in addition to the construction of B
their flat/apartment, they are also entitled to compensation under
RERA and/or under the general law, and would thus be persons
who have a “claim”, i.e. a right to remedy for breach of contract
which gives rise to a right to compensation, whether or not such
right is reduced to judgment, and would therefore be persons to
whom a liability or obligation in respect of a “claim” is due. Such C
persons would, therefore, have a voice in the Committee of
Creditors as to future plans for completion of the project, and
compensation for late delivery of the flat/apartment. [Para 47]
[495-G-H; 496-A-B]
9.4 If a Section 7 application is admitted in favour of an D
allottee, and if the management of the corporate debtor is in fact
a strong and stable one, nothing debars the same erstwhile
management from offering a resolution plan, subject to Section
29A of the Code, which may well be accepted by the Committee
of Creditors in which home buyers now have a voice. Equally, to E
assume that the moment the insolvency resolution process starts,
corporate death must ensue is wholly incorrect. If the real estate
project is otherwise viable, resolution plans from others may well
be accepted and the best of these would then work in order to
maximise the value of the assets of the corporate debtor.
Corporate death, is the last resort under the Code after all other F
available options have failed. [Para 48] [496-C-D]
Swiss Ribbons v. Union of India (2019) 4 SCC 17 :
[2019] 3 SCR 535 – relied on.
9.5 Under paragraph 3 of the Statement of Objects and G
Reasons of RERA, one of the important reasons for enacting the
RERA is to “establish symmetry of information between the
promoter and purchaser”. This is achieved through Section 4,
where every promoter in its application to the authority for
registration under sub-clause (2)(b), has to include the current
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A status of the project, any delay in its completion, details of cases
pending, payments pending etc. Equally, under sub-clause (g),
the proforma of the allotment letter, agreement for sale and
conveyance deed proposed to be signed with the allottee are all
to be furnished. Also, under sub-clause (l)(C), the time period
within which he undertakes to complete the project is also to be
B
stated. Above all, under Section 4(3) read with Section 11, the
authority is to operationalise a web-based online system in which
the promoter shall, upon receiving his Login Id and password,
create a webpage on the website of the authority to enter all details
as required by Section 4(2), including quarterly update of the status
C of the project and the stage-wise time schedule of completion of
the project. Also, under Section 7, the Authority may revoke
registration for various reasons, and under Section 7(4)(a) shall
debar the promoter from accessing its website in relation to that
project, and thereafter specify its name in the list of defaulters
and display its photograph on the website and inform other Real
D
Estate Regulatory Authorities in other States and Union
Territories about such revocation. Equally, under Section 13(2),
the prescribed agreement for sale, which is to be entered into
between the promoter and allottee, must clearly state the date
on which possession of the apartment, plot or building is to be
E handed over, the rates of interest payable by the promoter to the
allottee in the case of default and such other particulars, as may
be prescribed. [Para 50] [496-H; 497-A-E]
9.6 It can be seen that just as information utilities provide
the kind of information as to default that banks and financial
F institutions are provided under Sections 214 to 216 of the Code
read with Regulations 25 and 27 of the Insolvency and Bankruptcy
Board of India (Information Utilities) Regulations, 2017, allottees
of real estate projects can come armed with the same kind of
information, this time provided by the promoter or real estate
developer itself, on the basis of which, prima facie at least, a
G “default” relating to amounts due and payable to the allottee is
made out in an application under Section 7 of the Code. Once
this prima facie case is made out, the burden shifts on the

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promoter/real estate developer to point out in their reply and in A
the hearing before the NCLT, that the allottee is himself a
defaulter and would, therefore, on a reading of the agreement
and the applicable RERA Rules and Regulations, not be entitled
to any relief including payment of compensation and/or refund,
entailing a dismissal of the said application. Under Section 65 of
B
the Code, the real estate developer can also point out that the
insolvency resolution process under the Code has been invoked
fraudulently, with malicious intent, or for any purpose other than
the resolution of insolvency. This the real estate developer may
do by pointing out, for example, that the allottee who has knocked
at the doors of the NCLT is a speculative investor and not a C
person who is genuinely interested in purchasing a flat/apartment.
They can also point out that in a real estate market which is falling,
the allottee does not, in fact, want to go ahead with its obligation
to take possession of the flat/apartment under RERA, but wants
to jump ship and really get back, by way of this coercive measure,
D
monies already paid by it. Given the above, it is clear that it is
very difficult to accede to the Petitioners’ contention that a wholly
one-sided and futile hearing will take place before the NCLT by
trigger-happy allottees who would be able to ignite the process
of removal of the management of the real estate project and/or
lead the corporate debtor to its death. [Para 50] [499-B-G] E
9.7 The period of 14 days given to the NCLT for decision
under Section 7(4) would be directory. Under Section 64(1) of
the Code, the NCLT President or the Chairperson of the NCLAT
may, after taking into account reasons by the NCLT or NCLAT
for exceeding the period mentioned by statute, extend the period F
of 14 days by a period not exceeding 10 days. Even this provision
is directory, in that no consequence is provided either if the period
is not extended, or after the extension expires. This is also for
the good reason that an act of the court cannot harm the litigant
before it. Unfortunately, both the NCLT and NCLAT do not have
sufficient members to deal with the flood of applications and G
appeals that is before them. The time taken in the queue by
applicants who knock at their doors cannot, for no fault of theirs,
be put against them. [Para 52] [500-C-E]

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A Surendra Trading Company v. Juggilal Kamlapat Jute
Mills Company Limited and Ors. (2017) 16 SCC 143 :
[2017] 9 SCR 743 – relied on.
State of Bihar v. Bihar Rajya Bhumi Vikas Bank Samiti
(2018) 9 SCC 472 : [2018] 7 SCR 1147 - referred to.
B Challenge to Section 21(6A) and 25A of the Code
10.1 Like other financial creditors, be they banks and
financial institutions, or other individuals, all persons who have
advanced monies to the corporate debtor should have the right
to be on the Committee of Creditors. True, allottees are
C unsecured creditors, but they have a vital interest in amounts
that are advanced for completion of the project, maybe to the
extent of 100% of the project being funded by them alone. Under
the proviso to Section 21(8) of the Code if the corporate debtor
has no financial creditors, then under Regulation 16 of the
D Insolvency and Bankruptcy Board of India (Insolvency Resolution
Process for Corporate Persons) Regulations, 2016, up to 18
operational creditors then become the Committee of Creditors
or, if there are more than 18 operational creditors, the highest in
order of debt owed to operational creditors to the extent of the
first 18 are then represented on the Committee of Creditors
E together, with a representative of the workers. If allottees who
have funded a real estate project of the corporate debtor to the
extent of 100% are neither financial creditors nor operational
creditors, the mechanism of the Committee of Creditors, who is
now to take decisions after the Code is triggered as to the future
F of the corporate debtor, will be non-existent in a case where there
are no operational creditors and no secured creditors, because
100% of the project is funded by the allottees. Even otherwise,
it would in fact be manifestly arbitrary to omit allottees from the
Committee of Creditors when they are vitally interested in the
future of the corporate debtor as they have funded anywhere from
G 50% to 100% of the project in most cases. [Para 54] [502-C-G]
10.2 Given the fact that allottees may not be a homogenous
group, yet there are only two ways in which they can vote on the
Committee of Creditors-either to approve or to disapprove of a

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proposed resolution plan. Sub-section (3A) goes a long way to A
ironing out any creases that may have been felt in the working of
Section 25A in that the authorised representative now casts his
vote on behalf of all financial creditors that he represents. If a
decision taken by a vote of more than 50% of the voting share of
the financial creditors that he represents is that a particular plan
B
be either accepted or rejected, it is clear that the minority of
those who vote, and all others, will now be bound by this decision.
The legislature must be given free play in the joints to experiment.
Minor hiccups that may arise in implementation can always be
sorted out later. Thus, any challenge to the machinery provisions
contained in Sections 21(6A) and 25A must be repelled. C
[Para 55] [503-D-F]
Swiss Ribbons v. Union of India (2019) 4 SCC 17 :
[2019] 3 SCR 535 – relied on.
Competition Commission of India v. Bharti Airtel Limited
and Ors.(2019) 2 SCC 521 ; Cellular Operators D
Association of India v. TRAI (2016) 7 SCC 703 :
[2016] 9 SCR 1 – referred to.
Doctrine of ‘Reading Down’
11. Given the fact that the Amendment Act has been held E
to be constitutionally valid, and considering that its language is
clear and unambiguous, it is not possible to read down the clear
provisions of the Amendment Act in the manner suggested.
[Para 57] [507-C]
Interpretation of Section 5(8)(f) of the Code F
12.1 A financial debt is defined as meaning a “debt”. “Debt”
is defined by Section 3(11) of the Code and “claim” in Section
3(6) and “default” in Section 3(12) of the Code. Thus, in order to
be a “debt”, there ought to be a liability or obligation in respect
of a “claim” which is due from any person. “Claim” then means
G
either a right to payment or a right to payment arising out of
breach of contract, and this claim can be made whether or not
such right to payment is reduced to judgment. Then comes
“default”, which in turn refers to non-payment of debt when whole

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A or any part of the debt has become due and payable and is not
paid by the corporate debtor. What is clear, therefore, is that a
debt is a liability or obligation in respect of a right to payment,
even if it arises out of breach of contract, which is due from any
person, notwithstanding that there is no adjudication of the said
breach, followed by a judgment or decree or order. The expression
B
“payment” is again an expression which is elastic enough to
include “recompense”, and includes repayment. The definition
of “financial debt” in Section 5(8) then goes on to state that a
“debt” must be “disbursed” against the consideration for time
value of money. [Para 59, 60, 61] [507-G; 508-B, E-F; 509-A-D]
C Union of India v. Raman Iron Foundry (1974) 2 SCC
231 : [1974] 3 SCR 556 ; Himachal Pradesh Housing
and Urban Development Authority and Anr. v. Ranjit
Singh Rana (2012) 4 SCC 505 : [2012] 2 SCR 427
– referred to.
D Webster’s Comprehensive Dictionary (International
Edn.) Vol. 2 ; Law Lexicon by P. Ramanatha Aiyar
2nd Edn., Reprint; Black’s Law Dictionary 10th Edn.
– referred to.
12.2 It is clear that the expression “disburse” would refer
E to the payment of instalments by the allottee to the real estate
developer for the particular purpose of funding the real estate
project in which the allottee is to be allotted a flat/apartment.
The expression “disbursed” refers to money which has been paid
against consideration for the “time value of money”. In short,
F the “disbursal” must be money and must be against consideration
for the “time value of money”, meaning thereby, the fact that
such money is now no longer with the lender, but is with the
borrower, who then utilises the money. Thus far, it is clear that
an allottee “disburses” money in the form of advance payments
made towards construction of the real estate project. That this is
G against consideration for the time value of money is also clear as
the money that is “disbursed” is no longer with the allottee, but,
is with the real estate developer who is legally obliged to give
money’s equivalent back to the allottee, having used it in the
construction of the project, and being at a discounted value so
H far as the allottee is concerned (in the sense of the allottee having
PIONEER URBAN LAND AND INFRASTRUCTURE LTD. 403
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to pay less by way of instalments than he would if he were to pay A
for the ultimate price of the flat/apartment). [Para 61] [509-E-G;
510-B-C]
‘Dictionary of Banking Terms’ by Thomas P. Fitch
Second Edn; ACT Borrower’s Guide to the LMA’s
Investment Grade Agreements by Slaughter and May B
Fifth Edn, 2017 – referred to.
12.3 When compared with Section 5(8), it is clear that
Section 5(8) seems to owe its genesis to the definition of “financial
indebtedness” that is contained for the purposes of Investment
Grade Agreements. It was submitted that even insofar as C
derivative transactions are concerned, it is clear that money alone
is given against consideration for time value of money and a
transaction which is a pure sale agreement between “borrowers”
and “lender” cannot possibly be said to fit within any of the
categories mentioned in Section 5(8). It is clear from the
submission that a wide range of transactions are subsumed by D
paragraph (f) and that the precise scope of paragraph (f) is
uncertain. Equally, paragraph (f) seems to be a “catch all”
provision which is really residuary in nature, and which would
subsume within it transactions which do not, in fact, fall under
any of the other sub-clauses of Section 5(8). And now to the precise E
language of Section 5(8)(f). First and foremost, the sub-clause
does appear to be a residuary provision which is “catch all” in
nature. This is clear from the words “any amount” and “any other
transaction” which means that amounts that are “raised” under
“transactions” not covered by any of the other clauses, would
amount to a financial debt if they had the commercial effect of a F
borrowing. The expression ‘transaction’ is defined by Section
3(33). The expression “any other transaction” would include an
arrangement in writing for the transfer of funds to the corporate
debtor and would thus clearly include the kind of financing
arrangement by allottees to real estate developers when they G
pay instalments at various stages of construction, so that they
themselves then fund the project either partially or completely.
Sub-clause (f) Section 5(8) thus read would subsume within it
amounts raised under transactions which are not necessarily loan
transactions, so long as they have the commercial effect of a
borrowing. [Para 63-66] [511-E-F; 512-C-H; 513-A] H
404 SUPREME COURT REPORTS [2019] 10 S.C.R.

A ACT Borrower’s Guide to the LMA’s Investment Grade
Agreements by Slaughter and May Fifth Edn, 2017;
Collins English Dictionary & Thesaurus Second Edn.
2000 – referred to.
12.4 A perusal of these definitions would show that even
B though the Petitioners may be right in stating that a “borrowing”
is a loan of money for temporary use, they are not necessarily
right in stating that the transaction must culminate in money being
given back to the lender. The expression “borrow” is wide
enough to include an advance given by the home buyers to a real
estate developer for “temporary use” i.e. for use in the
C construction project so long as it is intended by the agreement
to give “something equivalent” to money back to the home
buyers. The “something equivalent” in these matters is obviously
the flat/apartment. Also of importance is the expression
“commercial effect”. “Commercial” would generally involve
D transactions having profit as their main aim. Piecing the threads
together, therefore, so long as an amount is “raised” under a
real estate agreement, which is done with profit as the main aim,
such amount would be subsumed within Section 5(8)(f) as the
sale agreement between developer and home buyer would have
the “commercial effect” of a borrowing, in that, money is paid in
E advance for temporary use so that a flat/apartment is given back
to the lender. Both parties have “commercial” interests in the
same – the real estate developer seeking to make a profit on the
sale of the apartment, and the flat/apartment purchaser profiting
by the sale of the apartment. Thus construed, there can be no
F difficulty in stating that the amounts raised from allottees under
real estate projects would, in fact, be subsumed within Section
5(8)(f) even without adverting to the explanation introduced by
the Amendment Act. [Para 67] [513-E-H; 514-A]
12.5 The report of the Bankruptcy Law Reforms Committee
G of November, 2015 and in particular paragraph 3 of ‘Box 5.2 –
Trigger for IRP’, which led to the enactment of the Code, is an
important guide in understanding the provisions of the Code.
However, where the provisions of the Code, as construed in the
light of the objects of the Code, are clear, the fact that from a

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huge report one word is picked up to indicate that all financial A
creditors must have debtors who owe money “solely” from
financial transactions cannot possibly have the effect of negating
the plain language of Section 5(8)(f) of the Code. In fact, what is
important is that the threshold limit to trigger the Code is
purposely kept low – at only one lakh rupees – making it clear
B
that small individuals may also trigger the Code as financial
creditors (as financial creditors include debenture holders and
bond holders), along with banks and financial institutions to whom
crores of money may be due. [Para 68] [514-B-D]
12.6 That this amendment is in fact clarificatory is also made
clear by the Insolvency Committee Report, which expressly uses C
the word “clarify”, indicating that the Insolvency Law Committee
also thought that since there were differing judgments and doubts
raised on whether home buyers would or would not be included
within Section 5(8)(f), it was best to set these doubts at rest by
explicitly stating that they would be so covered by adding an D
explanation to Section 5(8)(f). Incidentally, the Insolvency Law
Committee itself had no doubt that given the ‘financing’ of the
project by the allottees, they would fall within Section 5(8)(f) of
the Code as originally enacted. [Para 69] [514-E-F]
Krishi Utpadan Mandi Samiti v. Shankar Industries E
(1993) 3 Suppl. SCC 361 : [1993] 1 SCR 1037 –
Held not a good law.
P. Kasilingam and Ors. v. P.S.G. College of Technology
and Ors. (1995) 2 Suppl. SCC 348 : [1995] 2 SCR
1061; Jagir Singh & Ors. v. State of Bihar & Anr. F
(1976) 2 SCC 942 : [1976] 2 SCR 809 ; Mahalakshmi
Oil Mills v. State of Andhra Pradesh & Ors. (1989) 1
SCC 164 : [1988] 2 Suppl. SCR 1088; Bharat Coop.
Bank (Mumbai) Ltd. v. Coop. Bank Employees Union
(2007) 4 SCC 685 : [2007] 4 SCR 347; State of West
Bengal and Ors. v. Associated Contractors (2015) 1 G
SCC 32 : [2014] 10 SCR 426 – referred to.
12.7 The legislature is not precluded by way of amendment
from inserting words into what may even be an exhaustive

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406 SUPREME COURT REPORTS [2019] 10 S.C.R.

A definition. What is an exhaustive definition is exhaustive for
purposes of interpretation of a statute by the Courts, which cannot
bind the legislature when it adds something to the statute by way
of amendment. [Para 73] [518-D]
12.8 The submission that Section 5(8)(f) must be construed
B noscitur a sociis with sub-clauses (a) to (e) and (g) to (i), and so
construed would only refer to loans or other financial transactions
which would involve money at both ends, cannot be accepted
since Section 5(8)(f) is clearly a residuary “catch all” provision,
taking within it matters which are not subsumed within the other
sub-clauses. Furthermore, noscitur a sociis being a mere rule of
C construction cannot be applied in the present case as it is clear
that wider words have been deliberately used in a residuary
provision, to make the scope of the definition of “financial debt”
subsume matters which are not found in the other sub-clauses of
Section 5(8). [Para 74-75] [518-E-F; 522-F]
D Controller of Estate Duty v. Kantilal Trikamlal (1976) 4
SCC 643 : [1977] 1 SCR 9 ; Subramanian Swamy v.
Union of India (2016) 7 SCC 221 : [2016] 3 SCR 865
– referred to.
12.9 As regards, the effect of a deeming fiction, under the
E explanation added to Section 5(8)(f), any amount raised from an
allottee under a real estate project shall be deemed to be an
amount having the commercial effect of a borrowing. Although a
deeming provision is to deem what is not there in reality, thereby
requiring the subject matter to be treated as if it were real, yet
F several authorities and judgments show that a deeming fiction
can also be used to put beyond doubt a particular construction
that might otherwise be uncertain. It is clear that the deeming
fiction that is used by the explanation is to put beyond doubt the
fact that allottees are to be regarded as financial creditors within
the enacting part contained in Section 5(8)(f) of the Code.
G [Paras 76, 83, 84] [522-G; 525-B-C; 528-A]
M. Venugopal v. Divisional Manager, LIC (1994) 2 SCC
323 : [1994] 1 SCR 433; Commissioner of Income Tax,
Bombay v. Bombay Trust Corporation AIR 1930 PC
54; K. Kamaraja Nadar v. Kunju Thevar and Ors.
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AIR 1958 SC 687 : [1959] SCR 583 ; Delhi Cloth & A
General Mills Co. Ltd. and Anr. v. State of Rajasthan
and Ors. (1996) 2 SCC 449 : [1996] 1 SCR 518 ;
Daiichi Sankyo Company Limited v. Jayaram
Chigurupati and Ors. (2010) 7 SCC 449 : [2010] 8
SCR 251 ; Shri Prithvi Cotton Mills Ltd. & Anr. v.
B
Broach Borough Municipality & Ors. (1969) 2 SCC
283 : [1970] 1 SCR 388 ; Hindustan Cooperative
Housing Building Society Limited v. Registrar,
Cooperative Societies and Anr. (2009) 14 SCC 302 :
[2009] 2 SCR 331 – referred to.
East End Dwellings Co. Ltd. v. Finsbury Borough C
Council (1952) Appeal Cases 109 - referred to.
Stroud’s Judicial Dictionary of Words and Phrases
Seventh Edn. 2008 – referred to.
12.10 The explanation was added by the Amendment Act D
only to clarify doubts that had arisen as to whether home buyers/
allottees were subsumed within Section 5(8)(f). The explanation
added to Section 5(8)(f) of the Code by the Amendment Act does
not in fact enlarge the scope of the original Section as home buyers/
allottees would be subsumed within Section 5(8)(f) as it originally
stood. As a matter of statutory interpretation, that interpretation, E
which accords with the objects of the statute in question,
particularly when a beneficial legislation is dealt with, is always
the better interpretation or the “creative interpretation” which
is the modern trend of authority. Thus, the allottees/home buyers
were included in Section 5(8)(f) with effect from the inception of F
the Code, the explanation being added in 2018 merely to clarify
doubts that had arisen. [Para 85-86] [528-C-F]
Hiralal Ratanlal Etc. v. State of U.P and Anr. Etc.
(1973) 1 SCC 216 : [1973] 2 SCR 502 ; Eera (through
Dr. Manjula Krippendorf) v. State (NCT of Delhi) and G
Anr. (2017) 15 SCC 133 : [2017] 7 SCR 924 ;
S. Sundaram Pillai v. V.R. Pattabiraman (1985) 1 SCC
591 : [1985] 2 SCR 643 – referred to.
13. In the States and Union Territories where only interim
or no adjudicating officer/Real Estate Regulatory Authority and/
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408 SUPREME COURT REPORTS [2019] 10 S.C.R.

A or Appellate Tribunal have been appointed/established, such
States/Union Territories are directed to appoint permanent
adjudicating officers, a Real Estate Regulatory Authority and
Appellate Tribunal within the stipulated period. Given the
declaration of the constitutional validity of the Amendment Act,
it is absolutely necessary that the NCLT and the NCLAT are
B
manned with sufficient members to deal with litigation that may
arise under the Code generally, and from the real estate sector
in particular. For this purpose, Union of India to take steps in
this behalf. [Paras 87, 88] [529-E-G]
Nikhil Mehta and Sons (HUF) v. AMR Infrastructure
C Ltd. (Company Appeal (AT) (Insolvency) No. 07
of 2017) ; Chitra Sharma & Ors. v. Union of India 2018
(9) SCALE 490 ; Bikram Chatterji v. Union of India
2018 (11) SCALE 129 – referred to.
Case Law Reference
D
2018 (9) SCALE 490 referred to Para 3
2018 (11) SCALE 129 referred to Para 4
[1985] 2 SCR 643 referred to Para 8
(2015) 1 SCC 166 referred to Para 25
E
[2008] 9 SCR 346 referred to Para 27
[2019] 1 SCR 682 referred to Para 29
(2018) 1 SCC 407 relied on Para 30
F [2019] 3 SCR 535 relied on Paras 31,
38,39, 45
48.55
[1959] SCR 279 relied on Para 33,
34, 38, 39
G [2005] 1 SCR 334 relied on Para 34
[2018] 1 SCR 533 relied on Para 34
[1974] 3 SCR 760 relied on Para 38,39
[1980] SCR 500 relied on Para 39
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[1993] 3 SCR 616 relied on Para 39 A
[2004] 3 SCR 982 relied on Para 39
[1973] 3 SCR 39 referred to Para 41
[2014] 6 SCR 873 referred to Para 41
(2017) 9 SCC 1 relied on Para 45 B
[2017] 7 SCR 797 referred to Para 45
[2017] 9 SCR 743 relied on Para 52
[2018] 7 SCR 1147 referred to Para 52
C
(2019) 2 SCC 521 referred to Para 56
[2016] 9 SCR 1 referred to Para 56
[1974] 3 SCR 556 referred to Para 60
[2012] 2 SCR 427 referred to Para 60
D
[1995] 2 SCR 1061 referred to Para 70
[1993] 1 SCR 1037 Held not a
good law Para 72
[1976] 2 SCR 809 referred to Para 72
E
[1988] 2 Suppl. SCR 1088 referred to Para 72
[2007] 4 SCR 347 referred to Para 72
[2014] 10 SCR 426 referred to Para 72
[1977] 1 SCR 9 referred to Para 74
F
[2016] 3 SCR 865 referred to Para 74
[1994] 1 SCR 433 referred to Para 77
AIR 1930 PC 54 referred to Para 78
[1959] SCR 583 referred to Para 78
G
[1996] 1 SCR 518 referred to Para 79
[2010] 8 SCR 251 referred to Para 79
[1970] 1 SCR 388 referred to Para 80

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410 SUPREME COURT REPORTS [2019] 10 S.C.R.

A [2009] 2 SCR 331 referred to Para 84
[1973] 2 SCR 502 referred to Para 85
[2017] 7 SCR 924 referred to Para 85

B CIVIL ORIGINAL/APPELLATE JURISDICTION: Writ Petition
(Civil) No. 43 of 2019
Under Article 32 of the Constitution Of India
WITH
C Writ Petition (Civil) Nos. 99, 124, 121, 129, 130, 135, 201, 147,
193, 156, 183, 166, 163, 194, 176, 205, 173, 189, 188, 185, 177, 214, 303,
195, 197, 196, 243, 198, 199, 200, 309, 217, 230, 304, 258, 221, 229, 241,
293, 310, 242, 280, 261, 263, 272, 362, 358, 281, 277, 311, 279, 283, 366,
287, 284, 312, 294, 989, 320, 321, 319, 386, 396, 345, 328, 347, 344, 369,
916, 350, 353, 355, 361, 354, 402, 412, 357, 411, 505, 374, 377, 389, 829,
D
640, 454, 409, 398, 407, 441, 426, 410, 418, 485, 425, 535, 437, 442, 468,
491, 566, 457, 614, 544, 483, 669, 529, 492, 532, 540, 522, 503, 506, 513,
530, 555, 634, 580, 587, 682, 585, 613, 571, 578, 600, 589, 610, 648, 673,
629, 638, 597, 636, 632, 642, 644, 655, 643, 668, 671, 678, 702, 704, 694,
822, 807, 713, 714, 990, 824, 739, 745, 806, 846, 904, 800, 808, 805, 821,
E 831, 950, 850, 830, 858, 840, 877, 868, 855, 871, 927, 861, 860, 878, 913,
909, 905, 922, 918, 919, 941 of 2019, Civil Appeal No. 1486 of 2019.
Dr. Abhishek Manu Singhvi, Nikhil Nayyar, Neeraj Kishan Kaul,
Dr. Bharat Bhushan Parsoon, Krishnan Venugopal, Gopal
Sankaranarayanan, Arvind Dattar, Jayant Bhushan, Dr. A.M. Singhvi,
F Shyam Divan, Sr. Advs., Ms. Pritha Srikumar Iyer, Azeem Samuel,
Ms. Vasudha Sharma, Ms. Neha Mathen, Naveen Hegde, Ms. Mansi
Binjrajka, Sumesh Dhawan, Ms. Vatsala Kak, Vivek Sibal, Ms. Apoorva
Chowdhary, Ms. Geetika Sharma, Vikas Tiwari, Sunil Prakash Sharma,
Kr. Deepraj, Rakesh Kumar-I, Ms. Arti Rathore, Anupam Sharma, Joby
P. Varghese, Abhinav Ankit, Nipun Malhotra, Anshumaan Sahni, Jitendra
G Kumar, P. V. Yogeswaran, Rishi Kapoor, Ashish Kumar Upadhyay,
Devanshu Sajlan, Akash Lamba, Deepak Joshi, Pranaya Goyal, Nikhil
Ranjan, Ms. Apoorva Kaushik, Dr. S. K. Verma, Mrs. Priya Puri, M. R.
Shamshad, Aditya Samaddar, Ms. Sarah Haque, Yogesh Pachauri, Udit
Arora, Sanjay Kumar Tyagi, Ms. B. Vijayalakshmi Menon, Pulkit Deora,
H
PIONEER URBAN LAND AND INFRASTRUCTURE LTD. 411
& ANR. v. UNION OF INDIA & ORS.

Udit Gupta, Sylvine Sarmah (for M/s. Udit Kishan and Associates), A
Ms. Archana Pathak Dave, Ms. Ankita Chaudhary, Virag Gupta, Manish
Sharma, Rajnish Singh, Piyush Kant Roy, Kunal Chatterji, Ms. Varsha
Banerjee, Ashu Kansal, Ms. Stuti Vatsa, Milan Singh Negi, T. V.
S. Raghavendra Sreyas, Mrigank Prabhakar, Nitin Wadhwa, Ms. Misha
Rohatgi Mohta, Dhruv Rohatgi, Nakul Motha, Ms. Sonam Priya, Shovit
B
Singh, Anurag Singh, Rahul Mohan Gautam, Jeetender Gupta, Sanchar
Anand, Rohan Gupta, Devendra Singh, Zorawar Singh, Vivek Kishore,
Debo Preyo Pal, Sanyat Lodha, Ms. Sanjana Saddy, Ambuj Agarwal,
Ms. Swati Chowdhary, Ms. Anindita Mitra, Yadav Narender Singh,
Ashutosh Yadav, Jagdish Parshad, Rajiv Kumar Sharma, Senthil
Jagadeesan, Ms. Sonakshi Malhan, Ms. Suriti Chowdhary, Ms. Mrinal C
Kanwar, Abhimanyu Bhandari, Ms. Nattasha Garg, Arav Pandit,
Ms. Aashima Singhal, Ms. Roohina Dua, Cheitanya Madan, Somesh
Tiwari, Naveen Kumar, Syed Mehdi Imam, Md. Nauman Ul Haq, Videh
Vaish, Mrs. Shamam Anis, Ms. Sheena Taqui, Mrs. Bina Gupta, Kshitij
Vaibhav, Ms. Subarna Dubey, Ms. Kanishka Prasad, Ms. Vijiya Singh,
D
Ms. Shruti Shivkumar, Prem Prakash, Ujjal Banerjee, Swapnil Gupta,
Shivambika Sinha, Rajendra Gupta, Akash Khurana, Neelambika Singh,
Rudrajit Ghosh, Ms. Ankita Sinha, Sameer Abhyankar, Shekhar Kumar,
Tejas Patel, Rakesh K. Sharma, Raj Kamal, D.K. Sharma, Gaurav
Kejriwal, Mita Sharma, Sujit Keshri, Gaurav, Rohit Gupta, Kaushik
Poddar, Anshu Bhanot, Anuj Mirdha, Ms. Surbhi Mehta, Aman Vachher, E
Dhiraj, Ashutosh Dubey, Abhishek Chauhan, Mrs. Anshu Vachher, Mrs.
Rajshree Dubey, Mrs. Madhurima Mridul, Arun Nagar, P. N. Puri, Vivek
Sibal, Rahul Sharma, Yash Patel, P.N. Puri, Vikas Tiwari, Dharmendra
Kumar Sinha, Kumar Deepraj, Ms. Charu Ambwani, Ms. Garima Goel,
Ms. Aakanksha Nehra, Ms. Aditi Pundhir, Abhishek Agarwal, Jitender
F
Chaudhary, Ms. Shilpa Chohan, Rajesh Singh, Vivek Jain, Ms. Suchitra
Kumbhat, Rajat Joseph, Mayank Pandey, Abhinav Agrawal, Ninad Laud,
Neeraj Matta, Ms. Ananyaa Mazumdar, Rajesh Ranjan, Karan Mathur,
Joel, Abhimanyu Bhandari, Ms. Nattasha Garg, Arav Pandit, Ms. Aashima
Singhal, Ms. Roohina Dua, Cheitanya Madan, Somesh Tiwari,
Ms. Ranjeeta Rohatgi, Ms. Ruchi Kohli, Rameshwar Prasad Goyal, G
Anurag, Ankur Prakash, Amar Gupta, Daksh Ahluwalia, Manish Jha,
Ms. Pallavi Kumar, Adhiraj Gupta, Divyam Agarwal, Puneet Singh Bindra,
Rajnish Singh, Ms. Simran Jeet, Sanampreet Singh, Harish Pandey, Chirag
M. Shroff, Ms. Mahima C. Shroff, Sanchit Garga, Rakshit Goyal, Sriram
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412 SUPREME COURT REPORTS [2019] 10 S.C.R.

