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SC upholds 100-homebuyer threshold for insolvency application against realtors

The threshold is the requirement that there should be at least 100 allottees or 10 per cent of the total allottees, whichever is less, to support an insolvency application against a real estate project

twitter-logoDipak Mondal | January 19, 2021 | Updated 23:35 IST
SC upholds 100-homebuyer threshold for insolvency application against realtors

The Supreme Court has dismissed the homebuyers' plea against the threshold introduced in the Insolvency and Bankruptcy Code (IBC) for them to file insolvency application against a real estate company.

The threshold is the requirement that there should be at least 100 allottees or 10 per cent of the total allottees, whichever is less, to support an insolvency application against a real estate project.

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Dismissing homebuyers plea that the new threshold, which necessarily bars individual homebuyers from initiating insolvency proceeding against a realtor, is violative of fundamental rights under Article 14 of the Constitution, the Supreme Court said that right provided under IBC to the homebuyers 'is not a personal right'. It is a right provided by the law in the interest of public, the apex court noted.

"Public interest is a concept, which is capable of embracing, within its scope, the interest of different sections of the public. This would include the sections of the public to which the applicant himself belongs. Public interest would, undoubtedly, also encompass, the economy of the country, which can be understood in terms of all the objects, for which the code was enacted," said the Supreme Court.

It also pointed out that the consequences of an insolvency application may land the applicant and also all the stakeholders, in liquidation of the corporate debtor.

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Therefore, the court maintained that for safeguarding the interests of all the stakeholders, including the corporate debtor (the real estate company) as a stakeholder, from frivolous applications or those not representing a critical mass, it was dismissing the plea against the amendment introducing a threshold for homebuyers to start insolvency proceedings against real estate projects.

On the Supreme Court order, Rajiv Chandak, Partner, Deloitte India, says that amendments brought by government and now upheld by the apex court will help real estate projects and make sure that insolvency is triggered only in cases where homeowners with substantial minority file an application.

According to Misha, Partner at Shardul Amarchand Mangaldas & Co, the judgement ensures that the intention of the legislature is to make the Code workable and in line with the global practices.

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