SC upholds validity of Insolvency and Bankruptcy Code (Amendment) Act, 2020

The 3-Judge Bench of SC, upheld the validity of several provisions of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, albeit with directions given in exercise of powers under Article 142 of the Constitution of India. 

What is Insolvency and Bankruptcy Code (Amendment) Act of 2020?

• The Insolvency and Bankruptcy Code (Amendment) Act of 2020 had introduced a threshold that required a minimum of 100 allottees or 10 per cent of the total allottees of a project, whichever was less, to jointly apply for corporate insolvency resolution in the Tribunal.
• The allottees ought to be from the same real estate project.
• Aggrieved allottees drawn from different projects of the same developer cannot form the 100.

The Challenge

• In the instant matter, the petitioners approached the Court calling in question the following Sections 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 (“IBC”). It incorporates 3 provisos to Section 7(1).
  • Section 4 of the impugned amendment, incorporates an additional Explanation in Section 11 (Explanation II)
  • Section 10of the impugned amendment inserts Section 32-A in IBC.

Key-points made by SC

• Sections 3 and 10 of the Act which introduced these amendments are not violative of right to equality under Article 14 of the Constitution.
  • Section 3 of the Amendment Act amended Section 7 of IBC
  • Section 10 introduced a new provision, Section 32A.
• Dismissing the contention of violation of Article 14, Supreme Court stated that "there cannot be any doubt that intrinsically a financial creditor and an operational creditor are distinct."