CHITRA SHARMA AND ORS. versus UNION OF INDIA AND ORS. on 9 August 2018

SUPREME COURT REPORTS

[2018] 12 S.C.R.

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CHITRA SHARMA AND ORS.

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UNION OF INDIA AND ORS.

(Writ Petition (Civil) No.744 of 2017)

AUGUST 09, 2018

[DIPAK MISRA, CJI, A. M. KHANWILKAR AND DR. D. Y. CHANDRACHUD, JJ.]

CInsolvency and Bankruptcy Code, 2016 – ss.3(30), 3(31), 5(7),5(8), 7, 17, 18, 20, 21(6) and 21(6A)(b) – JIL, a high-tech townshipdeveloper defaulted in repayment of its dues to IDBI bank – Banksought the initiation of a Corporate Insolvency Resolution Process(CIRP) against JIL – For submission of claims, JIL separated homebuyers from financial and operational creditors – Writ Petition byDhome buyers who pleaded that their interest was getting ignored asonly financial and operational creditors were recognized by CIRP– They further pleaded for pro-rata disbursement of the amountdeposited by the JIL among buyers who sought a refund – Held:Plea cannot be accepted – Firstly, during the pendency of the CIRP,Eas a matter of law, it was impermissible for the Court to direct apreferential payment to be made to a particular class of financialcreditors, whether secured or unsecured – Directing disbursementof amount to home buyers who seek refund would be manifestlyimproper and cause injustice to the secured creditors since it wouldamount to a preferential disbursement to a class of creditors –FSecondly, only 8% of the home buyers have sought refund of theirmonies, while 92% preferred possession of the homes which theyhave purchased – Allowing a refund to one class of financialcreditors would not be in the overall interest of a composite planformulated under the provisions of the IBC – Thirdly, one of theGmajor reasons for the enactment of the IBC was to protect the interestof lenders i.e. banks and financial institutions, who are answerableto their stakeholders – Fourthly, the RBI constituted an InternalAdvisory Committee (IAC), which recommended to also initiate aCIRP against JAL (the holding company of JIL) under the IBC –Banking Regulation Act, 1949 – ss. 35AA and 35AB (enacted byHamendment 2017) – Constitution of India – Art.32.

JIL, a high-tech township developer defaulted inrepayment of its dues to IDBI bank. Bank sought the initiationof a Corporate Insolvency Resolution Process (CIRP) againstJIL. Pursuant thereto, a petition u/s.7 of the Act was filed againstthe JIL by the bank before the National Company Law Tribunal(NCLT). JIL called for submission of claims by creditors andreleased a press note clarifying that home buyers were requiredto fill a separate form as they could not be treated at par withfinancial and operational creditors. Thereafter, proceedingsu/Art.32 were initiated to protect the interest of the home buyers.Petitioners pleaded that CIRP was ignoring the interest of thehome buyers and was only recognizing financial and operationalcreditors. The Court had directed JAL, the holding company ofJIL to deposit a sum of Rs.2,000/- crores. However, only Rs.750crores were deposited. Home buyers sought interim directionsto facilitate a pro-rata disbursement of this amount among buyerswho sought a refund.

Disposing of the petitions, the Court

Conclusion

Disposing of the petitions, the Court

HELD: This Court is conscious of the fact that the claim ofthe home buyers who seek a refund of monies deserves to beconsidered with empathy. Yet, after due consideration to the pleaand on the balance, this Court is not inclined to accede to it formore than one reason. Firstly, during the pendency of theCorporate Insolvency Resolution Process (CIRP), it would as amatter of law, be impermissible for the Court to direct apreferential payment being made to a particular class of financialcreditors, whether secured or unsecured. For the present,question as to whether the home buyers are unsecured creditorsor secured creditors is left open. Directing disbursement of theamount of Rs 750 crores to the home buyers who seek refundwould be manifestly improper and cause injustice to the securedcreditors since it would amount to a preferential disbursementto a class of creditors. Once recourse to the discipline of theInsolvency and Bankruptcy Code, 2016 (IBC) is taken, it isnecessary that its statutory provisions be followed to facilitatethe conclusion of the resolution process. Secondly, the figuresmade available presently,indicate that 8% of the home buyershave sought a refund of their monies while 92% would evidently AB

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Aprefer possession of the homes which they have purchased. ThisCourt cannot be unmindful of the interests of 92% of the homebuyers many of whom would also have obtained loans to secure ahome. They would have a legitimate grievance if the corpus ofRs 750 crores (together with accrued interest) is distributed tothe home buyers who seek a refund. The purpose of the processBenvisaged by the IBC for the evaluation and approval of aresolution plan is to form a composite approach to deal with thefinancial situation of the corporate debtor. Allowing a refund toone class of financial creditors will not be in the overall interestof a composite plan being formulated under the provisions of theCIBC. Thirdly during the course of the hearing, the Court hasbeen apprised of the concerns of the secured creditors, chiefamong them being the IDBI bank limited. In its submissionsbefore this Court, IDBI bank has emphasised that one of themajor reasons for the enactment of the IBC was to protect theinterest of lenders. The debt owing to the banks and financialDinstitutions has been secured by the assets of JIL, to protecttheir interests. This debt originates in the public deposits of thebanks and financial institutions, who are answerable to theirstakeholders. Fourthly, the RBI has moved this Court forpermission to initiate an insolvency resolution process.EParliament enacted the Banking Regulation (Amendment) Act2017 by introducing Section 35 AA and Section 35 AB into theBanking Regulation Act 1949. The amendment empowers theCentral government to authorise RBI to issue directions to anybanking company to initiate an insolvency resolution process inrespect of a default as understood under the IBC. Such an orderFwas issued by the Central government. The RBI constituted anInternal Advisory Committee (IAC) consisting primarily of itsindependent directors. The IAC took up for considerationaccounts which were classified either partly or wholly non-performing from amongst the top 500 exposures in the bankingGsystem. As a first step, the IAC recommended all such non-performing asset accounts with fund and non-fund basedoutstandings exceeding Rs 5,000 crores. The IAC has initiallytaken up twelve accounts involving total exposure of Rs1,79,769crores. JIL was one of the twelve accounts in respect of which H

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directions have been issued to banks for initiating insolvencyresolution. Subsequently, the IAC recommended that in respectof those accounts where 60% or more had been classified asNPAs, banks may be directed to implement a viable resolutionplan, failing which the accounts may be directed for a referenceunder the IBC. JAL was one such entity. No viable resolutionplan could be found as a result of which it is also required to bereferred for CIRP. RBI has carried out this exercise as a matterof economic policy in its capacity as the prime banking institutionin the country, entrusted with a supervisory role, and the powerto issue binding directions. [Para 40] [1081-C-H; 1082-A-H]

2. JAL was classified under the SMA – II category(demands overdue for more than 60 days) by banks and as anNPA. RBI is right that any further delay in resolution wouldadversely impact a viable resolution being found for JAL andJIL. The facts which have emerged before the Court from theapplication filed by the RBI clearly indicate the financial distressof JAL and JIL. The apprehensions of the home-buyers in regardto their financial incapacity is borne out by RBI, as a responsibleinstitution has urged before the Court. The IBC has been enactedin the form of a comprehensive bankruptcy law and with a specificlegislative intent. With the amendment brought about by theOrdinance promulgated in June 2018, the interests of the homebuyers have been sought to be safeguarded. Accordingly, therequest made on behalf of the RBI to allow it to follow therecommendations of the IAC to initiate a CIRP against JAL underthe IBC is accepted. [Para 41] [1083-B-D]

M/s. Shantistar Builders v. Narayan Khimalal Totame(1990) 1 SCC 520 ;R. K. Garg v Union of India(1981) 4 SCC 675 : [1982] 1 SCR 947 ; PeerlessGeneral Finance and Investment Co. Ltd. v RBI(1992) 2 SCC 343 : [1992] 1 SCR 406 ; TN Generationand Distribution Corpn. Ltd. v CSEPDI-TrisheConsortium(2017) 4 SCC 318 : [2016] 7 SCR 495– referred to.

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CIVIL ORIGINAL/APPELLATE JURISDICTION: Writ Petition(Civil) No. 744 of 2017.

CUnder Article 32 of the Constitution of India WITH

Writ Petition (Civil) Nos.782 and 783 of 2017, Special LeavePetition (Civil) No. 24001 of 2017, Writ Petition (Civil) Nos. 803 and 805Dof 2017, Special Leave Petition (Civil) No. 24002 of 2017, Writ Petition(Civil) Nos.950 and 860 of 2017, Special Leave Petition (Civil) No. 36396of 2017, Special Leave Petition (Civil) D. No. 33267 of 2017 and WritPetition (Civil) No. 511 of 2018.