A P., Sumeer Sodhi, Aman Nandrajog, Ms. Aarzoo Aneja, Ashish Tiwari,
Shrutanjay Bharadwaj, C. George Thomas, A. Khanna, Santosh Kumar
- I, Abhay Kumar, Mahesh Agarwal, Rishi Agrawala, Parminder Singh,
Ms. Aastha Mehta, Ms. Shruti Arora, Ms. Sanam Tripathi, Simranjit H.
Virk, Vinayak Bhandari, E. C. Agrawala, Shivendra Dwivedi, Akshay
Sharma, Vikas Sharma, Rajesh Mahale, Pramod Sachdeva, Saurabh
B
Mishra, Onkar Singh, Arun Verma, Prateek Gupta, Krishna Dev
Jagarlamudi, Ms. Riya Arora, Atul Sharma, Abhishek Sharma, Ashly
Cherian, Purva Kohli, Gautam Talukdar, Rakshit Goyal, Rajat Sehgal,
Ruhitash Kumar Sharma, Sumit Sinha, Sinha Shrey Nikhlesh, Nayan
Dubey, Swastik Verma, Vaibhav Gaggar, Sanchit Uppal, Ms. Sumedha
C Dang, Tushar Singh, Dr. Surender Singh Hooda, Ms. Pooja Dhar, Sanjeev
Kumar, H.K. Naik, Ms. Padama Chaudhry, Rajnish, Prashant Katara,
Rohit Mehra, Debasis Misra, M.P. Parthiban, Rajesh P., Manoranjan
Sharma, Prashant Jain, Kumar Mihir, Ms. Gunjan Sharma, Mohit
Chaudhary, Ms. Puja Sharma, Kunal Sachdeva, Anup Mishra, Balwinder
Singh Suri, Ms. Garima Sharma, Ms. Sristhi Gupta (for M/s. Kings And
D
Alliance LLP), Satish Kumar, Pranab Prakash, Sumit Roy, Varun Pandey,
Narender Singh Yadav, Santosh Kumar - I, M/s. Mitter & Mitter Co.,
Ashutosh Jha, N. Deepak, Vijay Kumar, Rahul Kumar Singh, R.C.
Sharma, Ms. Kamakshi S. Mehlwal, Ms. Sonia Dube, Ms. Kanchan
Yadav, M/s. Legal Options, Sidharth Joshi, R. Maheswari, Gopal Singh
E Chauhan, S. Muthu Krishnan, Ms. Divya Chaudhary, Saurabh Trivedi,
Manish Paliwal, Vikas Kumar, Ms. Vatsala Kak, Sumesh Dhawan (for
M/s Corporate Legal Partners), Advs. for the Petitioners/Appellant.
K. K. Venugopal, Attorney General for India, Tushar Mehta, SG,
Ms. Madhavi Diwan, ASG, R. Balasubramanian, Mukul Gupta, Ms. Geeta
F Luthra, Sr. Advs., Ms. Shraddha Deshmukh, Kanu Agrawal, Chinmayee
Chandra, Rajeev Ranjan, Rajan Kumar Chourasia, Sachin Sharma, Arvind
Kumar Sharma, Gargi K., Rajat Nair, Raj Bahadur, A. Venayagam
Balan, V. Elanchezhiyan, Salim Inamdar, Ms. Pragya Baghel, Ravi
Shehgal, Tejas Sanghrajka, Sunil Fernandes, Ms. Sujata Kurdukar,
Ms. Rashi Bansal, P. Niroop, Chandan Kumar, Manoj C. Mishra,
G Shohit Chaudhry, Ms. Appabrita Saha, Pankaj Agarwal, Vaibhav
Aggarwal, Ketan Paul, Mrs. Anil Katiyar, B. Karunakaran, Mohd.
Tabishzia, S. Gowthaman, Ms. Neha Malik, Ms. Shalini Sinha, Amit
Kimothi, Vaibhav Kumar, Rajiv Kumar Sinha, Narendra Kumar,

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PIONEER URBAN LAND AND INFRASTRUCTURE LTD. 413
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Ms. Radhika Gautam, Ms. Priyanka Arora, Ravindra S. Garia, Kumar A
Dushyant Singh, Krishna Kumar, Ms. Mridula Ray Bharadwaj, Vikas
Mehta, Apoorv Khator, Rajesh Goyal, Dilpreet Singh, Mayank Goel,
Monamshel, Piyush Singh, Aditya Parolia, Akshay Srivastava, Nithin
Chandran, Zahid Hussain, Ms. Nivedita Grover, Varun Tandon, Kumar
Pradyuman, Ms. Sumbul Ismail, Rishabh Gupta, Ms. Kashish Sareen,
B
Ms. Harshita Chauhan, Prateek Vats, Rajesh Kumar, Gaurav Goel,
Awanish Sinha, Naresh Kaushik, Vardhman Kaushik, Nishant Gautam,
Dhruv Joshi, Omung Raj Gupta, Ritesh Kumar, Atul Sharma, R.K. Pandey,
Ms.Nidhi Mohan Parashar, Soayib Qureshi, Devansh Jain, Dhruv Gupta,
Shaishav Manu, Arjun Singh Bhati, Ms. S. Janani, Dr. (Mrs.) Vipin Gupta,
Vaibhav Manu Srivastava, Vikpul Ganda, Satyajit A. Desai, Ms. Anagha C
S. Desai, Ms. Astha Sharma, Ms. Dimple Nagpal, Pramod Dayal, Annam
Venkatesh, Rahul Mishra, Ms. Avni Sharma, Atul Sharma, Pramit Saxena,
R.K. Pandey, Amit Gaurav Singh, Rahul Rathor, Ms. Priyanjali Singh,
Karunesh Kumar Shukla, Sachin Mittal, Kanishk Khullar, Sunil Upadhyay,
Vaibhav Sharma, Rahul Joshi, Nikilesh Ramachandran, Sunil Dalal, S.S.
D
Ray, Ms. Rakhi Ray, Amit Agrawal, Aniket Deepak Agrawal, Parveen
Kumar Aggarwal, Abhishek Grover, Sanjay Jain, Ms. Preeti Singh,
Sudhansu Palo, Gautam Dash, Ravin R. Dubey, Ms. Madhusmita Bora,
Rohit Kumar Singh, Sumant De, Abhay Pratap Singh, Prithu Garg,
Siddharth Mehta, Lzafeer Ahmad, Saji George, V. K. Biju, Tasneem
Ahmadi, Sudhir Kumar Gupta, Manish Gupta, Satish Kumar, K. Paari E
Vendhan, Charu Sangwan, Rajiv Shankar Dvivedi, Ms. Pallavi Mishra,
Sanjay Sarin, Tarun Rana, Aditya Sarin, Dinkar Kalra, Vibhor Garg, Dinkar
Kalra, Rajiv Ranjan Dwivedi, Ms. Mukti Chaudhry, Tarun Gupta, Atul
Kumar, Abhimanyu, P. V. Dinesh, Ms. Sindhu T.P., Mukund P. Unny,
R.S. Lakshman, Bineesh K., Ashwin Kumar Singh (for M/s. Indialaw),
F
Jatin Sehgal, Raymon Singh, Adhirath Singh, Snehasish Mukherjee, Azmat
Hayat Amanullah, Sarvam Ritam Khare, Urvi Kuthiala, Ms. Vrinda
Kapoor, M/s. Ace Legal, Ms. Manjeet Kirpal, Chayan Sarkar, Karan
Bindra, Anzu. K. Varkey, Subhro Sanyal, Ms. Garima Bajaj, Pradeep
Dhingra, Ms. Shalini Dhingra, Satya Ranjan Swain, Rajesh Singh
Chauhan, Liju V. Stephen, James P. Thomas, Md. Apzal Ansari, G
Ms. Indu Jacob, Mohd. Farhan Khan, Farah Hashmi, Md. Shahid Anwar,
Advs. for the Respondents.
Respondent-in-person

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414 SUPREME COURT REPORTS [2019] 10 S.C.R.

A The Judgment of the Court was delivered by
R. F. NARIMAN, J. 1. The large number of writ petitions that
have been filed in this Court challenge the constitutional validity of
amendments made to the Insolvency and Bankruptcy Code, 2016
(hereinafter referred to as “the Code”), pursuant to a report prepared
B by the Insolvency Law Committee dated26thMarch, 2018 (hereinafter
referred to as the “Insolvency Committee Report”).The amendments
so made deem allottees of real estate projects to be “financial creditors”
so that they may trigger the Code, under Section 7 thereof, against the
real estate developer. In addition, being financial creditors, they are
entitled to be represented in the Committee of Creditors by authorised
C representatives. The amendments so made to the Code are as follows:
PROVISIONS OF THE INSOLVENCY AND
BANKRUPTCY CODE, 2016 BEING CHALLENGED
1. Explanation to Section 5(8)(f):
D “5. Definitions
In this part, unless the context otherwise requires, –
(8) “financial debt” means a debt along with interest, if any, which
is disbursed against the consideration for the time value of money
and includes-
E
(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,-
F (i) any amount raised from an allottee under a real estate project
shall be deemed to be an amount having the commercial
effect of a borrowing; and
(ii) the expressions, “allottee” and “real estate project” shall have
the meanings respectively assigned to them in clauses (d)
G and (zn) of section 2 of the Real Estate (Regulation and
Development) Act, 2016 (16 of 2016);”
2. Section 21(6A)(b)
“21. Committee of creditors
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(6A) Where a financial debt- A
(b)is owed to a class of creditors exceeding the number as may
be specified, other than the creditors covered under clause (a) or
sub-section (6), the interim resolution professional shall make an
application to the Adjudicating Authority along with the list of all
financial creditors, containing the name of an insolvency B
professional, other than the interim resolution professional, to act
as their authorised representative who shall be appointed by the
Adjudicating Authority prior to the first meeting of the committee
of creditors; […]
and such authorised representative under clause (a) or clause (b) C
or clause (c) shall attend the meetings of the committee of
creditors, and vote on behalf of each financial creditor to the extent
of his voting share.”
3. Section 25A
“25A.Rights and duties of authorized representatives of financial D
creditors –
(1) The authorised representative under sub-section (6) or sub-
section (6A) of section 21 or sub-section (5) of section 24
shall have the right to participate and vote in meetings of the
committee of creditors on behalf of the financial creditor he E
represents in accordance with the prior voting instructions of
such creditors obtained through physical or electronic means.
(2) It shall be the duty of the authorised representative to
circulate the agenda and minutes of the meeting of the com-
mittee of creditors to the financial creditor he represents. F
(3) The authorised representative shall not act against the interest
of the financial creditor he represents and shall always act in
accordance with their prior instructions:
Provided that if the authorised representative represents several
financial creditors, then he shall cast his vote in respect of G
each financial creditor in accordance with instructions received
from each financial creditor, to the extent of his voting share:
Provided further that if any financial creditor does not give
prior instructions through physical or electronic means, the
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416 SUPREME COURT REPORTS [2019] 10 S.C.R.

A authorised representative shall abstain from voting on behalf
of such creditor.
(4) The authorised representative shall file with the committee of
creditors any instructions received by way of physical or
electronic means, from the financial creditor he represents, for
B voting in accordance therewith, to ensure that the appropriate
voting instructions of the financial creditor he represents is
correctly recorded by the interim resolution professional or
resolution professional, as the case may be.
Explanation – For the purposes of this section, the “electronic
C means” shall be such as may be specified.””
2. The Code was passed by the Parliament on 28th May, 2016.
Several petitions were then filed against real estate developers under
the Code by allottees who had entered into “assured returns /committed
returns” agreements with these developers, whereby, upon payment of
D a substantial portion of the total sale consideration upfront at the time of
execution of the agreement, the developer undertook to pay a certain
amount to allottees on a monthly basis from the date of execution of the
agreement till the date of handing over of possession to the allottees.The
National Company Law Appellate Tribunal (hereinafter referred to as
“NCLAT”)on 21st July, 2017 in Nikhil Mehtaand Sons (HUF) v. AMR
E Infrastructure Ltd., (Company Appeal (AT) (Insolvency) No. 07 of
2017) held that amounts raised by developers under assured return
schemes had the “commercial effect of a borrowing”, which became
clear from the developer’s annual returns in which the amount raised
was shown as “commitment charges” under the head “financial costs”.
F As a result, such allottees were held to be “financial creditors” within
the meaning of Section 5(7) of the Code.
3. On 9th August, 2017, proceedings were initiated by IDBI Bank
against a large real estate developer, Jaypee Infratech Ltd. under Section
7 of the Code before the National Company Law Tribunal (hereinafter
G referred to as “NCLT”) Allahabad Bench, alleging that Jaypee had
defaulted on a loan of Rs.526.11 crores. On 11th September, 2017, an
order was passed by this Hon’ble Court in Chitra Sharma & Ors. v.
Union of India (Writ Petition (Civil) No.744 of 2017) in the case of
Jaypee Infratech Ltd. appointing a representative of the home buyers,

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i.e. the allottees, to participate in meetings of the Committee of Creditors A
in order that their interests be protected.
4. While this order was passed in Chitra Sharma (supra), qua
another group of builders, namely, the Amrapali group, an order was
passed on 22nd November, 2017 by this Court in Bikram Chatterji v.
Union of India (Writ Petition (Civil) No.940 of 2017) substantially on B
the same lines as the order passed in Chitra Sharma (supra). During
proceedings before this Hon’ble Court in Chitra Sharma (supra), this
Court, vide order dated 21st March, 2018, recorded that it was only
concerned with those home buyers who intend to obtain a refund of
amounts advanced by them, being 8% of the total home buyers/allottees
in Jaypee’s case. Given these orders by this Court, the Insolvency C
Committee Report suggested that amendments be made in the Code
seeking to clarify, as a matter of law, that allottees of real estate projects
are financial creditors.It may be noted that three members of the
Insolvency Law Committee, namely, ShriShardul Shroff, Shri S. Sen
and Shri B. Sriram, dissented with the rest of the Insolvency Law D
Committee on the proposed amendments. On 6th June, 2018, pursuant to
this Report, the Insolvency and Bankruptcy Code Amendment
Ordinance, 2018 (hereinafter referred to as the “Amendment Ordinance”)
was promulgated by which the three amendments (supra) to the Code
were inserted. On 17th August, 2018, the Parliament passed the Insolvency
and Bankruptcy Code(Second Amendment) Act, 2018(hereinafter E
referred to as the “Amendment Act”) incorporating the aforesaid
amendments as were provided for by the Amendment Ordinance.
5. Dr. Abhishek Manu Singhvi, learned Senior Advocate, leading
the charge on behalf of the real estate developers, has argued that the
treatment of allottees as financial creditors violates two facets of Article F
14. One, that the amendment is discriminatory inasmuch as it treats
unequals equally, and equals unequally, having no intelligible differentia;
and two, that there is no nexus with the objects sought to be achieved by
the Code. In fact, according to the learned senior counsel the amendments
fly in the face of the objects sought to be achieved by the Code, i.e. to G
maximise value of assets so that the shareholders of a corporate debtor
do not suffer from bad management or poor management. In the facts
of the present cases, according to Dr. Singhvi, the “bad eggs” alone
have been looked at, and entities like his client and many others before

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A us, who have completed building projects in time and are in every way
compliant with the law, can yet be jeopardised by Section 7 petitions
filed under the Code to blackmail them into making payments which
would divert funds which are otherwise to be used for the purpose of
the project. According to the learned senior counsel, a perfectly good
management which has several projects on its hands can be removed at
B
the instance of one allottee and either replaced – in which case the
massive funds infused by the developer himself would be set at naught –
or worse still, lead to commercial death, in that, if there are no resolution
plans or all resolution plans are rejected either by the Committee of
Creditors or by the authorities under the Code, a perfectly solvent
C company would then be wound up, which would not be in the interest of
anybody, least of all the bulk of allottees themselves, who would want
possession of flats/apartments. According to him, therefore, these
amendments are manifestly arbitrary, being excessive, disproportionate,
irrational and without determining principle. For the same reason, the
Petitioners’ fundamental right under Article 19(1)(g) of the Constitution
D
of India is infracted, and the amendments, not being a reasonable
restriction in the public interest under Article 19(6) would, therefore,
have to be struck down. Equally, according to the learned senior counsel,
the deeming fiction in the explanation to Section 5(8)(f) of the Code is
inconsistent with the objects sought to be achieved by the Code and has
E been stretched to absurd limits, making it manifestly arbitrary. Also, the
amendments made to Section 21 and the insertion of Section 25A of the
Code do away with the collegiality and commercial wisdom of the
Committee of Creditors, and are manifestly arbitrary on this count. He
made an impassioned plea that it was surprising that these amendments
were even made, in view of the fact that there is a specific legislation,
F
namely, the Real Estate (Regulation and Development) Act, 2016
(hereinafter referred to as “RERA”), which deals in detail with the real
estate sector, and provides for adjudication of disputes between allottees
and the developer, together with a large number of safeguards in favour
of the allottee, including agreements in statutory form, which would
G replace the agreements entered into between the developer and the
allottees. According to him, therefore, a reading of RERA would show
that all concerns of the allottees would be addressed by this sector-
specific legislation and that the enactment of a sledgehammer to kill a
gnat would render the impugned amendments excessive, disproportionate
and violative of Articles 14 and 19(1)(g) of the Constitution on this score
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also. In addition, the learned senior counsel scoffed at the Union’s stand, A
in their counter affidavit before this Court, that the amendments made
are clarificatory in nature. According to Dr. Singhvi, by no stretch of
imagination could allottees who have parted with money as sale
consideration for an apartment be included within the definition of
“financial creditor” as originally enacted by Section 5(7). In fact, the
B
very need for a deeming fiction is so that Parliament brings in persons
who are not financial creditors, by forcibly inserting a square peg in a
round hole. He read to us this Court’s judgment in Swiss Ribbons v.
Union of India (2019) 4 SCC 17, in copious detail, in order to drive
home the point that not a single one of several characteristics of financial
creditors stated in that judgment would apply to allottees/homebuyers. C
On the contrary, if at all they could be assimilated to anybody, it would
be to operational creditors, in which event it would be enough to state
that there is a pre-existing dispute between the parties, as a result of
which the Code cannot get triggered. According to him, including allottees
of real estate projects - a huge amorphous and disparate lot - as financial
D
creditors, would not only be unworkable, as thousands of petitions would
flood the NCLT, but would also be both arbitrary and unworkable when
this large number of disparate persons is represented on the Committee
of Creditors, many of whom would speak in different voices, being
concerned only with their own investment, and having no concern
whatsoever for the financial betterment of the corporate debtor. E
6. Shri Neeraj Kishan Kaul, learned Senior Advocate appearing
on behalf of some of the Petitioners, has adopted the submissions of Dr.
Singhvi. He cited judgments to buttress the Article 14 arguments made
by Dr. Singhvi, and added that an explanation cannot in any way interfere
with or change the enactment or any part thereof. He also argued that it F
would be wholly arbitrary to include allottees as financial creditors when,
in fact, they possess none of the characteristics pointed out in Swiss
Ribbons (supra) of banks and financial institutions.
7. Shri Shyam Divan, learned Senior Advocate appearing on behalf
of some of the real estate developers, made an impassioned plea that in G
one of the writ petitions in which he appears, the real estate developer
has infused over Rs. 100 crores in a particular project, through funds
that are obtained from abroad. If in the case of entities like this developer,
who complete projects on time and who have never defaulted, a single
allottee can knock at the doors of the NCLT and obtain an admission
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A order, the management of the corporate debtor would be removed and
replaced by either somebody else, or, if not possible, the company would
be wound up. According to him, not only would this be highly arbitrary
and excessive, impacting the fundamental rights under Article 19(1)(g)
and 300-A, but would also have the indirect effect of dissuading foreigners
from investing in this country. He also argued that Article 14 interdicts
B
legislation whose object is itself discriminatory, and cited judgments to
prove his point. He argued with great vehemence, citing judgments to
buttress the proposition that a deeming fiction cannot do away with what
are the essentials of being a financial creditor. According to him, there is
no “debt” as defined under the Code; there is no “borrowing” as there is
C no temporary handing over of money which has then to be returned;
there is no “disbursal” and no “sum raised” which has then to be handed
back. Equally, the commercial effect of a borrowing must be qua
transactions in which money is later replaced by money. According to
him, in the present case, at the time that the agreement is made between
the allottee and the real estate developer, what is agreed is that in return
D
for money paid by the allottee, a flat/apartment would be allotted. It is
only in the event of breach of the agreement on the part of the real
estate developer that monies are to be refunded, which does not bring
allottees within the definition of “financial creditor”. He also argued,
adopting Dr. Singhvi’s arguments, that all other categories of financial
E creditors would involve these elements, and if read noscitur a sociis
with the other clauses, Section 5(8) of the Code would also make it clear
that persons can only be included if there is a borrowing, at the end of
which the borrowing is returned - with or without interest. He thus agreed
with Dr. Singhvi’s argument that what was sought to be inserted by the
amendment is a square peg in a round hole.
F
8. Shri Jayant Bhushan, learned Senior Advocate appearing on
behalf of some of the Petitioners, then followed. He stressed the facts
of Writ Petition No.357 of 2019 to show that huge sums have been
infused into a large number of projects by the developers themselves, all
such projects being constructed in accordance with RERA. According
G to him, if the amendments pass muster, as many as 5000 workers engaged
across these real estate projects together with 600 employees would be
directly impacted. NCLT applications have been filed by allottees of
only 14 units out of 19,062 units sold. According to him, his client has

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never defaulted in repayment of amounts borrowed from banks/financial A
institutions and, in fact, upon initiation of the insolvency process, on
account of one petition filed by one allottee, IDFC invoked a standby
letter of credit and thereby recovered the entire amount due to them
being approximately Rs. 100 crores prematurely. Therefore, large solvent
real estate developers would be crippled if the Code were to be applied
B
in this fashion to them. Apart from buttressing arguments already made
on Articles 14 and 19(1)(g), he relied on judgments to show that a claim
for unliquidated damages becomes a debt only on adjudication, which
does not take place when a Section 7 application is heard. According to
him, since the NCLT can only go into “default” and as the definition of
“default” itself is vague and ambiguous, the said definition should be C
struck down as being manifestly arbitrary. He also added, citing the
same judgment as Shri Neeraj Kaul, namely, S. Sundaram Pillai v.
V.R. Pattabiraman (1985) 1 SCC 591, that an explanation cannot enlarge
the scope of the original provision. He also made a without-prejudice
argument that even if allottees are not permitted to trigger the Code,
D
they may still be protected by making suitable amendments for their
inclusion in the Committee of Creditors, so that they may have a voice in
the future of the corporate debtor, which will impact the flats/apartments
to be given to them or refunds to be made, as the case may be.
9. Shri Gopal Sankaranarayanan, learned Senior Advocate,
followed Shri Bhushan and argued on the various facets of Articles 14 E
and 19(1)(g). He also sought directions to recalcitrant States to
immediately set up the requisite authorities under RERA and made an
impassioned plea that the words “claims as may be specified” in Section
15(1)(c) of the Code be struck down. According to him, real estate
developers and borrowers are treated as equals when they are, in fact, F
unequals. Also, real estate developers are discriminated against when
compared with other entities supplying goods or services. The
amendments made are, therefore, excessive and disproportionate being
manifestly arbitrary. He also buttressed Dr. Singhvi’s argument that a
square peg is fitted into a round hole as none of the identifying traits of
financial creditors as explained in Swiss Ribbons (supra) are present G
insofar as allottees are concerned. He added that, in any case, RERA
looks after all possible difficulties of allottees, who may in addition, invoke
the arbitration clause for resolution of disputes with the real estate
developer contained in most agreements.
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A 10. Shri Krishnan Venugopal, learned Senior Advocate, who
followed Shri Gopal Sankaranarayanan, placed before us the Global
Derivatives Study Group and extracts from Philip Wood’s Project Finance,
Subordinated Debt and State Loans; and Principles of International
Insolvency by the same author. He then relied on ‘The ACT Borrower’s
Guide to the LMA’s Investment Grade Agreements’ produced by
B
Slaughter & May to explain the genesis of Section 5(8) generally and
5(8)(f) of the Code in particular. He then relied upon a number of
judgments, which according to him made it clear that a deeming fiction
is enacted when the position in reality is completely different, and hence,
a deeming fiction is introduced when something is not otherwise covered
C under the main provision. On this basis, he contended that the amendment
to Section 5(8)(f) of the Code was prospective in nature. He also cited
judgments to show that time for completion of a project can never be
said to be of the essence of the agreement between the builder and the
allottee, and this being so, a builder cannot be said to be in default when
he does not deliver a flat/apartment within the time specified, but later.
D
According to him, since Section 5(8) of the Code is a “means and includes”
definition clause, it is exhaustive and therefore, to then introduce by way
of amendment something extra by means of a deeming fiction would
thus not be permissible in law. Shri Krishnan Venugopal also referred to
extracts from various authorities to demonstrate that even qua credit
E and conditional sale agreements, ultimately Section 5(8) is concerned
only with transactions in which finance is involved. He also pointed out,
with reference to Chapter 11 Bankruptcy Proceedings in the United
States, that once a company has been stigmatised as being bankrupt or
having gone into bankruptcy, several persons who earlier dealt with the
company disengaged themselves, as a result of which the Company’s
F
power to do business gets severely hampered.
11. The tail of the arguments on behalf of the Petitioners then
wagged in the persona of several other counsel who added titbits here
and there. Shri Bhandari, appearing for one of the writ Petitioners, gave
a chart of a comparative analysis between the ‘UNCITRAL Legislative
G Guide on Insolvency Law’ (2005) (hereinafter referred to as the
“UNCITRAL Legislative Guide”),which forms the basis of the Code,
and the Bankruptcy Law Reforms Committee Report (2015), argued
that the impugned amendments went against several features of this
UNCITRAL Legislative Guide. He contended that, first and foremost,
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the fundamental difference between financial and operational creditors A
was ignored. Secondly, he contended that by treating homebuyers, who
are in substance operational creditors, as financial creditors, infracts the
principle of equitable treatment of similarly situated creditors. Further,
the UNCITRAL Legislative Guide states that recognition of existing
creditor’s rights before the commencement of the insolvency proceedings
B
by the insolvency law is important. He contended that by treating a
home buyer as a financial creditor, the Code creates rights which such
homebuyer never had earlier. He further contended that by involving
such persons in the negotiation process by putting them on the Committee
of Creditors would infract the principle that, given their number and the
diverse interests that they have, coupled with no knowledge or any C
commercial expertise of the corporate debtor, they should not and ought
not to be allowed to participate in the Committee of Creditors. Also,
insolvency law and other laws should be harmoniously construed, which
harmony is disrupted when the Code is applied to cases which should
really fall under RERA. Shri Bhandari was followed by Shri J. Gupta,
D
who argued that instead of deeming that allottees/homebuyers be regarded
as financial creditors, they ought to be regarded as operational creditors
in which case, defences available in such cases would then be
available.Shri Pulkit Deora then showed us accounting standards in which
it became clear that advances received from homebuyers by developers
cannot, from an accounting perspective, be treated as financial liabilities E
and the amendments in doing so, therefore, violate the aforesaid standards
and become manifestly arbitrary. Also, after going into the definition of
“claim”, “financial debt” and “operational debt”, he argued that a financial
debt is a crystallised claim which is due, as opposed to an operational
debt which may simply be a claim upon breach of contract that may be
F
disputed and therefore not due. On this basis he contended that to put
homebuyers in the financial creditor category, instead of the operational
creditor category, would then blur this distinction and do away with a
vital defence available to the real estate developer in the case of
operational debts. Shri Rana Mukherjee, appearing through Shri K.
Poddar, argued that homebuyers would not fall within the category of G
either financial or operational creditors and should therefore be subsumed
only within RERA, which is a complete code dealing with the real estate
industry. He further argued that RERA is a special Act as opposed to
the Code, which is a general Act and ought, therefore, to prevail. Also,
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A as the adjudication process envisaged under RERA would be done away
with if the Code is to be applied, the application of the Code to homebuyers
would be manifestly arbitrary. M/s. Kejriwal and P. Aggarwal have argued
that on the facts of their cases, force majeure events occurred as a
result of which possession could not be handed over. They also pointed
out that, from a practical point of view, the NCLT in such cases does not
B
go into defences which would demonstrate that delays in handing over
possession cannot be attributed to the developer, and being a summary
proceeding, merely goes ahead and admits a Section 7 petition despite
the fact that the developer is not at fault in not handing over the flat/
apartment in time. Shri S. Malhotra repeated some of the submissions
C that have already been noted hereinabove. Shri P.S. Bindra argued that
we should apply the Amendment Act only prospectively, either from
2018 itself or at the very earliest from 1st December, 2016. He also
argued that if this Court were to uphold the vires of the Amendment Act,
his clients ought to be at liberty to take various defences under the
agreement between his client and allottees, which this Court should make
D
clear in the event of allottees knocking at the doors of the NCLT.
12. Mrs. Madhavi Divan, learned Additional Solicitor General,
relying strongly upon Swiss Ribbons (supra), argued that the
Amendment Act would clearly be covered by the ratio laid down by this
Court in Swiss Ribbons(supra), which is that sufficient play in the joints
E must be given to the legislature when it comes to economic legislation,
and every experiment that the legislature bonafide undertakes should
not be interfered with by the Court. She referred copiously to the
Insolvency Committee Report which led to the enactment of the
Amendment Act, and stated that the real reason for including allottees
F as financial creditors is because, in substance, they finance the project
in which they will ultimately be given flats/apartments. She contended
that a cursory look at the agreement between developers and such
allottees would show that at every stage in the building process, certain
amounts have to be paid which are then supposed to be utilised in
constructing the apartments/flats. This is what makes them different
G from other operational creditors. Also, in the case of operational creditors,
it is the person who stands in the place of the developer, who either sells
goods or renders service for which he is to be paid. The exact opposite
obtains in the case of homebuyers/allottees who in fact fund their own
flats/apartments. She was at great pains to point out that it must never
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be forgotten that the Code is not a recovery mechanism. When a A
homebuyer approaches the NCLT, if his petition is admitted, he does not
get his money back in the near foreseeable future and has to stand in
line and await either the vagaries of a resolution plan which gives him
some percentage of the monies owed to him, and/or completes the project
for him. In the event of winding up, he has then to stand in line and
B
receive whatever is available. As opposed to this, homebuyers/allottees
can and do approach the authorities under RERA in which, upon showing
breach on the part of the real estate developer, they would be able to
claim whatever has been paid by them in full together with interest thereon.
This being the case it is wholly incorrect to paint a picture, as was done
by learned senior counsel appearing on behalf of the Petitioners, that C
trigger-happy allottees malafide invoke the Code to put pressure on
developers to refund their money given as advances. Also, it is wholly
incorrect to say that highly solvent companies would go in the red and
then be wound up under the Code. If in fact such companies are solvent,
the Committee of Creditors may decide to continue the same management
D
or may decide to accept resolution plans from other developers so that
the real estate development company continues as a going concern.
Winding up is only a last resort, which will never really occur in the case
of well managed corporate entities. She referred in copious detail to
NCLT and NCLAT judgments in which it was held that, save and except
allottees who had agreements in which a fixed monthly return was E
guaranteed by the developer, allottees were held to be neither operational
nor financial creditors, resulting in great hardship to them. She took us
through the various sections of the Code afresh and argued that Section
5(8)(f), even read without the explanation, would, on its plain language,
include real estate development agreements. For this purpose, she relied
F
upon the definition of “payment” which would include “recompense”
and on the definition in Collin’s English dictionary of “borrow” which is
“to obtain or receive money on loan for temporary use intending to give
either money or something equivalent back to the lender”. In the facts
of these cases, she contended that the “something equivalent” would be
the flat/apartment. She also relied upon the definition of “commercial” G
to show that the profit element is important. She stressed the fact that
the “time value of money” is present qua both allottee and builder as the
allottee would pay less than he would have to for a complete flat/
apartment, in which case the entire consideration for the flat/apartment
would have to be paid upfront; as against instalments while it is being
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A completed. Qua the builder, she contended that the time value of money
would be the money paid by way of advances by allottees which would
be used to finance the building of the flats/apartments in the project. She
also relied strongly upon Section 18 of RERA to show that in order to be
a financial creditor, it is enough that a right recognised by Section 18 in
favour of the allottee to payment would exist, and therefore, would be
B
included within the definition of “financial debt” read with “debt” contained
in Section 5(8) and Section 3(11) of the Code respectively. She also
referred to and relied upon Section 4(2)(l)(D) of RERA to show that
70% of advances received by the developer from allottees must be put
into an escrow account, which can only be used for the project at hand,
C showing therefore that even statutorily, monies paid by way of advance
are in the nature of a financing transaction. She then cited judgments to
show how the noscitur a sociis principle cannot be used when express
wider language is used in one of the sub-clauses of a particular provision,
making it clear that it is meant to be read by itself, and not in conjunction
with what precedes and succeeds it. She also cited judgments to show
D
that the expression “deemed” is also to put a certain matter beyond
doubt and argued that an explanation can be inserted by the legislature
as additional support to what is already contained in the main provision.
She added that deeming fictions put in explanations are not something
unknown to the law, and cited judgments to buttress her contention. She
E also cited judgments to show that when “means” is used separately
from “includes”, the definition clause would be inclusive, as opposed to
when “means and includes” is used, and therefore argued that since
Section 5(8) is not exhaustive, the category of homebuyers could be
added therein. Also, according to her, “means” and “includes” when
interpreted by courts, is different from the legislature itself amending the
F
provision so as to add something therein. Legislative activity cannot be
confused with interpretational activity by the courts. She then argued,
referring to the provisions of RERA in some detail, that a complete
information bank is provided by RERA, which is provided by the real
estate developer himself, from which, like information utilities under the
G Code, information, inter alia, as to defaults made by the real estate
developer would be available. According to her, therefore, all that the
NCLT would have to be supplied with by the allottee in his Section 7
petition would be this information, and, after receiving a reply from the
real estate developer, would then easily be able to decide whether a real
estate developer owes money in the form of compensation payable for
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late completion of the project, and/or refund of money paid by the allottee. A
It would be open for the real estate developer in its defence to say that
no amount is due and payable from the allottee, in that, the allottee is
himself in breach of conditions laid down by the agreement read with
the RERA, and rules and regulations made thereunder. According to
her, therefore, the NCLT would be able to decide such applications in
B
the same manner as would be decided in the case of banks and financial
institutions. She also rebutted the argument that the collegiality of creditors
will be affected by inserting home buyers into their committee by stating
that home buyers, like banks and financial institutions, and unlike other
operational creditors, are vitally concerned with the well-being of the
corporate debtor, as otherwise the real estate project would never come C
to fruition. In rebutting the challenge to Section 21(6A) and Section 25A,
she said there may be teething problems with regard to how an authorised
representative is to vote on the Committee of Creditors, but stated that
the legislature is in the process of ironing out these creases and referred
to the recent Insolvency and Bankruptcy Code (Amendment) Bill, 2019
D
which has just been passed by Parliament. She also argued that
homebuyers may themselves finance up to 100% of a project, and in
case they finance a project by 100%, the Code would not work unless
they were recognised as financial creditors as, not being financial or
operational creditors, no Committee of Creditors could be set up at all;
andfor this purpose she relied upon the proviso to Section 21(8) of the E
Code, read with Regulation 16 of the Insolvency and Bankruptcy Board
of India(Insolvency Resolution Process for Corporate Persons)
Regulations, 2016.She argued, therefore, that on point of fact, if
allottees of real estate projects were to be kept out of the Committee
of Creditors, that itself would be manifestly arbitrary as in most cases
F
they finance the project to the tune of at least 50%, going up to 100%.
She also stated that each project was usually carried out by a ‘special
purpose vehicle’, being a corporate entity on its own, and therefore, the
bogey of destabilisation of a management which has brought in large
funds for many projects, and which would be replaced for all projects,
would not be correct. G
13. Shri Tushar Mehta, learned Solicitor General of India broadly
supported the detailed arguments of Mrs. Madhavi Divan, learned
Additional Solicitor General, by buttressing the same by citing various
judgments and authorities. According to him also, given the fact that
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A Swiss Ribbons (supra) gives the legislature free play in the joints when
it comes to economic legislation and experimentation in this sphere, Swiss
Ribbons (supra) itself is more or less a complete answer to all
constitutional challenges that may be made to the Amendment Act.
14. A number of counsel then appeared for allottees in individual
B cases. These counsel argued, by referring copiously to NCLT and NCLAT
orders, consumer forum judgments and High Court judgments, that the
consumer fora, and the authorities under RERA are not meaningful
remedies for allottees at all. According to them, loopholes made in the
rules by various States still allow one-sided agreements by real estate
developers to continue to govern the relationship between allottee and
C real estate developer long after RERA has come into force. This has
been done, for example, by defining ‘Completion Certificate’ to include
partial completion certificates of projects (or parts of projects), so that
such partial certificates given to the real estate developer before coming
into force of RERA would make the provisions of RERA inapplicable.
D Also, it has been pointed out that real estate developers have been
successful in arguing that RERA has now shut out the consumer fora so
far as allottees are concerned, and referred to stay orders by which
consumer fora for a long period of time were unable to proceed with
cases filed by allottees before them, until the National Consumer Disputes
Redressal Commission finally decided that the Consumer Protection Act,
E 1986 was an additional remedy and continued to be an additional remedy
to the remedies provided under RERA. They also pointed out that the
authorities themselves under RERA jostled the allottees about, as when
an allottee went to the Real Estate Regulatory Authority and obtained
orders against developers, such orders were nullified by some Appellate
F Tribunal orders, stating that they should be sent to the adjudicating officer
who alone could decide disputes between allottees and real estate
developers. Separately, in answer to the argument that the admission of
a Section 7 application would be fatal to the management of the corporate
debtor, and that one single allottee could destabilise the management of
the corporate debtor and not just the project undertaken by the corporate
G debtor, they pointed out that there were 5 stages at which it would be
open for the real estate developer to compromise with the allottee in
question, before the sledgehammer under the Code comes down on the
erstwhile management. They pointed out that settlements have taken
place at:(i) the stage of the Section 7 notice itself before replies were
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filed by the real estate developer;(ii) after the NCLT issues notice on a A
Section 7 application and before admission; (iii) after the hearing and
before the order admitting the matter; (iv) post-admission, and before
appointment of the Committee of Creditors where both the NCLT and
NCLAT use their inherent power to permit settlements; and (v)even
post setting-up of the Committee of Creditors, whereby settlements can
B
be arrived at under Section 12A of the Code with the concurrence of
90% of the creditors. On this basis, they pointed out that long before the
chopper comes down on the management of the corporate debtor, all
these opportunities are given to the management of the corporate debtor
to settle with the individual allottee, showing thereby that there is no real
infraction of Article 14, 19(1)(g) or 300-A of the Constitution. They also C
argued that the provisions of Section 7(4) of the Code giving the NCLT
14 days within which to ascertain the existence of a default is directory
as has been held in Surendra Trading Company v. Juggilal Kamlapat
Jute Mills Company Limited and Ors.2017(16) SCC 143.They made
an impassioned plea, relying upon the background to RERA, to argue
D
that if these beneficial amendments were to be struck down, they would
be back in the same position as they were before enactment of other
measures, which have not really worked to afford them relief.
The Legislature’s right to experiment in matters economic
15. In Swiss Ribbons(supra), this Court was at pains to point E
out, referring, inter alia, to various American decisions in paragraphs
17 to 24, that the legislature must be given free play in the joints when it
comes to economic legislation. Apart from the presumption of
constitutionality which arises in such cases, the legislative judgment in
economic choices must be given a certain degree of deference by the
courts. In paragraph 120 of the said judgment, this Court held: F

