PIONEER URBAN LAND & ORS VS. UNION OF INDIA (CASE SUMMARY)

The Supreme Court has held valid constitutional amendment including the home buyers in the category of Financial Creditors in Pioneer Urban Land & Ors. Vs. Union of India (Writ Petition (Civil) 43/2019).

Large Number of Petitions have been filed before the Supreme Court challenging inter alia the validity of amendment of the Code vide Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 whereby amount raised from allottees/home buyers have been included in the category of financial debt.

The amendment has been challenged mainly on the ground that home buyers/allottees had no traint of financial creditor and their inclusion of home buyers/allottees under the category of the Financial Creditors is arbitrary and violates Section 14 of the Code. It has also been submitted before the Court that even if a company is in a sound financial condition, one home buyer/allottee can knock the door of the NCLT and get admission order jeopardizing the functioning of the company.

DEFERENCE TO LEGISLATIVE JUDGMENT IN ECONOMIC MATTERS

Hon’ble Supreme Court reiterated the view taken in Swiss Ribbons Pvt. Ltd. Vs. Union of India ( Writ Petition (Civil ) 99/2018 that deference should be shown to legislative judgment in economic matters. The Supreme Court observed that economic choices by the legislature should be given a certain degree of deference by the Courts.

EXPANSION OF DEFINITION OF FINANCIAL DEBT

The Supreme Court expanded the scope of definition of ” Financial Debt”. Something equivalent to money can also be covered under Financial Debt. The Supreme Court observed that in case of borrowing it is not essential that ultimately money is returned back. The expression borrow is sufficiently wide to include advance given by home buyers/allottee to the Real Estate Developer. Real estate Developer returns flat/apartment which is equivalent to money. The Supreme Court held that transaction for buying flat will be covered under Financial Debt under Section 5 (8) (f) even without adverting to explanation.

HARMONIOUS CONSTRUCTION OF RERA AND IBC

The Hon’ble Supreme Court held that RERA and Code must coexist but in case of conflict RERA must give way to the Code. RERA can not be treated as special statute which will override the IBC in case of conflict.

WHETHER CLASSIFICATION AS FINANCIAL CREDITOR VIOLATES ARTICLE 14

The Hon’ble Supreme Court held that money raised from allottees have many elements  of financial debt and hence classification cannot be said to be arbitrary. The court held that there exists intelligible differentia to classify the real state developer as Financial Creditors.

The Supreme Court observed that a person who supplied goods and services is a creditor under the Code and the person who is liable to pay is debtor. In case of Real estate, home buyers/allottees, who pay for flat are creditors and supplier of the flat i.e. real estate developer is a debtor. The Court also observed that Operational Creditor has no stake in the Corporate Debtor on the other hand the home buyers/allottees are concerned with financial health of the Corporate Debtor, as otherwise, the real estate project may not be completed. In Operational debt there is no consideration of time value of money, on the other hand in case of real estate projects, money is raised as consideration of time value of money.

CONCLUSION

The Hon’ble Supreme Court held that home buyers were included under Section 5 (8) (f) right from the inception of the Code and explanation is clarificatory in nature. The amendment does not infringe Article 14, Article 19(1) (g), Article 19 (6) or Article 300 A. RERA and IBC has to be read harmoniously. Only in the event of the conflict, IBC will prevail over RERA. Remedy available to home buyer/allottee are concurrent remedies and a home buyer/alottee can avail remedies under Consumer Protection Act, RERA or IBC.

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