19 Jan 2121

Unconstitutionality and not lack of wisdom of legislation is the narrow area of judicial review - Supreme Court of India

Case : Manish Kumar v. Union of India and Another (& 40 others) Writ Petition(C) No.26 of 2020

Court :

Bench : Justice Rohinton Fali Nariman, Justice Navin Sinha and Justice K.M. Joseph

Decided on : 19 Jan 2121

Relevant Statutes

Articles 32 and 142 of the Constitution of India

Sections 3, 4 and 10 of the Insolvency and Bankruptcy Code (Amendment) Act, 2020

Sections 7, 5(1), 5(27), 3(19), 206 and 3(21) of the Insolvency and Bankruptcy Code, 2016

Section 408 of the Companies Act 2013

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016

Real Estate (Regulation and Development) Act, 2016

Section 5 and Article 137 of the Limitation Act, 1963

Brief Facts and Procedural History

1. The petitioners approached the Honourable Supreme Court under Article 32 of the Constitution of India. Most of the petitioners were allottees under real estate projects. Some of the petitioners were money lenders who provided finance for real estate projects.

2. They challenged Sections 3, 4 and 10 of the Insolvency and Bankruptcy Code (Amendment) Act, 2020. Section 3 of the impugned amendment, amends Section 7(1) of the Insolvency and Bankruptcy Code, 2016, Section 4 of incorporates an additional Explanation in Section 11 of the Code and Section 10 inserts Section 32A in the Insolvency and Bankruptcy Code, 2016.

Issue of the Case

Whether the insertion of three provisos to section 7(1), an additional explanation to section 11, and section 32A in the Insolvency and Bankruptcy Code, 2016 is valid?

The Observations of the Court

GROUNDS OF CHALLENGE TO A PLENARY LEGISLATION

1. A law can be successfully challenged if:

a. Contrary to the division of powers, either the Parliament or the State Legislature usurps power that does not fall within its domain thus, rendering it incompetent to make such law.

b. A law made contravening Fundamental Rights guaranteed under Part III of the Constitution of India would be visited with unconstitutionality and declared void to the extent of its contravention.

c. Even when the law is plenary legislation, the supremacy of the Constitution is preserved with a view that legislation must conform with the other provisions of the Constitution.

2. The following pointers also need to be noticed:

a. State action must be fair and not arbitrary if it is to be pass muster in a court of law [E.P. Royappa v. State of Tamil Nadu and Another, (1974) 4 SCC 3].

b. It is trite that malice does not furnish a ground to attack a plenary law [K. Nagaraj and others v. State of Andhra Pradesh and Another, (1985) 1 SCC 523].

c. Judges cannot determine what is for the good of the people and substitute their individual and personal opinions for that of the government of the day. They cannot usurp the functions of the legislature [State of West-Bengal v. Anwar Ali, AIR 1952 SC 75].

d. A supreme legislature cannot be cribbed, cabined or confined by the doctrine of promissory estoppel or estoppel. It acts as a sovereign body. The theory of promissory estoppel, on the one hand, has witnessed an incredible trajectory of growth but it is incontestable that it serves as an effective deterrent to prevent injustice from a Government or its agencies which seek to resile from a representation made by them, without just cause [Union of India and others v. Godfrey Philips India Ltd., (1985) 4 SCC 369].

FINDINGS    

The Honourable Supreme Court observed that:

3. The working of a statute may produce issues, which may not be fully perceived or wholly foreseen by the lawgiver. The freedom to experiment must be conceded to the legislature, particularly, in economic laws. Problems may emerge in the working of a law, which requires legislative intervention, to which the legislature has to respond by stepping in with necessary amendment; not the Court.

4. There is nothing like a perfect law and as with all human institutions, there are bound to be imperfections. For the court ruling on constitutionality, the law must present a clear departure from constitutional limits.

5. The Insolvency and Bankruptcy Code, 2016 was an imperative need for the nation to try and catch up with the rest of the world, in the matter of ease of doing business, elevating the rate of recovery of loans, maximization of the assets of ailing concerns, and the balancing the interests of all stakeholders.