Tushar Mehta, ASG, Ajit Kumar Sinha, Fali S. Nariman,ES. B. Upadhyay, Ms. Madhavi Divan, C. A. Sundaram, Colin Gonsalves,Sidharth Luthra, Anand Grover, V. Giri, Ms. V. Mohana, Parag P. Tripathi,Jayant Bhushan, Sr. Advs., Pawanshree Agrawal, (AC), S. K. GokulaKrishnan, Karri Ventata Reddy, Ms. Revathy Raghava, Manoj Goel,Shuvodeep Roy, Fuzail Ahmad Ayyub, Ashwarya Sinha, Ms. PriyankaFSinha, Ms. Mohini Priya, Arun Monga, Ms. Divya Sharma, SuryajyotiSingh Paul, Gopal Jha, Mehul M. Gupta, R. P. Gupta, Ms. Mohna,Ms. Geetali Talukdar, Samarendra Nath Verma, Karunakar Mahalik,Shovan Mishra, Kaushik Choudhury, Shantanu Sagar, Ms. SujeetaSrivastava, Ashok Kumar Jain, Pankaj Jain, Bijoy Kumar Jain, BishwajitDubey, Ms. Srideepa Bhattacharyya, Manpreet Lamba (for M/s. CyrilGAmarchand Mangaldas), Sandeep Devashish Das, Anupam Lal Das,Vishal Gupta, Anirudh Singh, Krishanu Barua, Subhash Sharma, AbhishekRaj, Sumeet Sharma, Paras Chaudhary, Kabir Singh, Sidharth Agarwal,Ms. Adishree, Ms. Swarupama Chaturvedi, B. N. Dubey, Sarvjit Pratap

Singh, Karan Bhariok, Ratik Sharma, Akash Tyagi, M/s. Unuc LegalLlp, Ajit Sharma, Bijoy Kumar Jain, Varinder Kumar Sharma, Syed ShahidRizvi, Harish V. Shankar, Mrs. Anil Katiyar, Mrs. Taruna Singh Gohil,Amit Sharma, Naveen Kumar, Vishnu Sharma, Ms. Anupama Sharma,Ms. Sonali Negi, Mohit Rai, Akhileshwar Jha, Mangaljit Mukherjee,Mrs. Debarpita Basu Mukherjee, B. P. Yadav, Mrs. Sarla Chandra, ArunK. Sinha, Ms. Prerna Mehta, Rohit Singh, Sachin Patil, Partha Sil,Ms. Kavita Jha, Vaibhav Kulkarni, Udit Naresh, M. A. Krishna Moorthy,K. K. Mohan, Raj Kishor Choudhary, Rajiv K. Virmani, Atul Malhotra,Gaurav Jain, Yadav Narender Singh, Abhishek Singh, Mukesh KumarVerma, Ashok Mathur, R. Sudhindra, Saumya Mehrotra, Rabin Majumder,Ms. Shashi Kiran, Satish Chandra, Manoj Jain, Sanjay Maurya, AnupJain, Abhishek Baid, Praneet Das, Sarthak Guru, Kedar Nath Tripathy,T. Harish Kumar, Talha Abdul Rahman, Abhijat P. Medh, Ms. SanyaTalwar, Rajat Navet, Pradeep Kumar Bakshi, Mukesh Kumar Maroria,Ravindra Kumar, Pawan Upadhyay, Nishant Kumar, Ratik Sharma,Ms. Sharmila Upadhyay, Ms. Madhusmita Bora, Pawan Kishore Singh,Ram Krishna, Sandeep Bisht, Ranjan Kumar Pandey, Hitesh KumarSharma, S. K. Rajora, Praveen Swarup, Shekhar Kumar, Ms. SupriyaJuneja, Bharat Monga, Balaji Srinivasan, Rajeev Kumar Bansal, AbhishekYadav, Amarjit Singh Bedi, Dr. Lalit Bhasin, Ms. Palak Chadha,Ms. Shireen Shukla, Mudit Sharma, Raghavendra Mohan Bajaj,Ms. Garima Bajaj, Nakul Dewan, Ejaz Maqbool, Kunwar Aditya Singh,P. V. Dinesh, Ramakant Rai, Ms. Mehak Suri, Arjun Garg, Sarvam RitamKhare, Ms. Vrinda Kapoor, Md. Rashid Saeed, Ms. Manjeet Chawla,Ms. Liz Mathew, Ms. Sujeeta Srivastava, Apoorv Shukla, Kunal Cheema,Sudhir Naagar, Mrs. Gargi Khanna, Arun Aggarwal, Gaurav Agarwal,Anindya Prasad Kumar, Ms. Tishampati Sen, Ms. Rashmi Nandakumar,Pukhrambam Ramesh Kumar, Ms. Praveena Gautam, Neeraj KumarGupta, Himanshu Shekhar, Dharmendra Kumar Sinha, Ms. Aparna Bhat,Ms. Anne Mathew, Ms. Anannya Ghosh, Amit Pawan, Ambhoj KumarSinha, Alok Shukla, Wajeeh Shafiq, Vikas Upadhyay, Vidit Monga, JasbirSingh Malik, Ms. Usha Nandini, Sushil Kumar Singh, Ms. TasneemAhmadi, Sudhir Kumar Gupta, Abhinav Gupta, Ms. Mahima Rathi,Subodh S. Patil, Umakant Mishra, Sibo Sankar Mishra, Shiv Sagar Tiwari,Shishir Pinaki, Ms. Shashi Kiran, Ms. Priya Sharma, Prathvi Raj Chauhan,Arjun Sain, Sanjay Kumar Dubey, Yunus Malik, Ms. Renu Verma, Anish A

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AMaheshwari, Ms. Farha Malik, Samir Malik, Ms. Ruchi Kohli, SonamSharma, Ms. Rakhi Ray, Rajender Prasad, Rahul Narayan, Ms. PujaSharma, Ms. Garima Sharma, Mohit Chaudhary, Suchit Mohanty, PrakashRanjan Nayak, Niraj Gupta, Ms. Anshu C., Mukesh Jain, Md. ShahidAnwar, Ms. Mona Dikshit, Ms. Yamini Dikshit, Mayank Pandey,Purushottam Sharma Tripathi, Ravi Chandra Prakash, Mukesh KumarBSingh, Ms. Vani Vyas, Ms. Sushama Singh, Mohit Koushik, Mr. AbhishekTripathi, M/s. Ravi Chandra Prakash & Co., Kaushik Choudhury, GirishChand Tyagi, Brijesh Tyagi, Lalit Chahar, Kailash Prashad Pandey,Ms. Prerna Singh, Ravi Kishor, Niraj Singh, Guntur Prabhakar,Ms. Geetanjali Mohan, Gaurav Kejriwal, Deepak Goel, ChristopherCD’souza, Prabhat Rai, Prashant Tyagi, Braj Kishore Mishra, Binay KumarDas, Ms. Asha Jain Madan, Anil Nag, Arun Singh, Y. Lokesh, Anil KumarTandale, Aneesh Mittal, Ms. Shreya Sharma, Amarjit Singh Bedi, AjayMarwah, Mool Singh, Anand, Abhijit Sengupta, Subhashis Biswas, AbhayKumar, Anivesh Bharadwaj, A. Lakshminarayanan, Vaibhav Kumar,Ujjal Banerjee, Ms. Udita Singh, Somesh Chandra Jha, Shashank ShekharDSingh, Sandeep Devashish Das, Ms. Surbhi Sharma, S. K. Bhattacharya,L. K. Paonam, Mrs. Tomthinnganbi Koijam, Niraj Bobby Paonam, RahulSharma, Santosh K. Sethi, Arjun Jaidka, Mithilesh Kumar Singh,Krishna Kumar Singh, Ajay Jain, Pranay Jain, Jinendra Jain, I. C. Jain,Ms. Aastha Chopra, Ajay Singh, Jay Bhati, Gagan Gupta, Saurabh Gupta,EBhargava V. Desai, Ajay Sharma, Rajesh P., Sunil Malhotra, P. N. Puri,Rajat Malhotra, Mrs. Reeta Dewan Puri, Chander Shekhar Ashri,Ayush Sharma, Sandeep Devashish Das, Sahil Sethi, Shivam Sharma,Ms. Astha Sharma, Syed Shahid Ansari Rizvi, Harish V. Shankar, ArvindKr. Sharma, Sumant Batra, Syed Sarfaraz Karim, Abhinav Shrivastava,Rahul Guptak, R.P. Singh, Rachit Mittal, Ms. Tanvi Aggarwal, AnkitFKhera, Mrs. K. Enatoli Sema, Amit Kumar Singh, Ashutosh Dubey,Sushil Pandey, Rajendra, Ms. Rashmi Dubey, Samarendra Nath Verma,Anil Kr. Mishra, A. Rohen Singh, Naveen Kumar, Anil Kumar Mishra,A. Rohen Singh, Randhin K. Singh, Naveen Kr., Ms. Kanika Sehgal,Dr. Lalit Bhasin, Ms. Sureen Shukla, P. V. Yogeswaran, Vivek Sarin,GAakarshan Aditya, Rashid Saeed, Lalit Chauhan, Ms. Sonal Gupta,Ms. Aishwarya Dash, Saurabh Kirpal, Advs. for theappearing parties.

The Judgment of the Court was delivered by DR. D. Y. CHANDRACHUD, J. 1. Permission to file the SpecialLeave Petitions is granted.

2. These proceedings have been initiated under Article 32 of theConstitution for protecting the interests of home buyers in projects floatedby Jaypee Infratech Limited[1]. JIL is a special purpose vehicle createdby its holding company, Jaiprakash Associates Limited[2].