“120.The Insolvency Code is a legislation which deals with
economic matters and, in the larger sense, deals with the economy
of the country as a whole. Earlier experiments, as we have seen,
in terms of legislations having failed, “trial” having led to repeated
“errors”, ultimately led to the enactment of the Code. The G
experiment contained in the Code, judged by the generality of its
provisions and not by so- called crudities and inequities that have
been pointed out by the petitioners, passes constitutional muster.To
stay experimentation in things economic is a grave responsibility,
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A and denial of the right to experiment is fraught with serious
consequences to the nation. We have also seen that the working
of the Code is being monitored by the Central Government by
Expert Committees that have been set up in this behalf.
Amendments have been made in the short period in which the
Code has operated, both to the Code itself as well as to
B
subordinate legislation made under it. This process is an ongoing
process which involves all stakeholders, including the petitioners.”
It is in this background that the constitutional challenge to the
Amendment Act will have to be decided.
C Raison d’être for the Insolvency Code (Second Amendment)
Act of 2018
16. The Insolvency Committee Report is of crucial importance in
understanding why the legislature thought it fit to categorise homebuyers
as financial creditors under the Code. The recommendations made by
D the said Insolvency Law Committee are set out hereinbelow in extenso:
“RECOMMENDATIONS PROPOSING AMENDMENTS
TO THE CODE AND RELEVANT SUBORDINATE
LEGISLATION
1. DEFINITIONS
E
Financial debt
1.1 Section 5(8) of the Code defines ‘financial debt’ to mean a
debt along with interest, if any, which is disbursed against the
consideration for the time value of money and inter alia includes
money borrowed against payment of interest, etc. The Committee’s
F
attention was drawn to the significant confusion regarding the
status of buyers of under-construction apartments (“home
buyers”) as creditors under the Code. Multiple judgments have
categorised them as neither fitting within the definition of ‘finan-
cial’ nor ‘operational’ creditors. In one particular case, they have
G been classified as ‘financial creditors’ due to the assured return
scheme in the contract, in which there was an arrangement
wherein it was agreed that the seller of the apartments would pay
‘assured returns’ to the home buyers till possession of property
was given. It was held that such a transaction was in the nature
of a loan and constituted a ‘financial debt’ within the Code. A
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similar judgment was given in Anil Mahindroo & Anr v. Earth A
Organics Infrastructure. But it must be noted that these
judgments were given considering the terms of the contracts
between the home buyers and the seller and are fact specific.
Further, the IBBI issued a claim form for “creditors other than
financial or operational creditors”, which gave an indication that
B
home buyers are neither financial nor operational creditors.
1.2 Non-inclusion of home buyers within either the definition of
‘financial’ or ‘operational’ creditors may be a cause for worry
since it deprives them of, first, the right to initiate the corporate
insolvency resolution process (“CIRP”), second, the right to be
on the committee of creditors (“CoC”) and third, the guarantee C
of receiving at least the liquidation value under the resolution plan.
Recent cases like Chitra Sharma v. Union of India and Bikram
Chatterji v. Union of India have evidenced the stance of the
Hon’ble Supreme Court in safeguarding the rights of home
buyers under the Code due to their current disadvantageous D
position.
1.3 To completely understand the issue, it is imperative that the
peculiarity of the Indian real estate sector is highlighted. Delay in
completion of under-construction apartments has become a com-
mon phenomenon and the records indicate that out of 782 con- E
struction projects in India monitored by the Ministry of Statistics
and Programme Implementation, Government of India, a total of
215 projects are delayed with the time over-run ranging from 1 to
261 months. Another study released by the Associated Chambers
of Commerce and Industry of India, revealed that 826 housing
projects are running behind schedule across 14 states as of De- F
cember 2016.Further, the Committee agreed that it is well under-
stood that amounts raised under home buyer contracts is a signifi-
cant amount, which contributes to the financing of construction of
an asset in the future.
1.4 The current definition of ‘financial debt’ under section 5(8) of G
the Code uses the words “includes”, thus the kinds of financial
debts illustrated are not exhaustive. The phrase “disbursed
against the consideration for the time value of money” has
been the subject of interpretation only in a handful of cases under
the Code. The words “time value” have been interpreted to mean H
432 SUPREME COURT REPORTS [2019] 10 S.C.R.

A compensation or the price paid for the length of time for which
the money has been disbursed. This may be in the form of
interest paid on the money, or factoring of a discount in the
payment.
1.5 On a review of various financial terms of agreements
B between home buyers and builders and the manner of utilisation
of the disbursements made by home buyers to the builders, it is
evident that the agreement is for disbursement of money by the
home buyer for the delivery of a building to be constructed in the
future. The disbursement of money is made in relation to a future
asset, and the contracts usually span a period of 4-5 years or
C more. The Committee deliberated that the amounts so raised are
used as a means of financing the real estate project, and are thus
in effect a tool for raising finance, and on failure of the project,
money is repaid based on time value of money. On a plain reading
of section 5(8)(f), it is clear that it is a residuary entry to cover
D debt transactions not covered under any other entry, and the
essence of the entry is that “amount should have been raised
under a transaction having the commercial effect of a
borrowing.” An example has been mentioned in the entry itself
i.e. forward sale or purchase agreement. The interpretation to be
accorded to a forward sale or purchase agreement to have the
E texture of a financial contract may be drawn from an observation
made in the case of Nikhil Mehta and Sons (HUF) v. AMR
Infrastructure Ltd.:
“A forward contract to sell product at the end of a specified
period is not a financial contract. It is essentially a contract
F for sale of specified goods. It is true that some time financial
transactions seemingly restructured as sale and repurchase.
Any repurchase and reverse repo transaction are sometimes
used as devices for raising money. In a transaction of this
nature an entity may require liquidity against an asset and
G the financer in return sell it back by way of a forward
contract. The difference between the two prices would imply
the rate of return to the financer.”(emphasis supplied)
1.6 Thus, not all forward sale or purchase are financial
transactions, but if they are structured as a tool or means for
H raising finance, there is no doubt that the amount raised may be
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classified as financial debt under section 5(8)(f). Drawing an A
analogy, in the case of home buyers, the amounts raised
under the contracts of home buyers are in effect for the
purposes of raising finance, and are a means of raising
finance. Thus, the Committee deemed it prudent to clarify
that such amounts raised under a real estate project from a
B
home buyer fall within entry (f) of section 5(8).
1.7 Further, it may be noted that the amount of money given by
home buyers as advances for their purchase is usually very high,
and frequent delays in delivery of possession may thus, have a
huge impact. For example, in Chitra Sharma v. Union of India
the amount of debts owed to home buyers, which was paid by C
them as advances, was claimed to be INR Fifteen Thousand
Crore, more than what was due to banks. Despite this, banks are
in a more favourable position under the Code since they are
financial creditors. Moreover, the general practice is that these
contracts are structured unilaterally by construction companies D
with little or no say of the home buyers. A denial of the right of a
class of creditors based on technicalities within a contract that
such creditor may not have had the power to negotiate, may not
be aligned with the spirit of the Code.
1.8 The Committee also discussed that section 30(2)(e) of the E
Code provides that all proposed resolution plans must not
contravene any provisions of law in force, and thus, the
provisions of Real Estate (Regulation and Development) Act, 2016
(“RERA”) will need to be complied with and resolution plans
under the Code should be compliant with the said law.
F
1.9. Finally, the Committee concluded that the current definition
of ‘financial debt’ is sufficient to include the amounts raised from
home buyers / allottees under a real estate project, and hence,
they are to be treated as financial creditors under the Code.
However, given the confusion and multiple interpretations being
taken, at this stage, it may be prudent to explicitly clarify that such G
creditors fall within the definition of financial creditor, by inserting
an explanation to section 5(8)(f) of the Code. Accordingly, in CIRP,
they will be a part of the CoC and will be represented in the
manner specified in paragraph 10 of this report, and in the event
of liquidation, they will fall within the relevant entry in the H
434 SUPREME COURT REPORTS [2019] 10 S.C.R.

A liquidation waterfall under section 53. The Committee also agreed
that resolution plans under the Code must be compliant with
applicable laws, like RERA, which may be interpreted through
section 30(2)(e) of the Code. It may be noted that there was
majority support in the Committee for the abovementioned
treatment of home buyers. However, certain members of the
B
Committee, namely Sh. Shardul Shroff, Sh. Sudarshan Sen and
Sh. B. Sriram, differed on this matter.”
(emphasis supplied)
17. When it came to devising a mechanism by which several
C persons may be represented by one authorised representative, the
Insolvency Law Committee concluded:
“10.8 In light of the deliberation above, the Committee felt that a
mechanism requires to be provided in the Code to mandate
representation in meetings of security holders, deposit holders,
D and all other classes of financial creditors which exceed a certain
number, through an authorised representative. This can be done
by adding a new provision to section 21 of the Code. Such a
representative may either be a trustee or an agent appointed under
the terms of the debt agreement of such creditors, otherwise an
insolvency professional may be appointed by the NCLT for each
E such class of financial creditors. Additionally, the representative
shall act and attend the meetings on behalf of the respective class
of financial creditors and shall vote on behalf of each of the
financial creditor to the extent of the voting share of each such
creditor, and as per their instructions. To ensure adequate
F representation by the authorised representative of the financial
creditors, a specific provision laying down the rights and duties of
such authorised representatives may be inserted. Further, the
requisite threshold for the number of creditors and manner of
voting may be specified by IBBI through regulations to enable
efficient voting by the representative. Also, regulation 25 may
G also be amended to enable voting through electronic means such
as e-mail, to address any technical issues which may arise due to
a large number of creditors voting at the same time.”
18. It can be seen that the Insolvency Law Committee found, as
a matter of fact, that delay in completion of flats/apartments has become
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a common phenomenon, and that amounts raised from homebuyers A
contributes significantly to the financing of the construction of such flats/
apartments. This being the case, it was important, therefore, to clarify
that homebuyers are treated as financial creditors so that they can trigger
the Code under Section 7 and have their rightful place on the Committee
of Creditors when it comes to making important decisions as to the future
B
of the building construction company, which is the execution of the real
estate project in which such homebuyers are ultimately to be housed.
19. Shri Shardul Shroff, whose dissent was provided to us in the
form of an e-mail, after finding that self-financed homebuyers may be
financial creditors, but a homebuyer who is a borrower is not, then went
on to state: C

“8. If the home buyers have taken loans from banks, then it
is such lenders who should be on the table on the CoC as
special status creditors.
9. Our report ought to be altered to the extent that D
home buyers financiers should be treated as unsecured
financial creditors and they should be
representatives of the home buyers. There should be no direct
right given to home buyers to be the CoC.”

E
Even the dissent of Shri Shroff recognises that in the case of
homebuyers, who have taken loans from banks, such banks ought to be
on the Committee of Creditors. If such banks ought to be on the Committee
of Creditors as representatives of the home buyers, and they are to vote
only in accordance with the homebuyer’s instructions, why should the
homebuyer himself then not be on the Committee of Creditors, and why F
should it make any difference as to whether he has borrowed money
from banks in order to pay instalments under the agreement for sale or
whether he does it from his own finances? These matters have not been
addressed by the dissenting view which in principle, as we have seen,
supports homebuyers who have taken loans as against homebuyers who G
have used their own finances. Perhaps the real reason for Shri Shroff’s
dissent is the fact that unsecured, as opposed to secured, financial creditors
are being put on the Committee of Creditors. If there is otherwise good
reason as to why this particular group of unsecured creditors, like deposit

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436 SUPREME COURT REPORTS [2019] 10 S.C.R.

A holders, should be part of the Committee of Creditors, it is difficult to
appreciate how such a group can be excluded.
The Real Estate (Regulation and Development) Act, 2016
(RERA) and its impact on the real estate sector
20. The Statement of Objects and Reasons of RERA reads as
B follows:
STATEMENT OF OBJECTS AND REASONS
“1. The real estate sector plays a catalytic role in fulfilling the
need and demand for housing and infrastructure in the country.
C While the sector has grown significantly in recent years, it has
been largely unregulated, with absence of professionalism and
standardisation and lack of adequate consumer protection. Though
the Consumer Protection Act, 1986 is available as a forum to the
buyers in the real estate market, the recourse is only curative and
is not adequate to address all the concerns of buyers and promoters
D in that sector. The lack of standardisation has been a constraint to
the healthy and orderly growth of industry. Therefore, the need
for regulating the sector has been emphasised in various forums.
2. In view of the above, it becomes necessary to have a Central
legislation, namely, the Real Estate (Regulation and Development)
E Bill, 2013 in the interests of effective consumer protection,
uniformity and standardisation of business practices and
transactions in the real estate sector. The proposed Bill provides
for the establishment of the Real Estate Regulatory Authority (the
Authority) for regulation and promotion of real estate sector and
F to ensure sale of plot, apartment or building, as the case may be,
in an efficient and transparent manner and to protect the interest
of consumers in real estate sector and establish the Real Estate
Appellate Tribunal to hear appeals from the decisions, directions
or orders of the Authority.
3. The proposed Bill will ensure greater accountability towards
G
consumers, and significantly reduce frauds and delays as also the
current high transaction costs. It attempts to balance the interests
of consumers and promoters by imposing certain responsibilities
on both. It seeks to establish symmetry of information between
the promoter and purchaser, transparency of contractual conditions,
H set minimum standards of accountability and a fast-track dispute
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resolution mechanism. The proposed Bill will induct professionalism A
and standardisation in the sector, thus paving the way for
accelerated growth and investments in the long run.”
21. It may be stated that Sections 2, 20 to 39, 41 to 58, 71 to 78
and 81 to 92 of this statute were brought into force on 1st May, 2016.
Sections 3 to 19 which deal with registration of real estate projects and B
real estate agents; functions and duties of promoters; rights and duties
of allottees, together with Section 40 which deals with recovery of interest
or penalty or compensation and enforcement of orders qua the same;
the Sections dealing with offences and penalties, viz., Sections 59 to 70
and Sections 79 and 80 which bar the jurisdiction of Civil Courts and
deal with cognizance of offences under the RERA were all brought into C
force one year later i.e. on the 1st day of May, 2017. This was for the
reason that the “appropriate Government” as defined in Section 2(g),
which means the various State Governments and Union Territories, were
given a period of one year to establish/appoint the Real Estate Regulatory
Authority, the adjudicating officer and the Appellate Tribunal, consequent D
upon which the aforesaid Sections were brought into force one year
later - in the hope and expectation that the appropriate Government
would set up the aforesaid authorities within the period of one year from
1st May, 2016. The relevant provisions of RERA are set out hereunder:
“2. Definitions. —In this Act, unless the context otherwise E
requires, —
(a) “adjudicating officer” means the adjudicating officer
appointed under sub-section (1) of section 71;
xxx xxxxxx
F
(d) “allottee” in relation to a real estate project, means the person
to whom a plot, apartment or building, as the case may be, has
been allotted, sold (whether as freehold or leasehold) or
otherwise transferred by the promoter, and includes the person
who subsequently acquires the said allotment through sale,
transfer or otherwise but does not include a person to whom G
such plot, apartment or building, as the case may be, is given on
rent;
(e) “apartment” whether called block, chamber, dwelling unit,
flat, office, showroom, shop, godown, premises, suit, tenement,
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438 SUPREME COURT REPORTS [2019] 10 S.C.R.

A unit or by any other name, means a separate and self-contained
part of any immovable property, including one or more rooms
or enclosed spaces, located on one or more floors or any part
thereof, in a building or on a plot of land, used or intended to be
used for any residential or commercial use such as residence,
office, shop, showroom or godown or for carrying an any
B
business, occupation, profession or trade, or for any other type
of use ancillary to the purpose specified;
xxx xxxxxx
(g) “appropriate Government” means in respect of matters relating
C to, —
(i) the Union territory without Legislature, the Central
Government;
(ii) the Union territory of Puducherry, the Union territory
Government;
D
(iii) the Union territory of Delhi, the Central Ministry of Urban
Development;
(iv) the State, the State Government;
xxx xxxxxx
E (i) “Authority” means the Real Estate Regulatory Authority
established under sub-section (1) of section 20;
xxx xxxxxx
(s) “development” with its grammatical variations and cognate
F expressions, means carrying out the development of immovable
property, engineering or other operations in, on, over or under the
land or the making of any material change in any immovable
property or land and includes re-development;
xxx xxxxxx
G (zn) “real estate project” means the development of a building or
a building consisting of apartments, or converting an existing
building or a part thereof into apartments, or the development of
land into plots or apartments, as the case may be, for the purpose
of selling all or some of the said apartments or plots or building, as
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the case may be, and includes the common areas, the development A
works, all improvements and structures thereon, and all easement,
rights and appurtenances belonging thereto;
xxx xxxxxx
3. Prior registration of real estate project with Real Estate
Regulatory Authority. —(1) No promoter shall advertise, market, B
book, sell or offer for sale, or invite persons to purchase in any
manner any plot, apartment or building, as the case may be, in any
real estate project or part of it, in any planning area, without
registering the real estate project with the Real Estate Regulatory
Authority established under this Act: C
Provided that projects that are ongoing on the date of
commencement of this Act and for which the completion certificate
has not been issued, the promoter shall make an application to the
Authority for registration of the said project within a period of
three months from the date of commencement of this Act: D
Provided further that if the Authority thinks necessary, in the interest
of allottees, for projects which are developed beyond the planning
area but with the requisite permission of the local authority, it
may, by order, direct the promoter of such project to register with
the Authority, and the provisions of this Act or the rules and E
regulations made thereunder, shall apply to such projects from
that stage of registration.
(2) Notwithstanding anything contained in sub-section (1), no
registration of the real estate project shall be required—
(a) where the area of land proposed to be developed does not F
exceed five hundred square meters or the number of apartments
proposed to be developed does not exceed eight inclusive of all
phases:
Provided that, if the appropriate Government considers it necessary,
it may, reduce the threshold below five hundred square meters or G
eight apartments, as the case may be, inclusive of all phases, for
exemption from registration under this Act;
(b) where the promoter has received completion certificate for a
real estate project prior to commencement of this Act;
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440 SUPREME COURT REPORTS [2019] 10 S.C.R.

A (c) for the purpose of renovation or repair or re-development which
does not involve marketing, advertising selling or new allotment
of any apartment, plot or building, as the case may be, under the
real estate project.
Explanation. —For the purpose of this section, where the real
B estate project is to be developed in phases, every such phase shall
be considered a standalone real estate project, and the promoter
shall obtain registration under this Act for each phase separately.
4. Application for registration of real estate projects. —
(1) Every promoter shall make an application to the Authority for
C registration of the real estate project in such form, manner, within
such time and accompanied by such fee as may be prescribed by
the regulations made by the Authority.
(2) The promoter shall enclose the following documents along
with the application referred to in sub-section (1), namely: —
D (a) a brief details of his enterprise including its name, registered
address, type of enterprise (proprietorship, societies, partnership,
companies, competent authority), and the particulars of registration,
and the names and photographs of the promoter;
(b) a brief detail of the projects launched by him, in the past five
E years, whether already completed or being developed, as the case
may be, including the current status of the said projects, any delay
in its completion, details of cases pending, details of type of land
and payments pending;
(c) an authenticated copy of the approvals and commencement
F certificate from the competent authority obtained in accordance
with the laws as may be applicable for the real estate project
mentioned in the application, and where the project is proposed to
be developed in phases, an authenticated copy of the approvals
and commencement certificate from the competent authority for
each of such phases;
G
(d) the sanctioned plan, layout plan and specifications of the
proposed project or the phase thereof, and the whole project as
sanctioned by the competent authority;

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(e) the plan of development works to be executed in the proposed A
project and the proposed facilities to be provided thereof including
firefighting facilities, drinking water facilities, emergency
evacuation services, use of renewable energy;
(f) the location details of the project, with clear demarcation of
land dedicated for the project along with its boundaries including B
the latitude and longitude of the end points of the project;
(g) proforma of the allotment letter, agreement for sale, and the
conveyance deed proposed to be signed with the allottees;
(h) the number, type and the carpet area of apartments for sale in
the project along with the area of the exclusive balcony or verandah C
areas and the exclusive open terrace areas apartment with the
apartment, if any;
(i) the number and areas of garage for sale in the project;
(j) the names and addresses of his real estate agents, if any, for D
the proposed project;
(k) the names and addresses of the contractors, architect, structural
engineer, if any and other persons concerned with the development
of the proposed project;
(l) a declaration, supported by an affidavit, which shall be signed E
by the promoter or any person authorised by the promoter,
stating:—
(A) that he has a legal title to the land on which the development
is proposed along with legally valid documents with
authentication of such title, if such land is owned by another F
person;
(B) that the land is free from all encumbrances, or as the case
may be details of the encumbrances on such land including any
rights, title, interest or name of any party in or over such land
along with details; G
(C) the time period within which he undertakes to complete the
project or phase thereof, as the case may be;

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442 SUPREME COURT REPORTS [2019] 10 S.C.R.

A (D) that seventy per cent. of the amounts realised for the real
estate project from the allottees, from time to time, shall be
deposited in a separate account to be maintained in a scheduled
bank to cover the cost of construction and the land cost and
shall be used only for that purpose:
B Provided that the promoter shall withdraw the amounts from
the separate account, to cover the cost of the project, in proportion
to the percentage of completion of the project:
Provided further that the amounts from the separate account
shall be withdrawn by the promoter after it is certified by an
C engineer, an architect and a chartered accountant in practice that
the withdrawal is in proportion to the percentage of completion of
the project:
Provided also that the promoter shall get his accounts audited
within six months after the end of every financial year by a
D chartered accountant in practice, and shall produce a statement
of accounts duly certified and signed by such chartered accountant
and it shall be verified during the audit that the amounts collected
for a particular project have been utilised for that project and the
withdrawal has been in compliance with the proportion to the
percentage of completion of the project.
E
Explanation.— For the purpose of this clause, the term “schedule
bank” means a bank included in the Second Schedule to the
Reserve Bank of India Act, 1934;
(E) that he shall take all the pending approvals on time, from
F the competent authorities;
(F) that he has furnished such other documents as may be
prescribed by the rules or regulations made under this Act; and
(m) such other information and documents as may be prescribed.
(3) The Authority shall operationalise a web based online system
G for submitting applications for registration of projects within a
period of one year from the date of its establishment.
5. Grant of registration.— On receipt of the application under
sub-section (1) of section 4, the Authority shall within a period of
thirty days.
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(a) grant registration subject to the provisions of this Act and A
the rules and regulations made thereunder, and provide a
registration number, including a Login Id and password to the
applicant for accessing the website of the Authority and to create
his web page and to fill therein the details of the proposed
project; or
B
(b) reject the application for reasons to be recorded in writing,
if such application does not conform to the provisions of this
Act or the rules or regulations made thereunder:
Provided that no application shall be rejected unless the applicant
has been given an opportunity of being heard in the matter. C
(2) If the Authority fails to grant the registration or reject the
application, as the case may be, as provided under sub-section
(1), the project shall be deemed to have been registered, and the
Authority shall within a period of seven days of the expiry of the
said period of thirty days specified under sub-section (1), provide D
a registration number and a Login Id and password to the promoter
for accessing the website of the Authority and to create his web
page and to fill therein the details of the proposed project.
(3) The registration granted under this section shall be valid for a
period declared by the promoter under sub-clause (C) of clause E
(1) of sub-section (2) of section 4 for completion of the project or
phase thereof, as the case may be.
6. Extension of registration.— The registration granted under
section 5 may be extended by the Authority on an application
made by the promoter due to force majeure, in such form and on F
payment of such fee as may be prescribed:
Provided that the Authority may in reasonable circumstances,
without default on the part of the promoter, based on the facts of
each case, and for reasons to be recorded in writing, extend the
registration granted to a project for such time as it considers
G
necessary, which shall, in aggregate, not exceed a period of one
year:
Provided further that no application for extension of registration
shall be rejected unless the applicant has been given an opportunity
of being heard in the matter.
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A Explanation.— For the purpose of this section, the expression
“force majeure” shall mean a case of war, flood, drought, fire,
cyclone, earthquake or any other calamity caused by nature
affecting the regular development of the real estate project.
7.Revocation of registration.— (1) The Authority may, on receipt
B of a complaint or suo motu in this behalf or on the recommendation
of the competent authority, revoke the registration granted under
section 5, after being satisfied that—
(a) the promoter makes default in doing anything required by
or under this Act or the rules or the regulations made thereunder;
C (b) the promoter violates any of the terms or conditions of the
approval given by the competent authority;
(c) the promoter is involved in any kind of unfair practice or
irregularities.