6. The provisos were added in fact to overcome what was laid down in Arcelormittal India Private Limited v. Satish Kumar Gupta and others, (2019) 2 SCC 1 where it was held that that the time is taken in legal proceedings must be excluded. Under the first proviso, the corporate insolvency resolution process (CIRP) has to be mandatorily completed within 330 days from the insolvency commencement date. This period of 330 days is to include any extension granted under Section 7(3) by the Adjudicating Authority and also the time taken in legal proceedings in relation to the resolution process of the corporate debtor.

7. However, in Committee of Creditors of Essar Steel India Limited Through Authorised Signatory v. Satish Kumar Gupta and Others (2019) SCC ONLINE SC 1478, the word ‘mandatorily’ was struck down for being manifestly arbitrary and violating Article 19(1)(g) and it was held that time taken in legal proceedings may also be due to factors owing to which the fault cannot be ascribed to the litigants before the Adjudicating Authority or Appellate Tribunal, the delay or a large part thereof being attributable to the tardy process of the Adjudicating Authority or the Appellate Tribunal itself.

8. Part II of the Insolvency and Bankruptcy Code, 2016 applies to matters relating to Insolvency and Liquidation of Corporate Debtors where the minimum amount of default is ₹1 Crore [Section 4]. Under Section 6 when any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself is permitted to initiate the corporate insolvency resolution process (CIRP) in respect of the corporate debtor in the manner provided under Chapter II (Section 6 to Section 32A).

9. For the provisos in question, the expression ‘allottee’ defined in Section 2(d) of Real Estate (Regulation and Development) Act, 2016 was considered. It yields the following parts:

a. An allottee may be an allottee of a plot or an apartment or a building. A real estate project may relate to plots, apartments or buildings.

b. An allottee, in the case of an apartment (including flats), would include the persons to whom the apartment is allotted, to whom the apartment is sold, whether as freehold or leasehold, to whom the promoter has transferred the apartment, then by way of a sale and the persons who have acquired the allotment through sale, transfer or otherwise.

c. It will not include a person to whom the apartment is given on rent.

d. The same is equally true regarding the allotment of plots or buildings.

10. The mere difficulties in given cases to comply with law can hardly furnish a ground to strike it down. Section 153-C of the Companies Act, 1913, Section 399 of the Companies Act, 1956 and Section 244 of the Companies Act, 2013 contain similar provisions.

THE PROBLEM OF DEFAULT AND LIMITATION

11. The Honourable Supreme Court described the Insolvency and Bankruptcy Code, 2016 as an economic measure, and in the true spirit, one of the most significant and dynamic economic experiments indulged in by the Law Giver, as a reason to lean heavily in favour of such a law.

12. In Innoventive Industries Limited v. ICICI Bank and another, (2018) 1 SCC 407, it was held that when it comes to a financial creditor triggering the process under Section 7, as per the Explanation to Section 7(1), a default [defined in Section 3(12)] of ₹1 Crore may be 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. This is for the reason that the corporate insolvency resolution process (CIRP) if unsuccessful, is followed by the liquidation procedure which is in all a proceeding, in rem. Such a procedure would bind the entire set of stakeholders, including the whole of the allottees.

13. Irrespective of the number of applicants the Court Fee would remain Rs. 25,000/-.

14. Section 238A of the Insolvency and Bankruptcy Code, 2016 provides that the provisions of the Limitation Act, 1963 shall apply to the proceedings or appeals before the Adjudicating Authority and the National Company Law Appellate Tribunal.

15. If the default has occurred over three years before the date of filing of the application under Section 7 and 9, the application would be barred under Article 137 of the Limitation Act, except in those cases where, in the facts of the case, Section 5 of the Limitation Act is applicable to condone the delay in filing such application. [B.K. Educational Services Private Limited v. Parag Gupta and Associates, (2019)11 SCC 633].

16. The provisos require that in the case of a real estate project, being conducted by a corporate debtor, an application can be filed by either 100 allottees or allottees constituting 1/10 of the allottees, whichever is less if they can establish a default in regard to a financial creditor and it is not necessary that there must be default qua any of the applicants. The change that is brought about is only that apart from establishing the factum of default, he must present the application endorsed by the requisite number introduced by the proviso.