3. IDBI Bank Limited instituted a petition under Section 7 of theInsolvency and Bankruptcy Code 2016[3]against JIL[4] before the NationalCompany Law Tribunal[5] at its Bench at Allahabad. The bank sought theinitiation of a Corporate Insolvency Resolution Process[6] against JIL.JIL filed its objections opposing admission of the petition. However,according to the petitioners, JIL withdrew its objections and furnished itsconsent for a resolution plan under the provisions of the IBC. IDBIBank claimed that JIL had committed a default of Rs. 526.11 crores inthe repayment of its dues. On 9 August 2017, NCLT initiated the CIRPin respect of JIL. An order of moratorium was issued under Section 14by which the institution of suits and the continuation of pendingproceedings, including execution proceedings was prohibited. An InterimResolution Professional[7] was appointed under the provisions of the IBC.On 14 August 2017, JIL, in pursuance of the order of NCLT called forsubmissions of claims by creditors: financial creditors in Form-C,operational creditors in Form -B, workmen and employees in Form -Eand other creditors in Form -F. On 16 August 2017, the Insolvency andBankruptcy Board of India made an amendment to its regulations andRegulation 9(a) was inserted to include claims by other creditors. On 18August 2017, the Board released a press note clarifying that home buyerscould fill in Form -F as they could not be treated at par with financial andoperational creditors.

4. These proceedings were instituted for the following reliefs:

(i) A declaration that Sections 6,7,10,14 and 53 of the Code are ultravires insofar as only financial or operational creditors arerecognized, disregarding other stakeholders such as the homebuyers; 1JIL2JAL3IBC4 CP (IB) 77/ALB/2017)5 NCLT6CIRP7IRP

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A(ii) The order dated 9 August 2017 of the NCLT be set aside;

(iii) The Union of India be directed to notify under Section 14(3) thatthe provisions for moratorium contained under Section 14(1)(a)shall not apply to consumers and that the home buyers be allowedto exercise the rights available to them under the ConsumerBProtection Act 1986 and the Real Estate (Regulation andDevelopment) Act 2016;

(iv) A forensic audit of JIL and JAL be conducted for the period from2009 to 2017; and

(v) A direction be issued to the Union of India to protect the interestsCof home buyers in the larger public interest.

5. As the above narration indicates, the grievance with which thisCourt was moved under Article 32 was that the CIRP ignores the interestsof vital stakeholders in building projects, chief among whom are individualswho have invested their wealth in pursuit of the human desire to own aDhome. The IBC, in the submission of the petitioners, recognized onlythree categories or classes namely (i) corporate debtors; (ii) financialcreditors and (iii) operational creditors. Not being protected by the IBC,the petitioners contended that the rights conferred upon them by specialenactments including the Consumer Protection Act 1986 and by RERAEcould not be divested. Suspension of the right to seek redressal beforean adjudicatory forum under Section 14(1)(a) would, it was asserted,leave the home buyers without a remedy. Section 238 of the IBC givesit an overriding effect over other laws in existence.

6. The petition before this Court has grown in size to incorporateFas many as 646 persons who claim to be home buyers. Arrayed beforethe Court as respondents to these proceedings, besides JIL, JAL and theUnion of India are statutory authorities (including the Reserve Bank ofIndia), banks and welfare associations representing home buyers. A largenumber of intervention applications have been filed.

7. The home buyers invested in residential projects (“high-tech”Gtownships as they were described) proposed by JIL and JAL in theNational Capital Region. The townships were to be ready for possessionwithin thirty to thirty-six months of the booking by a prospective buyer.Relying on the representations of the developers, individual purchasersinvested in the residential projects. A large number of them have obtainedH

loans from financial institutions. As a result of the delay in handing overpossession, numerous flat buyers filed consumer complaints before theState and National Consumer Disputes Redressal Commissions. In June2017, RBI is stated to have published a list of the top 12 defaulters in thecountry including JIL which was declared to be in default of an amountapproximately of Rs. 8,000 crores to its lenders.

8. This Court was moved in the exercise of its jurisdiction underArticle 32 to protect the interests of home buyers, who had been left inthe lurch. When the petition was instituted, they had no locus in theCIRP. Liquidation would leave the home buyers to face an uncertainfuture. The disposal of assets would, it is apprehended, deprive them oftheir right to own a home. Faced with a situation of human distress,occasioned by the failure of the developers to meet their contractualobligations and a legal regime as it then stood under the IBC whichprovided no solace to home buyers, this Court issued notice on 4September 2017 in a batch of writ petitions. Proceedings before theNCLT at Allahabad were directed to remain stayed until further orders.The Court further directed that a copy of the proceedings be served onthe office of the learned Attorney General for India. Applications forimpleadment and intervention were allowed.

9. On 11 September 2017, IDBI Bank Limited file an applicationfor vacating the ad-interim order dated 4 September 2017. The AttorneyGeneral submitted before this Court that the order of stay would resultin a consequence which was unintended: control of JIL would be restoredto the erstwhile management. Such a consequence would affect therights of creditors and of the consumers as well. In the meantime, as aresult of the ad-interim stay, the IRP had handed over records to JIL.Counsel for the home buyers contended that if the order of stay wasbeing modified to enable the IRP to take back control, it was necessaryto have their representative on the Committee of Creditors[8]. The regimeof the Act did not at that stage include any representation for the homebuyers on the CoC.

10. Accordingly, on 11 September 2017, this Court modified itsearlier order dated 4 September 2017 in the following terms:

a) The IRP shall forthwith take over the Management of JIL.The IRP shall formulate and submit an Interim Resolution Plan A

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within 45 days before this Court. The Interim Resolution Planshall make all necessary provisions to protect the interests of thehome buyers; A

b) Mr.Shekhar Naphade, learned senior counsel along withMs.Shubhangi Tuli, Advocate-on-Record, shall participate in themeetings of the Committee of Creditors under Section 21 of theInsolvency and Bankruptcy Code, 2016 to espouse the cause ofthe home buyers and protect their interests; B

c) The Managing Director and the Directors of JIL and JAL shallnot leave India without the prior permission of this Court; C

d) JAL which is not a party to the insolvency proceedings, shalldeposit a sum of Rs.2,000 crores (Rupees two thousand crores)before this Court on or before 27.10.2017. For the said purpose, ifany assets or property of JAL have to be sold, that should be doneafter obtaining prior approval of this Court. Any person who wasDa Director or Managing Director of JIL or JAL on the date of theinstitution of the insolvency proceedings against JIL as well as thepresent Directors/Managing Director shall also not leave thecountry without prior permission of this Court. The foregoingrestraint shall not apply to nominee Directors of lending institutions(IDBI/ICICI/SBI); E

e) All suits and proceeding instituted against JIL shall in terms ofSection 14(1)(a) remain stayed as we have directed the IRP toremain in Management. Be it clarified that we have passed thisorder keeping in view the provisions of the Act and also the interestof the home buyers.”

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11. The above interim directions indicate that three significantaspects were the foundation of the order:

First, following the discipline of the IBC, the IRP was permittedto take over management of JIL and to proceed to formulate an interimresolution plan within a stipulated period;G

Second, the IRP was directed to ensure that necessary provisionswere made to protect the interests of home buyers. To facilitate theviews of the home buyers being placed before the CoC this Courtnominated a senior counsel practicing before this Court to participate inthose meetings under Section 21 of the IBC; H

Third, JAL as the holding company of JIL was directed to deposita sum of Rs 2,000 crores on or before 27 October 2017.

In formulating these directions, the Court initiated steps to protectthe interests of the home buyers. At that stage, it must be noted, theCoC as constituted under Section 21 of the IBC did not include arepresentative of the home buyers. Nor were the home buyers regardedas financial creditors under the IBC. The mechanism evolved by theCourt was intended to provide a workable arrangement under the thenprevailing regime so that the interests of the home buyers would not beignored.

12. By an order dated 23 October 2017 leave was granted to theIRP to file an action plan and an information memorandum in a sealedcover before this Court.

13. JAL moved an application before this Court for vacating thedirection for deposit of Rs 2,000 crores or for a modification that wouldenable JAL to transfer its rights under a concession agreement in respectof the Yamuna Expressway (between NOIDA and Agra. This requestwas seriously opposed by the Attorney General as well as by counselappearing on behalf of IDBI Bank and the Yamuna ExpresswayIndustrial Development Authority. Counsel for the IRP drew the attentionof the Court to the fact that the rights under the concession agreementbelong to JIL which was subject to proceedings under the IBC as aresult of which such a request for alienation could not be permitted. Byits order dated 25 October 2017, this Court declined to modify the directionfor deposit of an amount of Rs 2,000 crores. However, time to do sowas extended until 5 November 2017.

14. On 30 November 2017 this Court directed that the home buyersmay approach the amicus curiae[9] appointed in the case. The amicuscuriae was to open a web portal on which details of the home buyerswould be uploaded. All directors were required to remain present in thisCourt on the next date to disclose their personal assets on affidavit. Thedirectors were present before this Court on 22 November 2017 when astatement was made on behalf of JAL of its readiness to deposit a sumof Rs 275 crores. By its order dated 22 November 2017 this Courtpermitted JAL to deposit a demand draft of Rs 275 crores during thecourse of the day and directed that a further sum of Rs 150 crores bedeposited by 13 December 2017 and of Rs 125 crores by 31 December A

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A2017. A restraint was imposed on the alienation of the properties andassets of the directors and their families. The earlier direction for thedeposit of Rs 2,000 crores was maintained. In pursuance of the orderdated 22 November 2017 an amount of Rs 150 crores was deposited, asnoticed in the order dated 15 December 2017.

B15. On 10 January 2018 RBI moved an Interlocutory Applicationbefore this Court seeking leave to move the NCLT against JAL underthe provisions of the IBC. While observing that the application filed bythe RBI would be considered at a later stage, this Court issued directionsto JAL to file details of its housing projects on affidavit. The amicuscuriae was permitted to open a separate web portal reflecting the detailsCof the home buyers of JAL.

