Landmark Supreme Court judgments concerning homebuyers' rights are safeguarded
Chitra Sharma v. Union of India: discusses the inclusion of homebuyers as financial creditors under the Insolvency and Bankruptcy Code following the June 2018 Ordinance. Covers the challenges faced by homebuyers in stalled real estate projects, the initiation of corporate insolvency resolution processes (CIRP), and the measures adopted to protect homebuyers' rights. The Court emphasized the need to revive CIRP and reconstitute the Committee of Creditors to include homebuyers as creditors with voting rights.
Pioneer Urban Land and Infrastructure Limited & Anr. v. Union of India & Ors.: Upheld the constitutionality of the IBC Amendment Act, 2018, which recognized real estate allottees as financial creditors u/s 5(8)(f). The Court addressed challenges under Articles 14, 19(1)(g), and 300-A of the Constitution, affirming that the amendment aligns with public interest. It clarified the coexistence of RERA and the IBC, stating that the IBC would prevail in case of conflict. The Supreme Court's ruling in Pioneer Urban Land and Infrastructure Limited & Anr. v. Union of India & Ors. underscores critical principles regarding the treatment of real estate allottees as financial creditors under the Insolvency and Bankruptcy Code (IBC). Key takeaways from the judgment are:
- Recognition of Real Estate Allottees as Financial Creditors: The Court highlighted that purchasers/allottees in real estate projects have a vested interest in the financial stability of the corporate debtor (developer), as any financial distress can directly affect project completion timelines. This logical distinction justifies their classification as financial creditors, ensuring their inclusion in insolvency resolution processes under Section 5(8)(f) of the IBC.
- Non-Arbitrariness of the Amendment: The amendment's validity was tested against the "Shayara Bano v. Union of India" test, which evaluates whether a provision is arbitrary or capricious. The Court held that the amendment serves a public interest, aiming to protect vulnerable homebuyers and ensure efficient insolvency resolution, thus constituting a reasonable restriction on the fundamental right to trade or business under Article 19(1)(g).
- Constitutional Compliance: The Court ruled that the amendment does not violate Articles 14, 19(1)(g), or 300-A of the Constitution. Article 14: The classification of allottees as financial creditors is based on a rational and intelligible difference aligned with the objectives of the IBC. Article 19(1)(g): The amendment imposes reasonable restrictions in the public interest. Article 300-A: No deprivation of property occurs without lawful authority.
- Coexistence of IBC and RERA:The Court emphasized that the IBC and RERA are complementary frameworks intended to coexist. In case of a conflict, the IBC prevails, as its provisions are designed for corporate insolvency resolution, whereas RERA focuses on consumer protection in real estate.
- Clarification, Not Transformation: The amendment to Section 5(8)(f) clarified the legal status of homebuyers rather than introducing a new provision, reinforcing their statutory rights to seek remedies under the IBC, RERA, and the Consumer Protection Act.