D Explanation.—For the purposes of this clause, the term “unfair
practice” means a practice which, for the purpose of promoting
the sale or development of any real estate project adopts any
unfair method or unfair or deceptive practice including any of the
following practices, namely:—
(A) the practice of making any statement, whether in writing
E
or by visible representation which,—
(i) falsely represents that the services are of a particular
standard or grade;
(ii) represents that the promoter has approval or affiliation
F which such promoter does not have;
(iii) makes a false or misleading representation concerning
the services;
(B) the promoter permits the publication of any advertisement
or prospectus whether in any newspaper or otherwise of services
G that are not intended to be offered;
(d) the promoter indulges in any fraudulent practices.
(2) The registration granted to the promoter under section 5 shall
not be revoked unless the Authority has given to the promoter not
less than thirty days notice, in writing, stating the grounds on which
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it is proposed to revoke the registration, and has considered any A
cause shown by the promoter within the period of that notice
against the proposed revocation.
(3) The Authority may, instead of revoking the registration under
sub-section (1), permit it to remain in force subject to such further
terms and conditions as it thinks fit to impose in the interest of the B
allottees, and any such terms and conditions so imposed shall be
binding upon the promoter.
(4) The Authority, upon the revocation of the registration,—
(a) shall debar the promoter from accessing its website in relation
to that project and specify his name in the list of defaulters and C
display his photograph on its website and also inform the other
Real Estate Regulatory Authority in other States and Union
territories about such revocation or registration;
(b) shall facilitate the remaining development works to be carried
out in accordance with the provisions of section 8; D
(c) shall direct the bank holding the project back account, specified
under sub clause (D) of clause (I) of sub-section (2) of section 4,
to freeze the account, and thereafter take such further necessary
actions, including consequent de-freezing of the said account,
towards facilitating the remaining development works in E
accordance with the provisions of section 8;
(d) may, to protect the interest of allottees or in the public interest,
issue such directions as it may deem necessary.
8. Obligation of Authority consequent upon lapse of or on
F
revocation of registration.—Upon lapse of the registration or
on revocation of the registration under this Act, the Authority,
may consult the appropriate Government to take such action as it
may deem fit including the carrying out of the remaining
development works by competent authority or by the association
of allottees or in any other manner, as may be determined by the G
Authority:
Provided that no direction, decision or order of the Authority
under this section shall take effect until the expiry of the period of
appeal provided under the provisions of this Act:
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A Provided further that in case of revocation of registration of a
project under this Act, the association of allottees shall have the
first right of refusal for carrying out of the remaining development
works.
xxx xxxxxx
B 11. Functions and duties of promoter.—(1) The promoter shall,
upon receiving his Login Id and password under clause (a) of
sub-section (1) or under sub-section (2) of section 5, as the case
may be, create his web page on the website of the Authority and
enter all details of the proposed project as provided under sub-
C section (2) of section 4, in all the fields as provided, for public
viewing, including—
(a) details of the registration granted by the Authority;
(b) quarterly up-to-date the list of number and types of
apartments or plots, as the case may be, booked;
D
(c) quarterly up-to-date the list of number of garages booked;
(d) quarterly up-to-date the list of approvals taken and the
approvals which are pending subsequent to commencement
certificate;
E (e) quarterly up-to-date status of the project; and
(f) such other information and documents as may be specified
by the regulations made by the Authority.
(2) The advertisement or prospectus issued or published by the
promoter shall mention prominently the website address of the
F Authority, wherein all details of the registered project have been
entered and include the registration number obtained from the
Authority and such other matters incidental thereto.
(3) The promoter at the time of the booking and issue of allotment
letter shall be responsible to make available to the allottee, the
G following information, namely:—
(a) sanctioned plans, layout plans, along with specifications,
approved by the competent authority, by display at the site or

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such other place as may be specified by the regulations made A
by the Authority;
(b) the stage wise time schedule of completion of the project,
including the provisions for civic infrastructure like water,
sanitation and electricity.
(4) The promoter shall— B

(a) be responsible for all obligations, responsibilities and functions
under the provisions of this Act or the rules and regulations
made thereunder or to the allottees as per the agreement for
sale, or to the association of allottees, as the case may be, till
the conveyance of all the apartments, plots or buildings, as the C
case may be, to the allottees, or the common areas to the
association of allottees or the competent authority, as the case
may be:
Provided that the responsibility of the promoter, with respect to
the structural defect or any other defect for such period as is D
referred to in sub-section (3) of section 14, shall continue even
after the conveyance deed of all the apartments, plots or
buildings, as the case may be, to the allottees are executed.
(b) be responsible to obtain the completion certificate or the
occupancy certificate, or both, as applicable, from the relevant E
competent authority as per local laws or other laws for the
time being in force and to make it available to the allottees
individually or to the association of allottees, as the case may
be;
(c)be responsible to obtain the lease certificate, where the real F
estate project is developed on a leasehold land, specifying the
period of lease, and certifying that all dues and charges in regard
to the leasehold land has been paid, and to make the lease
certificate available to the association of allottees;
(d) be responsible for providing and maintaining the essential G
services, on reasonable charges, till the taking over of the
maintenance of the project by the association of the allottees;

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A (e) enable the formation of an association or society or co-
operative society, as the case may be, of the allottees, or a
federation of the same, under the laws applicable:
Provided that in the absence of local laws, the association of
allottees, by whatever name called, shall be formed within a
B period of three months of the majority of allottees having booked
their plot or apartment or building, as the case may be, in the
project;
(f) execute a registered conveyance deed of the apartment,
plot or building, as the case may be, in favour of the allottee
C along with the undivided proportionate title in the common areas
to the association of allottees or competent authority, as the
case may be, as provided under section 17 of this Act;
(g) pay all outgoings until he transfers the physical possession
of the real estate project to the allottee or the associations of
D allottees, as the case may be, which he has collected from the
allottees, for the payment of outgoings (including land cost,
ground rent, municipal or other local taxes, charges for water
or electricity, maintenance charges, including mortgage loan
and interest on mortgages or other encumbrances and such
other liabilities payable to competent authorities, banks and
E financial institutions, which are related to the project):
Provided that where any promoter fails to pay all or any of the
outgoings collected by him from the allottees or any liability,
mortgage loan and interest thereon before transferring the real
estate project to such allottees, or the association of the allottees,
F as the case may be, the promoter shall continue to be liable,
even after the transfer of the property, to pay such outgoings
and penal charges, if any, to the authority or person to whom
they are payable and be liable for the cost of any legal
proceedings which may be taken therefor by such authority or
G person;
(h) after he executes an agreement for sale for any apartment,
plot or building, as the case may be, not mortgage or create a
charge on such apartment, plot or building, as the case may be,
and if any such mortgage or charge is made or created then
notwithstanding anything contained in any other law for the
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time being in force, it shall not affect the right and interest of A
the allottee who has taken or agreed to take such apartment,
plot or building, as the case may be;
(5) The promoter may cancel the allotment only in terms of the
agreement for sale:
Provided that the allottee may approach the Authority for relief, if B
he is aggrieved by such cancellation and such cancellation is not
in accordance with the terms of the agreement for sale, unilateral
and without any sufficient cause.
(6) The promoter shall prepare and maintain all such other details
as may be specified, from time to time, by regulations made by C
the Authority.
xxx xxxxxx
13. No deposit or advance to be taken by promoter without
first entering into agreement for sale. (1) A promoter shall D
not accept a sum more than ten per cent of the cost of the
apartment, plot, or building as the case may be, as an advance
payment or an application fee, from a person without first entering
into a written agreement for sale with such person and register
the said agreement for sale, under any law for the time being in
force. E
(2) The agreement for sale referred to in sub-section (1) shall be
in such form as may be prescribed and shall specify the particulars
of development of the project including the construction of building
and apartments, along with specifications and internal development
works and external development works, the dates and the manner F
by which payments towards the cost of the apartment, plot or
building, as the case may be, are to be made by the allottees and
the date on which the possession of the apartment, plot or building
is to be handed over, the rates of interest payable by the promoter
to the allottee and the allottee to the promoter in case of default,
G
and such other particulars, as may be prescribed.
xxx xxxxxx
18. Return of amount and compensation —(1) If the promoter
fails to complete or is unable to give possession of an apartment,
plot or building,— H
450 SUPREME COURT REPORTS [2019] 10 S.C.R.

A (a) in accordance with the terms of the agreement for sale or,
as the case may be, duly completed by the date specified therein;
or
(b) due to discontinuance of his business as a developer on account
of suspension or revocation of the registration under this Act or
B for any other reason,
he shall be liable on demand to the allottees, in case the allottee
wishes to withdraw from the project, without prejudice to any
other remedy available, to return the amount received by him in
respect of that apartment, plot, building, as the case may be, with
C interest at such rate as may be prescribed in this behalf including
compensation in the manner as provided under this Act:
Provided that where an allottee does not intend to withdraw from
the project, he shall be paid, by the promoter, interest for every
month of delay, till the handing over of the possession, at such
D rate as may be prescribed.
(2) The promoter shall compensate the allottees in case of any
loss caused to him due to defective title of the land, on which the
project is being developed or has been developed, in the manner
as provided under this Act, and the claim for compensation under
E this subsection shall not be barred by limitation provided under
any law for the time being in force.
(3) If the promoter fails to discharge any other obligations imposed
on him under this Act or the rules or regulations made thereunder
or in accordance with the terms and conditions of the agreement
F for sale, he shall be liable to pay such compensation to the allottees,
in the manner as provided under this Act.
19. Rights and duties of allottees —(1) The allottee shall be
entitled to obtain the information relating to sanctioned plans, layout
plans along with the specifications, approved by the competent
authority and such other information as provided in this Act or the
G
rules and regulations made thereunder or the agreement for sale
signed with the promoter.
(2) The allottee shall be entitled to know stage-wise time schedule
of completion of the project, including the provisions for water,
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sanitation, electricity and other amenities and services as agreed A
to between the promoter and the allottee in accordance with the
terms and conditions of the agreement for sale.
(3) The allottee shall be entitled to claim the possession of
apartment, plot or building, as the case may be, and the association
of allottees shall be entitled to claim the possession of the common B
areas, as per the declaration given by the promoter under sub-
clause (C) of clause (I) of sub-section (2) of section 4.
(4) The allottee shall be entitled to claim the refund of amount
paid along with interest at such rate as may be prescribed and
compensation in the manner as provided under this Act, from the C
promoter, if the promoter fails to comply or is unable to give
possession of the apartment, plot or building, as the case may be,
in accordance with the terms of agreement for sale or due to
discontinuance of his business as a developer on account of
suspension or revocation of his registration under the provisions
of this Act or the rules or regulations made thereunder. D

(5) The allottee shall be entitled to have the necessary documents
and plans, including that of common areas, after handing over the
physical possession of the apartment or plot or building as the
case may be, by the promoter.
E
(6) Every allottee, who has entered into an agreement or sale to
take an apartment, plot or building as the case may be, under
section 13, shall be responsible to make necessary payments in
the manner and within the time as specified in the said agreement
for sale and shall pay at the proper time and place, the share of
the registration charges, municipal taxes, water and electricity F
charges, maintenance charges, ground rent, and other charges, if
any.
(7) The allottee shall be liable to pay interest, at such rate as may
be prescribed, for any delay in payment towards any amount or
charges to be paid under sub-section (6). G
(8) The obligations of the allottee under sub-section (6) and the
liability towards interest under sub-section (7) may be reduced
when mutually agreed to between the promoter and such allottee.

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A (9) Every allottee of the apartment, plot or building as the case
may be, shall participate towards the formation of an association
or society or cooperative society of the allottees, or a federation
of the same.
(10) Every allottee shall take physical possession of the apartment,
B plot or building as the case may be, within a period of two months
of the occupancy certificate issued for the said apartment, plot or
building, as the case may be.
(11) Every allottee shall participate towards registration of the
conveyance deed of the apartment, plot or building, as the case
C may be, as provided under sub-section (1) of section 17 of this
Act.
20. Establishment and incorporation of Real Estate
Regulatory Authority — (1) The appropriate Government shall,
within a period of one year from the date of coming into force of
D this Act, by notification, establish an Authority to be known as the
Real Estate Regulatory Authority to exercise the powers conferred
on it and to perform the functions assigned to it under this Act:
Provided that the appropriate Government of two or more States
or Union territories may, if it deems fit, establish one single
E Authority:
Provided further that, the appropriate Government may, if it deems
fit, establish more than one Authority in a State or Union territory,
as the case may be:
Provided also that until the establishment of a Regulatory Authority
F under this section, the appropriate Government shall, by order,
designate any Regulatory Authority or any officer preferably the
Secretary of the department dealing with Housing, as the
Regulatory Authority for the purposes under this Act:
Provided also that after the establishment of the Regulatory
G Authority, all applications, complaints or cases pending with the
Regulatory Authority designated, shall stand transferred to the
Regulatory Authority so established and shall be heard from the
stage such applications, complaints or cases are transferred.
(2) The Authority shall be a body corporate by the name aforesaid
H having perpetual succession and a common seal, with the power,
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subject to the provisions of this Act, to acquire, hold and dispose A
of property, both movable and immovable, and to contract, and
shall, by the said name, sue or be sued.
xxx xxxxxx
31. Filing of complaints with the Authority or the adjudicating
officer.— (1) Any aggrieved person may file a complaint with the B
Authority or the adjudicating officer, as the case may be, for any
violation or contravention of the provisions of this Act or the rules
and regulations made thereunder against any promoter allottee or
real estate agent, as the case may be.
Explanation.—For the purpose of this sub-section “person” shall C
include the association of allottees or any voluntary consumer
association registered under any law for the time being in force.
(2) The form, manner and fees for filing complaint under
sub-section (1) shall be such as may be prescribed.
D
xxx xxxxxx
34. Functions of Authority —The functions of the Authority
shall include—
(a) to register and regulate real estate projects and real estate
agents registered under this Act; E
(b) to publish and maintain a website of records, for public
viewing, of all real estate projects for which registration has
been given, with such details as may be prescribed, including
information provided in the application for which registration
has been granted; F
(c) to maintain a database, on its website, for public viewing,
and enter the names and photographs of promoters as defaulters
including the project details, registration for which has been
revoked or have been penalised under this Act, with reasons
therefor, for access to the general public; G
(d) to maintain a database, on its website, for public viewing,
and enter the names and photographs of real estate agents
who have applied and registered under this Act, with such details
as may be prescribed, including those whose registration has
been rejected or revoked; H
454 SUPREME COURT REPORTS [2019] 10 S.C.R.

A (e) to fix through regulations for each areas under its jurisdiction
the standard fees to be levied on the allottees or the promoter
or the real estate agent, as the case may be;
(f) to ensure compliance of the obligations cast upon the
promoters, the allottees and the real estate agents under this
B Act and the rules and regulations made thereunder;
(g) to ensure compliance of its regulations or orders or directions
made in exercise of its powers under this Act;
(h) to perform such other functions as may be entrusted to the
Authority by the appropriate Government as may be necessary
C to carry out the provisions of this Act.
xxx xxxxxx
36. Power to issue interim orders. —Where during an inquiry,
the Authority is satisfied that an act in contravention of this Act,
D or the rules and regulations made thereunder, has been committed
and continues to be committed or that such act is about to be
committed, the Authority may, by order, restrain any promoter,
allottee or real estate agent from carrying on such act until the
conclusion of such inquiry of until further orders, without giving
notice to such party, where the Authority deems it necessary.
E
37. Powers of Authority to issue directions. —The Authority
may, for the purpose of discharging its functions under the
provisions of this Act or rules or regulations made thereunder,
issue such directions from time to time, to the promoters or allottees
or real estate agents, as the case may be, as it may consider
F necessary and such directions shall be binding on all concerned.
38. Powers of Authority. —(1) The Authority shall have powers
to impose penalty or interest, in regard to any contravention of
obligations cast upon the promoters, the allottees and the real estate
agents, under this Act or the rules and the regulations made
G thereunder.
(2) The Authority shall be guided by the principles of natural justice
and, subject to the other provisions of this Act and the rules made
thereunder, the Authority shall have powers to regulate its own
procedure.
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(3) Where an issue is raised relating to agreement, action, omission, A
practice or procedure that—
(a) has an appreciable prevention, restriction or distortion of
competition in connection with the development of a real estate
project; or
(b) has effect of market power of monopoly situation being B
abused for affecting interest of allottees adversely,
then the Authority, may suo motu, make reference in respect
of such issue to the Competition Commission of India.
39. Rectification of orders. —The Authority may, at any time C
within a period of two years from the date of the order made
under this Act, with a view to rectifying any mistake apparent
from the record, amend any order passed by it, and shall make
such amendment, if the mistake is brought to its notice by the
parties:
D
Provided that no such amendment shall be made in respect of any
order against which an appeal has been preferred under this Act:
Provided further that the Authority shall not, while rectifying any
mistake apparent from record, amend substantive part of its order
passed under the provisions of this Act.
E
40. Recovery of interest or penalty or compensation and
enforcement of order, etc.-
(1) If a promoter or an allottee or a real estate agent, as the
case may be, fails to pay any interest or penalty or compensation
imposed on him, by the adjudicating officer or the Regulatory F
Authority or the Appellate Authority, as the case may be, under
this Act or the rules and regulations made thereunder, it shall
be recoverable from such promoter or allottee or real estate
agent, in such manner as may be prescribed as an arrears of
land revenue.
G
(2) If any adjudicating officer or the Regulatory Authority or
the Appellate Tribunal, as the case may be, issues any order or
directs any person to do any act, or refrain from doing any act,
which it is empowered to do under this Act or the rules or
regulations made thereunder, then in case of failure by any
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A person to comply with such order or direction, the same shall
be enforced, in such manner as may be prescribed.
xxx xxxxxx
43. Establishment of Real Estate Appellate Tribunal— (1)
The appropriate Government shall, within a period of one year
B from the date of coming into force of this Act, by notification,
establish an Appellate Tribunal to be known as the — (name of
the State/Union territory) Real Estate Appellate Tribunal.
xxx xxxxxx

C 44. Application for settlement of disputes and appeals to
Appellate Tribunal— (1) The appropriate Government or the
competent authority or any person aggrieved by any direction or
order or decision of the Authority or the adjudicating officer may
prefer an appeal to the Appellate Tribunal.

D xxx xxxxxx
58. Appeal to High Court. —(1) Any person aggrieved by any
decision or order of the Appellate Tribunal, may, file an appeal to
the High Court, within a period of sixty days from the date of
communication of the decision or order of the Appellate Tribunal,
to him, on any one or more of the grounds specified in section 100
E
of the Code of Civil Procedure, 1908 (5 of 1908):
Provided that the High Court may entertain the appeal after the
expiry of the said period of sixty days, if it is satisfied that the
appellant was prevented by sufficient cause from preferring the
appeal in time.
F
Explanation.—The expression “High Court” means the High Court
of a State or Union territory where the real estate project is
situated.
(2) No appeal shall lie against any decision or order made by
G the Appellate Tribunal with the consent of the parties.
59. Punishment for non registration under section 3.— (1)
If any promoter contravenes the provisions of section 3, he shall
be liable to a penalty which may extend up to ten per cent of the
estimated cost of the real estate project as determined by the
H Authority.
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(2) If any promoter does not comply with the orders, decisions A
or directions issued under sub-section (1) or continues to violate
the provisions of section 3, he shall be punishable with
imprisonment for a term which may extend up to three years
or with fine which may extend up to a further ten per cent of
the estimated cost of the real estate project, or with both.
B
60. Penalty for contravention of section 4. —If any promoter
provides false information or contravenes the provisions of section
4, he shall be liable to a penalty which may extend up to five per
cent. of the estimated cost of the real estate project, as determined
by the Authority.
C
61. Penalty for contravention of other provisions of this
Act.— If any promoter contravenes any other provisions of this
Act, other than that provided under section 3 or section 4, or the
rules or regulations made thereunder, he shall be liable to a penalty
which may extend up to five per cent. of the estimated cost of the
real estate project as determined by the Authority. D

xxx xxxxxx
71. Power to adjudicate.— (1) For the purpose of adjudging
compensation under sections 12, 14, 18 and section 19, the
Authority shall appoint in consultation with the appropriate E
Government one or more judicial officer as deemed necessary,
who is or has been a District Judge to be an adjudicating officer
for holding an inquiry in the prescribed manner, after giving any
person concerned a reasonable opportunity of being heard:
Provided that any person whose complaint in respect of matters F
covered under sections 12, 14, 18 and section 19 is pending before
the Consumer Disputes Redressal Forum or the Consumer
Disputes Redressal Commission or the National Consumer
Redressal Commission, established under section 9 of the
Consumer Protection Act, 1986, (68 of 1986), on or before the
commencement of this Act, he may, with the permission of such G
Forum or Commission, as the case may be, withdraw the complaint
pending before it and file an application before the adjudicating
officer under this Act.

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458 SUPREME COURT REPORTS [2019] 10 S.C.R.

A (2) The application for adjudging compensation under sub-
section (1), shall be dealt with by the adjudicating officer as
expeditiously as possible and dispose of the same within a period
of sixty days from the date of receipt of the application:
Provided that where any such application could not be disposed
B of within the said period of sixty days, the adjudicating officer
shall record his reasons in writing for not disposing of the
application within that period.
(3) While holding an inquiry the adjudicating officer shall have
power to summon and enforce the attendance of any person
C acquainted with the facts and circumstances of the case to
give evidence or to produce any document which in the opinion
of the adjudicating officer, may be useful for or relevant to the
subject matter of the inquiry and if, on such inquiry, he is satisfied
that the person has failed to comply with the provisions of any
of the sections specified in sub-section (1), he may direct to
D pay such compensation or interest, as the case may be, as he
thinks fit in accordance with the provisions of any of those
sections.
xxx xxxxxx

E 72. Factors to be taken into account by the adjudicating
officer.— While adjudging the quantum of compensation or
interest, as the case may be, under section 71, the adjudicating
officer shall have due regard to the following factors, namely:—
(a) the amount of disproportionate gain or unfair advantage,
F wherever quantifiable, made as a result of the default;
(b) the amount of loss caused as a result of the default;
(c) the repetitive nature of the default;
(d) such other factors which the adjudicating officer considers
necessary to the case in furtherance of justice.
G
xxx xxxxxx
79. Bar of jurisdiction. —No civil court shall have jurisdiction to
entertain any suit or proceeding in respect of any matter which
the Authority or the adjudicating officer or the Appellate Tribunal
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is empowered by or under this Act to determine and no injunction A
shall be granted by any court or other authority in respect of any
action taken or to be taken in pursuance of any power conferred
by or under this Act.
xxx xxxxxx
88. Application of other laws not barred— The provisions of B
this Act shall be in addition to, and not in derogation of, the provisions
of any other law for the time being in force.
89. Act to have overriding effect.— The provisions of this Act
shall have effect, notwithstanding anything inconsistent therewith
contained in any other law for the time being in force.” C

22. A perusal of the aforesaid provisions would show that, on and
from the coming into force of the RERA, all real estate projects (as
defined) would first have to be registered with the Real Estate Regulatory
Authority, which, before registering such projects, would look into all
relevant details, including delay in completion of other projects by the D
developer. Importantly, the promoter is now to make a declaration
supported by an affidavit, that he undertakes to complete the project
within a certain time period, and that 70% of the amounts realised for
the project from allottees, from time to time, shall be deposited in a
separate account, which would be spent only to defray the cost of E
construction and land cost for that particular project. Registration is
granted by the authority only when it is satisfied that the promoter is a
bonafide promoter who is likely to perform his part of the bargain
satisfactorily. Registration of the project enures only for a certain period
and can only be extended due to force majeure events for a maximum
period of one year by the authority, on being satisfied that such events F
have, in fact, taken place. Registration once granted, may be revoked if
it is found that the promoter defaults in complying with the various statutory
requirements or indulges in unfair practices or irregularities. Importantly,
upon revocation of registration, the authority is to facilitate the remaining
development work, which can then be carried out either by the G
“competent authority” as defined by the RERA or by the association of
allottees or otherwise. The promoter at the time of booking and issue of
allotment letters has to make available to the allottees information, inter
alia, as to the stage-wise time schedule of completion of the project.
Deposits or advances beyond 10% of the estimated cost as advance
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460 SUPREME COURT REPORTS [2019] 10 S.C.R.

A payment cannot be taken without first entering into an agreement for
sale. Importantly, the agreement for sale will now no longer be a one-
sided contract of adhesion, but in such form as may be prescribed, which
balances the rights and obligations of both the promoter and the allottees.
Importantly, under Section 18, if the promoter fails to complete or is
unable to give possession of an apartment, plot or building in accordance
B
with the terms of the agreement for sale, he must return the amount
received by him in respect of such apartment etc. with such interest as
may be prescribed and must, in addition, compensate the allottee in case
of any loss caused to him. Under Section 19, the allottee shall be entitled
to claim possession of the apartment, plot or building, as the case may
C be, or refund of amount paid along with interest in accordance with the
terms of the agreement for sale. In addition, all allottees are to be
responsible for making necessary payments in instalments within the
time specified in the agreement for sale and shall be liable to pay interest
at such rate as may be prescribed for any delay in such payment. Under
Section 31, any aggrieved person may file a complaint with the authority
D
or the adjudicating officers set up by such authority against any promoter,
allottee or real estate agent, as the case may be, for violation or
contravention of the RERA, and rules and regulations made thereunder.
Also, if after adjudication a promoter, allottee or real estate agent fails to
pay interest, penalty or compensation imposed on him by the authorities
E under the RERA, the same shall be recoverable as arrears of land
revenue. Appeals may be filed to the Real Estate Appellate Tribunal
against decisions or orders of the authority or the adjudicating officer.
From orders of the Appellate Tribunal, appeals may thereafter be filed
to the High Court. Stiff penalties are to be awarded for breach and/or
contravention of the provisions of the RERA. Importantly, under Section
F
72, the adjudicating officer must first determine that the complainant has
established “default” on the part of the respondent, after which
consequential orders may then follow. Under Section 88, the provisions
of RERA are in addition to and not in derogation of the provisions of any
other law for time being in force and under Section 89, RERA is to have
G effect notwithstanding anything inconsistent contained in any other law
for the time being in force.
The Insolvency and Bankruptcy Code, 2016 vis-à-vis the
Real Estate (Regulation and Development) Act, 2016
23. Section 238 of the Code reads as follows:
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“238. The provisions of this Code shall have effect, A
notwithstanding anything inconsistent therewith contained in any
other law for the time being in force or any instrument having
effect by virtue of any such law.”
24. It is significant to note that there is no provision similar to that
of Section 88 of RERA in the Code, which is meant to be a complete B
and exhaustive statement of the law insofar as its subject matter is
concerned. Also, the non-obstante clause of RERA came into force on
1st May, 2016, as opposed to the non-obstante clause of the Code which
came into force on 1st December, 2016. Further, the amendment with
which we are concerned has come into force only on 6th June, 2018.
Given these circumstances, it is a little difficult to accede to arguments C
made on behalf of learned senior counsel for the Petitioners, that RERA
is a special enactment which deals with real estate development projects
and must, therefore, be given precedence over the Code, which is only a
general enactment dealing with insolvency generally. From the
introduction of the explanation to Section 5(8)(f) of the Code, it is clear D
that Parliament was aware of RERA, and applied some of its definition
provisions so that they could apply when the Code isto be interpreted.
The fact that RERA is in addition to and not in derogation of the provisions
of any other law for the time being in force, also makes it clear that the
remedies under RERA to allottees were intended to be additional and
not exclusive remedies. Also, it is important to remember that as the E
authorities under RERA were to be set up within one year from 1st May,
2016, remedies before those authorities would come into effect only on
and from 1st May, 2017 making it clear that the provisions of the Code,
which came into force on 1st December, 2016, would apply in addition to
the RERA. F
25. In KSL & Industries Ltd. v. Arihant Threads Ltd. (2015)
1 SCC 166, a Three Judge Bench of this Court held that the Sick Industries
Companies (Special Provisions) Act, 1985 (hereinafter referred to as
the “Sick Act”) would prevail over the Recovery of Debts Due to Banks
and Financial Institutions Act, 1993 (hereinafter referred to as the G
“Recovery Act”) - both statutes containing non-obstante clauses. After
going into the scheme of both the statutes, this Court referred in particular
to Section 34(2) of the Recovery Act and then held as follows:
“35. This special law, which deals with the recovery of debts due
to banks and financial institutions, makes the procedure for H
462 SUPREME COURT REPORTS [2019] 10 S.C.R.

A recovery of such debts exclusive and even unique. The non
obstante clause in sub-section (1) confers an overriding effect on
the provisions of the RDDB Act notwithstanding anything incon-
sistent therewith contained in any other law for the time being in
force. Sub-section (2), however, makes the RDDB Act additional
to and not in derogation or annulment of the five Acts mentioned
B
therein i.e. the Industrial Finance Corporation Act, 1948; the State
Financial Corporations Act, 1951; the Unit Trust of India Act,
1963; the Industrial Reconstruction Bank of India Act, 1984 and
the Sick Industrial Companies (Special Provisions) Act, 1985.
36. Sub-section (2) was added to Section 34 of the RDDB Act
C w.e.f. 17-1-2000 by Act 1 of 2000. There is no doubt that when
an Act provides, as here, that its provisions shall be in addition to
and not in derogation of another law or laws, it means that the
legislature intends that such an enactment shall coexist along with
the other Acts. It is clearly not the intention of the legislature, in
D such a case, to annul or detract from the provisions of other laws.
The term “in derogation of” means “in abrogation or repeal
of”. The Black’s Law Dictionary sets forth the following
meaning for “derogation”:
“derogation.—The partial repeal or abrogation of a law by a
E later Act that limits its scope or impairs its utility and force.”
It is clear that sub-section (1) contains a non obstante clause,
which gives the overriding effect to the RDDB Act. Sub-section
(2) acts in the nature of an exception to such an overriding effect.
It states that this overriding effect is in relation to certain laws
F and that the RDDB Act shall be in addition to and not in
abrogation of, such laws. SICA is undoubtedly one such law.
37. The effect of sub-section (2) must necessarily be to preserve
the powers of the authorities under SICA and save the
proceedings from being overridden by the later Act i.e. the RDDB
G Act.
38. We, thus, find a harmonious scheme in relation to the
proceedings for reconstruction of the company under SICA, which
includes the reconstruction of debts and even the sale or lease of
the sick company’s properties for the purpose, which may or may
not be a part of the security executed by the sick company in
H
favour of a bank or a financial institution on the one hand, and the
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provisions of the RDDB Act, which deal with recovery of debts A
due to banks or financial institutions, if necessary by enforcing
the security charged with the bank or financial institution, on the
other.
xxx xxxxxx
48. In view of the observations of this Court in the decisions B
referred to and relied on by the learned counsel for the parties we
find that, the purpose of the two enactments is entirely different.
As observed earlier, the purpose of one is to provide ameliorative
measures for reconstruction of sick companies, and the purpose
of the other is to provide for speedy recovery of debts of banks
and financial institutions. Both the Acts are “special” in this sense. C
However, with reference to the specific purpose of
reconstruction of sick companies, SICA must be held to be a
special law, though it may be considered to be a general law in
relation to the recovery of debts. Whereas, the RDDB Act may
be considered to be a special law in relation to the recovery of D
debts and SICA may be considered to be a general law in this
regard. For this purpose we rely on the decision in LIC v. Vijay
Bahadur [(1981) 1 SCC 315 : 1981 SCC (L&S) 111] . Normally
the latter of the two would prevail on the principle that the legisla-
ture was aware that it had enacted the earlier Act and yet chose
to enact the subsequent Act with a non obstante clause. In this E
case, however, the express intendment of Parliament in the non
obstante clause of the RDDB Act does not permit us to take that
view. Though the RDDB Act is the later enactment, sub-section
(2) of Section 34 thereof specifically provides that the provisions
of the Act or the Rules made thereunder shall be in addition to, F
and not in derogation of, the other laws mentioned therein
including SICA.
49. The term “not in derogation” clearly expresses the intention
of Parliament not to detract from or abrogate the provisions of
SICA in any way. This, in effect must mean that Parliament in-
tended the proceedings under SICA for reconstruction of a sick G
company to go on and for that purpose further intended that all
the other proceedings against the company and its properties should
be stayed pending the process of reconstruction. While the term
“proceedings” under Section 22 of SICA did not originally include
the RDDB Act, which was not there in existence. Section 22
H
covers proceedings under the RDDB Act.”
464 SUPREME COURT REPORTS [2019] 10 S.C.R.