16. When the proceedings were listed before this Court on 21March 2018, JAL stated through its counsel that an amount of Rs 550crores had been deposited with the Registry. Counsel for JAL statedthat only 8% of the home buyers are interested in seeking a refund whileDothers have expressed the desire to seek possession of their flats. TheCourt indicated in its order that presently it was concerned with thosehome buyers who sought a refund while the grievances of those whowished to have possession of their flats would be considered at asubsequent stage. Since the order for the deposit of Rs 2,000 croresEhad not been complied with despite the end of the deadline under theprevious directions, the Court issued further directions. As agreed bythe Managing Director of JAL, an instalment of Rs 100 crores was tobe deposited by 15 April 2018 while a second instalment in the like amountwas directed to be deposited by 10 May 2018. The amicus curiae informed the Court that information gathered from the web portal indicatedFthat an amount of Rs 1300 crores was required to be refunded by wayof principal alone to the home buyers who were seeking refunds. Theamicus curiae was requested to submit a project-wise chart to the Court,indicating the number of persons and the stage of completion. One ofthe grievances of the home buyers was that the developer was makingGdemands towards monthly instalments despite being unable to completeconstruction. Consequently, a direction was issued restraining thedeveloper from raising demands towards outstanding or future instalmentsin respect of those flat buyers who had expressed a desire to obtainrefunds. By the order of this Court, the IRP was permitted to finalisethe resolution plan. However, the plan would, this Court directed, beH

implemented only with its leave. The NCLT was permitted to decidethe proceedings subject to the directions which were issued.

17. On 16 April 2018, the Court was apprised of the fact that JALhad deposited the first instalment of Rs 100 crores. We may note at thisstage, that JAL had submitted before the Court that it should be permittedto participate as one of the intending bidders in the resolution plan whichwas being formulated by the IRP. Dealing with the submission, thisCourt allowed JAL to submit a representation to the competentauthority, though with the clarification that the Court had not expressedany opinion on that issue. This Court also directed that if the amount asdirected was not deposited within the time specified, steps would betaken to attach the personal properties of the directors.

18. On 16 May 2018, the Court was apprised of the fact that anamount of Rs 750 crores was deposited by JAL. A further directionwas issued for the deposit of Rs 1000 crores by 15 June 2018 subject towhich, a stay was granted of further proceedings only in so far as theliquidation is concerned.

19. We may note at this stage that both in its earlier order dated21 March 2018 as well as in the subsequent order dated 16 May 2018,this Court had recorded the request of the home buyers for a pro-ratadisbursement of the amount which was deposited by JAL. No directionfor disbursement has been issued and the request was deferred for beingconsidered.

20. On 13 July 2018, certain proposals were made by JAL beforethis Court for permission to alienate specific assets to secure compliancewith the interim directions of this Court for deposit of Rs 2,000 crores.This proposal was seriously opposed by counsel for the petitioners andhome buyers, besides the financial institutions. Observing that the Courtwas not inclined to entertain the proposals mooted by the JAL, theproceedings were directed to be listed on 16 July 2018 “exclusively forthe purpose of considering the issue of the rights of the home buyers andthe capability of JAL and JIL to construct the projects.”

21. Section 12(1) of the IBC envisages that the CIRP has to becompleted within a period of 180 days from the date of admission of theapplication. However, a window is provided to the resolution professionalto seek an extension of a further period of 90 days upon a resolutionfrom the CoC. The extension can be provided only once.

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A22. In the case of JIL, the period for completing the CIRP was toend on 6 February 2018. Based on the approval of the CoC an extensionof 90 days was sought and granted by the NCLT by an order dated 12February 2018. The extended period was to end on 12 May 2018. Duringthe course of the process, the IRP invited expressions of interest inpursuance of which ten applicants including JAL submitted resolutionBplans. The IRP had made it clear while inviting applications forExpressions of Interest that the resolution plan to be submitted by theapplicants must protect the interests of home buyers and provide forexpeditious completion of the work of construction. The bid submittedby JAL was found to be ineligible in view of the bar contained in SectionC29 A of the IBC and was not opened. Of the resolution plans submittedby nine resolution applicants, five were found not to be compliant withthe IBC and were not presented to the CoC for consideration. Afterinitial negotiations, a discussion took place with four resolution applicants,these being:

D(a) JSW Infrastructure Limited & IBC Knowledge Park Ltd.(JSW-IBC); (b) Adani Infrastructure and Developers Pvt. Ltd. (Adani);

(c) Lakshdeep investments & Finance Pvt. Ltd. along withSh.Sudhir Valia and relatives (Lakshdeep); andE(d) Cube Highways and Infrastructure Pte. Ltd., Kotak InvestmentAdvisors Ltd and I Squared Asia Advisors Pte Ltd (Cube-Kotak-I Squared).

Subsequently JSW was found to be ineligible under SectionF29A.Hence, the resolution plans of the remaining three applicants weretaken up for consideration. Counsel for the IRP has drawn the attentionof the Court to the fact that none of the remaining three applicantsproposed to bring in any funds for refund of the amounts paid by thehome buyers to JIL. At a meeting held on 9 April 2018, the CoC decidedto shortlist the resolution plan of Lakshdeep for negotiation.GLakshdeep submitted a resolution plan on 1 May 2018 and a meetingof the CoC was scheduled on 7 May 2018 to consider it under Section30(4). In the meantime, in pursuance of the liberty granted by this Courton 16 April 2018,JAL submitted a representation on 6 May 2018. TheCoC considered the resolution plan of Lakshdeep and the representationof JAL. JAL was permitted to present its plan before the CoC. TheH

resolution plan submitted by JAL was rejected as a result of the statutorybar contained in Section 29A and since it failed to convince the CoC ofits ability to tie up funds for construction. The CoC resolved to put theresolution plan of Lakshdeep for voting on 8 May 2018. However,when the plan was taken up, only 6 % of the votes cast were in favourof Lakshdeep, as against a three-fourth majority which was then neededunder Section 30 (4) (the present requirement is of two-thirds, followingthe amendment to the IBC which has taken effect from 6 June 2018).Accordingly, the IRP informed the NCLT that no resolution plan wasapproved by the CoC within a period of 270 days which came to an endon 12 May 2018.

23. The total financial debt due to the financial creditors on thedate of the commencement of corporate insolvency (9 August 2017)stood at Rs 9,984.70 crores.

24. Section 33(1) of the IBC postulates that liquidation followsupon the rejection of a resolution plan:

“33. Initiation of liquidation.

(1) Where the Adjudicating Authority, -

(a) before the expiry of the insolvency resolution process periodor the maximum period permitted for completion of the corporateinsolvency resolution process under section 12 or the fast trackcorporate insolvency resolution process under section 56, as thecase may be, does not receive a resolution plan under sub-section(6) of section 30; or (b) rejects the resolution plan under section 31 for the non-compliance of the requirements specified therein, it shall -

(i) pass an order requiring the corporate debtor to be liquidated inthe manner as laid down in this Chapter;

(ii) issue a public announcement stating that the corporate debtoris in liquidation; and

(iii) require such order to be sent to the authority with which thecorporate debtor is registered. “

In terms of the provisions of Section 33(1), where the resolutionplan has been rejected under Section 31, the NCLT is required to passan order for the liquidation of the corporate debtor.

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A25. During the course of the hearing, there has been a unanimityof opinion that the liquidation of JIL will not subserve the interests of thehome buyers. The home buyers have made valuable investments bycontributing hard earned monies in the hope of obtaining a roof overtheir heads. A home for the family is a basic human yearning. In diversecontexts it has been held by this Court to be a part of the right to life, asBa fundamental constitutional guarantee[10].All the counsel for the homebuyers have earnestly appealed to the Court to exercise its jurisdictionto ensure complete justice to the home buyers instead of leaving them tothe mercy of a liquidation process. The Court appreciates the substancein that plea, understanding at the same time, the need to abide by theCdiscipline of the law.

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26. Now, it is in this background that it would be necessary for theCourt to understand and evaluate the provisions of the IBC which havea bearing on the issue at hand. The IBC is intended to consolidate andamend the laws relating to reorganisation and insolvency resolution of Dcorporate persons, partnership firms and individuals in a time boundmanner to achieve a maximisation of the value of the assets of suchpersons and to promote entrepreneurship, availability of credit and balancethe interests of all the stakeholders. The enactment of the IBC hascreated a paradigm shift in the regulatory framework and processesgoverning corporate insolvency. The IBC reflects a fundamental changeEin the basic premise of a “debtor in possession” to a “creditor inpossession”. The resolution process is market driven. Resolutionprofessionals are appointed or replaced by the CoC to conduct the entireprocess within 180 days, which can be extended for a further period of90 days. A moratorium would operate during the process. Failure of theFresolution process leads to liquidation. Primacy is given in the processto commercial decisions. The success of the process is contingent uponthe competence of the IRP and the CoC. The responsibilities entrustedto the IRP include managing the affairs of the corporate debtor, engagingexperts or professionals, constituting a CoC, preparation of an informationmemorandum, determination of the liquidation value and enterprise value,Ginviting expressions of interest, permitting resolution applicants to submitplans which would be placed before the CoC where the applicant isfound to be eligible (Sections 17, 18, 20, 23, 25, 26, 29 and 30). The CoCcomprises of all financial creditors and authorised representatives ofcertain categories of persons and classes of creditors under Section H

CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS.[DR. D.Y. CHANDRACHUD, J.]