17. The erstwhile regime permitted even a single allottee to move an application under Section 7 singly or with less than the number required under the proviso. Petitioners under 39 out of 41 petitions dealt with by the Honourable Supreme Court had filed applications under the erstwhile regime and they were visited with the provisions of the third proviso as per which such of those applications under Section 7 which had not been admitted would stand withdrawn within 30 days if the newly declared threshold of 100 allottees or 10 per cent of the allottees whichever is lower was not garnered by the applicant/applicants. A similar requirement was imposed under the first impugned proviso to Section 7.

18. If the debt is barred from some of the applicants, whereas, it is not so in regard to the other applicants, the fact that the debt is barred as against some of the financial creditors, who are applicants, whereas, the application by some others, or even one who has moved jointly, fulfil the requirement of default, both in terms of the sum and it not being barred, the application would still lie.

ALLOTTEES TO BE FROM THE SAME REAL ESTATE PROJECT: IS IT UNCONSTITUTIONAL?

19. The allottees must relate to the same real estate project. The connection with the same real estate project is crucial to the determination of the critical mass, which Legislature has in mind, as a part of its scheme, to streamline the working of the Insolvency and Bankruptcy Code, 2016 in an efficient manner.

20. The allottees in one project may not have much of a complaint, while the complaints of allottees in another project may be more serious. It may be easier for like-minded souls to fulfil the statutory requirements. If all projects are considered, the task would be much more cumbersome. This condition stands to reason and does not suffer from any constitutional blemish.

THE POINT OF TIME TO COMPLY WITH THE THRESHOLD REQUIREMENTS

21. The requirement of a threshold under the impugned provisos must be fulfilled as on the date of the filing of the application. The subsequent withdrawal of consent by 13 of the members, even if true, cannot affect either the right of the applicant to proceed with the application of the jurisdiction of the court to dispose of it on its own merits. [Rajahmundry Electric Supply Corporation Ltd. v. A. Nageshwara Rao and others, AIR 1956 SC 213].

STATUS OF HOLDINGS BY FAMILY MEMBERS ETC. AND JOINT HOLDINGS OF A UNIT

22. In the impugned proviso there is no indication as to how the number of allottees is to be reckoned in the case of more than one person.

23. In the case of a joint allotment of an apartment, plot or building to members of a family or otherwise, the allotment will be treated as a single allotment. The objective is to ensure that there is a critical mass of allottees, who agree that the time to initiate processes under the Insolvency and Bankruptcy Code, 2016 has arrived. If an apartment is taken in the names of 100 persons, the allottees of that apartment would not represent a critical mass of the allottees of the project. Such members of a family may monopolise the project or try to defeat the rights of the other allottees.

THE POWER OF WAIVER, BEING DENIED, UNLIKE THE COMPANIES ACTS

24. The purport of Sections 397 and 398 of the Companies Act, 2013 include the conduct of the affairs of the company in any manner prejudicial to the public interest or prejudicial to member or members. In such circumstances, clothing the Central Government with the power to waive the requirement and permitting the application to be presented by even a single member, is in sync with the scheme of the Companies Act, 2013.

25. The scheme of the Insolvency and Bankruptcy Code, 2016 is unique and its objects are vividly different from that of the Companies Act, 2013. The Central Government does not have any role, as such under the Insolvency and Bankruptcy Code, 2016. It acts only through the designated Authorities. The Insolvency and Bankruptcy Code, 2016 is about insolvency resolution and on failure, liquidation. Consequently, if the Legislature felt that threshold requirement representing a critical mass of allottees, alone would satisfy the requirement of a valid institution of an application under Section 7, it cannot be dubbed as either discriminatory or arbitrary.

A LOOK AT ORDER I RULE 8 OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016 OF CIVIL PROCEDURE, 1908 AND SECTION 12 OF THE CONSUMER PROTECTION ACT, 1986

26. Whether the procedure contemplated in Order I Rule 8 of The Code of Civil Procedure, 1908 and Section 12 of The Consumer Protection Act, 1986 is suitable, more appropriate and even fairer, is a matter, entirely in the realm of legislative choice and policy. Invalidating a law made by a competent Legislature, based on the availability of a better arrangement or a wiser and even fairer system, is constitutionally impermissible. If the impugned provisions are otherwise not infirm, they must qualify.