A 26. In view of Section 34(2) of the Recovery Act, this Court held
that despite the fact that the non-obstante clause contained in the
Recovery Act is later in time than the non-obstante clause contained in
the Sick Act, in the event of a conflict, the Recovery Act i.e. the later
Act must give way to the Sick Act i.e. the earlier Act. Several judgments
were referred to in which ordinarily a later Act containing a non-obstante
B
clause must be held to have primacy over an earlier Act containing a
non-obstante clause, as Parliament must be deemed to be aware of the
fact that the later Act is intended to override all earlier statutes including
those which contained non-obstante clauses. This statement of the law
was departed from in KSL & Industries (supra)only because of the
C presence of a Section like Section 88 of RERA contained in the Recovery
Act, which makes it clear that the Act is meant to be in addition to and
not in derogation of other statutes. In the present case, it is clear that
both tests are satisfied, namely, that the Code as amended, is both later
in point of time than RERA, and must be given precedence over RERA,
given Section 88 of RERA.
D
27. In fact, in Bank of India v. Ketan Parekh (2008) 8 SCC
148, this Court held that Section 9A of the Special Court (Trial of Offences
Relating to Transactions in Securities) Act, 1992 (hereinafter referred to
as the “Special Court Act”) must be considered to be legislation that is
subsequent to the Recovery Act, since Section 9A was introduced by
E amendment, into the Special Court Act after the Recovery Act. Needless
to add, both statutes contained non-obstante clauses. This Court held:
“28. In the present case, both the two Acts i.e. the Act of 1992
and the Act of 1993 start with the non obstante clause. Section 34
of the Act of 1993 starts with non obstante clause, likewise
F Section 9-A (sic 13) of the Act of 1992. But incidentally, in this
case Section 9-A came subsequently i.e. it came on 25-1-1994.
Therefore, it is a subsequent legislation which will have the
overriding effect over the Act of 1993. But cases might arise
where both the enactments have the non obstante clause then in
G that case, the proper perspective would be that one has to see the
subject and the dominant purpose for which the special
enactment was made and in case the dominant purpose is
covered by that contingencies, then notwithstanding that the Act
might have come at a later point of time still the intention can be
ascertained by looking to the objects and reasons. However, so
H far as the present case is concerned, it is more than clear that
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Section 9-A of the Act of 1992 was amended on 25-1-1994 A
whereas the Act of 1993 came in 1993. Therefore, the Act of
1992 as amended to include Section 9-A in 1994 being
subsequent legislation will prevail and not the provisions of the
Act of 1993.”
(emphasis supplied)
B
28. It is clear, therefore, that even by a process of harmonious
construction, RERA and the Code must be held to co-exist, and, in the
event of a clash, RERA must give way to the Code. RERA, therefore,
cannot be held to be a special statute which, in the case of a conflict,
would override the general statute, viz. the Code.
C
29. As a matter of fact, the Code and RERA operate in completely
different spheres. The Code deals with a proceeding in rem in which the
focus is the rehabilitation of the corporate debtor. This is to take place
by replacing the management of the corporate debtor by means of a
resolution plan which must be accepted by 66% of the Committee of
Creditors, which is now put at the helm of affairs, in deciding the fate of D
the corporate debtor. Such resolution plan then puts the same or another
management in the saddle, subject to the provisions of the Code, so that
the corporate debtor may be pulled out of the woods and may continue
as a going concern, thus benefitting all stakeholders involved. It is only
as a last resort that winding up of the corporate debtor is resorted to, so E
that its assets may be liquidated and paid out in the manner provided by
Section 53 of the Code.On the other hand, RERA protects the interests
of the individual investor in real estate projects by requiring the promoter
to strictly adhere to its provisions. The object of RERA is to see that real
estate projects come to fruition within the stated period and to see that
allottees of such projects are not left in the lurch and are finally able to F
realise their dream of a home, or be paid compensation if such dream is
shattered, or at least get back monies that they had advanced towards
the project with interest. At the same time, recalcitrant allottees are not
to be tolerated, as they must also perform their part of the bargain, namely,
to pay instalments as and when they become due and payable. Given G
the different spheres within which these two enactments operate, different
parallel remedies are given to allottees – under RERA to see that their
flat/apartment is constructed and delivered to them in time, barring which
compensation for the same and/or refund of amounts paid together with
interest atthe very least comes their way. If, however, the allottee wants
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466 SUPREME COURT REPORTS [2019] 10 S.C.R.

A that the corporate debtor’s management itself be removed and replaced,
so that the corporate debtor can be rehabilitated, he may prefer a Section
7 application under the Code. That another parallel remedy is available
is recognised by RERA itself in the proviso to Section 71(1), by which
an allottee may continue with an application already filed before the
Consumer Protection fora, he being given the choice to withdraw such
B
complaint and file an application before the adjudicating officer under
RERA read with Section 88.In similar circumstances, this Court in Swaraj
Infrastructure Private Limited v. Kotak Mahindra Bank Limited
(2019) 3 SCC 620 has held that Debt Recovery Tribunal proceedings
under the Recovery of Debts Due to Banks and Financial Institutions
C Act, 1993 and winding up proceedings under the Companies Act, 1956
can carry on in parallel streams(see paragraphs 21 and 22 therein).
Financial and Operational Creditors
30. In Innoventive Industries v. ICICI Bank & Anr. (2018)
1 SCC 407, this Court after setting out some of the sections of the Code,
D laid down the Scheme of the Code when it came to financial and
operational creditors triggering the Code against a Corporate debtor.
This Court held:
“27. The scheme of the Code is to ensure that when a default
takes place, in the sense that a debt becomes due and is not paid,
E the insolvency resolution process begins. Default is defined in
Section 3(12) in very wide terms as meaning non-payment of a
debt once it becomes due and payable, which includes
non-payment of even part thereof or an instalment amount. For
the meaning of “debt”, we have to go to Section 3(11), which in
F turn tells us that a debt means a liability of obligation in respect of
a “claim” and for the meaning of “claim”, we have to go back to
Section 3(6) which defines “claim” to mean a right to payment
even if it is disputed. The Code gets triggered the moment default
is of rupees one lakh or more (Section 4). The corporate
insolvency resolution process may be triggered by the corporate
G debtor itself or a financial creditor or operational creditor. A
distinction is made by the Code between debts owed to financial
creditors and operational creditors. A financial creditor has been
defined under Section 5(7) as a person to whom a financial debt
is owed and a financial debt is defined in Section 5(8) to mean a
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debt which is disbursed against consideration for the time value A
of money. As opposed to this, an operational creditor means a
person to whom an operational debt is owed and an operational
debt under Section 5(21) means a claim in respect of provision of
goods or services.
28. When it comes to a financial creditor triggering the process, B
Section 7 becomes relevant. Under the Explanation to Section
7(1), a default is in respect of a financial debt owed to any
financial creditor of the corporate debtor — it need not be a debt
owed to the applicant financial creditor. Under Section 7(2), an
application is to be made under sub-section (1) in such form and
manner as is prescribed, which takes us to the Insolvency and C
Bankruptcy (Application to Adjudicating Authority) Rules, 2016.
Under Rule 4, the application is made by a financial creditor in
Form 1 accompanied by documents and records required therein.
Form 1 is a detailed form in 5 parts, which requires particulars of
the applicant in Part I, particulars of the corporate debtor in Part D
II, particulars of the proposed interim resolution professional in
Part III, particulars of the financial debt in Part IV and
documents, records and evidence of default in Part V. Under Rule
4(3), the applicant is to dispatch a copy of the application filed
with the adjudicating authority by registered post or speed post to
the registered office of the corporate debtor. The speed, within E
which the adjudicating authority is to ascertain the existence of a
default from the records of the information utility or on the basis
of evidence furnished by the financial creditor, is important. This
it must do within 14 days of the receipt of the application. It is at
the stage of Section 7(5), where the adjudicating authority is to be F
satisfied that a default has occurred, that the corporate debtor is
entitled to point out that a default has not occurred in the sense
that the “debt”, which may also include a disputed claim, is not
due. A debt may not be due if it is not payable in law or in fact.
The moment the adjudicating authority is satisfied that a default
has occurred, the application must be admitted unless it is G
incomplete, in which case it may give notice to the applicant to
rectify the defect within 7 days of receipt of a notice from the
adjudicating authority. Under sub-section (7), the adjudicating
authority shall then communicate the order passed to the financial
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468 SUPREME COURT REPORTS [2019] 10 S.C.R.

A creditor and corporate debtor within 7 days of admission or
rejection of such application, as the case may be.
29. The scheme of Section 7 stands in contrast with the scheme
under Section 8 where an operational creditor is, on the
occurrence of a default, to first deliver a demand notice of the
B unpaid debt to the operational debtor in the manner provided in
Section 8(1) of the Code. Under Section 8(2), the corporate debtor
can, within a period of 10 days of receipt of the demand notice or
copy of the invoice mentioned in sub-section (1), bring to the
notice of the operational creditor the existence of a dispute or the
record of the pendency of a suit or arbitration proceedings, which
C is pre-existing— i.e. before such notice or invoice was received
by the corporate debtor. The moment there is existence of such a
dispute, the operational creditor gets out of the clutches of the
Code.
30. On the other hand, as we have seen, in the case of a
D corporate debtor who commits a default of a financial debt, the
adjudicating authority has merely to see the records of the
information utility or other evidence produced by the financial
creditor to satisfy itself that a default has occurred. It is of no
matter that the debt is disputed so long as the debt is “due” i.e.
E payable unless interdicted by some law or has not yet become
due in the sense that it is payable at some future date. It is only
when this is proved to the satisfaction of the adjudicating
authority that the adjudicating authority may reject an application
and not otherwise.”

F (emphasis supplied)
31. Likewise, in Swiss Ribbons (supra), this Court while repelling
a challenge to the constitutional validity of the Code based on a purported
infraction of Article 14, differentiated between financial and operational
creditors. In so doing, it made it clear that the context of the decision
G dealt with banks and financial institutions as financial creditors as opposed
to operational creditors who could be corporations or individuals to whom
monies were owed for goods and/or services. In certain circumstances,
financial creditors could also be individuals, such as debenture holders
and fixed deposit holders, who were then spoken of as follows:

H
PIONEER URBAN LAND AND INFRASTRUCTURE LTD. 469
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“42. A perusal of the definition of “financial creditor” and A
“financial debt” makes it clear that a financial debt is a debt
together with interest, if any, which is disbursed against the
consideration for time value of money. It may further be money
that is borrowed or raised in any of the manners prescribed in
Section 5(8) or otherwise, as Section 5(8) is an inclusive
B
definition. On the other hand, an “operational debt” would include
a claim in respect of the provision of goods or services, including
employment, or a debt in respect of payment of dues arising
under any law and payable to the Government or any local
authority.
43. A financial creditor may trigger the Code either by itself or C
jointly with other financial creditors or such persons as may be
notified by the Central Government when a “default” occurs. The
Explanation to Section 7(1) also makes it clear that the Code may
be triggered by such persons in respect of a default made to any
other financial creditor of the corporate debtor, making it clear D
that once triggered, the resolution process under the Code is a
collective proceeding in rem which seeks, in the first instance, to
rehabilitate the corporate debtor. Under Section 7(4), the
adjudicating authority shall, within the prescribed period,
ascertain the existence of a default on the basis of evidence
furnished by the financial creditor; and under Section 7(5), the E
adjudicating authority has to be satisfied that a default has
occurred, when it may, by order, admit the application, or dismiss
the application if such default has not occurred. On the other
hand, under Sections 8 and 9, an operational creditor may, on the
occurrence of a default, deliver a demand notice which must F
then be replied to within the specified period. What is important is
that at this stage, if an application is filed before the adjudicating
authority for initiating the corporate insolvency resolution process,
the corporate debtor can prove that the debt is disputed. When
the debt is so disputed, such application would be rejected.
G
xxx xxxxxx
46. However, the Insolvency Law Committee (ILC), in its
Report of March 2018 dealt with debenture-holders and fixed
deposit-holders, who are also financial creditors, and are
numerous. The Report then went on to state: H
470 SUPREME COURT REPORTS [2019] 10 S.C.R.

A “10.6. For certain securities, a trustee or an agent may already be
appointed as per the terms of the security instrument. For
example, a debenture trustee would be appointed if debentures
exceeding 500 have been issued [Section 71(5), Companies Act,
2013] or if secured debentures are issued [Rule 18(1)(c),
Companies (Share Capital and Debenture) Rules, 2014]. Such
B
creditors may be represented through such pre-appointed
trustees or agents. For other classes of creditors which exceed a
certain threshold in number, like home buyers or security-holders
for whom no trustee or agent has already been appointed under a
debt instrument or otherwise, an insolvency professional (other
C than IRP) shall be appointed by NCLT on the request of IRP. It is
to be noted that as the agent or trustee or insolvency professional
i.e. the authorised representative for the creditors discussed above
and executors, guarantors, etc. as discussed in Para 9 of this
Report, shall be a part of the CoC, they cannot be related parties
to the corporate debtor in line with the spirit of proviso to Section
D
21(2).
***
10.8. In light of the deliberation above, the Committee felt that a
mechanism requires to be provided in the Code to mandate
E representation in meetings of security-holders, deposit-holders, and
all other classes of financial creditors which exceed a certain
number, through an authorised representative. This can be done
by adding a new provision to Section 21 of the Code. Such a
representative may either be a trustee or an agent appointed
under the terms of the debt agreement of such creditors,
F otherwise an insolvency professional may be appointed by NCLT
for each such class of financial creditors. Additionally, the
representative shall act and attend the meetings on behalf of the
respective class of financial creditors and shall vote on behalf of
each of the financial creditors to the extent of the voting share of
G each such creditor, and as per their instructions. To ensure
adequate representation by the authorised representative of the
financial creditors, a specific provision laying down the rights and
duties of such authorised representatives may be inserted.
Further, the requisite threshold for the number of creditors and
manner of voting may be specified by IBBI through regulations to
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enable efficient voting by the representative. Also, Regulation 25 A
may also be amended to enable voting through electronic means
such as e-mail, to address any technical issues which may arise
due to a large number of creditors voting at the same time.”
47. Given this Report, the Code was amended and Sections 21
(6-A) and 21(6-B) were added, which are set out hereinbelow: B
“21. Committee of Creditors. —
(1)-(6) * * *
(6-A) Where a financial debt—
(a) is in the form of securities or deposits and the terms of the C
financial debt provide for appointment of a trustee or agent to act
as authorised representative for all the 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 D
sub-section (6), the interim resolution professional shall make an
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 act
as their authorised representative who shall be appointed by the
E
adjudicating authority prior to the first meeting of the Committee
of Creditors;
(c) is represented by a guardian, executor or administrator, such
person shall act as authorised representative on behalf of such
financial creditors,
F
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 creditor to the
extent of his voting share.
(6-B) The remuneration payable to the authorised G
representative—
(i) under clauses (a) and (c) of sub-section (6-A), if any, shall be
as per the terms of the financial debt or the relevant
documentation; and
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A (ii) under clause (b) of sub-section (6-A) shall be as specified
which shall form part of the insolvency resolution process costs.”
48. Also, Regulations 16-A and 16-B of the Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons) Regulations, 2016 (the CIRP Regulations)
B were added, with effect from 4-7-2018, as follows:
“16-A. Authorised representative.—(1) The interim resolution
professional shall select the insolvency professional, who is the
choice of the highest number of financial creditors in the class in
Form CA received under sub-regulation (1) of Regulation 12, to
C act as the authorised representative of the creditors of the
respective class:
Provided that the choice for an insolvency professional to act as
authorised representative in Form CA received under
sub-regulation (2) of Regulation 12 shall not be considered.
D (2) The interim resolution professional shall apply to the
adjudicating authority for appointment of the authorised
representatives selected under sub-regulation (1) within two days
of the verification of claims received under sub-regulation (1) of
Regulation 12.
E (3) Any delay in appointment of the authorised representative for
any class of creditors shall not affect the validity of any decision
taken by the committee.
(4) The interim resolution professional shall provide the list of
creditors in each class to the respective authorised representative
F appointed by the adjudicating authority.
(5) The interim resolution professional or the resolution
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.
G Clarification: The authorised representative shall have no role in
receipt or verification of claims of creditors of the class he
represents.
(6) The interim resolution professional or the resolution
professional, as the case may be, shall provide electronic means
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of communication between the authorised representative and the A
creditors in the class.
(7) The voting share of a creditor in a class shall be in 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. B
(8) The authorised representative of creditors in a class shall be
entitled to receive fee for every meeting of the committee
attended by him in the following manner, namely:
umber of Fee per meeting of
creditors in the committee (Rs) C
the class
10-100 15,000
101-1000 20,000
More than 25,000
1000 D
(9) The authorised representative shall circulate the agenda to
creditors in a class and announce the voting window at least
twenty-four hours before the window opens for voting
instructions and keep the voting window open for at least twelve
hours.
E
16-B. Committee with only creditors in a class. — Where the
corporate debtor has only creditors in a class and no other
financial creditor eligible to join the committee, the committee shall
consist of only the authorised representative(s).”
49. It is obvious that debenture-holders and persons with home
loans may be numerous and, therefore, have been statutorily dealt F
with by the aforesaid change made in the Code as well as the
Regulations. However, as a general rule, it is correct to say that
financial creditors, which involve banks and financial institutions,
would certainly be smaller in number than operational creditors of
a corporate debtor. G
xxx xxxxxx
61. Insofar as set-off and counterclaim is concerned, a set-off of
amounts due from financial creditors is a rarity. Usually, financial
debts point only in one way—amounts lent have to be repaid.
However, it is not as if a legitimate set-off is not to be considered
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A at all. Such set-off may be considered at the stage of filing of
proof of claims during the resolution process by the resolution
professional, his decision being subject to challenge before the
adjudicating authority under Section 60.”
The Article 14 Challenge (I): Discrimination
B 32. Learned counsel for the Petitioners have emphasised that
treating allottees to be financial creditors is discriminatory inasmuch as
unequals are treated equally, equals are treated unequally, and both are
without any intelligible differentia having any nexus with the objects of
the Code. It is argued that discrimination arises, equals being treated as
C unequal, as real estate developers are differentiated from other entities
who supply goods or services and would, therefore, be discriminated
against as, in the case of real estate developers, all that an allottee would
have to show is that a debt is due to him, whereas in the cases of persons
supplying goods or services if there exists any pre-existing dispute
between the operational debtor and the person who purchases the goods
D or avails of the services, the operational debtor would be outside the
clutches of the Code. It was also argued that unequals are treated as
equals as banks and financial institutions are completely different from
real estate developers, as has been recognised in Swiss Ribbons (supra),
and to treat these unequals as equals by making real estate developers
E financial debtors, again infracts Article 14.
33. When Article 14 is alleged to have been infracted by legislation
which is economic in nature, it is important to first restate a few
fundamental principles. In Ram Krishna Dalmia v. Justice S.R.
Tendolkar (1959) SCR 279, this Court laid down the oft quoted
principles that apply when challenges on the ground of discrimination
F
are made to statutes. This Court held:
“…The principle enunciated above has been consistently adopted
and applied in subsequent cases. The decisions of this Court
further establish—
G (a) that a law may be constitutional even though it relates to a
single individual if, on account of some special circumstances or
reasons applicable to him and not applicable to others, that single
individual may be treated as a class by himself;

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(b) that there is always a presumption in favour of the A
constitutionality of an enactment and the burden is upon him who
attacks it to show that there has been a clear transgression of the
constitutional principles;
(c) that it must be presumed that the legislature understands and
correctly appreciates the need of its own people, that its laws are B
directed to problems made manifest by experience and that its
discriminations are based on adequate grounds;
(d) that the legislature is free to recognise degrees of harm and
may confine its restrictions to those cases where the need is deemed
to be the clearest; C
(e) that in order to sustain the presumption of constitutionality the
court may take into consideration matters of common knowledge,
matters of common report, the history of the times and may
assume every state of facts which can be conceived existing at
the time of legislation; and D
(f) that while good faith and knowledge of the existing conditions
on the part of a legislature are to be presumed, if there is nothing
on the face of the law or the surrounding circumstances brought
to the notice of the court on which the classification may
reasonably be regarded as based, the presumption of constitu- E
tionality cannot be carried to the extent of always holding that
there must be some undisclosed and un-known reasons for
subjecting certain individuals or corporations to hostile or
discriminating legislation.(at page 297, 298)”
34. This principle has been re-iterated by this Court in State of F
Bihar v. Shree Baidyanath Ayurved Bhawan (P) Ltd. (2005) 2 SCC
762 at 783 and more recently in Karnataka Live Band Restaurants
Assn. v. State of Karnataka (2018) 4 SCC 372 at 393 where this
Court re-iterated the principles to test legislation on the touchstone of
Article 14 as laid down by this Court in Ram Krishna Dalmia (supra),
wherein as extracted above, this Court held that the legislature is free to G
recognise degrees of harm and confine its application to those cases
where the need is deemed to be the clearest.
35. In State of Gujarat and Anr. v. Shri Ambica Mills Ltd.,
Ahmedabad, etc.(1974) 4 SCC 656, this Court dealt with classifications
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A that are under-inclusive and held, particularly with regard to economic
legislation, that such under-inclusion would not result in the death-knell
of such laws on the anvil of Article 14. This Court put it thus:
“53. The equal protection of the laws is a pledge of the protection
of equal laws. But laws may classify. And the very idea of
B classification is that of inequality. In tackling this paradox the Court
has neither abandoned the demand for equality nor denied the
legislative right to classify. It has taken a middle course. It has
resolved the contradictory demands of legislative specialization
and constitutional generality by a doctrine of reasonable
classification. [See Joseph Tussman and Jacobusten Brook The
C Equal Protection of the Law, 37 California Rev 341]
54. A reasonable classification is one which includes all who are
similarly situated and none who are not. The question then is:
what does the phrase “similarly situated” mean? The answer to
the question is that we must look beyond the classification to the
D purpose of the law. A reasonable classification is one which
includes all persons who are similarly situated with respect to the
purpose of the law. The purpose of a law may be either the
elimination of a public mischief or the achievement of some
positive public good.
E 55. A classification is under-inclusive when all who are included
in the class are tainted with the mischief but there are others also
tainted whom the classification does not include. In other words,
a classification is bad as under-inclusive when a State benefits or
burdens persons in a manner that furthers a legitimate purpose
F but does not confer the same benefit or place the same burden on
others who are similarly situated. A classification is
over-inclusive when it includes not only those who are similarly
situated with respect to the purpose but others who are not so
situated as well. In other words, this type of classification
imposes a burden upon a wider range of individuals than are
G included in the class of those attended with mischief at which the
law aims. Herod ordering the death of all male children born on a
particular day because one of them would someday bring about
his downfall employed such a classification.

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56. The first question, therefore, is, whether the exclusion of A
establishments carrying on business or trade and employing less
than 50 persons makes the classification under-inclusive, when it
is seen that all factories employing 10 or 20 persons, as the case
may be, have been included and that the purpose of the law is to
get in unpaid accumulations for the welfare of the labour. Since
B
the classification does not include all who are similarly situated
with respect to the purpose of the law, the classification might
appear, at first blush, to be unreasonable. But the Court has
recognised the very real difficulties under which legislatures
operate — difficulties arising out of both the nature of the
legislative process and of the society which legislation attempts C
perennially to re-shape — and it has refused to strike down
indiscriminately all legislation embodying classificatory inequality
here under consideration. Mr Justice Holmes, in urging tolerance
of under-inclusive classifications, stated that such legislation should
not be disturbed by the Court unless it can clearly see that there is
D
no fair reason for the law which would not require with equal
force its extension to those whom it leaves untouched. [ Missouri,
K&T Rly v. May, 194 US 267, 269] What, then, are the fair
reasons for non-extension? What should a court do when it is
faced with a law making an under-inclusive classification in areas
relating to economic and tax matters? Should it, by its judgment, E
force the legislature to choose between inaction or perfection?
xxx xxxxxx
66. That the legislation is directed to practical problems, that the
economic mechanism is highly sensitive and complex, that many
problems are singular and contingent that laws are not abstract F
propositions and do not relate to abstract units and are not to be
measured by abstract symmetry, that exact wisdom and nice
adaption of remedies cannot be required, that judgment is largely
a prophecy based on meagre and uninterpreted experience, should
stand as reminder that in this area the Court does not take the G
equal protection requirement in a pedagogic manner [See
“General Theory of Law and State”, p. 161] .
67. In the utilities, tax and economic regulation cases, there are
good reasons for judicial self-restraint if not judicial deference to
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A legislative judgment. The legislature after all has the affirmative
responsibility. The Courts have only the power to destroy, not to
reconstruct. When these are added to the complexity of economic
regulation, the uncertainty, the liability to error, the bewildering
conflict of the experts, and the number of times the judges have
been overruled by events — self-limitation can be seen to be the
B
path to judicial wisdom and institutional prestige and stability. [See
“General Theory of Law and State”, p. 161]
xxxxxxxxx
71. The Court must be aware of its own remoteness and lack of
C familiarity with local problems. Classification is dependent on the
peculiar needs and specific difficulties of the community. The needs
and difficulties of the community are constituted out of facts and
opinions beyond the easy ken of the Court [ See “General Theory
of Law and State”, p. 161] . It depends to a great extent upon an
assessment of the local condition of these concerns which the
D legislature alone was competent to make.”
36. In V.C. Shukla v.State (Delhi Administration) 1980 Supp.
SCC 249, this Court further elaborated:
“11. In a diverse society and a large democracy such as ours
E where the expanding needs of the nation change with the temper
of the times, it is extremely difficult for any legislation to make
laws applicable to all persons alike. Some amount of
classification is, therefore, necessary to administer various spheres
of the activities of the State. It is well settled that in applying
Article 14 mathematical precision or nicety or perfect equanimity
F are not required. Similarity rather than identity of treatment is
enough. The courts should not make a doctrinaire approach in
construing Article 14 so as to destroy or frustrate any beneficial
legislation. What Article 14 prohibits is hostile discrimination and
not reasonable classification for the purpose of legislation.
G Furthermore, the legislature which is in the best position to
understand the needs and requirements of the people must be
given sufficient latitude for making selection or differentiation and
so long as such a selection is not arbitrary and has a rational basis
having regard to the object of the Act, Article 14 would not be
attracted. That is why this Court has laid down that presumption
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is always in favour of the constitutionality of an enactment and A
the onus lies upon the person who attacks the statute to show that
there has been an infraction of the constitutional concept of equality.
It has also been held that in order to sustain the presumption of
constitutionality, the court is entitled to take into consideration
matters of common knowledge, common report, the history of the
B
times and all other facts which may be existing at the time of the
legislation. Similarly, it cannot be presumed that the
administration of a particular law would be done with an “evil eye
and an unequal hand”. Finally, any person invoking Article 14 of
the Constitution must show that there has been discrimination
against a person who is similarly situate or equally circumstanced. C
In the case of State of U.P. v. Deoman Upadhyaya [AIR 1960
SC 1125 : (1961) 1 SCR 14 : (1961) 2 SCJ 334] Subba Rao, J.,
observed as follows:
“No discrimination can be made either in the privileges conferred
or in the liabilities imposed. But these propositions conceived in D
the interests of the public, if logically stretched too far, may not
achieve the high purpose behind them. In a society of unequal
basic structure, it is wellnigh impossible to make laws suitable in
their application to all the persons alike. So, a reasonable
classification is not only permitted but is necessary if society should
progress.” E