21(6) and Section 21(6A)(b). The CoC is responsible for approving crucialdecisions and actions of the IRP, while managing the affairs of thecorporate debtor under Section 28. The resolution plan approved by 66% of the voting share in the CoC is submitted by the IRP to the NCLTfor its approval. When the NCLT is satisfied that the plan approved bythe CoC meets the requirement of Section 30(2) it will approve the plan,which will be binding on all stakeholders (Sections 21, 22, 24, 25,27, 28and 30).

Protecting Home Buyers:

Protecting Home Buyers:

27. The IBC, as it was originally enacted, did not contain anadequate recognition of the interests of home buyers in real estateprojects. Home buyers are vital stakeholders. The process of corporateinsolvency resolution directly impacts upon their rights and interests. Yetthe IBC, as initially crafted, did not protect them. The concerns of thehome buyers have been sought to be assuaged by the Insolvency andBankruptcy (Amendment) Ordinance, 2018 which came into force on 6June 2018. As a result of the Ordinance, home buyers are broughtwithin the purview of financial creditors under the IBC.

The expressions “secured creditor” and “security interest” aredefined in Section 3(30) and (31) thus:

“(30) “secured creditor” means a creditor in favour of whomsecurity interest is created;

(31) “security interest” means right, title or interest or a claim toproperty, created in favour of, or provided for a secured creditorby a transaction which secures payment or performance of anobligation and includes mortgage, charge, hypothecation,assignment and encumbrance or any other agreement orarrangement securing payment or performance of any obligationof any person; Provided that security interest shall not include a performanceguarantee;”

The expression ‘financial creditor’ is defined in Section 5(7) thus:

“(7) “financial creditor” means any person to whom a financialdebt is owed and includes a person to whom such debt has beenlegally assigned or transferred”

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AThe expression ‘financial debt’ is defined in Section 5(8) thus:

(8) “financial debt” means a debt alongwith interest, if any, whichis disbursed against the consideration for the time value of moneyand includes–

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(f) any amount raised under any other transaction, including anyforward sale or purchase agreement, having the commercial effectof a borrowing; Explanation. -For the purposes of this sub-clause,-

(i) any amount raised from an allottee under a real estate projectCshall be deemed to be an amount having the commercial effect ofa borrowing; and

(ii) the expressions, “allottee” and “real estate project” shall havethe meanings respectively assigned to them in clauses (d) and(zn) of section 2 of the Real Estate (Regulation andDDevelopment) Act, 2016 (16 of 2016);”

As a result of the amendment brought about in the definition of‘financial debt’, amounts raised from allottees under real estate projectsare deemed to be amounts “having a commercial effect of a borrowing”.Hence outstandings to allottees in real estate projects are statutorilyEregarded as financial debts. Such allottees are brought within the purviewof the definition of ‘financial creditors’.

28. Section 7 of the IBC creates a statutory right in favour offinancial creditors to initiate the corporate resolution process. Section 7reads thus:F

“7. Initiation of corporate insolvency resolution process by financialcreditor.

(1) A financial creditor either by itself or jointly with other financialcreditors, or any other person on behalf of the financial creditor,as may be notified by the Central Government] may file anGapplication for initiating corporate insolvency resolution processagainst a corporate debtor before the Adjudicating Authority whena default has occurred.

Explanation. - For the purposes of this sub-section, a defaultincludes a default in respect of a financial debt owed not only tothe applicant financial creditor but to any other financial creditorof the corporate debtor.

(2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with suchfee as may be prescribed.

(3) The financial creditor shall, along with the applicationfurnish –

(a) record of the default recorded with the information utility orsuch other record or evidence of default as may be specified; (b)the name of the resolution professional proposed to act as aninterim resolution professional; and

(c) any other information as may be specified by the Board.

(4) The Adjudicating Authority shall, within fourteen days of thereceipt of the application under sub-section (2), ascertain theexistence of a default from the records of an information utility oron the basis of other evidence furnished by the financial creditorunder sub-section (3).

(5) Where the Adjudicating Authority is satisfied that –

(a) a default has occurred and the application under sub-section(2) is complete, and there is no disciplinary proceedings pendingagainst the proposed resolution professional, it may, by order, admitsuch application; or (b) default has not occurred or the application under sub-section(2) is incomplete or any disciplinary proceeding is pending againstthe proposed resolution professional, it may, by order, reject suchapplication:

Provided that the Adjudicating Authority shall, before rejectingthe application under clause (b) of sub-section (5), give a noticeto the applicant to rectify the defect in his application within sevendays of receipt of such notice from the Adjudicating Authority.

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1064SUPREME COURT REPORTS

A(6) The corporate insolvency resolution process shall commencefrom the date of admission of the application under sub-section(5).

(7) The Adjudicating Authority shall communicate- (a) the order under clause (a) of sub-section (5) to the financialBcreditor and the corporate debtor; (b) the order under clause (b) of sub-section (5) to the financialcreditor, within seven days of admission or rejection of suchapplication, as the case may be.”

Being financial creditors under the IBC, allottees in real estateCprojects necessarily constitute a part of the CoC. Section 21 containsprovisions for the constitution of the CoC. In so far as is material, Section21 is extracted below:

“21. Committee of creditors.

(1) The interim resolution professional shall after collation of allclaims received against the corporate debtor and determinationof the financial position of the corporate debtor, constitute a com-mittee of creditors.

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(3) Subject to sub-sections (6) and (6A), where] the corporatedebtor owes financial debts to two or more financial creditors aspart of a consortium or agreement, each such financial creditorshall be part of the committee of creditors and their voting shareshall be determined on the basis of the financial debts owed tothem.

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(4) Where any person is a financial creditor as well as anoperational creditor, - (a) such person shall be a financial creditor to the extent of thefinancial debt owed by the corporate debtor, and shall be includedGin the committee of creditors, with voting share proportionate tothe extent of financial debts owed to such creditor; (b) such person shall be considered to be an operational creditorto the extent of the operational debt owed by the corporate debtorto such creditor.

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CHITRA SHARMA AND ORS. v. UNION OF INDIA AND ORS.[DR. D.Y. CHANDRACHUD, J.]

(6) Where the terms of the financial debt extended as part of aconsortium arrangement or syndicated facility provide for a singletrustee or agent to act for all financial creditors, each financialcreditor may- (a) authorise the trustee or agent to act on his behalf in thecommittee of creditors to the extent of his voting share; (b) represent himself in the committee of creditors to the extentof his voting share;

(c) appoint an insolvency professional (other than the resolutionprofessional) at his own cost to represent himself in the committeeof creditors to the extent of his voting share; or (d) exercise his right to vote to the extent of his voting share withone or more financial creditors jointly or severally.

[ (6A) Where a financial debt— (a) is in the form of securities ordeposits and the terms of the financial debt provide for appointmentof a trustee or agent to act as authorised representative for all thefinancial creditors, such trustee or agent shall act on behalf ofsuch financial creditors; (b) is owed to a class of creditors exceeding the number as maybe specified, other than the creditors covered under clause (a) orsubsection (6), the interim resolution professional shall make anapplication to the Adjudicating Authority along with the list of allfinancial creditors, containing the name of an insolvencyprofessional, other than the interim resolution professional, to actastheir authorised representative who shall be appointed by theAdjudicating Authority prior to the first meeting of the committeeof creditors;

(c) is represented by a guardian, executor or administrator, suchperson shall act as authorised representative on behalf of suchfinancial creditors, and such authorised representative under clause(a) or clause (b) or clause (c) shall attend the meetings of thecommittee of creditors, and vote on behalf of each financialcreditor to the extent of his voting share.

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(7) The Board may specify the manner of voting and thedetermining of the voting share in respect of financial debts coveredunder sub-sections (6) and (6A).”

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Financial creditors are entitled to a voting share proportionate tothe extent of the financial debt owed. Regulation 16A contains provisionsfor the selection of an authorised representative to represent financialcreditors in the class. Regulation 16A is in the following terms:

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“16A. Authorised representative.

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(1) The interim resolution professional shall select the insolvencyprofessional, who is the choice of the highest number of financialcreditors in the class in Form CA received under sub-regulation(1) of regulation 12, to act as the authorised representative of thecreditors of the respective class:

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Provided that the choice for an insolvency professional to act asauthorised representative in Form CA received under sub-regulation (2) of regulation 12 shall not be considered.

(2) The interim resolution professional shall apply to theAdjudicating Authority for appointment of the authorisedDrepresentatives selected under sub-regulation (1) within two daysof the verification of claims received under sub-regulation (1) ofregulation 12.

(3) Any delay in appointment of the authorised representative forany class of creditors shall not affect the validity of any decisionEtaken by the committee.

(4) The interim resolution professional shall provide the list ofcreditors in each class to the respective authorised representativeappointed by the Adjudicating Authority.

(5) The interim resolution professional or the resolutionprofessional, as the case may be, shall provide an updated list ofcreditors in each class to the respective authorised representativeas and when the list is updated.

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Clarification: The authorised representative shall have no role inreceipt or verification of claims of creditors of the class heGrepresents.

(6) The interim resolution professional or the resolutionprofessional, as the case may be, shall provide electronic meansof communication between the authorised representative and thecreditors in the class.

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(7) The voting share of a creditor in a class shall be inproportion to the financial debt which includes an interestat the rate of eight per cent per annum unless a differentrate has been agreed to between the parties.

(8) The authorised representative of creditors in a class shall beentitled to receive fee for every meeting of the committee attendedby him in the following manner, namely: - Number of creditors inFee per meeting ofthe classthe committee (Rs)

(9) The authorised representative shall circulate the agenda tocreditors in a class and announce the voting window at leasttwenty-four hours before the window opens for voting instructionsand keep the voting window open for at least twelve hours.”