27. The Amendments do not violate the ruling of Pioneer Judgment’ in Pioneer Urban Land and Infrastructure Ltd. 189 and another v. Union of India and others (2019) 8 SCC 416. This ruling cannot detract the lawgiver from amending the very law on its understanding of the working of the Insolvency and Bankruptcy Code, 2016 at the instance of certain groups of applicants and impact it produces on the economy and the frustration of the sublime goals of the law.

INFORMATION ASYMMETRY

28. As far as allottees are concerned in regard to apartments and plots, Section 11(1)(b) of the Real Estate (Regulation and Development) Act, 2016 (RERA) makes it mandatory for the promoter to make information regarding the bookings available.

29. The lawgiver has created a mechanism, namely, the association of allottees through which the allottees are expected to gather information about the status of the allotments including the names and addresses of the allottees.

30. A statutory mechanism regarding the debenture holders and security holders is comprised in Section 88(1) of the Companies Act, 2013.

THE FIRST AND SECOND PROVISOS CLASSIFICATION: ARTICLE 14 AND REASONABLE CLASSIFICATION

31. Mere differentiation or inequality of treatment does not per se amount to discrimination within the inhibition of the equal protection clause. It is necessary to show that the selection or differentiation is unreasonable arbitrary; that it does not rest on any rational basis having regard to the objects of the legislature [Ameerunnissa Begum and others v. Mahboob Begum and others, (1953) SCR 404]. 

32. Unconstitutionality and not lack of wisdom of legislation is the narrow area of judicial review. [Murthy Match Works and others v. Assistant Collector of Central Excise and another, (1974) 4 SCC 428]. 

33. Laws regulating economic activity would be viewed differently from laws which touch and concern freedom of speech and religion, voting, procreation, rights with respect to criminal procedure, etc. The prominence is given to the equal protection clause in many modern opinions and decisions in America all show that the Court feels less constrained to give judicial deference to legislative judgment in the field of human and civil rights than in that of economic regulation and that it is making vigorous use of the equal protection clause to strike down legislative action in the area of fundamental human rights. [State of Gujarat and Another v. Shree Ambica Mills Ltd, (1974) 4 SCC 656].

34. Whether the same results or better results could have been achieved and better basis of differentiation evolved is within the domain of the legislature and must be left to the wisdom of the legislature. [Ajoy Kumar Banerjee and ors. v. Union of India and ors, (1984) 3 SCC 127].

35. Even among backward classes, there can be sub-classification on a reasonable basis. [Indira Sawney v. Union of India, 1992 Supp 3 SCC 217].

36. So long the classification is reasonable it cannot be struck down as arbitrary [State of West Bengal and ors v. Rash Bihari Sarkar and ors, (1993) 1 SCC 479].

37. The law does not bar the creation of a class within a class. It is permissible on a rational basis. A class within a sub-class is not antithetical to the guarantee of equality under Article 14.

38. What distinguishes allottees from other financial creditors are Numerosity, heterogeneity, and individuality in decision making. There can be hundreds or even thousands of allottees in a real estate project. Different allottees may have a different take on the whole scenario. Some of them may seek remedy under the Real Estate (Regulation and Development) Act, 2016 (RERA); some may resort to the Consumer Protection Act, 1986 and others may use a civil suit. In such circumstances, if the legislature distinguishes the allottees from other Financial Creditors, it is not for the Court to sit in judgment over the wisdom of such a measure.

39. If a single allottee, as a Financial Creditor, can move an application under section 7, the interests of all the other allottees may be put in peril.

40. It is envisaged that a critical mass is indispensable for allottees to be present to ensure that a reasonable number of persons similarly circumstanced, form the view that despite the remedies available under the Real Estate (Regulation and Development) Act, 2016 (RERA) or the Consumer Protection Act, 1986 or a civil suit, the invoking of the Insolvency and Bankruptcy Code, 2016 is the only way out, in a particular case. The attempt by individual allottees would crowd an already heavy docket; and consequently, slow down the processes; and defeat the object of balancing the interests of all stakeholders.