37. Equally, it is important to note that classification need not be
perfect. In Venkateshwara Theatre v. State of A.P. (1993) 3 SCC
677 this Court held:
“20. Article 14 enjoins the State not to deny to any person F
equality before the law or the equal protection of the laws. The
phrase “equality before the law” contains the declaration of
equality of the civil rights of all persons within the territories of
India. It is a basic principle of republicanism. The phrase “equal
protection of laws” is adopted from the Fourteenth Amendment
to the U.S. Constitution. The right conferred by Article 14 G
postulates that all persons similarly circumstanced shall be treated
alike both in privileges conferred and liabilities imposed. Since the
State, in exercise of its governmental power, has, of necessity, to
make laws operating differently on different groups of persons
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A within its territory to attain particular ends in giving effect to its
policies, it is recognised that the State must possess the power of
distinguishing and classifying persons or things to be subjected to
such laws. It is, however, required that the classification must
satisfy two conditions, namely, (i) it is founded on an intelligible
differentia which distinguishes those that are grouped together
B
from others; and (ii) the differentia must have a rational relation
to the object sought to be achieved by the Act. It is not the
requirement that the classification should be scientifically perfect
or logically complete. Classification would be justified if it is not
palpably arbitrary. (See : Re, Special Courts Bill, 1978 [(1979)
C 1 SCC 380 : (1979) 2 SCR 476, 534-36] .) If there is equality and
uniformity within each group, the law will not be condemned as
discriminative, though due to some fortuitous circumstance
arising out of a peculiar situation some included in a class get an
advantage over others, so long as they are not singled out for
special treatment. (See: Khandige Sham Bhat v. Agricultural
D
I.T.O. [(1963) 3 SCR 809, 817: AIR 1963 SC 591: (1963) 48 ITR
21])
(emphasis supplied)
xxx xxxxxx
E 23. Just as a difference in the treatment of persons similarly
situate leads to discrimination, so also discrimination can arise if
persons who are unequals, i.e. differently placed, are treated
similarly. In such a case failure on the part of the legislature to
classify the persons who are dissimilar in separate categories and
F applying the same law, irrespective of the differences, brings about
the same consequence as in a case where the law makes a
distinction between persons who are similarly placed. A law
providing for equal treatment of unequal objects, transactions or
persons would be condemned as discriminatory if there is
absence of rational relation to the object intended to be achieved
G by the law.
xxx xxxxxx
29. In the instant case, we find that the legislature has prescribed
different rates of tax by classifying theatres into different classes,
namely, air-conditioned, air-cooled, ordinary (other than
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air-conditioned and air-cooled), permanent and semi-permanent A
and touring and temporary. The theatres have further been
categorised on the basis of the type of the local area in which
they are situate. It cannot, therefore, be said that there has been
no attempt on the part of the legislature to classify the cinema
theatres taking into consideration the differentiating circumstances
B
for the purpose of imposition of tax. The grievance of the
appellants is that the classification is not perfect. What they want
is that there should have been further classification amongst the
theatres falling in the same class on the basis of the location of
the theatre in each local area. We do not think that such a
contention is well founded.” C
38. Also, in Mardia Chemicals Ltd. v. Union of India (2004) 4
SCC 311, this Court held that Parliamentary intent cannot be thwarted
even if it operates a bit harshlyon a small section of the public, if otherwise
made in the larger public interest. This Court said:
“74. A reference has also been made for similar observations in D
Srinivasa Enterprises v. Union of India [(1980) 4 SCC 507] at
SCC pp. 513-14 and in Jalan Trading Co. (P) Ltd. v. Mill
Mazdoor Sabha [AIR 1967 SC 691 : (1967) 1 SCR 15] at SCR
p. 36. While referring to the observations made in Collector of
Customs v. Nathella Sampathu Chetty [AIR 1962 SC 316 : (1962) E
3 SCR 786 : (1962) 1 Cri LJ 364] at SCR pp. 829-30 it is
submitted that the intent of Parliament shall not be defeated merely
for the reason that it may operate a bit harshly on a small section
of public where it may be necessary to make such provisions of
achieving the desired objectives to ensure that the nefarious
activities of smuggling, etc. had to be necessarily curbed. In F
Fatehchand Himmatlal [(1977) 2 SCC 670] where debts of the
agriculturists were wiped off, this Court observed:
“44. Every cause claims its martyr and if the law, necessitated by
practical considerations, makes generalizations which hurt a few,
it cannot be helped by the Court. Otherwise, the enforcement of G
the Debt Relief Act will turn into an enquiry into scrupulous and
unscrupulous creditors, frustrating through endless litigation, the
instant relief to the indebted which is the promise of the
legislature.” (SCC p. 689, para 44)”
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A The principle contained in Swiss Ribbons (supra), that far greater
deference is accorded to economic legislation, as the legislature is given
free play in the joints and is at liberty to conduct economic experiments
in public interest, finds an early application in Shri Ambica Mills (supra),
and applies on all fours in this case. Sub-paras (b), (c), (d) and (f) of
Ram Krishna Dalmia(supra) are all also attracted in the present case.
B
39. It is also important to remember that the Code is not meant to
be a debt recovery mechanism [see paragraph 28 of Swiss Ribbons
(supra)]. It is a proceeding in rem which, after being triggered, goes
completely outside the control of the allottee who triggers it. Thus, any
allottee/homebuyer who prefers an application under Section 7 of the
C Code takes the risk of his flat/apartment not being completed in the near
future, in the event of there being a breach on the part of the developer.
Under the Code, he may never get a refund of the entire principal, let
alone interest. This is because, the moment a petition is admitted under
Section 7, the resolution professional must first advertise for and find a
D resolution plan by somebody, usually another developer, which has then
to pass muster under the Code, i.e. that it must be approved by at least
66% of the Committee of Creditors and must further go through challenges
before NCLT and NCLAT before the new management can take over
and either complete construction, or pay out or refund amounts. Depending
on the kind of resolution plan that is approved, such homebuyer/allottee
E may have to wait for a very long period for the successful completion of
the project. He may never get his full money back together with interest
in the event that no suitable resolution plan is forthcoming, in which
case, winding up of the corporate debtor alone would ensue. On the
other hand, if such allottee were to approach the Real Estate Regulatory
F Authority under RERA, it is more than likely that the project would be
completed early by the persons mentioned therein, and/or full amount of
refund and interest together with compensation and penalty, if any, would
be awarded. Thus, given the bonafides of the allottee who moves an
application under Section 7 of the Code, it is only such allottee who has
completely lost faith in the management of the real estate developer
G who would come before the NCLT under the Code hoping that some
other developer takes over and completes the project, while always taking
the risk that if no one were to come forward, corporate death must
ensue and the allottee must then stand inline to receive whatever is
given to him in winding up. Given the reasons of the Insolvency Committee
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Report, which show that experience of the real estate sector in this A
country has not been encouraging, in that huge amounts are advanced
by ordinary people to finance housing projects which end up in massive
delays on the part of the developer or even worse, i.e. failure of the
project itself, and given the state of facts which was existing at the time
of the legislation, as adverted to by the Insolvency Committee Report, it
B
is clear that any alleged discrimination has to meet the tests laid down in
Ram Krishna Dalmia (supra), V.C. Shukla (supra),Shri Ambica
Mills(supra),Venkateshwara Theatre(supra) and Mardia Chemicals
(supra).
40. It is impossible to say that classifying real estate developers is
not founded upon an intelligible differentia which distinguishes them from C
other operational creditors, nor is it possible to say that such classification
is palpably arbitrary having no rational relation to the objects of the Code.
It was vehemently argued by learned counsel on behalf of the Petitioners
that if at all real estate developers were to be brought within the clutches
of the Code, being like operational debtors, at best they could have been D
brought in under this rubric and not as financial debtors. Here again,
what is unique to real estate developers vis-à-vis operational debts, is
the fact that, in operational debts generally, when a person supplies goods
and services, such person is the creditor and the person who has to pay
for such goods and services is the debtor. In the case of real estate
developers, the developer who is the supplier of the flat/apartment is the E
debtor inasmuch as the home buyer/allottee funds his own apartment by
paying amounts in advance to the developer for construction of the
building in which his apartment is to be found. Another vital difference
between operational debts and allottees of real estate projects is that an
operational creditor has no interest in or stake in the corporate debtor, F
unlike the case of an allottee of a real estate project, who is vitally
concerned with the financial health of the corporate debtor, for otherwise,
the real estate project may not be brought to fruition. Also, in such event,
no compensation, nor refund together with interest, which is the other
option, will be recoverable from the corporate debtor. One other important
distinction is that in an operational debt, there is no consideration for the G
time value of money – the consideration of the debt is the goods or
services that are either sold or availed of from the operational creditor.
Payments made in advance for goods and services are not made to fund
manufacture of such goods or provision of such services. Examples
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A given of advance payments being made for turnkey projects and capital
goods, where customisation and uniqueness of such goods are important
by reason of which advance payments are made, are wholly inapposite
as examples vis-à-vis advance payments made by allottees. In real estate
projects, money is raised from the allottee, being raised against
consideration for the time value of money. Even the total consideration
B
agreed at a time when the flat/apartment is non-existent or incomplete,
is significantly less than the price the buyer would have to pay for a
ready/complete flat/apartment, and therefore, he gains the time value of
money.Likewise, the developer who benefits from the amounts disbursed
also gains from the time value of money. The fact that the allottee makes
C such payments in instalments which are co-terminus with phases of
completion of the real estate project does not any the less make such
payments as payments involving “exchange”, i.e. advances paid only in
order to obtain a flat/apartment. What is predominant, insofar as the real
estate developer is concerned, is the fact that such instalment payments
are used as a means of finance qua the real estate project. One other
D
vital difference with operational debts is the fact that the documentary
evidence for amounts being due and payable by the real estate developer
is there in the form of the information provided by the real estate developer
compulsorily under RERA. This information, like the information from
information utilities under the Code, makes it easy for home buyers/
E allottees to approach the NCLT under Section 7 of the Code to trigger
the Code on the real estate developer’s own information given on its
webpage as to delay in construction, etc. It is these fundamental
differences between the real estate developer and the supplier of goods
and services that the legislature has focused upon and included real
estate developers as financial debtors. This being the case, it is clear
F
that there cannot be said to be any infraction of equal protection of the
laws.
41. Shri Shyam Divan relying upon Nagpur Improvement Trust
and Anr. v. Vithal Rao and Ors. (1973) 1 SCC 500 at paragraph 26
and Subramanian Swamy v. Director, Central Bureau of
G Investigation and Anr. (2014) 8 SCC 682 at paragraphs 44, 58 and 68
argued that the object of the amendment is itself discriminatory in that it
seeks to insert into a “means and includes” definition a category which
does not fit therein, namely, real estate developers who do not, in the
classical sense, borrow monies like banks and financial institutions.
H According to him, therefore, the object itself being discriminatory, the
PIONEER URBAN LAND AND INFRASTRUCTURE LTD. 485
& ANR. v. UNION OF INDIA & ORS. [R.F. NARIMAN, J.]

inclusion of real estate developers as financial debtors should be struck A
down.We have already pointed out how real estate developers are, in
substance, persons who avail finance from allottees who then fund the
real estate development project. The object of dividing debts into two
categories under the Code, namely, financial and operational debts, is
broadly to sub-divide debts into those in which money is lent and those
B
where debts are incurred on account of goods being sold or services
being rendered. We have no doubt that real estate developers fall squarely
within the object of the Code as originally enacted insofar as they are
financial debtors and not operational debtors, as has been pointed out
hereinabove. So far as unequals being treated as equals is concerned,
home buyers/allottees can be assimilated with other individual financial C
creditors like debenture holders and fixed deposit holders, who have
advanced certain amounts to the corporate debtor. For example, fixed
deposit holders, though financial creditors, would be like real estate
allottees in that they are unsecured creditors. Financial contracts in the
case of these individuals need not involve large sums of money. Debenture
D
holders and fixed deposit holders, unlike real estate holders, are involved
in seeing that they recover the amounts that are lent and are thus not
directly involved or interested in assessing the viability of the corporate
debtors. Though not having the expertise or information to be in a position
to evaluate feasibility and viability of resolution plans, such individuals,
by virtue of being financial creditors, have a right to be on the Committee E
of Creditors to safeguard their interest. Also, the question that is to be
asked when a debenture holder or fixed deposit holder prefers a Section
7 application under the Code will be asked in the case of allottees of real
estate developers – is a debt due in fact or in law? Thus, allottees, being
individual financial creditors like debenture holders and fixed deposit
F
holders and classified as such, show that they within the larger class of
financial creditors, there being no infraction of Article 14 on this score.
42. The presumption that the legislature has understood and
correctly appreciated the need of its people and that the amendment to
the Code is directed to problems made manifest by experience, as was
pointed out by the Insolvency Law Committee findings(supra) G
demonstrates that the presumption of constitutionality that attaches to
the Amendment Act has not been displaced by the Petitioners.
43. It was also argued with reference to Regulation 9A of the
Insolvency and Bankruptcy Board of India (Insolvency Resolution
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486 SUPREME COURT REPORTS [2019] 10 S.C.R.

A Process for Corporate Persons)Regulations, 2016 that homebuyers would
really fall within “other creditors” as a residuary class, who would have
to stand in line with their claims which would be made to the resolution
professional once the Code is triggered. Regulation 9A reads as follows:
“9A. Claims by other creditors.
B (1) A person claiming to be a creditor, other than those covered
under regulations 7, 8, or 9, shall submit proof of its claim to the
interim resolution professional or resolution professional in
person, by post or by electronic means in Form F of the Schedule.
(2) The existence of the claim of the creditor referred to in
C sub-section (1) may be proved on the basis of –
(a) the records available in an information utility, if any, or
(b) other relevant documents sufficient to establish the claim, in-
cluding any or all of the following:—
D (i) documentary evidence demanding satisfaction of the claim;
(ii) bank statements of the creditor showing non-satisfaction of
claim;
(iii) an order of court or tribunal that has adjudicated upon
non-satisfaction of claim, if any.”
E
We have already held that given the fact that homebuyers/allottees
give advances to the real estate developer and thereby finance the real
estate project at hand, are really financial creditors. Given this finding,
this plea of the Petitioners must also be rejected. This challenge must
also, therefore, fail.
F
The Article 14 Challenge (II):Manifest arbitrariness; Article
19(1)(g) and Article 300-A
44. Counsel for the Petitioners argued that a square peg has been
fitted in a round hole and have thus stated that doing so would not only
G be contrary to the objects sought to achieved by the Code, but would be
directly contrary to Swiss Ribbons(supra) in that every characteristic
of financial creditors vis-à-vis operational creditors would show that real
estate developers are assimilated to operational and not financial debtors.
For this purpose, in the written argument presented by Dr. Singhvi, relying
upon Swiss Ribbons(supra) it is stated that:
H
PIONEER URBAN LAND AND INFRASTRUCTURE LTD. 487
& ANR. v. UNION OF INDIA & ORS. [R.F. NARIMAN, J.]

“FINDINGS IN SWISS RIBBONS P. LTD. V. UOI, (2019) 4 SCC A
17 ON NATURE OF OPERATIONAL CREDITORS (OCs)/
FINANCIAL CREDITORS (FCs) VIS-À-VIS ALLOTTEES

S.o. FIDIGS I SWISS RIBBOS REASO FOR O-
W.R.T. RATIOALE BEHID APPLICABILITY OF
DISTICTIO BETWEE DISTICTIO BETWEE FCs B
FIACIAL AD and OCs (AS EXPLAIED I
OPERATIOAL CREDITORS SWISS RIBBOS) I CASE OF
HOMEBUYERS/ ALLOTTEES
1. ature of security:

“it is clear that most financial Real estate allottees/ homebuyers are C
creditors, particularly banks and unsecured creditors and are therefore
financial institutions, are secured more akin to OCs rather than FCs
creditors whereas most operational
creditors are unsecured, payments for
goods and services as well as
payments to workers not being
secured by mortgaged documents and D
the like.”

[Para 44]

2. “The nature of loan agreements
with financial creditors is different E
from contracts with operational
creditors for supplying goods and
services.

Financial creditors generally lend Real estate allottees make payments
finance on a term loan or for working to the corporate debtors in lieu of
capital that enables the corporate services rendered – i.e., construction F
debtor to either set up and/or operate of apartments. In several cases,
its business. On the other hand, payments are also made on a
contracts with operational creditors construction-linked payment basis.
are relatable to supply of goods and
services in the operation of business.
Each individual allottee will be owed
Financial contracts generally involve a sum that is often much smaller than
G
large sums of money. By way of the amount owed to a single
contrast, operational contracts have bank/financial institution.
dues whose quantum is generally less.

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488 SUPREME COURT REPORTS [2019] 10 S.C.R.

A
In the running of a business, operational Real estate allottees are large in
creditors can be many as opposed to number – often hundreds or
financial creditors, who lend finance for the thousands, depending on the size of
set up or working of business. It is obvious the developer and the number of
that debenture holders and persons with development projects.
home loans may be numerous and,
B therefore, have been statutorily dealt with
by the aforesaid change made in the Code
as well as the Regulations. However, as a
general rule, it is correct to say that
financial creditors, which involve banks and There are no repayment schedules
financial institutions, would certainly be in apartment buyer agreements – as
smaller in number than operational creditors the payments have been made by
C of a corporate debtor. allottees towards grant of possession
of their units in a project – and the
Also, financial creditors have specified date of possession is further subject
repayment schedules, and defaults entitle to force majeure and other
financial creditors to recall a loan in totality. circumstances. Refund of money by
Contracts with operational creditors do not the developer only arises in the
have any such stipulations. event that the allottee validly
D terminates/ cancels the agreement
and not otherwise.

Agreements between allottees and
Also, the forum in which dispute resolution developers have arbitration clauses.
takes place is completely different. Further, there is often the possibility
Contracts with operational creditors can and of a genuine dispute in case of
E do have arbitration clauses where dispute allottees’ claims – e.g., where date
resolution is done privately. Operational of possession stands extended on
debts also tend to be recurring in nature and account of force majeure
the possibility of genuine disputes in case of circumstances and therefore
operational debts is much higher when allottees’ right to receive refund has
compared to financial debts. A simple not yet arisen, where there has been
example will suffice. Goods that are delay on part of allottees in making
F supplied may be substandard. Services that payments to the developer, where
are provided may be substandard. Goods termination/cancellation of the
may not have been supplied at all. All these agreement is not as per terms of the
qua operational debts are matters to be agreement, etc. These are not easily
proved in arbitration or in the courts of law. verifiable/available and are required
On the other hand, financial debts made to to be examined by a court of law /
banks and financial institutions are well- during an arbitration.
G documented and defaults made are easily
verifiable.”

[Para 43, 44]

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PIONEER URBAN LAND AND INFRASTRUCTURE LTD. 489
& ANR. v. UNION OF INDIA & ORS. [R.F. NARIMAN, J.]

A
3. Regarding role and involvement of
FCs vis-à-vis OCs:
Allottees are interested in securing their
“financial creditors are, from the very single time investment, and not the
beginning, involved with assessing the financial well-being of, or ensuring the
viability of the corporate debtor. They continuity of, the corporate debtor as a
can, and therefore do, engage in going-concern. Further, allottees in
restructuring of the loan as well as different real estate projects of a B
reorganization of the corporate debtor’s corporate debtor, may have different
business when there is financial stress, interests confined only to that particular
which are things operational creditors do development, with no interest in the
not and cannot do. Thus, preserving the overall well-being or rearrangement or
corporate debtor as a going concern, viability of the Company. If such
while ensuring maximum recovery for allottees are vested with decision making
all creditors being the objective of the powers concerning the business of the
Code, financial creditors are clearly enterprise as a whole, it is unlikely that C
different from operational creditors and sound financial decisions will be taken
therefore, there is obviously an having regard to the overall status of the
intelligible differentia between the two entity which will undoubtedly defeat the
which has a direct relation to the objects very purpose and objective of the CIRP
sought to be achieved by the Code.” process.

[Para 45]
D
4. Regarding participation in the COC
meetings:
Allottees do not have the expertise or
“Under the Code, the committee of information to be in a position to evaluate
creditors is entrusted with the primary the feasibility and viability of resolution
responsibility of financial restructuring. plans keeping in mind the business of the
They are required to assess the viability corporate debtor as a whole. Expecting
of a corporate debtor by taking into allottees to carry out such a function and E
account all available information as well role is entirely impractical.
as to evaluate all alternative investment
opportunities that are available. The Allottees are interested in securing their
committee of creditors is required to single time investment, and not the
evaluate the resolution plan on the basis financial well-being of, or ensuring the
of feasibility and viability.” continuity of, the corporate debtor as a
going-concern.
“Since the financial creditors are in the F
business of money lending, banks and Allottees in different real estate projects
financial institutions are best equipped to of a corporate debtor, may have different
assess viability and feasibility of the interests confined only to that particular
business of the corporate debtor. Even development, with no interest in overall
at the time of granting loans, these banks well-being or rearrangement or viability
and financial institutions undertake a of the Company. If such allottees are
detailed market study which includes a vested with decision making powers
techno-economic valuation report, concerning the business of the enterprise G
evaluation of business, financial as a whole, it is unlikely that sound
projection, etc. Since this detailed study financial decisions will be taken having
has already been undertaken before regard to the overall status of the entity
sanctioning a loan, and since financial

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490 SUPREME COURT REPORTS [2019] 10 S.C.R.

A creditors have trained employees which will undoubtedly defeat the very purpose
to assess viability and feasibility, and objective of the CIRP process. Interests of
they are in a good position to other stakeholders, including other financial
evaluate the contents of a creditors, suppliers, small creditors, labour, etc. are
resolution plan. On the other unlikely to be considered appropriately.
hand, operational creditors, who
provide goods and services, are
involved only in recovering
B amounts that are paid for such
goods and services, and are
typically unable to assess viability
and feasibility of business.”

[Para 67, 69]

C 5. Regarding process for initiation
of corporate insolvency
resolution process:

• Information with respect
to debt incurred by • In practice, real estate allottees do not
financial debtors: upload information in respect of amounts
owed to them by developers with the
D “It is clear from these Information Utilities.
Sections that information
in respect of debts • Most of the sources evidencing a
incurred by financial financial debt as listed do not apply to
debtors is easily real-estate allottees.
available through
information utilities
which, under the
E Insolvency and
Bankruptcy Board of
India (Information
Utilities) Regulations,
2017 [“Information
Utilities Regulations”],
are to satisfy themselves
that information
F provided as to the debt is
accurate. This is done
by giving notice to the
corporate debtor who
then has an opportunity
to correct such
information.

G

H
PIONEER URBAN LAND AND INFRASTRUCTURE LTD. 491
& ANR. v. UNION OF INDIA & ORS. [R.F. NARIMAN, J.]

A
Apart from the record maintained
by such utility, Form I appended to
the Insolvency and Bankruptcy
(Application to Adjudicating
Authority) Rules, 2016, makes it
clear that the follo wing are other
sources which evidence a financial
debt: B

(a) Particulars of security held, if any,
the date of its creation, its
estimated value as per the creditor;
(b) Certificate of registration of charge
issued by the registrar of
companies (if the corporate debtor C
is a co mpany);
(c) Order of a court, tribunal or
arbitral panel adjudicating on the
default;
(d) Record of default with the
information utility;
(e) Details of succession certificate, or
probate of a will, or letter of D
administration, or court decree (as
may be applicable), under the
Indian Succession Act, 1925;
(f) The latest and complete copy of
the financial contract reflecting all
amendments and waivers to date;
(g) A record of default as available
with any credit info rmation E
compan y;
(h) Copies of entries in a bankers book
in accordance with the Bankers
Books Evidence Act, 1891.”

[Para 48, 49]

F
* In the case of real estate allottees,
? With respect to set-offs: amounts are also due and payable by
the allottees to the developer – i.e.,
“a set-off of amounts due from financial payments owed to the developer as per
creditors is a rarity. Usually, financial debts the schedule under the Apartment
point only in one way – amounts lent have Buyer’s Agreement, interest on delayed
to be repaid.” payments. Set-off of amounts is G
therefore quite co mmon in the case of
[Para 55] allottees.

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492 SUPREME COURT REPORTS [2019] 10 S.C.R.

A
? Requirement of proving ‘default’ in
case of section 7 applications: ? In the case of real estate
allottees, in most cases, the
Whereas a “claim” gives rise to a default has not yet occurred
“debt” only when it becomes “due”, a since the date of possession is
“default” occurs only when a “debt” often extended on account of
B becomes “due and payable” and is not force majeure and other
paid by the debtor. It is for this reason circumstances. As a result, in
that a financial creditor has to prove such a case, the right of the
“default” as opposed to an operational allottees to terminate/cancel
creditor who merely “claims” a right to their agreement with the
payment of a liability or obligation in developer and seek a refund of
respect of a debt which may be due. amounts paid would not have
C When this aspect is borne in mind, the arisen in the first place.
differentiation in the triggering of
insolvency resolution process by
financial creditors under Section 7 and
by operational creditors under Sections
8 and 9 of the Code becomes clear.

[Para 59]
D

45. As has been pointed out by us hereinabove, it is clear that the
context of Swiss Ribbons(supra) was a challenge under Article 14
E stating that financial creditors have been discriminated against because
there is no real difference between financial and operational creditors,
and that such artificial distinction made by the Code, not having been
made anywhere else in the world, would be discriminatory, having no
rational relation with the object sought to be achieved by the Code and
would have, therefore, to be struck down under Article 14. As has been
F
pointed out by us hereinabove, the context of this argument was financial
institutions and banks on the one hand vis-à-vis operational creditors i.e.
those who supply goods and services, on the other. It is in this context
that the various differences that have been pointed out hereinabove were
made. However, the judgment itself recognises - as has been pointed
G out by us hereinabove - in paragraphs 46 to 49, that it was not dealing
with individual financial creditors, such as debenture holders, fixed deposit
holders and home buyers. To apply a judgment rendered in a wholly
different context to the facts in the present cases would itself be an
arbitrary exercise. What has been stated hereinabove as to allottees
being individual financial creditors like deposit holders and debenture
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& ANR. v. UNION OF INDIA & ORS. [R.F. NARIMAN, J.]

holders, applies on all fours to repel this argument based on another A
state
facet of Article 14. In fact, the object of the Code, as originally set out in
the paragraphs 27 and 28 of Swiss Ribbons (supra) is as follows:
urred
on is “27. As is discernible, the Preamble gives an insight into what is
nt of sought to be achieved by the Code. The Code is first and
other foremost, a Code for reorganisation and insolvency resolution of B
lt, in
f the
corporate debtors. Unless such reorganisation is effected in a
ancel time-bound manner, the value of the assets of such persons will
the deplete. Therefore, maximisation of value of the assets of such
nd of persons so that they are efficiently run as going concerns is
have
another very important objective of the Code. This, in turn, will
promote entrepreneurship as the persons in management of the C
corporate debtor are removed and replaced by entrepreneurs.
When, therefore, a resolution plan takes off and the corporate
debtor is brought back into the economic mainstream, it is able to
repay its debts, which, in turn, enhances the viability of credit in
the hands of banks and financial institutions. Above all, ultimately, D
the interests of all stakeholders are looked after as the corporate
debtor itself becomes a beneficiary of the resolution scheme—
workers are paid, the creditors in the long run will be repaid in full,
and shareholders/investors are able to maximise their investment.
Timely resolution of a corporate debtor who is in the red, by an
effective legal framework, would go a long way to support the E
development of credit markets. Since more investment can be
made with funds that have come back into the economy, business
then eases up, which leads, overall, to higher economic growth
and development of the Indian economy. What is interesting to
note is that the Preamble does not, in any manner, refer to F
liquidation, which is only availed of as a last resort if there is
either no resolution plan or the resolution plans submitted are not
up to the mark. Even in liquidation, the liquidator can sell the
business of the corporate debtor as a going concern. (See Arcelor
Mittal [Arcelor Mittal (India) (P) Ltd. v. Satish Kumar Gupta,
(2019) 2 SCC 1] at para 83, fn 3). G

28. It can thus be seen that the primary focus of the legislation is
to ensure revival and continuation of the corporate debtor by
protecting the corporate debtor from its own management and
from a corporate death by liquidation. The Code is thus a
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494 SUPREME COURT REPORTS [2019] 10 S.C.R.

A beneficial legislation which puts the corporate debtor back on its
feet, not being a mere recovery legislation for creditors. The
interests of the corporate debtor have, therefore, been bifurcated
and separated from that of its promoters/those who are in
management. Thus, the resolution process is not adversarial to
the corporate debtor but, in fact, protective of its interests. The
B
moratorium imposed by Section 14 is in the interest of the
corporate debtor itself, thereby preserving the assets of the
corporate debtor during the resolution process. The timelines within
which the resolution process is to take place again protects the
corporate debtor’s assets from further dilution, and also protects
C all its creditors and workers by seeing that the resolution process
goes through as fast as possible so that another management can,
through its entrepreneurial skills, resuscitate the corporate debtor
to achieve all these ends.”
A reading of these paragraphs will show these very objects are
D sub-served by treating allottees as financial creditors. The Code is thus
a beneficial legislation which can be triggered to put the corporate debtor
back on its feet in the interest of unsecured creditors like allottees, who
are vitally interested in the financial health of the corporate debtor, so
that a replaced management may then carry out the real estate project
as originally envisaged and deliver the flat/apartment as soon as possible
E and/or pay compensation in the event of late delivery, or non-delivery, or
refund amounts advanced together with interest. Thus, applying the
Shayara Bano v. Union of India (2017)9 SCC 1test,it cannot be said
that a square peg has been forcibly fixed into a round hole so as to
render Section 5(8)(f) manifestly arbitrary i.e. excessive, disproportionate
F or without adequate determining principle. For the same reason, it cannot
be said that Article 19(1)(g) has been infracted and not saved by Article
19(6) as the Amendment Act is made in public interest, and it cannot be
said to be an unreasonable restriction on the Petitioner’s fundamental
right under Article 19(1)(g). Also, there is no infraction of Article 300-A
as no person is deprived of its property without authority of a
G constitutionally valid law.
46. It was also argued that the UNCITRAL Legislative Guide,
from which most of the provisions of the Code derive their succour,
have also been breached. This is for the reason that financial contracts
being different from operational contracts, the one should not be confused
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with the other. Also, treatment of similarly situated creditors should be A
the same, and as allottees are like operational creditors, they should not
be treated as financial creditors. We have already answered these
questions in the context of discrimination and manifest arbitrariness and
have found that, in point of fact, real estate allottees are really in the
nature of financial creditors, and thus the UNCITRAL Legislative Guide
B
has been followed, and not breached. Equally, it was argued that creating
new creditors’ rights in Insolvency Law, as opposed to recognising existing
creditors’ rights, will infract the UNCITRAL Legislative Guide. As will
be pointed out hereinbelow, since allottees of real estate projects have
always been subsumed within Section 5(8)(f), no new rights or claims
have been created. It was also contended that since allottees are then C
said to have no expertise or knowledge in the working of the corporate
debtor, they cannot participate effectively in the Committee of Creditors,
and should therefore be kept out. The same answer as has been given
hereinabove, i.e. that allottees, like individual financial creditors who are
already on the Committee of Creditors, are to have a voice in determining
D
the corporate debtor and their own future. This contention, therefore,
also fails.
47. One other argument that is made on behalf of the counsel for
the Petitioners is that allottees of flats/apartments who do not want refunds,
but who want their flats/apartments constructed so that they may occupy
and live in their flats/apartments, will be jeopardised, as a single allottee E
who does not want the flat/apartments, but wants a refund of amounts
paid for reasons best known to him, can trigger the Code and upset the
construction and handing over of such flats/apartments to the vast bulk
of allottees of a project who may be genuine buyers who wish to occupy
such flats/apartments as roofs over their heads. Another facet of this F
argument is that the bulk of such persons will never be on the Committee
of Creditors, as they may not be persons who trigger the Code at all.
These arguments are met by the fact that all the allottees of the project
in question can either join together under the explanation to Section 7(1)
of the Code, or file their own individual petitions after the Code gets
triggered by a single allottee, stating that in addition to the construction G
of their flat/apartment, they are also entitled to compensation under RERA
and/or under the general law, and would thus be persons who have a
“claim”, i.e. a right to remedy for breach of contract which gives rise to
a right to compensation, whether or not such right is reduced to judgment,
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496 SUPREME COURT REPORTS [2019] 10 S.C.R.