(emphasis supplied)

The voting share of a creditor in a class is proportional to thefinancial debt together with interest at 8 per cent per annum.

On 13 July 2018, a circular has been issued by the Insolvency andBankruptcy Board of India to facilitate the process of appointing anauthorised representative for classes of creditors governed by Section21(6A)(b) of the IBC. In so far as is material, the circular states thus:

“2. Section 21 (6A)(b) of the Code read with regulation 16A ofthe Regulations provide for a simplified mechanism ofrepresentation of financial creditors through authorisedrepresentatives, as detailed in Para 1 above, and are, therefore,matters of procedure. It is necessary that an ongoing corporateinsolvency resolution process, where creditors belonging to a classare otherwise not represented in the CoC, uses this simplifiedmechanism, irrespective of the stage of the process. The resolutionprofessional, who exercises the powers and performs the dutiesas vested or conferred on the interim resolution professional undersection 23(2) of the Code, shall facilitate representation throughauthorised representative(s).

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A3. It is, accordingly, clarified that wherever the approval ofresolution plan under regulation 39 (3) of the Regulations is atleast 15 days away, the resolution professional shall expeditiouslyobtain, by electronic means, the choice of the insolvencyprofessional from creditors in a class to act as the authorisedrepresentative of the class and proceed further in the manner asBspecified in regulation 16 A of the Regulations.”

The case of JAL:

29. Mr FS Nariman, learned senior counsel appearing on behalfof JAL tendered a note of submissions before this Court seeking toCexplain the perspective of the developers. JAL is stated to be a publiclisted company with 5.57 lakh individual shareholders and fifteen directors(including eight independent directors and two nominee directors oflenders). In 2003, JAL was allotted rights for the construction of anexpressway from NOIDA to Agra. A concession agreement was enteredinto with the Yamuna Expressway Industrial Development Authority. ADspecial purpose vehicle, JIL was set up. Finance was obtained from aconsortium of banks – IDBI Bank being the lead bank – against a partialmortgage of lands acquired in the NOIDA-Agra sector and a pledge of51% of the shareholding held by JAL. A housing plan was envisagedfor the construction of real estate projects in two locations of the landEacquired: 1,162 acres in Wish Town, NOIDA and 1,355 acres in Mirzapur.JAL has stated that it has still to provide possession to 21,532 homebuyers. According to JAL:

“7. Till date:

(i) Construction of 106 Towers (out of remaining 228 towers)-Fconsisting of 11,336 units/flats is 50% to 90% complete, and

(ii) Construction of 50 Towers consisting of 6,500 units is be-tween 25% to 50% complete, and

(iii) Construction of 72 Towers is less than 25% complete.

GOn the basis of the above the expectation and undertaking is toaccommodate approximately 500 home buyers out of the remaining21,532 home buyers every single month starting July 2018.”

JAL has sought to assure that it would double the strength ofexisting workers for the construction of its projects. JAL has also stated H

that it would deposit post-dated cheques of Rs 600 crores with theRegistry of this Court. However, this is subject to the condition that theCourt should allow it to dispose of “identified cement assets” includingits cement plan at Rewa in Madhya Pradesh. In order to enable it to doso, JAL has sought a direction to the NCLT at Allahabad to decide theapplication filed before it for sanctioning a scheme of arrangement,propounded pursuant to a master restructuring agreement signed andaccepted by the 32 creditors. JAL seeks to continue the stay of liquidationproceedings against its deposit of post-dated cheques of Rs 600 crores.JAL also seeks a stay on the direction of this Court allowing the IRP toremain in management.

30. Having carefully considered the proposal submitted on behalfof JAL by Mr FS Nariman, learned senior counsel we are not inclined toaccept it. As we shall explain, accepting the proposal submitted onbehalf of JAL would cause serious prejudice to the discipline of theIBC and would set at naught the salutary provisions of the statute. Inorder to enable the Court to explain the position, a reference is necessaryto the provisions of Section 29 A of the IBC which reads as follows:

29A. Persons not eligible to be resolution applicant. A person shallnot be eligible to submit a resolution plan, if such person, or anyother person acting jointly or in concert with such person— (a) isan undischarged insolvent; (b) is a wilful defaulter in accordance with the guidelines of theReserve Bank of India issued under the Banking Regulation Act,1949 (10 of 1949);

(c) at the time of submission of the resolution plan has an account,or an account of a corporate debtor under the management orcontrol of such person or of whom such person is a promoter,classified as non-performing asset in accordance with the guidelinesof the Reserve Bank of India issued under the Banking RegulationAct, 1949 (10 of 1949) or the guidelines of a financial sectorregulator issued under any other law for the time being in force,and at least a period of one year has lapsed from the date of suchclassification till the date of commencement of the corporateinsolvency resolution process of the corporate debtor:

Provided that the person shall be eligible to submit a resolutionplan if such person makes payment of all overdue amounts with A

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interest thereon and charges relating to nonperforming assetaccounts before submission of resolution plan:

Provided further that nothing in this clause shall apply to a resolutionapplicant where such applicant is a financial entity and is not arelated party to the corporate debtor.

Explanation I- For the purposes of this proviso, the expression“related party” shall not include a financial entity, regulated by afinancial sector regulator, if it is a financial creditor of the corporatedebtor and is a related party of the corporate debtor solely onaccount of conversion or substitution of debt into equity shares orinstruments convertible into equity shares, prior to the insolvencycommencement date.

Explanation II.— For the purposes of this clause, where aresolution applicant has an account, or an account of a corporatedebtor under the management or control of such person or ofwhom such person is a promoter, classified as non-performingasset and such account was acquired pursuant to a prior resolutionplan approved under this Code, then, the provisions of this clauseshall not apply to such resolution applicant for a period of threeyears from the date of approval of such resolution plan by theAdjudicating Authority under this Code;]

(d) has been convicted for any offence punishable withimprisonment –

(i) for two years or more under any Act specified under the TwelfthSchedule; or

(ii) for seven years or more under any law for the time being inforce:

Provided that this clause shall not apply to a person after theexpiry of a period of two years from the date of his release fromimprisonment :

Provided further that this clause shall not apply in relation to aconnected person referred to in clause(iii) of Explanation I; (e) is disqualified to act as a director under the Companies Act,2013 (18 of 2013):

Provided that this clause shall not apply in relation to a connectedperson referred to in clause (iii) of Explanation I; (f) is prohibited by the Securities and Exchange Board of Indiafrom trading in securities or accessing the securities markets; (g) has been a promoter or in the management or control of acorporate debtor in which a preferential transaction, undervaluedtransaction, extortionate credit transaction or fraudulent transactionhas taken place and in respect of which an order has been madeby the Adjudicating Authority under this Code:

Provided that this clause shall not apply if a preferential transaction,undervalued transaction, extortionate credit transaction orfraudulent transaction has taken place prior to the acquisition ofthe corporate debtor by the resolution applicant pursuant to aresolution plan approved under this Code or pursuant to a schemeor plan approved by a financial sector regulator or a court, andsuch resolution applicant has not otherwise contributed to thepreferential transaction, undervalued transaction, extortionatecredit transaction or fraudulent transaction; (h) has executed a guarantee in favour of a creditor in respect ofa corporate debtor against which an application for insolvencyresolution made by such creditor has been admitted under thisCode and such guarantee has been invoked by the creditor andremains unpaid in full or part];

(i) 5[is] subject to any disability, corresponding to clauses (a) to (h), under any law in a jurisdiction outside India; or (j) has a connected person not eligible under clauses (a) to (i).

Explanation 6[I]. — For the purposes of this clause, the expression“connected person” means—

(i) any person who is the promoter or in the management orcontrol of the resolution applicant; or

(ii) any person who shall be the promoter or in management orcontrol of the business of the corporate debtor during theimplementation of the resolution plan; or A

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(iii) the holding company, subsidiary company, associate companyor related party of a person referred to in clauses (i) and (ii):

Provided that nothing in clause (iii) of Explanation I shall apply toa resolution applicant where such applicant is a financial entityand is not a related party of the corporate debtor:

Provided further that the expression “related party” shall notinclude a financial entity, regulated by a financial sector regulator,if it is a financial creditor of the corporate debtor and is a relatedparty of the corporate debtor solely on account of conversion orsubstitution of debt into equity shares or instruments convertibleinto equity shares, prior to the insolvency commencement date; Explanation II—For the purposes of this section, “financial entity”shall mean the following entities which meet such criteria orconditions as the Central Government may, in consultation withthe financial sector regulator, notify in this behalf, namely:—

(a) a scheduled bank;

(b) any entity regulated by a foreign central bank or a securitiesmarket regulator or other financial sector regulator of a jurisdictionoutside India which jurisdiction is compliant with the FinancialAction Task Force Standards and is a signatory to the InternationalOrganisation of Securities Commissions Multilateral Memorandumof Understanding;

(c) any investment vehicle, registered foreign institutional investor,registered foreign portfolio investor or a foreign venture capitalinvestor, where the terms shall have the meaning assigned to themin regulation 2 of the Foreign Exchange Management (Transferor Issue of Security by a Person Resident Outside India)Regulations, 2017 made under the Foreign Exchange ManagementAct, 1999 (42 of1999); (d) an asset reconstruction company register with the ReserveBank of India under section 3 of the Securitisation andReconstruction of Financial Assets and Enforcement of SecurityInterest Act, 2002 (54 of 2002); (e) an Alternate Investment Fund registered with Securities andExchange Board of India; (f) such categories of persons as may be notified by the CentralGovernment.”