ALLOTTEES V. OPERATIONAL CREDITORS

41. In Innoventive Industries Limited v. ICICI Bank and another, (2018) 1 SCC 407 and Swiss Ribbons Private Limited and another v. Union of India and others, (2019) 4 SCC 17, the scheme of the Insolvency and Bankruptcy Code, 2016 and the distinction between the financial creditors and the operational creditors was elaborately analysed.

42. The real foundation based on which, the difference in a procedure under Section 7 on the one hand and Sections 8 and 9 on the other hand between financial creditors and operational creditors justified, is that after conflating financial creditors with banks and financial institutions and noting them to be secured creditors, lending large sums of money, both of which features are not present in the case of allottees under a real estate project as allottees remain unsecured creditors and also their contract need not involve large sums of money, they should, therefore, fall to be treated at least like the operational creditors with whom they bear the greater resemblance.

43. If the Legislature erected an additional threshold for exercising the right under Section 7, certainly, it cannot suffer a constitutional veto at the hands of the Court exercising judicial review of legislation.

44. The right of the allottee has not been completely taken away. All that has happened is a half-way house is built between extreme positions, i.e., denying the right altogether to the allottee to move the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 and giving an unbridled license to a single person to hold the real estate project and all the stakeholders thereunder hostage to a proceeding under the Insolvency and Bankruptcy Code, 2016 which must certainly pass inexorably within a stipulated period, should circumstances exists under Section 33 into corporate death with the unavoidable consequence of all allottees and not merely the applicant under Section 7 being visited with payment out of the liquidation value, the amounts which are only due to the unsecured creditor.

DEBENTURE HOLDERS/SECURITY HOLDERS: THE CHALLENGE TO THE FIRST IMPUGNED PROVISO

45. The 1st proviso to Section 7 is invulnerable. With the insertion of sub-section 6A in section 21 as also Section 25A, the legislature intends to treat the financial creditors differently. They are marked by unique features in terms of numerosity and heterogeneity.

46. In regard to such creditors bearing the hallmark of large numbers, they are required to be treated differently. If they are not treated differently it would spell chaos and the objects of the Insolvency and Bankruptcy Code, 2016 would not be fulfilled.

47. While treating the debenture holders or security holders as financial creditors they are not deprived of the right to apply under Section 7 as part of the legislative scheme.

48. The legislative policy reflects an attempt at shielding the corporate debtor from frivolous or avoidable applications. All that the amendment is likely to ensure is that the filing of the application is preceded by a consensus at least by a minuscule percentage of similarly placed creditors that the time has come for undertaking a legal journey which is weighed down with perils for the applicants themselves apart from others.

THE CHALLENGE TO EXPLANATION-II TO SECTION 11 OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016

49. In Hiralal Rattanlal and Ors. v. State of U.P. and another, (1973) 1 SCC 216 the Honourable Supreme Court had while considering the scope of an Explanation in a Taxing Statute, the United Provinces Sales Tax Act, 1948 held that if on a true reading of an Explanation it appears that it has widened the scope of the main section, the effect must be given to legislative intent although the Legislature named that provision as an Explanation. In all these matters the courts have to find out the true intention of the Legislature.

50. The intention of the legislature was always to target the corporate debtor only insofar as it purported to prohibit application by another corporate debtor against itself, to prevent abuse of the provisions of the Insolvency and Bankruptcy Code, 2016. It could never have been the intention to create an obstacle in the path of the Corporate Debtor, in any of the circumstances contained in Section 11, from maximizing its assets by trying to recover the liabilities due to it from others. The impugned Explanation amounts to a descriptive amendment. Being retrospective in nature, a clarifying amendment will apply to all pending applications also.

CONSTITUTIONALITY OF SECTION 32A

51. Apart from the fact that it is intended to give a clean break to the successful resolution applicant, Section 32A is surrounded with ample safeguards to avoid any exploitation.

52. The wisdom of the legislation is not open to judicial review. Having regard to the object of the Insolvency and Bankruptcy Code, 2016, the experience of its working, the interests of all stakeholders, including most importantly the imperative need to attract resolution applicants, who would not shy away from offering reasonable and fair value as part of the resolution plan, if the legislature thought that immunity is granted to the Corporate Debtor as also its property, it hardly furnishes a ground for judicial interference.