A and would therefore be persons to whom a liability or obligation in respect
of a “claim” is due. Such persons would, therefore, have a voice in the
Committee of Creditors as to future plans for completion of the project,
and compensation for late delivery of the flat/apartment. This contention
therefore also has no legs to stand upon.
B 48. It was then argued that placing allottees as financial creditors
is directly contrary to the object of the Code in maximising the value of
assets and putting the corporate debtor back on its feet. We may only
state that if a Section 7 application is admitted in favour of an allottee,
and if the management of the corporate debtor is in fact a strong and
stable one, nothing debars the same erstwhile management from offering
C a resolution plan, subject to Section 29A of the Code, which may well be
accepted by the Committee of Creditors in which home buyers now
have a voice. Equally, to assume that the moment the insolvency resolution
process starts, corporate death must ensue is wholly incorrect. If the
real estate project is otherwise viable, resolution plans from others may
D well be accepted and the best of these would then work in order to
maximise the value of the assets of the corporate debtor. Corporate
death, as has been stated in Swiss Ribbons (supra) is the last resort
under the Code after all other available options have failed. This argument
again need not deter us further.
E 49. It was then stated that there will be a flood of petitions before
the NCLT, and as the NCLT has to decide within a period of 14 days,
there will only be a summary decision in which a complicated agreement
entered into between home buyer and real estate developer will not be
gone into in order to discover whether a debt is due and payable. Coupled
with this argument, is the alternative argument that, given the fact that
F RERA adequately looks after the rights and interests of allottees, to
apply the Code would then be manifestly arbitrary, as a management
which may have infused large funds to develop the real estate project
would then be summarily removed. A supplementary argument was made
that this would also infract Article 19(1)(g) and 300-A, as a person who
G invests a huge sum of money from its own resources or borrowed
resources, would then be left in the lurch the moment the insolvency
resolution process is admitted.
50. The answer to these contentions is provided by reading some
of the provisions of RERA. Under paragraph 3 of the Statement of
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Objects and Reasons of RERA, one of the important reasons for enacting A
the RERA is to “establish symmetry of information between the promoter
and purchaser”. This is achieved through Section 4, where every promoter
in its application to the authority for registration under sub-clause (2)(b),
has to include the current status of the project, any delay in its completion,
details of cases pending, payments pending etc. Equally, under sub-clause
B
(g), the proforma of the allotment letter, agreement for sale and
conveyance deed proposed to be signed with the allottee are all to be
furnished. Also, under sub-clause (l)(C), the time period within which he
undertakes to complete the project is also to be stated. Above all, under
Section 4(3) read with Section 11, the authority is to operationalise a
web-based online system in which the promoter shall, upon receiving his C
Login Id and password, create a webpage on the website of the authority
to enter all details as required by Section 4(2), including quarterly update
of the status of the project and the stage-wise time schedule of completion
of the project. Also, under Section 7, the Authority may revoke registration
for various reasons, and under Section7(4)(a) shall debar the promoter
D
from accessing its website in relation to that project, and thereafter specify
its name in the list of defaulters and display its photograph on the website
and inform other Real Estate Regulatory Authorities in other States and
Union Territories about such revocation. Equally, under Section 13(2),
the prescribed agreement for sale, which is to be entered into between
the promoter and allottee, must clearly state the date on which possession E
of the apartment, plot or building is to be handed over, the rates of interest
payable by the promoter to the allottee in the case of default and such
other particulars, as may be prescribed. We were then referred to the
‘Andaman and Nicobar Islands Real Estate (Regulation and
Development) (General) Rules, 2016’ to give us a flavour of what is
F
actually prescribed by the Rules made by States and Union Territories
under RERA. Here, Rule 14 of these Rules speaks of details to be
published on the website; and among other details, Rule 14(1)(d) states
that the following details shall be uploaded by the promoter:
“14. Details to be published on the website.- (1) The
Authority shall ensure the following information, as applicable, G
shall be made available on its website in respect of each project
registered under the Act, namely –
xxx xxxxxx

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A (d) the promoter shall upload the following updates on the webpage
for the project, within fifteen days from the expiry of each
quarter, namely:-
(i) list of number and types of apartments or plots, booked;
(ii) list of number of garages booked;
B
(iii) status of the project-
(A) Status of construction of each building with photographs;
(B) Status of construction of each floor with photographs;
(C) Status of construction of internal infrastructure and
C
common areas with photographs.
(iv) status of approvals,-
(A) Approvals received;
(B) Approvals applied and expected date of receipt;
D
(C) Approvals to be applied and date planed for application;
(D) Modifications, amendment or revisions, if any, issued by
the competent authority with regard to any sanctioned
plans, layout plans, specifications, license, permit or
E approval for the project;”
Also, Rules 15 and 16 provide for interest payable by the promoter
and timelines for refund as follows:
“15.Interest payable by promoter and allottee- The rate of
interest payable by the promoter to the allottee or by the allottee
F to the promoter, as the case may be, shall be the State Bank of
India highest Marginal Cost of Lending Rate plus two per cent.
Provided that in case the State Bank of India Marginal Cost of
Lending Rate is not in use it would be replaced by such
benchmark lending rates which the State Bank of India may fix
G from time to time for lending to the general public.
16.Timelines for refund- Any refund of monies along with the
applicable interest and compensation, if any, payable by the
promoter in terms of the Act or the rules and regulations made
thereunder, shall be payable by the promoter to the allottee within
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forty-five days from the date on which such refund along with A
applicable interest and compensation, as the case may be,
become due.”
It can thus be seen that just as information utilities provide the
kind of information as to default that banks and financial institutions are
provided under Sections 214 to 216 of the Code read with Regulations B
25 and 27 of the Insolvency and Bankruptcy Board of India (Information
Utilities) Regulations, 2017, allottees of real estate projects can come
armed with the same kind of information, this time provided by the
promoter or real estate developer itself, on the basis of which, prima
facie at least, a “default” relating to amounts due and payable to the
allottee is made out in an application under Section 7 of the Code. We C
may mention here that once this prima facie case is made out, the burden
shifts on the promoter/real estate developer to point out in their reply
and in the hearing before the NCLT, that the allottee is himself a defaulter
and would, therefore, on a reading of the agreement and the applicable
RERA Rules and Regulations, not be entitled to any relief including D
payment of compensation and/or refund, entailing a dismissal of the said
application. At this stage also, it is important to point out, in answer to
the arguments made by the Petitioners, that under Section 65 of the
Code, the real estate developer can also point out that the insolvency
resolution process under the Code has been invoked fraudulently, with
malicious intent, or for any purpose other than the resolution of insolvency. E
This the real estate developer may do by pointing out, for example, that
the allottee who has knocked at the doors of the NCLT is a speculative
investor and not a person who is genuinely interested in purchasing a
flat/apartment. They can also point out that in a real estate market which
is falling, the allottee does not, in fact, want to go ahead with its obligation F
to take possession of the flat/apartment under RERA, but wants to jump
ship and really get back, by way of this coercive measure, monies already
paid by it. Given the above, it is clear that it is very difficult to accede to
the Petitioners’ contention that a wholly one-sided and futile hearing will
take place before the NCLT by trigger-happy allottees who would be
able to ignite the process of removal of the management of the real G
estate project and/or lead the corporate debtor to its death.
51. At this juncture it is necessary to deal with the argument of
the Petitioners that as the NCLT is given only 14 days in which to
adjudicate on “default”, the NCLT cannot, in such a summary proceeding,
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A give detailed findings based on arguments raised by the allottees which
are then countered with reference to a large number of documents and
complicated statutory provisions, and which entail detailed arguments,
which are then put forward by real estate developers.
52. This Court, while dealing with timelines provided qua operational
B creditors, in Surendra Trading Company(supra), held that the timelines
contained in the provisos to Section 7(5), Section 9(5) and Section 10(4)
of the Code are all directory and not mandatory. This is for the obvious
reason that no consequence is provided if the periods so mentioned are
exceeded. Though this decision is not in the context of the 14-day period
provided by Section 7(4), we are of the view that this judgment would
C apply squarely on all fours so that the period of 14 days given to the
NCLT for decision under Section 7(4) would be directory. We are
conscious of the fact that under Section 64(1) of the Code, the NCLT
President or the Chairperson of the NCLAT may, after taking into account
reasons by the NCLT or NCLAT for exceeding the period mentioned by
D statute, extend the period of 14 days by a period not exceeding 10 days.
We may note that even this provision is directory, in that no consequence
is provided either if the period is not extended, or after the extension
expires. This is also for the good reason that an act of the court cannot
harm the litigant before it. Unfortunately, both the NCLT and NCLAT
do not have sufficient members to deal with the flood of applications and
E appeals that is before them. The time taken in the queue by applicants
who knock at their doors cannot, for no fault of theirs, be put against
them. This Court, in State of Bihar v. Bihar Rajya Bhumi Vikas Bank
Samiti (2018) 9 SCC 472, has held in the context of Section 34(5) of the
Arbitration and Conciliation Act, 1996, that the absence of any
F consequences for infraction of a procedural provision implies that such
a provision must be interpreted as being directory and not mandatory.
The Court held thus:
“19. It will thus be seen that Section 34(5) does not deal with the
power of the Court to condone the non-compliance thereof. It is
G imperative to note that the provision is procedural, the object
behind which is to dispose of applications under Section 34
expeditiously. One must remember the wise observation contained
in Kailash [Kailash v. Nanhku, (2005) 4 SCC 480] , where the
object of such a provision is only to expedite the hearing and not

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to scuttle the same. All rules of procedure are the handmaids of A
justice and if, in advancing the cause of justice, it is made clear
that such provision should be construed as directory, then so be it.
xxx xxxxxx
21. Section 80, though a procedural provision, has been held to be
mandatory as it is conceived in public interest, the public purpose B
underlying it being the advancement of justice by giving the
Government the opportunity to scrutinise and take immediate
action to settle a just claim without driving the person who has
issued a notice having to institute a suit involving considerable
expenditure and delay. This is to be contrasted with Section 34(5), C
also a procedural provision, the infraction of which leads to no
consequence. To construe such a provision as being mandatory
would defeat the advancement of justice as it would provide the
consequence of dismissing an application filed without adhering
to the requirements of Section 34(5), thereby scuttling the
process of justice by burying the element of fairness.” D

This argument must also therefore be rejected.
Challenge to Section 21(6A) and 25A of the Code
53. In the challenge to Section 21(6A) and Section 25A of the
Code, it has been argued by learned counsel for the Petitioners that the E
allottees would fall in the following five categories and cannot be said,
therefore, to be a homogenous class. A glance at the five categories
would show, they argue, that they have, in fact, conflicting interests.
These five categories are stated to be as follows:
a) “Those who have taken possession and have executed sale F
deeds, with or without further claims for delay
compensation;
b) Those who have taken possession but are yet to execute
sale deeds, with or without further claims for delay
compensation; G
c) Those who are yet to receive possession and seek
possession, with or without delay compensation; or

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A d) Those who are yet to receive possession and seek to obtain
refunds of sale consideration with interest.
e) Each of the above may be without or without NCDRC/
RERA orders/decrees.”
54. It has been argued that different instructions may be given by
B different allottees making it difficult for the authorised representatives
to vote on the Committee of Creditors and that in any case, the collegiality
of the secured creditors will be disturbed. To this the answer is that like
other financial creditors, be they banks and financial institutions, or other
individuals, all persons who have advanced monies to the corporate debtor
C should have the right to be on the Committee of Creditors. True, allottees
are unsecured creditors, but they have a vital interest in amounts that
are advanced for completion of the project, maybe to the extent of 100%
of the project being funded by them alone. As has been correctly argued
by the learned Additional Solicitor General, under the proviso to Section
21(8) of the Code if the corporate debtor has no financial creditors, then
D under Regulation 16 of the Insolvency and Bankruptcy Board of
India(Insolvency Resolution Process for Corporate Persons)
Regulations, 2016, up to 18 operational creditors then become the
Committee of Creditors or, if there are more than 18 operational creditors,
the highest in order of debt owed to operational creditors to the extent of
E the first 18 are then represented on the Committee of Creditors together,
with a representative of the workers. If allottees who have funded a
real estate project of the corporate debtor to the extent of 100% are
neither financial creditors nor operational creditors, the mechanism of
the Committee of Creditors, who is now to take decisions after the Code
is triggered as to the future of the corporate debtor, will be non-existent
F in a case where there are no operational creditors and no secured
creditors, because 100% of the project is funded by the allottees. Even
otherwise, as correctly argued by the learned Additional Solicitor General,
it would in fact be manifestly arbitrary to omit allottees from the Committee
of Creditors when they are vitally interested in the future of the corporate
G debtor as they have funded anywhere from 50% to 100% of the project
in most cases.
55. On this point, we were referred to the Insolvency and
Bankruptcy Code (Amendment) Bill, 2019, which has just passed through

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the Parliament, to amend the provisions of the Code in various aspects. A
What is interesting is the insertion of Section 25A(3A) as follows:
“5. In section 25A of the principal Act, after sub-section (3), the
following sub-section shall be inserted, namely-
“(3A) Notwithstanding anything to the contrary contained in
sub-section (3), the authorised representative under sub-section B
(6A) of section 21 shall cast his vote on behalf of all the financial
creditors he represents in accordance with the decision taken by
a vote of more than fifty per cent of the voting share of the
financial creditors he represents, who have cast their vote:
Provided that for a vote to be cast in respect of an application C
under section 12A, the authorised representative shall cast his
vote in accordance with the provisions of sub-section (3).”
Given the fact that allottees may not be a homogenous group, yet
there are only two ways in which they can vote on the Committee
of Creditors – either to approve or to disapprove of a proposed D
resolution plan. Sub-section (3A) goes a long way to ironing out
any creases that may have been felt in the working of Section
25A in that the authorised representative now casts his vote on
behalf of all financial creditors that he represents. If a decision
taken by a vote of more than 50% of the voting share of the E
financial creditors that he represents is that a particular plan be
either accepted or rejected, it is clear that the minority of those
who vote, and all others, will now be bound by this decision. As
has been stated by us in Swiss Ribbons (supra), the legislature
must be given free play in the joints to experiment. Minor hiccups
that may arise in implementation can always be sorted out later. F
Thus, any challenge to the machinery provisions contained in
Sections 21(6A) and 25A of the Code must be repelled.
The doctrine of ‘Reading Down’
56. Several counsel appearing on behalf of the Petitioners made
G
alternative submissions stating that if the Constitutional validity of the
impugned provisions is to be upheld, then the amendment to the Code
needs to be read-down so as to make it conform with Article 14 and
19(1)(g) and 300-A. Different suggestions were given as to reading

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A down these provisions by different counsel. According to some of them,
before an order admitting a Section 7 application is made, all the financial
creditors of the corporate debtor could be called to the NCLT so that the
NCLT can then ascertain their views. If the vast majority of them were
to state that they would prefer to remain outside the Code, then the
Section 7 application filed by a single allottee ought to be dismissed.
B
Another learned counsel stated that there should be a threshold limit by
which at least 25% of the total number of allottees of the project should
be reached before they could trigger the Code. Other learned counsel
suggested that at the stage of the Section 7 application, an inquiry be
made to see if the corporate debtor is otherwise well-managed and is
C solvent, in which case the Section 7 application ought to be dismissed.
Shri Jayant Bhushan, learned Senior Advocate appearing on behalf of
some of the Petitioners, also suggested that allottees ought not to be
allowed to trigger the Code at all, but that if the Code is otherwise
triggered, they can be members of the Committee of Creditors to take
decisions that will be beneficial to them. It was also suggested that,
D
before the Code is triggered by an allottee, there should be a finding of
“default” from the authorities under RERA. This is not unknown to law,
and this Court has itself stated, in another context, that a jurisdictional
finding by the Telecom Regulatory Authority of India must first be
obtained before the Competition Commission of India gives a finding on
E unfair competition in the telecom sector, and the case of Competition
Commission of India v. Bharti Airtel Limited and Ors. (2019) 2
SCC 521 was relied upon for this purpose. All these arguments were
really made based on the presumption that some allottees who may now
want to back out of the transaction and get a return of their money
owing to factors which may be endemic to them, or owing to the fact
F
that the market may have slumped as a result of which the investment
made by them in the flat/apartment would fall flat requiring them to pull
out of the transaction, would then be able to trigger the Code malafide,
and a reading down of these provisions would, therefore, obviate such
problem. All these arguments have been refuted in detail earlier in this
G judgment. In a Section 7 application made by an allottee, the NCLT’s
‘satisfaction’ will be with both eyes open – the NCLT will not turn a
Nelson’s eye to legitimate defences by a real estate developer, as outlined
by us hereinabove. There is, therefore, no necessity to read into or read
down any of these provisions. Also, in Cellular Operators Association
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of India v. TRAI (2016) 7 SCC 703, this Court held that when a provision A
is cast in definite and unambiguous language, it is not permissible either
to mend or bend it, even if such recasting is in accord with good reason
and conscience. This Court said:
“50. But it was said that the aforesaid Regulation should be read
down to mean that it would apply only when the fault is that of the B
service provider. We are afraid that such a course is not open to
us in law, for it is well settled that the doctrine of reading down
would apply only when general words used in a statute or
regulation can be confined in a particular manner so as not to
infringe a constitutional right. This was best exemplified in one of
the earliest judgments dealing with the doctrine of reading down, C
namely, the judgment of the Federal Court in Hindu Women’s
Rights to Property Act, 1937, In re [Hindu Women’s Rights to
Property Act, 1937, In re, 1941 SCC OnLine FC 3 : AIR 1941
FC 72] . In that judgment, the word “property” in Section 3 of the
Hindu Women’s Rights to Property Act was read down so as not D
to include agricultural land, which would be outside the Central
Legislature’s powers under the Government of India Act, 1935.
This is done because it is presumed that the legislature did not
intend to transgress constitutional limitations. While so reading
down the word “property”, the Federal Court held: (SCC OnLine
FC) E

“… If the restriction of the general words to purposes within the
power of the legislature would be to leave an Act with nothing or
next to nothing in it, or an Act different in kind, and not merely
in degree, from an Act in which the general words were given
the wider meaning, then it is plain that the Act as a whole must be F
held invalid, because in such circumstances it is impossible to assert
with any confidence that the legislature intended the general words
which it has used to be construed only in the narrower sense:
Owners of SS Kalibia v. Wilson [Owners of SS Kalibia v.
Wilson, (1910) 11 CLR 689 (Aust)] , Vacuum Oil Co. Pty. Ltd. v. G
Queensland [Vacuum Oil Co. Pty. Ltd.v. Queensland, (1934)
51 CLR 677 (Aust)] , R. v. Commonwealth Court of
Conciliation and Arbitration, ex p Whybrow & Co.
[R. v. Commonwealth Court of Conciliation and Arbitration,

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A ex p Whybrow & Co., (1910) 11 CLR 1 (Aust)] and British
Imperial Oil Co. Ltd. v. Federal Commr. of Taxation [British
Imperial Oil Co. Ltd. v. Federal Commr. of Taxation, (1925) 35
CLR 422 (Aust)] .”
(emphasis in original)
B 51. This judgment was followed by a Constitution Bench of this
Court in DTC v. Mazdoor Congress [DTC v. Mazdoor
Congress, 1991 Supp (1) SCC 600 : 1991 SCC (L&S) 1213] . In
that case, a question arose as to whether a particular regulation
which conferred power on an authority to terminate the services
C of a permanent and confirmed employee by issuing a notice
terminating his services, or by making payment in lieu of such
notice without assigning any reasons and without any opportunity
of hearing to the employee, could be said to be violative of the
appellants’ fundamental rights. Four of the learned Judges who
heard the case, the Chief Justice alone dissenting on this aspect,
D decided that the regulation cannot be read down, and must,
therefore, be held to be unconstitutional. In the lead judgment on
this aspect by Sawant, J., this Court stated: (SCC pp. 728-29,
para 255)
“255. It is thus clear that the doctrine of reading down or of
E recasting the statute can be applied in limited situations. It is
essentially used, firstly, for saving a statute from being struck down
on account of its unconstitutionality. It is an extension of the
principle that when two interpretations are possible—
one rendering it constitutional and the other making it
F unconstitutional, the former should be preferred. The
unconstitutionality may spring from either the incompetence of
the legislature to enact the statute or from its violation of any of
the provisions of the Constitution. The second situation which
summons its aid is where the provisions of the statute are vague
and ambiguous and it is possible to gather the intentions of the
G legislature from the object of the statute, the context in which the
provision occurs and the purpose for which it is made. However,
when the provision is cast in a definite and unambiguous
language and its intention is clear, it is not permissible either
to mend or bend it even if such recasting is in accord with
H good reason and conscience. In such circumstances, it is not
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possible for the court to remake the statute. Its only duty is to A
strike it down and leave it to the legislature if it so desires, to
amend it. What is further, if the remaking of the statute by the
courts is to lead to its distortion that course is to be scrupulously
avoided. One of the situations further where the doctrine can
never be called into play is where the statute requires extensive
B
additions and deletions. Not only it is no part of the court’s duty to
undertake such exercise, but it is beyond its jurisdiction to do so.”
(emphasis in original)
57. Given the fact that the Amendment Act has been held to be
constitutionally valid, and considering that its language is clear and C
unambiguous, it is not possible to accede to the contentions of the
Petitioners to read down the clear provisions of the Amendment Act in
the manner suggested by them.
Interpretation of Section 5(8)(f) of the Code
58. Section 5(8)(f) of the Code has been set out in the beginning D
of this judgment. What has been argued by learned counsel on behalf of
the Petitioners is that Section 5(8)(f), as it originally stood, is an exhaustive
provision which must be read noscitur a sociis, and if so read,
sub-clause (f) must take colour from the other clauses of the provision,
all of which show that the sine qua non of a “financial debt” is a loan of E
money made with or without interest, which must then be returned as
money. This, according to the learned counsel for the Petitioners, is clear
from even a cursory reading of Section 5(8). Secondly, according to
learned counsel for the Petitioners, by no stretch of imagination, could
an allottee under a real estate project fall within Section 5(8)(f), as it
originally stood and the explanation must then be read prospectively i.e. F
only on and from the date of the Amendment Act. Several sub-arguments
were made on the effect of deeming fictions generally and on the functions
of an explanation to a Section. Let us address all of these arguments.
59. First and foremost, a financial debt is defined as meaning a
“debt”. “Debt” is defined by Section 3(11) of the Code as follows: G
“3. Definitions.- In this Code, unless the context otherwise
requires, -
xxx xxxxxx
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A (11) “debt” means a liability or obligation in respect of a claim
which is due from any person and includes a financial debt and
operational debt;
This definition in turn takes us to the definition of “claim” in Section
3(6) and “default” in Section 3(12) of the Code which read as follows:
B “(6) “claim” means-
(a) a right to payment, whether or not such right is reduced to
judgment, fixed, disputed, undisputed, legal, equitable, secured or
unsecured;

C (b) right to remedy for breach of contract under any law for the
time being in force, if such breach gives rise to a right to payment,
whether or not such right is reduced to judgment, fixed, matured,
unmatured, disputed, undisputed, secured or unsecured;
xxx xxxxxx
D (12) “default” means non-payment of debt when whole or any
part of the instalment of the amount of debt has become due and
payable and is not paid by the debtor or the corporate debtor, as
the case may be;”

E 60. Thus, in order to be a “debt”, there ought to be a liability or
obligation in respect of a “claim” which is due from any person. “Claim”
then means either a right to payment or a right to payment arising out of
breach of contract, and this claim can be made whether or not such right
to payment is reduced to judgment. Then comes “default”, which in turn
F refers to non-payment of debt when whole or any part of the debt has
become due and payable and is not paid by the corporate debtor. Learned
counsel for the Petitioners relied upon the judgment in Union of India
v. Raman Iron Foundry (1974) 2 SCC 231, and, in particular relied
strongly upon the sentence reading:
G “11....Now the law is well settled that a claim for unliquidated
damages does not give rise to a debt until the liability is
adjudicated and damages assessed by a decree or order of a court
or other adjudicatory authority.”

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It is precisely to do away with judgments such as Raman Iron A
Foundry(supra) that “claim” is defined to mean a right to payment or a
right to remedy for breach of contract whether or not such right is reduced
to judgment. What is clear, therefore, is that a debt is a liability or obligation
in respect of a right to payment, even if it arises out of breach of contract,
which is due from any person, notwithstanding that there is no adjudication
B
of the said breach, followed by a judgment or decree or order. The
expression “payment” is again an expression which is elastic enough to
include “recompense”, and includes repayment. For this purpose, see
Himachal Pradesh Housing and Urban Development Authority
and Anr. v. Ranjit Singh Rana (2012) 4 SCC 505 (at paragraphs 13
and 14 therein), where the Webster’s Comprehensive Dictionary C
(International Edn.) Vol. 2 and the Law Lexicon by P. Ramanatha Aiyar
(2ndEdn., Reprint) are quoted.
61. The definition of “financial debt” in Section 5(8) then goes on
to state that a “debt” must be “disbursed” against the consideration for
time value of money.”Disbursement” is defined in Black’s Law Dictionary D
(10th ed.) to mean:
“1. The act of paying out money, commonly from a fund or in
settlement of a debt or account payable. 2. The money so paid;
an amount of money given for a particular purpose.”
In the present context, it is clear that the expression “disburse” E
would refer to the payment of instalments by the allottee to the real
estate developer for the particular purpose of funding the real estate
project in which the allottee is to be allotted a flat/apartment. The
expression “disbursed” refers to money which has been paid against
consideration for the “time value of money”. In short, the “disbursal” F
must be money and must be against consideration for the “time value of
money”, meaning thereby, the fact that such money is now no longer
with the lender, but is with the borrower, who then utilises the money.
Thus far, it is clear that an allottee “disburses” money in the form of
advance payments made towards construction of the real estate project.
We were shown the ‘Dictionary of Banking Terms’ (Second edition) by G
Thomas P. Fitch in which “time value for money” was defined thus:
“present value: today’s value of a payment or a stream of
payment amount due and payable at some specified future date,

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A discounted by a compound interest rate of DISCOUNT RATE.
Also called the time value of money. Today’s value of a stream
of cash flows is worth less than the sum of the cash flows to be
received or saved over time. Present value accounting is widely
used in DISCOUNTED CASH FLOW analysis.”
B That this is against consideration for the time value of money is
also clear as the money that is “disbursed” is no longer with the allottee,
but, as has just been stated, is with the real estate developer who is
legally obliged to give money’s equivalent back to the allottee, having
used it in the construction of the project, and being at a discounted value
so far as the allottee is concerned (in the sense of the allottee having to
C pay less by way of instalments than he would if he were to pay for the
ultimate price of the flat/apartment).
62. Shri Krishnan Venugopal took us to the ACT Borrower’s Guide
to the LMA’s Investment Grade Agreements by Slaughter and May
(Fifth Edition, 2017). In this book “financial indebtedness” is defined
D thus:
“Definition of Financial Indebtedness (Investment Grade
Agreements)
“Financial Indebtedness” means any indebtedness for or in
E respect of:
(a) moneys borrowed;
(b) any amount raised by acceptance under any acceptance credit
facility or dematerialised equivalent;
(c) any amount raised pursuant to any note purchase facility or
F
the issue of bonds, notes, debentures, loan stock or any similar
instrument;
(d) the amount of any liability in respect of any lease or hire
purchase contract which would, in accordance with GAAP,
be treated as a balance sheet liability [(other than any liability
G in respect of a lease or hire purchase contract which would, in
accordance with GAAP in force [ prior to 1 January 2019] /
[prior to [ ]] /[ ] have been treated as an operating lease)];

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(e) receivables sold or discounted (other than any receivables to A
the extent they are sold on a non -recourse basis);
(f) any amount raised under any other transaction (including any
forward sale or purchase agreement) of a type not referred to
in any other paragraph of this definition having the commercial
effect of a borrowing; B
(g) any derivative transaction entered into in connection with
protection against or benefit form fluctuation in any rate or
price (and, when calculating the value of any derivative
transaction, only the marked to market value (or, if any actual
amount is due as a result of the termination or close-out of that C
derivative transaction, that amount) shall be taken into account);
(h) any counter-indemnity obligation in respect of a guarantee,
indemnity, bond, standby or documentary letter of credit or
any other instrument issued by a bank or financial institution;
and D
(i) the amount of any liability in respect of any guarantee or
indemnity for any of the items referred to in paragraphs (a) to
(h) above.”
63. When compared with Section 5(8), it is clear that Section 5(8)
seems to owe its genesis to the definition of “financial indebtedness” E
that is contained for the purposes of Investment Grade Agreements.
Shri Venugopal argued that even insofar as derivative transactions are
concerned, it is clear that money alone is given against consideration for
time value of money and a transaction which is a pure sale agreement
between “borrowers” and “lender” cannot possibly be said to fit within F
any of the categories mentioned in Section 5(8).He relied strongly on
the passage in Slaughter and May’s book which are extracted
hereinbelow:
“Any amount raised having the “commercial effect of a
borrowing”
G
A wide range of transactions can be caught by paragraph (f),
including for example forward purchases and sales of currency

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512 SUPREME COURT REPORTS [2019] 10 S.C.R.

A and repo agreements. Conditional and credit sale arrangements
could also be covered here as could certain redeemable shares.
The precise scope of this limb can be uncertain. Ideally, from the
Borrower’s perspective, if there are additional categories of debt
which should be included in “Financial Indebtedness”, these should
B be described specifically and this catch- all paragraph, deleted. A
few strong Borrowers do achieve that position. Most, however
are required to accept the “catch-all” and will therefore need to
consider which of their liabilities might be caught by it, and whether
specific exclusions might be required.”
C 64. What is clear from what Shri Venugopal has read to us is that
a wide range of transactions are subsumed by paragraph (f) and that the
precise scope of paragraph (f) is uncertain. Equally, paragraph (f) seems
to be a “catch all” provision which is really residuary in nature, and
which would subsume within it transactions which do not, in fact, fall
under any of the other sub-clauses of Section 5(8).
D
65. And now to the precise language of Section 5(8)(f). First and
foremost, the sub-clause does appear to be a residuary provision which
is “catch all” in nature. This is clear from the words “any amount” and
“any other transaction” which means that amounts that are “raised”
under “transactions” not covered by any of the other clauses, would
E amount to a financial debt if they had the commercial effect of a
borrowing. The expression “transaction” is defined by Section 3(33) of
the Code as follows:
(33) “transaction” includes an agreement or arrangement in
writing for the transfer of assets, or funds, goods or services,
F from or to the corporate debtor;
As correctly argued by the learned Additional Solicitor General,
the expression “any other transaction” would include an arrangement in
writing for the transfer of funds to the corporate debtor and would thus
clearly include the kind of financing arrangement by allottees to real
G estate developers when they pay instalments at various stages of
construction, so that they themselves then fund the project either partially
or completely.
66. Sub-clause (f) Section 5(8) thus read would subsume within it
amounts raised under transactions which are not necessarily loan
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transactions, so long as they have the commercial effect of a borrowing. A
We were referred to Collins English Dictionary& Thesaurus (Second
Edition, 2000) for the meaning of the expression “borrow” and the meaning
of the expression “commercial”. They are set out hereinbelow:
“borrow-vb 1.to obtain or receive (something, such as money)
on loan for temporary use, intending to give it, or something B
equivalent back to the lender. 2. to adopt (ideas, words, etc.) from
another source; appropriate. 3. Not standard. to lend. 4.(intr) Golf.
To putt the ball uphill of the direct path to the hole: make sure you
borrow enough.”
xxx xxxxxx C
“commercial. -adj. 1. of or engaged in commerce. 2. sponsored
or paid for by an advertiser: commercial television. 3.having profit
as the main aim: commercial music. 4. (of chemicals, etc.)
unrefined and produced in bulk for use in industry.
5. a commercially sponsored advertisement on radio or D
television.”
67. A perusal of these definitions would show that even though
the Petitioners may be right in stating that a “borrowing” is a loan of
money for temporary use, they are not necessarily right in stating that
the transaction must culminate in money being given back to the lender. E
The expression “borrow” is wide enough to include an advance given by
the home buyers to a real estate developer for “temporary use” i.e. for
use in the construction project so long as it is intended by the agreement
to give “something equivalent” to money back to the home buyers. The
“something equivalent” in these matters is obviously the flat/apartment.
Also of importance is the expression “commercial effect”. “Commercial” F
would generally involve transactions having profit as their main aim.
Piecing the threads together, therefore, so long as an amount is “raised”
under a real estate agreement, which is done with profit as the main aim,
such amount would be subsumed within Section 5(8)(f) as the sale
agreement between developer and home buyer would have the G
“commercial effect” of a borrowing, in that, money is paid in advance
for temporary use so that a flat/apartment is given back to the lender.
Both parties have “commercial” interests in the same – the real estate
developer seeking to make a profit on the sale of the apartment, and the
flat/apartment purchaser profiting by the sale of the apartment. Thus
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514 SUPREME COURT REPORTS [2019] 10 S.C.R.