31. Parliament has introduced Section 29 A into the IBC with aspecific purpose. The provisions of Section 29 A are intended to ensurethat among others, persons responsible for insolvency of the corporatedebtor do not participate in the resolution process. The Statement ofObjects and Reasons appended to the Insolvency and Bankruptcy Code(Amendment) Bill 2017, which was ultimately enacted as Act 8 of 2018,states thus:

“2. The provisions for insolvency resolution and liquidation of acorporate person in the Code did not restrict or bar any personfrom submitting a resolution plan or participating in the acquisitionprocess of the assets of a company at the time of liquidation.Concerns have been raised that persons who, with theirmisconduct contributed to defaults of companies or areotherwise undesirable, may misuse this situation due to lackof prohibition or restrictions to participate in the resolutionor liquidation process, and gain or regain control of thecorporate debtor. This may undermine the processes laiddown in the Code as the unscrupulous person would beseen to be rewarded at the expense of creditors. In addition,in order to check that the undesirable persons who mayhave submitted their resolution plans in the absence of sucha provision, responsibility is also being entrusted on the committeeof creditors to give a reasonable period to repay overdue amountsand become eligible.” (emphasis supplied)

Parliament was evidently concerned over the fact that personswhose misconduct has contributed to defaults on the part of biddercompanies misuse the absence of a bar on their participation in theresolution process to gain an entry. Parliament was of the view that toallow such persons to participate in the resolution process wouldundermine the salutary object and purpose of the Act. It was in thisbackground that Section 29 A has now specified a list of persons whoare not eligible to be resolution applicants.

32. Clauses (c) and (g) of Section 29 A would operate as a bar tothe promoters of JAL/JIL participating in the resolution process. Underclause (c), a person who at the time of the submission of the resolution A

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Aplan has an account which has been classified a Non-Performing Assetunder the guidelines of the RBI or of a financial regulator is subject to abar on participation for a stipulated period. Under clause (g), a personwho has been a promoter or in the management or control of a corporatedebtor in which a preferential transaction, undervalued transaction,extortionate credit transaction or fraudulent transaction has taken placeBand in respect of which an order has been made by the adjudicatingauthority under the IBC is prohibited from participating. The Court mustbear in mind that Section 29 A has been enacted in the larger publicinterest and to facilitate effective corporate governance. Parliamentrectified a loophole in the Act which allowed a back-door entry toCerstwhile managements in the CIRP. Section 30 of the IBC, as amended,also clarifies that a resolution plan of a person who is ineligible underSection 29 A will not be considered by the CoC :

“30. Submission of resolution plan.

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(4) The committee of creditors may approve a resolution plan bya vote of not less than 4[sixty-six] per cent. of voting share of thefinancial creditors, after considering its feasibility and viability, andsuch other requirements as may be specified by the Board:

EProvided that the committee of creditors shall not approve aresolution plan, submitted before the commencement of theInsolvency and Bankruptcy Code (Amendment) Ordinance, 2017(Ord. 7 of 2017), where the resolution applicant is ineligible undersection 29A and may require the resolution professional to invitea fresh resolution plan where no other resolution plan is availableFwith it:

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Provided further that where the resolution applicant referred to inthe first proviso is ineligible under clause (c) of section 29A, theresolution applicant shall be allowed by the committee of creditorssuch period, not exceeding thirty days, to make payment of overdueamounts in accordance with the proviso to clause (c) of section29A: Provided also that nothing in the second proviso shall beconstrued as extension of period for the purposes of the provisoto sub-section (3) of section 12, and the corporate insolvencyresolution process shall be completed within the period specifiedin that subsection]:

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Provided also that the eligibility criteria in section 29A as amendedby the Insolvency and Bankruptcy Code (Amendment) Ordinance,2018 shall apply to the resolution applicant who has not submittedresolution plan as on the date of commencement of the Insolvencyand Bankruptcy Code (Amendment) Ordinance, 2018.”

33. Mr Anand Grover appearing on behalf of the home buyershas opposed the proposal submitted by JAL/JIL on the following grounds:

(i) Loans given to JAL have been classified as Non PerformingAssets which renders JAL ineligible as a resolution applicant/newpromoter under Section 29A(b) of the IBC;

(ii) In addition to Section 29A (b), JAL is also disqualified underSection 29A (g) of IBC. Section 29A(g) provides that a person who isengaged in a fraudulent transaction should not be allowed to bid foranother company as such a person may again engage in fraudulenttransactions. In May 2018, the NCLT Allahabad set aside a fraudulenttransaction involving a mortgage of around 750 acres of JIL’s land infavour of the lenders of JAL. This mortgage was without anyconsideration and the land of 750 acres may be worth INR 5,000 crores.The matter is now before the NCLAT, which has specifically framed anissue in this regard;

(iii) The RBIis already before this Court seeking initiation ofinsolvency proceedings against JAL. JAL’s proposal, although presentedunder the garb of protecting the interest of homebuyers, is aimed at thetwin benefits of avoiding insolvency of JAL and regaining control of JIL,thereby defeating RBI’s application for insolvency proceedings of JALas well as Section 29A of IBC;

(iv) The reasons pleaded by JAL/JIL to excuse their failure tocomplete the housing projects such as the stay order granted by theNational Green Tribunal have been rejected by orders of the NationalConsumer Disputes Redressal Commission as there was no stay. Onesuch order was passed by the NCDRC on 2 May 2016, in DevelopersTownship Property Owners Welfare Society v. JaiprakashAssociates Limited (Consumer Case No. 1479 OF 2015);

(v) The contention of JAL that they faced impediments onaccount of the purported stay imposed by the NGT is patently incorrectas the stay by the NGT was only on handing over possession without an A

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Aoccupation certificate, which had no bearing on the construction.Moreover, JAL carried out construction during that period as isevidenced inter alia by the fact that they raised demands forconstruction linked payments during this period;

(vi) During the pendency of the CIRP from 9 August 2017,Bconstruction work was done under the aegis of the IRP under whomJAL was a mere contractor;

(vii) The claim by JAL that flats have been delivered is afractured claim as flats have been delivered in incomplete stages andare not in accordance with the allotment letters. The flooring is not com-Cplete, doors and windows are missing, no objection certificates have notbeen obtained from the Fire Department and the offer of possession isbeing made without the occupation certificate;

viii) JAL does not have the capacity to deliver the flats and 22,000homebuyers are suffering due to delays of more than four years inDcompletion of various projects of JAL and JIL;

(ix) Under the contracts, JAL and JIL are jointly and severallyliable to deliver the flats. If JAL was serious about delivering the flats,the present situation would not have arisen. Further, JAL would haveavoided the insolvency process of JIL and would not have cast the homeEbuyers to the uncertainties of insolvency;

(x) There are serious doubts about the credentials of JAL whichhas diverted funds from JIL towards its other businesses. The applicantassociations had appointed ASA Financial Services to conduct an auditof JIL’s financials and the audit report demonstrates that JAL may havediverted more than INR 10,000 crore from JIL;F

(xi) JAL is undergoing a serious financial crisis. This is clearfrom the following facts:

(a) JAL has not yet honoured the order of this Court asking it todeposit Rs 2,000 crore for protection of the interest of the home buyers.GJAL has paid only Rs 750 crores out of Rs 2,000 crores, after the expiryof almost 10 months from 11 September 2017 which was the date of theinitial order of this Court;

(b) JAL has failed to pay even the latest instalment of Rs 1,000crores by 15 June 2018 in accordance with the order of this Court datedH16 May 2018;

(c) JAL is a defaulter of more than 30 banks to the extent ofaround Rs 30,000 crores. JAL has also defaulted on fixed deposits, foreigncurrency convertible bonds and payments to Noida Authority; (d) Even in the latest proposal, the proposal to deposit Rs 600crores is spread over time indicating that JAL has no resources; and (e) The proposal of doubling the strength of workers from 4,000to 8,000 would only mean doubling the strength from 17 workers pertower to 35 workers per tower (228 towers to be built by 8,000workers). This would amount to 2 workers in each floor of 4 flats (21,532flats in 228 towers by 8,000 workers). At this rate, completion of flatsmay take several years.

34. Similar submissions have been urged on behalf of the homebuyers by other learned counsel.

35. The bar under Section 29A would preclude JAL/JIL frombeing allowed to participate in the resolution process. Moreover, thefacts which have been drawn to the attention of the Court leave nomanner of doubt that JAL/JIL lack the financial capacity and resourcesto complete the unfinished projects. To allow them to participate in theprocess of resolution will render the provisions of the Act nugatory. Thiscannot be permitted by the Court.