53. The wrongdoers are not allowed to get away. They remain liable. The extinguishment of the criminal liability of the Corporate Debtor is important to the new management to make a clean break with the past and start on a clean slate.

54. The immunity is premised on various conditions being fulfilled. There must be a resolution plan. It must be approved. There must be a change in the control of the Corporate Debtor. The new management cannot be the disguised form of the old management. It cannot even be the related party of the Corporate Debtor. The new management cannot be the subject matter of an investigation that has resulted in material showing abetment or conspiracy for the commission of the offence.

55. Significantly every person who was associated with the Corporate Debtor in any manner and who was directly or indirectly involved in the commission of the offence continues to be liable to be prosecuted and punished for the offence committed by the Corporate Debtor. The Corporate Debtor and its property in the context of the Insolvency and Bankruptcy Code, 2016 constitute a distinct subject matter justifying the special treatment. The creation of a criminal offence as also abolishing criminal liability must ordinarily be left to the judgement of the legislature.

56. Attaining public welfare needs a delicate balancing of conflicting interests. As to what priority must be accorded to which interest must remain a legislative value judgement and if seemingly the legislature in its pursuit of the greater good appears to abandon the interests of some, it cannot, unless it strikingly ill squares with some constitutional mandate, suffer invalidation.

57. There is no basis to impugn Section 32A on the ground that it violates Articles 19, 21 or 300A of the Constitution.

VESTED RIGHT; RETROSPECTIVITY; THE 3rd PROVISO IN SECTION 7

58. The 3rd proviso in Section 7 is a one-time affair. The legislative intent was to ensure that no application under Section 7 could be filed after 28.12.2019, except upon complying with the requirements in the 1st and 2nd provisos.

59. The Legislature intended that in every application filed under Section 7, by the creditors covered by the 1st proviso and by the allottees governed by the 2nd proviso, should also be embraced by the newly imposed threshold requirement which should be complied within 30 days from the date of the Ordinance. However, this restriction was not to apply to those applications which stood admitted as on the date of the Ordinance. The consequence of failure to comply with the threshold requirement, in regard to applications, which have been filed earlier, was that they would stand withdrawn.

60. A right vest when all the facts have occurred which must by law occur for the person in question to have the right.

61. In Garikapati Veeraya v. N. Subbiah Choudhry, AIR 1957 SC 540 it was observed that the vested right of appeal accrues to the litigant and exists from the day of the institution of the lis (suit). Therefore, while the remedy of an appeal may be provided under the statute, that right becomes a vested right only from the point of time when the suit is filed either by the appellant or the opposite party. All of this undoubtedly is subject to a subsequent enactment not interfering with the right of an appeal.

62. A vested right is not limited to those cases where rights of property in the limited sense are involved. [Gopeshur Pal v. Jiban Chandra Chandra and others, AIR 1914 Calcutta 806].

63. A mere right to take advantage of the provisions of an Act is not an accrued right. [Abbott v. Minister for Lands, 1895 AC 425: 64 LJPC 167: 72 LT 402 (PC)].

64. A plaintiff has a vested right, depending on whether there is a cause of action and a period of limitation which has begun to run, which necessarily involves the existence of a vested right. In the case of an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, it is a valuable right, no doubt, statutory. It cannot be the law that a Statute cannot create vested rights.

65. The impugned 1st and 2nd provisos have the only prospective operation and can survive, even if the 3rd proviso is struck down. The 3rd proviso is on the other hand dependant on the 1st and 2nd provisos and cannot survive their invalidation.

66. When the applications were filed under the un-amended provisions of Section 7, at any rate, it would transform into a vested right. The vested right is to proceed with the action till its logical and legal conclusion.

67. A statute is regarded retrospective if it operates on cases or facts coming into existence before its commencement in the sense that it affects, even if for the future only, the character or consequences of transactions previously entered into or of other past conduct. [K.S. Paripoornan v. State of Kerala, (1994) 5 SCC 593].

68. In general, the courts regard as retrospective any statute which operates on cases or facts coming into existence before its commencement in the sense that it affects, even if for the future only, the character or consequences of transactions previously entered into or of other past conduct. Thus, a statute is not retrospective merely because it affects existing rights; nor is it retrospective merely because a part of the requisite for its action is drawn from a time antecedent to its passing.