A construed, there can be no difficulty in stating that the amounts raised
from allottees under real estate projects would, in fact, be subsumed
within Section 5(8)(f) even without adverting to the explanation introduced
by the Amendment Act.
68. However, Dr. Singhvi strongly relied upon the report of the
B Bankruptcy Law Reforms Committee of November, 2015 and in
particular paragraph 3 of ‘Box 5.2 – Trigger for IRP’ which states that
financial creditors are persons where the liability to the debtor arises
from a “solely” financial transaction. This Committee report, which led
to the enactment of the Code, is an important guide in understanding the
provisions of the Code. However, where the provisions of the Code, as
C construed in the light of the objects of the Code, are clear, the fact that
from a huge report one word is picked up to indicate that all financial
creditors must have debtors who owe money “solely” from financial
transactions cannot possibly have the effect of negating the plain language
of Section 5(8)(f) of the Code. In fact, what is important is that the
D threshold limit to trigger the Code is purposely kept low –at only one
lakh rupees – making it clear that small individuals may also trigger the
Code as financial creditors(as financial creditors include debenture holders
and bond holders), along with banks and financial institutions to whom
crores of money may be due.
E 69. That this amendment is in fact clarificatory is also made clear
by the Insolvency Committee Report, which expressly uses the word
“clarify”, indicating that the Insolvency Law Committee also thought
that since there were differing judgments and doubts raised on whether
home buyers would or would not be included within Section 5(8)(f), it
was best to set these doubts at rest by explicitly stating that they would
F be so covered by adding an explanation to Section 5(8)(f). Incidentally,
the Insolvency Law Committee itself had no doubt that given the
‘financing’ of the project by the allottees, they would fall within Section
5(8)(f) of the Code as originally enacted.
70. And now some of the other arguments on behalf of the
G Petitioners need to be met. According to learned counsel for the
Petitioners, the expression “means and includes” would indicate that
that the definition section is exhaustive, and this being so, alien subject
matter such as home buyers cannot be inserted therein. For this
proposition, they relied upon P. Kasilingam and Ors. v. P.S.G. College
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of Technology and Ors. (1995) Supp (2) SCC 348 at paragraph 19 A
where this Court held as under:
“19. We will first deal with the contention urged by Shri Rao
based on the provisions of the Act and the Rules. It is no doubt
true that in view of clause (3) of Section 1 the Act applies to all
private colleges. The expression ‘college’ is, however, not B
defined in the Act. The expression “private college” is defined in
clause (8) of Section 2 which can, in the absence of any
indication of a contrary intention, cover all colleges including
professional and technical colleges. An indication about such an
intention is, however, given in the Rules wherein the expression
‘college’ has been defined in Rule 2(b) to mean and include Arts C
and Science College, Teachers’ Training College, Physical
Education College, Oriental College, School of Institute of Social
Work and Music College. While enumerating the various types of
colleges in Rule 2(b) the rule-making authority has deliberately
refrained from including professional and technical colleges in the D
said definition. It has been urged that in Rule 2(b) the expression
“means and includes” has been used which indicates that the
definition is inclusive in nature and also covers categories which
are not expressly mentioned therein. We are unable to agree. A
particular expression is often defined by the Legislature by using
the word ‘means’ or the word ‘includes’. Sometimes the words E
‘means and includes’ are used. The use of the word ‘means’
indicates that “definition is a hard-and-fast definition, and no other
meaning can be assigned to the expression than is put down in
definition”. (See : Gough v. Gough [(1891) 2 QB 665 : 60 LJ QB
726] ; Punjab Land Development and Reclamation Corpn. F
Ltd. v. Presiding Officer, Labour Court [(1990) 3 SCC 682, 717
: 1991 SCC (L&S) 71] .) The word ‘includes’ when used,
enlarges the meaning of the expression defined so as to
comprehend not only such things as they signify according to their
natural import but also those things which the clause declares that
they shall include. The words “means and includes”, on the other G
hand, indicate “an exhaustive explanation of the meaning which,
for the purposes of the Act, must invariably be attached to these
words or expressions”. (See : Dilworth v. Commissioner of
Stamps [1899 AC 99, 105-106 : (1895-9) All ER Rep Ext 1576]
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516 SUPREME COURT REPORTS [2019] 10 S.C.R.

A (Lord Watson); Mahalakshmi Oil Mills v. State of A.P. [(1989)
1 SCC 164, 169 : 1989 SCC (Tax) 56] The use of the words
“means and includes” in Rule 2(b) would, therefore, suggest that
the definition of ‘college’ is intended to be exhaustive and not
extensive and would cover only the educational institutions falling
in the categories specified in Rule 2(b) and other educational
B
institutions are not comprehended. Insofar as engineering colleges
are concerned, their exclusion may be for the reason that the
opening and running of the private engineering colleges are
controlled through the Board of Technical Education and Training
and the Director of Technical Education in accordance with the
C directions issued by the AICTE from time to time. As noticed
earlier the Grants-in-Aid Code contains provisions which, in many
respects, cover the same field as is covered by the Act and the
Rules. The Director of Technical Education has been entrusted
with the functions of proper implementation of those provisions.
There is nothing to show that the said arrangement was not working
D
satisfactorily so as to be replaced by the system sought to be
introduced by the Act and the Rules. Rule 2(d), on the other hand,
gives an indication that there was no intention to disturb the
existing arrangement regarding private engineering colleges
because in that rule the expression ‘Director’ is defined to mean
E the Director of Collegiate Education. The Director of Technical
Education is not included in the said definition indicating that the
institutions which are under the control of Directorate of College
Education only are to be covered by the Act and the Rules and
technical educational institutions in the State of Tamil Nadu which
are controlled by the Director of Technical Education are not so
F
covered.”
71. On the other hand, the learned Additional Solicitor General
countered this submission by reference to Krishi Utpadan Mandi Samiti
v. Shankar Industries (1993) Supp (3) SCC 361 (2), where, at
paragraphs 5 and 12, this Court held:
G
“5. Section 2(a) of the Act defines ‘agricultural produce’ and reads
as under:
“2. (a) ‘agricultural produce’ means such items of produce of
agriculture, horticulture, viticulture, apiculture, sericulture,
H pisciculture, animal husbandry or forest as are specified in the
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Schedule, and includes admixture of two or more of such items, A
and also includes any such item in processed form, and further
includes gur, rab, shakkar, khandsari and jaggery.”
xxxxxxxxx
12. We have considered the arguments advanced on behalf of
the parties and have perused the record. A perusal of the B
definition of agricultural produce under Section 2(a) of the Act
shows that apart from items of produce of agriculture,
horticulture, viticulture, piculture, sericulture, pisciculture, animal
husbandry or forest as are specified in the Schedule, the
definition further ‘includes admixture of two or more such items’ C
and thereafter it further ‘includes taking any such item in pro-
cessed form’ and again for the third time the words used are ‘and
further includes gur, rab, shakkar, khandsari and jaggery’. It is a
well settled rule of interpretation that where the legislature uses
the words ‘means’ and ‘includes’ such definition is to be given a
wider meaning and is not exhaustive or restricted to the items D
contained or included in such definition. Thus the meaning of ‘ag-
ricultural produce’ in the above definition is not restricted to any
products of agriculture as specified in the Schedule but also in-
cludes such items which come into being in processed form and
further includes such items which are called as gur, rab, shakkar, E
khandsari and jaggery.”
72. This statement of the law, as can be seen from the quotation
hereinabove, is without citation of any authority. In fact, in Jagir Singh
& Ors. v. State of Bihar & Anr. (1976) 2 SCC 942 at paragraphs 11
and 19 to 21 and Mahalakshmi Oil Mills v. State of Andhra Pradesh F
& Ors. (1989) 1 SCC 164, at paragraphs 8 and 11 (which has been
cited in P. Kasilingam(supra)), this Court set out definition sections
where the expression “means” was followed by some words, after which
came the expression “and includes” followed by other words, just as in
the Krishi Utpadan Mandi Samiti (supra) case. In two other recent
judgments, Bharat Coop. Bank (Mumbai) Ltd. v. Coop. Bank G
Employees Union (2007) 4 SCC 685, at paragraphs 12 and 23, and
State of West Bengal and Ors. v. Associated Contractors (2015) 1
SCC 32 at paragraph 14, this Court has held that wherever the expression
“means” is followed by the expression “and includes” whether with or
without additional words separating “means” from “includes”, these H
518 SUPREME COURT REPORTS [2019] 10 S.C.R.

A expressions indicate that the definition provision is exhaustive as a matter
of statutory interpretation. It has also been held that the expression “and
includes” is an expression which extends the definition contained in words
which follow the expression “means”. From this discussion, two things
follow. Krishi Utpadan Mandi Samiti (supra) cannot be said to be
good law insofar as its exposition on “means” and “includes” is concerned,
B
as it ignores earlier precedents of larger and coordinate benches and is
out of sync with later decisions on the same point. Equally, Dr. Singhvi’s
argument that sub-clauses (a) to (i) of Section 5(8) of the Code must all
necessarily reflect the fact that a financial debt can only be a debt which
is disbursed against the consideration for the time value of money, and
C which permeates clauses (a) to (i), cannot be accepted as a matter of
statutory interpretation, as the expression “and includes” speaks of subject
matters which may not necessarily be reflected in the main part of the
definition.
73. In any event, as was correctly argued by learned Additional
D Solicitor General Mrs. Madhavi Divan, the legislature is not precluded
by way of amendment from inserting words into what may even be an
exhaustive definition. What is an exhaustive definition is exhaustive for
purposes of interpretation of a statute by the Courts,which cannot bind
the legislature when it adds something to the statute by way of amendment.
On this score also, there is no substance in the aforesaid argument.
E
74. It was then argued, relying on a large number of judgments
that Section 5(8)(f) must be construed noscitur a sociiswith sub-clauses
(a) to (e) and (g) to (i), and so construed would only refer to loans or
other financial transactions which would involve money at both ends.
This, again, is not correct in view of the fact that Section 5(8)(f) is
F clearly a residuary “catch all” provision, taking within it matters which
are not subsumed within the other sub-clauses. Even otherwise, in
Controller of Estate Duty v. Kantilal Trikamlal(1976) 4 SCC 643,
this Court has held that when an expression is a residuary one, ejusdem
generis will not apply. It was thus held:
G “21…We have also to stress the expression “other right” in the
explanation which is of the widest import and cannot be
constricted by reading it ejusdem generis with “debt”. “Other
right”, in the context, is expressly meant considerably to widen
the concept and therefore suggests a somewhat contrary
H intention to the application of the ejusdem generis rule. We may
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derive instruction from Green’s construction of the identical A
expression in the English Act. [Section 45 (2)]. The learned
author writes:
“A disclaimer is an extinguishment of a right for this purpose.
Although in the event the person disclaiming never has any right
in the property, he has the right to obtain it, this inchoate right is a B
‘right’ for the purposes of Section 45(2). The ejusdem generis
rule does not apply to the words ‘a debt or other right’ and the
word ‘right’ is a word of the widest import. Moreover, the
expression ‘at the expense of the deceased’ is used in an ordinary
and natural manner; and is apt to cover not only cases where the
extinguishment involves a loss to the deceased of a benefit he C
already enjoyed, but also those where it prevents him from
acquiring the benefit.”
Also, in Subramanian Swamy v. Union of India (2016) 7 SCC
221, this Court held:
D
“70. The other aspect that is being highlighted in the context of
Article 19(2) is that defamation even if conceived of to include a
criminal offence, it must have the potentiality to “incite to cause
an offence”. To elaborate, the submission is the words “incite to
cause an offence” should be read to give attributes and
characteristics of criminality to the word “defamation”. It must E
have the potentiality to lead to breach of peace and public order.
It has been urged that the intention of clause (2) of Article 19 is to
include a public law remedy in respect of a grievance that has a
collective impact but not as an actionable claim under the
common law by an individual and, therefore, the word F
“defamation” has to be understood in that context, as the
associate words are “incitement to an offence” would so
warrant. Mr Rao, learned Senior Counsel, astutely canvassed that
unless the word “defamation” is understood in this manner
applying the principle of noscitur a sociis, the cherished and
natural right of freedom of speech and expression which has been G
recognised under Article 19(1)(a) would be absolutely at peril.
Mr Narasimha, learned ASG would contend that the said rule of
construction would not be applicable to understand the meaning
of the term “defamation”. Be it noted, while construing the
provision of Article 19(2), it is the duty of the Court to keep in H
520 SUPREME COURT REPORTS [2019] 10 S.C.R.

A view the exalted spirit, essential aspects, the value and philosophy
of the Constitution. There is no doubt that the principle of
noscitur a sociis can be taken recourse to in order to understand
and interpret the Constitution but while applying the principle, one
has to keep in mind the contours and scope of applicability of the
said principle.
B
71. In State of Bombay v. Hospital Mazdoor Sabha [State of
Bombay v. Hospital Mazdoor Sabha, AIR 1960 SC 610 : (1960)
2 SCR 866] , it has been held that it must be borne in mind that
noscitur a sociis is merely a rule of construction and it cannot
prevail in cases where it is clear that wider words have been
C deliberately used in order to make the scope of the defined word
correspondingly wider. It is only where the intention of the
legislature in associating wider words with words of narrower
significance is doubtful, or otherwise not clear that the said rule of
construction can be usefully applied. It can also be applied where
D the meaning of the words of wider import is doubtful; but, where
the object of the legislature in using wider words is clear and free
of ambiguity, the rule of construction in question cannot be pressed
into service.
72. In Bank of India v. Vijay Transport [Bank of India v. Vijay
E Transport, 1988 Supp SCC 47 : AIR 1988 SC 151] , the Court
was dealing with the contention that a literal interpretation is not
always the only interpretation of a provision in a statute and the
court has to look at the setting in which the words are used and
the circumstances in which the law came to be passed to decide
whether there is something implicit behind the words actually used
F which would control the literal meaning of the words used. For
the said purpose, reliance was placed on R.L. Arora (2) v. State
of U.P. [R.L. Arora (2) v. State of U.P., (1964) 6 SCR 784 : AIR
1964 SC 1230] . Dealing with the said aspect, the Court has
observed thus: (Vijay Transport case [Bank of India v. Vijay
G Transport, 1988 Supp SCC 47 : AIR 1988 SC 151] , SCC p. 51,
para 11)
“11. … It may be that in interpreting the words of the provision of
a statute, the setting in which such words are placed may be
taken into consideration, but that does not mean that even though
H the words which are to be interpreted convey a clear meaning,
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still a different interpretation or meaning should be given to them A
because of the setting. In other words, while the setting of the
words may sometimes be necessary for the interpretation of the
words of the statute, but that has not been ruled by this Court to
be the only and the surest method of interpretation.”
73. The Constitution Bench, in Godfrey Phillips India Ltd. v. B
State of U.P. [Godfrey Phillips India Ltd. v. State of U.P., (2005)
2 SCC 515] , while expressing its opinion on the aforesaid rule of
construction, opined: (SCC pp. 550 & 551, paras 81 & 83)
“81. We are aware that the maxim of noscitur a sociis may be a
treacherous one unless the “societas” to which the “socii” C
belong, are known. The risk may be present when there is no
other factor except contiguity to suggest the “societas”. But where
there is, as here, a term of wide denotation which is not free from
ambiguity, the addition of the words such as “including” is
sufficiently indicative of the societas. As we have said, the word
“includes” in the present context indicates a commonality or shared D
features or attributes of the including word with the included.
***
83. Hence on an application of general principles of
interpretation, we would hold that the word “luxuries” in Entry 62 E
of List II means the activity of enjoyment of or indulgence in that
which is costly or which is generally recognised as being beyond
the necessary requirements of an average member of society
and not articles of luxury.”
74. At this juncture, we may note that in Ahmedabad (P) F
Primary Teachers’ Assn. v. Administrative Officer [Ahmedabad
(P) Primary Teachers’ Assn. v. Administrative Officer, (2004)
1 SCC 755 : 2004 SCC (L&S) 306] , it has been stated that
noscitur a sociis is a legitimate rule of construction to construe
the words in an Act of Parliament with reference to the words
found in immediate connection with them. In this regard, we may G
refer to a passage from Justice G.P. Singh, Principles of
Statutory Interpretation [(13th Edn., 2012) 509.] where the
learned author has referred to the lucid explanation given by
Gajendragadkar, J. We think it appropriate to reproduce the
passage:
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522 SUPREME COURT REPORTS [2019] 10 S.C.R.

A “It is a rule wider than the rule of ejusdem generis; rather the
latter rule is only an application of the former. The rule has been
lucidly explained by Gajendragadkar, J. in the following words:
‘This rule, according to Maxwell [ Maxwell, Interpretation of
Statutes (11th Edn., 1962) 321.] , means that when two or more
B words which are susceptible of analogous meaning are coupled
together, they are understood to be used in their cognate sense.
They take as it were their colour from each other, that is, the
more general is restricted to a sense analogous to a less
general.’”
C The learned author on further discussion has expressed the view
that meaning of a word is to be judged from the company it keeps
i.e. reference to words found in immediate connection with them.
It applies when two or more words are susceptible of analogous
meanings are coupled together, to be read and understood in their
cognate sense. [Principles of Statutory Interpretation by G.P.
D Singh (8th Edn.) 379.] Noscitur a sociis is merely a rule of
construction and cannot prevail where it is clear that wider and
diverse etymology is intentionally and deliberately used in the
provision. It is only when and where the intention of the
legislature in associating wider words with words of narrowest
E significance is doubtful or otherwise not clear, that the rule of
noscitur a sociis is useful.”
75. It is clear from a reading of these judgments that noscitur a
sociis being a mere rule of construction cannot be applied in the present
case as it is clear that wider words have been deliberately used in a
F residuary provision, to make the scope of the definition of “financial
debt” subsume matters which are not found in the other sub-clauses of
Section 5(8).This contention must also, therefore, be rejected.
76. It remains to deal with arguments on the effect of a deeming
fiction. Under the explanation added to Section 5(8)(f), any amount raised
G from an allottee under a real estate project shall be deemed to be an
amount having the commercial effect of a borrowing.
77. In every case in which a deeming fiction is to be construed,
the observations of Lord Asquith in a concurring judgment in East End

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Dwellings Co. Ltd. v. Finsbury Borough Council (1952) Appeal A
Cases 109 are cited. These observations read as follows:
“If you are bidden to treat an imaginary state of affairs as real,
you must surely, unless prohibited from doing so, also imagine as
real the consequences and incidents which, if the putative state of
affairs had in fact existed, must inevitably have flowed from or B
accompanied it…. The statute says that you must imagine a
certain state of affairs. It does not say that, having done so, you
must cause or permit your imagination to boggle when it comes to
the inevitable corollaries of that state of affairs.”
These observations have been followed time out of number by C
the decisions of this Court.(See for example, M. Venugopal v.
Divisional Manager, LIC (1994) 2 SCC 323 at page 329).
78. But then it was argued that, relying upon Commissioner of
Income Tax, Bombay v. Bombay Trust Corporation AIR 1930 PC
54 at 55, that the reason that a deeming fiction is introduced is that the D
subject matter of that fiction is not so in reality, which why Parliament
requires such subject matter be treated as if it were real. To similar
effect are the observations in K. Kamaraja Nadar v. Kunju Thevar
and Ors. AIR 1958 SC 687 at paragraph 28, where this Court put it
thus:
E
“The effect of such a legal fiction, however, is that a position
which otherwise would not obtain is deemed to obtain under those
circumstances.”
79. It was also argued, relying upon Delhi Cloth & General
Mills Co. Ltd. and Anr. v. State of Rajasthan and Ors. (1996) 2 F
SCC 449, that a deeming fiction can only be as to facts and cannot be
the deeming of a legal position. It was further argued relying upon Daiichi
Sankyo Company Limited v. Jayaram Chigurupati and Ors. (2010)
7 SCC 449, that a deeming provision cannot be destructive of the main
provision and cannot be construed as such.
G
80. A closer look at Delhi Cloth & General Mills Co. Ltd.
(supra) would show that the judgment in essence followed this Court’s
judgment in Shri Prithvi Cotton Mills Ltd. & Anr. v. Broach
Borough Municipality & Ors. 1969(2) SCC 283, in that the validating

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524 SUPREME COURT REPORTS [2019] 10 S.C.R.

A statute in question had not cured the defect that was pointed out. This
becomes clear on a reading of paragraph 16 and 17 of the judgment
which read as follows:
“16. The Validating Act provides that, notwithstanding anything
contained in Sections 4 to 7 of the 1959 Act or in any judgment,
B decree, order or direction of any court, the villages of Raipura
and Ummedganj should be deemed always to have continued to
exist and they continue to exist within the limits of the Kota
Municipality, to all intents and for all purposes. This provision
requires the deeming of the legal position that the villages of
Raipura and Ummedganj fall within the limits of the Kota Munici-
C pality, not the deeming of facts from which this legal consequence
would flow. A legal consequence cannot be deemed nor, there-
from, can the events that should have preceded it. Facts may be
deemed and, therefrom, the legal consequences that follow.
17. Sections 4 to 7 remained on the statute book unamended when
D the Validating Act was passed. Their provisions were mandatory.
They had admittedly not been followed. The defect of not
following these mandatory provisions in the case of the villages of
Raipura and Ummedganj was not cured by the Validating Act.
The curing of the defect was an essential requirement for the
E passing of a valid validating statute, as held by the Constitution
Bench in the case of Prithvi Cotton Mills Ltd. [(1969) 2 SCC
283 : (1970) 1 SCR 388] It must, therefore, be held that the
Validating Act is bad in law and it must be struck down.”
81. It was in this context that it was stated that the fiction of a
F legal consequence cannot be deemed, whereas facts which preceded
such consequence can so be deemed. In the present case, the deeming
provision, as has been held by us, is only clarificatory of the true legal
position as it already obtained. The present case does not concern itself
with validating statutes at all. The ratio of this judgment, therefore, would
have no application to this case.
G
82. Equally, in Daiichi Sankyo Company Limited(supra), it was
found that the deeming provision contained in sub-clause (2) of Regulation
2(1)(e) of the Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997 flew in the face
of the very idea of “persons acting in concert”, as a result of which it
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was held that a deeming fiction cannot do away with the very concept A
of “persons acting in concert” contained in the main provision. In the
present case however, far from doing away with the concept of a
“financial creditor”, we have already found that the deeming provision is
only clarificatory of the fact that allottees are to be considered as
“financial creditors” for the reasons already given by us hereinabove.
B
83. Although a deeming provision is to deem what is not there in
reality, thereby requiring the subject matter to be treated as if it were
real, yet several authorities and judgments show that a deeming fiction
can also be used to put beyond doubt a particular construction that might
otherwise be uncertain. Thus, Stroud’s Judicial Dictionary of Words and
Phrases (Seventh Edition, 2008), defines “deemed” as follows: C

“Deemed”-, as used in statutory definitions “to extend the
denotation of the defined term to things it would not in ordinary
parlance denote, is often a convenient device for reducing the
verbiage or an enactment, but that does not mean that wherever
it is used it has that effect; to deem means simply to judge or D
reach a conclusion about something, and the words ‘deem’ and
‘deemed’ when used in a statute thus simply state the effect or
meaning which some matter or things has- the way in which it is
to be adjudged ; this need not import artificiality or fiction; it may
simply be the statement of an indisputable conclusion.” E
84. In Hindustan Cooperative Housing Building Society
Limited v. Registrar, Cooperative Societies and Anr. (2009) 14
SCC 302, this Court in dealing with legal fictions generally quoted a
large number of authorities thus at paragraph 17:
“17. “13. … It is, as noted above, a deeming provision. Such a F
provision creates a legal fiction. As was stated by James, L.J. in
Levy, Re, ex p Walton [(1881) 17 Ch D 746 : (1881-85) All ER
Rep 548 (CA)] : (Ch D p. 756)
‘… When a statute enacts that something shall be deemed to
have been done, which in fact and truth was not done, the court is G
entitled and bound to ascertain for what purposes and between
what persons the statutory fiction is to be resorted to.’
After ascertaining the purpose full effect must be given to the
statutory fiction and it should be carried to its logical conclusion
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526 SUPREME COURT REPORTS [2019] 10 S.C.R.

A and to that end it would be proper and even necessary to assume
all those facts on which alone the fiction can operate. [Ed.: This
latter sentence does not form part of what was observed by James,
L.J. in ex p Walton, (1881) 17 Ch D 746 : (1881-85) All ER Rep
548 (CA) but is a paraphrase of what was observed by the
Supreme Court in State of Bombay v. Pandurang Vinayak, 1953
B
SCR 773 at p. 778. See also Ali M.K. v. State of Kerala, (2003)
11 SCC 632 : 2004 SCC (L&S) 136, SCC at p. 639, para 13.]
[See Hill v. East and West India Dock Co. [(1884) 9 AC 448
(HL)] , State of Travancore-Cochin v. Shanmugha Vilas
Cashewnut Factory [AIR 1953 SC 333] , American Home
C Products Corpn. v. Mac Laboratories (P) Ltd. [(1986) 1 SCC
465] and ParayankandiyalEravathKanapravanKalliani Amma
v. K. Devi [(1996) 4 SCC 76] .] In an oft quoted passage, Lord
Asquith stated:
‘If you are bidden to treat an imaginary state of affairs as real,
D you must surely, unless prohibited from doing so, also imagine as
real the consequences and incidents which, if the putative state of
affairs had in fact, existed, must inevitably have flowed from or
accompanied it. … The statute [states] that you must imagine a
certain state of affairs; it does not say that having done so, you
E must cause or permit your imagination to boggle when it comes to
the inevitable corollaries of that state of affairs.’
(See East End Dwellings Co. Ltd. v. Finsbury Borough
Council [1952 AC 109 : (1951) 2 All ER 587 (HL)] at AC
pp. 132-33.)
F ‘… The word “deemed” is used a great deal in modern
legislation. Sometimes it is used to impose for the purposes of a
statute an artificial construction of a word or phrase that would
not otherwise prevail. Sometimes it is used to put beyond doubt a
particular construction that might otherwise be uncertain.
G Sometimes it is used to give a comprehensive description that
includes what is obvious, what is uncertain and what is, in the
ordinary sense, impossible.’
[Per Lord Radcliffe in St. Aubyn v. Attorney General (No. 2)
[1952 AC 15 : (1951) 2 All ER 473 (HL)] , AC p. 53.]
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14. ‘Deemed’, as used in statutory definitions [is meant] A
‘to extend the denotation of the defined term to things it would not
in ordinary parlance denote, is often a convenient devise for
reducing the verbiage of an enactment, but that does not mean
that wherever it is used it has that effect; to deem means simply
to judge or reach a conclusion about something, and the words B
“deem” and “deemed” when used in a statute thus simply state
the effect or meaning which some matter or thing has — the way
in which it is to be adjudged; this need not import artificiality or
fiction; it may simply be the statement of an undisputable
conclusion.’ (Per Windener, J. in Hunter Douglas Australia Pty.
v. Perma Blinds [(1970) 44 Aust LJ R 257] .) C

15. When a thing is to be ‘deemed’ something else, it is to be
treated as that something else with the attendant consequences,
but it is not that something else (per Cave, J., in R. v. Norfolk
County Court [(1891) 60 LJ QB 379] ).
D
‘When a statute gives a definition and then adds that certain things
shall be “deemed” to be covered by the definition, it matters not
whether without that addition the definition would have covered
them or not.’(Per Lord President Cooper in Ferguson v.
McMillan [1954 SLT 109] .)
E
16. Whether the word ‘deemed’ when used in a statute
established a conclusive or a rebuttable presumption depended
upon the context (see St. Leon Village Consolidated School
Distt. v. Ronceray [(1960) 23 DLR (2d) 32] ).
‘…. I … regard its primary function as to bring in something F
which would otherwise be excluded.’(Per Viscount Simonds in
Barclays Bank v. IRC [1961 AC 509 : (1960) 3 WLR 280 : (1960)
2 All ER 817 (HL)] at AC p. 523.)
‘Deems’ means ‘is of opinion’ or ‘considers’ or ‘decides’ and
there is no implication of steps to be taken before the opinion is
G
formed or the decision is taken.[See R. v. Brixton Prison
(Governor), ex p Soblen [(1963) 2 QB 243 : (1962) 3 WLR
1154 : (1962) 3 All ER 641 (CA)] at QB p. 315.]” [Ed.: As
observed in Ali M.K. v. State of Kerala, (2003) 11 SCC 632 :
2004 SCC (L&S) 136, SCC at pp. 639-40, paras 13-16.]”
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528 SUPREME COURT REPORTS [2019] 10 S.C.R.

A In the present case, it is clear that the deeming fiction that is used
by the explanation is to put beyond doubt the fact that allottees are to be
regarded as financial creditors within the enacting part contained in
Section 5(8)(f) of the Code.
85. It was also argued that an explanation does not enlarge the
B scope of the original section and for this purpose S. Sundaram Pillai
(supra) was relied upon. This very judgment recognises, in paragraph
46, that an explanation does not ordinarily enlarge the scope of the original
Section. But if it does, effect must be given to the legislative intent
notwithstanding the fact that the legislature has named a provision as an
explanation. [See Hiralal Ratanlal Etc. v. State of U.P and Anr. Etc.
C (1973) 1 SCC 216 at 225, followed in paragraph 51 of Sundram Pillai
(supra)]. In any case, it has been found by us that the explanation was
added by the Amendment Act only to clarify doubts that had arisen as to
whether homebuyers/allottees were subsumed within Section 5(8)(f).The
explanation added to Section 5(8)(f) of the Code by the Amendment Act
D does not in fact enlarge the scope of the original Section as homebuyers/
allottees would be subsumed within Section 5(8)(f) as it originally stood
as has been held by us hereinabove. As a matter of statutory
interpretation, that interpretation, which accords with the objects of the
statute in question, particularly when we are dealing with a beneficial
legislation, is always the better interpretation or the “creative
E interpretation” which is the modern trend of authority, and which is
reflected in the concurring judgment of Eera (through Dr. Manjula
Krippendorf) v. State (NCT of Delhi) and Anr. (2017) 15 SCC 133
at paragraphs 122 and 127.This argument must, therefore, also be
rejected.
F 86. We, therefore, hold that allottees/home buyers were included
in the main provision, i.e. Section 5(8)(f) with effect from the inception
of the Code, the explanation being added in 2018 merely to clarify doubts
that had arisen.
Conclusion
G
i. The Amendment Act to the Code does not infringe Articles 14,
19(1)(g) read with Article 19(6), or 300-A of the Constitution
of India.
ii. The RERA is to be read harmoniously with the Code, as
amended by the Amendment Act. It is only in the event of
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conflict that the Code will prevail over the RERA. Remedies A
that are given to allottees of flats/apartments are therefore
concurrent remedies, such allottees of flats/apartments being
in a position to avail of remedies under the Consumer
Protection Act, 1986, RERA as well as the triggering of the
Code.
B
iii Section 5(8)(f) as it originally appeared in the Code being a
residuary provision, always subsumed within it allottees of flats/
apartments. The explanation together with the deeming fiction
added by the Amendment Act is only clarificatory of this
position in law.
C
Postscript
87. We have been informed that most of the States and Union
Territories have established/appointed adjudicating officers, the Real
Estate RegulatoryAuthority, as well as the Appellate Tribunal as under
the RERA. Yet, despite the fact that 1st May, 2017 has long gone, some D
recalcitrant States and Union Territories have yet to do the needful. We
direct that in those States in which the needful has not been done, in that,
only interim or no adjudicating officer/Real Estate Regulatory Authority
and/or Appellate Tribunal have been appointed/established, such States/
Union Territories are directed to appoint permanent adjudicating officers,
a Real Estate Regulatory Authority and Appellate Tribunal within a period E
of three months from the date of this judgment. Copies of this judgment
be sent to the Chief Secretaries of all the States and Union Territories
immediately. To be placed for compliance by affidavits filed by the Chief
Secretaries of these States and Union Territories within 3 months as
aforesaid. Post these matters in the second week of January, 2020. F
88. Given the declaration of the constitutional validity of the
Amendment Act, it is absolutely necessary that the NCLT and the
NCLAT are manned with sufficient members to deal with litigation that
may arise under the Code generally, and from the real estate sector in
particular. For this purpose, an affidavit be filed by the Union of India G
within three months from today as to the steps taken in this behalf. Copy
of this judgment be sent to the Ministry of Law and Justice, Government
of India immediately. To come up with the compliance report by States
and Union Territories as aforesaid in the second week of January, 2020.

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530 SUPREME COURT REPORTS [2019] 10 S.C.R.

A 89. All writ petitions and the civil appeal are disposed of in the
light of this judgment. Stay orders granted by this Court to continue until
the NCLT takes up each application filed by an allottee/ home buyer to
decide the same in light of this judgment. No order as to costs.

B Nidhi Jain Matters disposed of.

C

D

E

F

G

H