69. In this regard, no support can be drawn from Section 6 of the General Clauses Act, 1897. Section 6 explains that the rights or privileges which may be asserted are subject to the law not being couched contrary to such rights/privileges. In this case, it is precisely because the 3rd proviso covers the applications filed prior to the amendment which had not been admitted, that the petitioners had challenged the provision.

70. The financial creditors covered by the 3rd proviso, having invoked, at any rate, un-amended Section 7, they had a vested right.

71. They had undoubtedly a vested right to have their actions carried to its logical and legal end. It is open to the Adjudication Authority to reject the application but that does not mean that the applicants had no vested right of action.

72. There may not be a vested right regarding the mere procedure and while limitation, ordinarily, belongs to the domain of procedure, should new law shorten the existing period of limitation, such a law would not operate in regard to the right of action which is vested. A party may not have a vested right of Forum as distinct from the vested right of action. [New India Assurance Co. Ltd. v. Shanti Misra, 82(1975) 2 SCC 8].

73. Every sovereign Legislature is competent to make retrospective laws. It is open to the Legislature, while making retrospective law, to take away vested rights. If a vested right can be taken away by a retrospective law, there can be no reason why the Legislature cannot modify the vested rights [State Bank's Staff Union (Madras Circle) v. Union of India, (2005) 7 SCC 584].

74. The role of the applicant essentially fades out after the admission of the application is made under Section 7(5). The consequences of the application would be that it may land the applicant and all the stakeholders, in the liquidation of the corporate debtor.

75. The imposition of a threshold requirement being a mandatory and irreducible minimum constitutes an intrusion into the substantive right of action vested in an individual creditor.

76. Imposing the threshold requirement under the 3rd proviso is not a mere matter of procedure. It impairs vested rights.

77. Thus, withdrawal under the 3rd proviso would not bar a fresh application even on the same cause of action. It can be condoned under Section 5 of the Limitation Act, 1963.

78. In exercise of power under Article 142 the Honourable Supreme Court directed that if fresh applications are filed by the petitioners after complying with the 1st and 2nd proviso of Section 7(1), then on applications being filed under Section 5 of the Limitation Act, 1963 in regard to the period of pendency of applications, the authority shall condone the delay.

79. This is a case where the law in question is retrospective, in that, contrary to the requirement in the law, at the time, when the application was filed, a new requirement is placed, not at the time, when the application was filed, which is the relevant time to determine the question of maintainability of the application, with reference to what the law provided in regard to who can move the application but at the stage of the new law.

80. Prescribing a time limit of 30 days to modify the pending applications to comply with the threshold requirement, cannot be described as arbitrary, as otherwise, it would be an endless and uncertain procedure. The applications would remain part of the docket and become a Damocles Sword overhanging the Corporate Debtor and the other stakeholders with deleterious consequences.

The Decision Held by the Court

1. The Honourable Supreme Court upheld the impugned amendments subject to the following directions, issued under Article 142 of the Constitution of India.

2. If any petitioner moves applications in respect of the same default, as alleged in their applications, within two months from the date of Order, also compliant with either the 1st or the 2nd proviso under Section 7(1), then, they will be exempted from the requirement of payment of court fees.

3. If the applications are moved under Section 7 and Section 5 of the Limitation Act, 1963, the Adjudicating Authority shall allow the applications and the period of delay shall be condoned in regard to the time spent before the Adjudicating Authority.

4. The time limit of two months was fixed only for conferring the benefits of exemption from court fees. It was open to the petitioners to file applications, even after two months and seek the benefit of condonation of delay under Section 5 of the Limitation Act, in regard to the period, during which, the applications were pending before the Adjudicating Authority, which was filed under the un-amended Section 7, as also thereafter.

5. The Writ Petitions and the Transferred Case were dismissed subject to the aforesaid directions and the observations contained in the Judgment. But the petitioners in the Transferred Case were held entitled to the benefits of the directions under Article 142.

6. The Intervention Applications filed for impleadment were disposed of in terms of the judgment as aforesaid. The directions issued under Article 142 regarding court fees and about condonation of delay were held to apply to the applicants who were allottees.

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