36. But it has been submitted on behalf of JAL/JIL by Mr. F.S.Nariman, learned senior counsel that with the expiry of the time linesprescribed in the IBC for the CIRP, the only option that would nowremain is to liquidate the corporate debtor. Mr Nariman submitted thatliquidation is not in the interest of the home buyers. In that event, in hissubmission, the only way out would be to obviate the consequence ofliquidation by envisaging an arrangement outside the provisions of theIBC and not under it. It has been submitted that an ongoing projectwhich has provided over 11,200 homes to home buyers in 79 towersshould not, as far as possible, be stopped midway since that would affectthe interests of the remaining 21,532 buyers who await possession. Theirrights, it has been urged, are recognised and preserved under the RealEstate (Regulation and Development) Act 2016. Mr Nariman submittedthat unless a group of independent professionals, to be appointed by thisCourt, comes to a conclusion that it is not financially viable at all for JIL/JAL to complete the remaining work in a time bound manner, their roleas developers should not be discounted. Hence it has been submitted A

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Athat an independent committee of experts should be constituted by thisCourt to evaluate the financial capability of JAL/JIL to continue executingthe ongoing projects. In this background it has also been submitted thatfollowing the opening of the web portal under the directions of the Court,only 8% of the home buyers have opted for refunds while 92% havechosen not to claim refunds thereby implying a confidence in the abilityBof JIL/JAL to complete the project. JIL, it has been submitted, hasassets valued at Rs 17,116 crores by bank valuers to whom they weresubmitted as security and even the distress value is Rs 14,548 crores.Mr Nariman submitted that among the two sets of financial creditors ofJIL and JAL:

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(i) the creditors of JIL are headed by IDBI Bank apart fromwhich there are 12 other banks in the consortium;

(ii) the financial creditors of JAL await formal orders of the NCLTto the scheme of arrangement which has been agreed to by all its 32creditors under a Master Restructuring Arrangement.D

37. We may note at this stage that counsel appearing on behalf ofthe home buyers have uniformly opposed the proposal of JIL/JAL. Thehome buyers have urged before this Court that they have no confidencein the ability of either JIL or JAL to complete the outstanding projects.The home buyers have urged that they have been left in the lurch by theEdevelopers who have miserably failed to fulfil their contractual obligationby allotting flats on time.

38. On behalf of the IRP, Mr Parag Tripathi, learned senior counselsubmitted that essentially, the Court has two options before it. The firstoption would be to revive the process of corporate insolvency by extendingFthe time period of 270 days specified in the IBC in order to enable freshconsideration to be made of the prospect for a resolution which wouldnow have take into account the interests of the home buyers under theamended IBC. The second option would, it was urged, be for this Court,in the exercise of its jurisdiction under Article 142 to appoint a CommitteeGunder its directions and supervision. The Committee would explore thepossibility of a resolution which would obviate the need for the liquidationof the corporate debtor. The second option which has been proposed bylearned senior counsel for the IRP forms the basis of the additionalsubmissions tendered by Mr Nariman. As we have noted, Mr Narimanurged that on the expiry of the time lines prescribed in the IBC for the H

completion of the resolution process the only available alternative is toproceed outside the provisions of the IBC.

39. In considering the rival submissions, several important facetsof the case need to be underscored. First and foremost, the CIRP wasinitiated on 9 August 2017, following the order of the NCLT admittingthe proceedings. The period of 180 days for concluding the CIRP cometo an end on 6 February 2018 and the extended period ended on 12 May2018. When the CIRP was initiated and until the period of 270 daysconcluded, the home buyers did not have the status of financial creditorsunder the provisions of the IBC. They had no statutory voting rights inthe CoC. Under the interim directions of this Court, a workablearrangement was sought to be put into place by appointing arepresentative of the home buyers on the CoC to facilitate their interestsbeing duly borne in mind. But the point to be noted is that in the absenceof a statutory recognition of the position of the home buyers as financialcreditors, the law did not allow for real and substantive entitlements tothem in the CoC. These statutory entitlements have been brought in bythe Ordinance in order to recognise the vital interests of the home buyersin a real estate project and to allow them a statutory status in theinsolvency resolution process. Unfortunately by the time that theOrdinance came into being on 6 June 2018, the period of 270 days hadexpired; the resolution plan of Lakshdeep was rejected and the IRPinformed NCLT that no resolution plan had been approved within theextended period of 270 days on 12 May 2018. Having regard to thematerial change which has been brought about by the amendment of theIBC by the Ordinance and the fact that this Court has been in seisin ofthe proceedings to ensure that the home buyers are protected, we are ofthe view that it is but appropriate and to do complete justice to securethe interests of all concerned that the CIRP should be revived and CoCreconstituted as per the amended provisions to include the home buyers.Tn the facts of the present case, recourse to the power under Article142 would be warranted to render complete justice. Parliament hasundoubtedly provided a period of 180 days and an extended period of 90days to complete the process. But in the present case a peculiar situationhas arisen as a result of which the status of the home buyers which hadnot been recognised prior to 6 June 2018 has now been expresslyrecognised as a result of the amending Ordinance. Learned counsel forthe IRP submitted that in the CoC which will be reconstituted under the A

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Aamended IBC, the home buyers would have a substantial voting powerso as to be able to effectively protect their interests. Moreover, thisCourt should follow the discipline of the IBC which has been enacted byParliament specifically to streamline the resolution of corporateinsolvencies. Matters involving corporate insolvencies require expertdetermination. The legislature has made specific provisions which areBconceived in public interest and to facilitate good corporate governance.The Court should not take upon itself the burden of supervising theintricacies of the resolution process. Accepting the suggestion of MrNariman (and one of the two options proposed by Mr Tripathi) of theCourt appointing a Committee to supervise the resolution process outsideCthe IBC will involve the Court in an insuperable burden of evaluatingintricate matters of financial expertise on which Parliament has legislatedto create specific mechanisms. We are emphatically of the view that itwould not be appropriate for the Court to appoint a Committee to overseethe CIRP and assume the task of supervising the work of the Committee.

We must particularly be careful not to supplant the mechanisms whichDhave been laid down in the IBC by substituting them with a mechanismunder judicial directions. Such a course of action would in our view notbe consistent with the need to ensure complete justice under Article 142,under the regime of law. Hence, the power under Article 142 should beutilised at the present stage for the limited purpose of recommencing theEresolution process afresh from the stage of appointment of IRP by theorder dated 9 August 2017 and resultantly renew the period which hasbeen prescribed for the completion of the resolution process. We havefurnished above, the reasons for doing so. Chief amongst them is thefact that in the present case the period of 270 days expired before theOrdinance conferring a statutory status on home buyers as financialFcreditors came into existence. In the circumstances, it would be necessaryto revive the period prescribed by the statute by another 180 dayscommencing from the date of this order. During this period, the IRPshall follow the provisions of the IBC afresh in all respects. A new CoCshould be constituted in accordance with the amended provisions of theGIBC to enforce the statutory status of the allottees as financial creditors.We also clarify that apart from the three bidders whose bids were foundto be eligible by the IRP, it would be open to the IRP to invite fresh bidsto facilitate a wider field of choice before the CoC. In that process, theoffers made by the intervenors in this proceedings can also be consideredby CoC anew. We are not inclined to evaluate the merits of the bidsH

submitted by the bidders who were left in the fray, two of whom haveintervened. All bids must follow the discipline of the IBC. We have,however, not accepted the submission to allow JIL or JAL and theerstwhile promoters to participate in the process. Their participation isexpressly prohibited by Section 29 A and we decline to make any exceptionwhich would breach a salutary and express provision made in the IBC.

40. As we have stated earlier, an amount of Rs 750 crores is lyingin deposit before this Court pursuant to the interim directions, on whichinterest has accrued. The home buyers have earnestly sought theissuance of interim directions to facilitate a pro-rata disbursement of thisamount to those of the home buyers who seek a refund. We are keenlyconscious of the fact that the claim of the home buyers who seek arefund of monies deserves to be considered with empathy. Yet, havinggiven our anxious consideration to the plea and on the balance, we arenot inclined to accede to it for more than one reason. Firstly, during thependency of the CIRP, it would as a matter of law, be impermissible forthe Court to direct a preferential payment being made to a particularclass of financial creditors, whether secured or unsecured. For thepresent, we leave open the question as to whether the home buyers areunsecured creditors (as was urged by Mr. Tripathi) or secured creditors(as was urged by counsel appearing for them). Directing disbursementof the amount of Rs 750 crores to the home buyers who seek refundwould be manifestly improper and cause injustice to the secured creditorssince it would amount to a preferential disbursement to a class of creditors.Once we have taken recourse to the discipline of the IBC, it is necessarythat its statutory provisions be followed to facilitate the conclusion of theresolution process. Secondly, the figures which have been made availablepresently, following the opening of the web portal by the amicus curiae,indicate that 8% of the home buyers have sought a refund of their monieswhile 92% would evidently prefer possession of the homes which theyhave purchased. We cannot be unmindful of the interests of 92% of thehome buyers many of whom would also have obtained loans to secure ahome. They would have a legitimate grievance if the corpus of Rs 750crores (together with accrued interest) is distributed to the home buyerswho seek a refund. The purpose of the process envisaged by the IBCfor the evaluation and approval of a resolution plan is to form a compositeapproach to deal with the financial situation of the corporate debtor.Allowing a refund to one class of financial creditors will not be in the A

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Aoverall interest of a composite plan being formulated under the provisionsof the IBC. Thirdly during the course of the hearing, the Court has beenapprised of the concerns of the secured creditors, chief among thembeing the IDBI bank limited. In its submissions before this Court, IDBIbank has emphasised that one of the major reasons for the enactment ofthe IBC was to protect the interest of lenders. The debt owing to theBbanks and financial institutions has been secured by the assets of JIL, toprotect their interests. This debt originates in the public deposits of thebanks and financial institutions, who are answerable to their stakeholders.Fourthly, the RBI has moved this Court for permission to initiate aninsolvency resolution process. Parliament enacted the BankingCRegulation (Amendment) Act 2017 by introducing Section 35 AA andSection 35 AB into the Banking Regulation Act 1949. The amendmentempowers the Central government to authorise RBI to issue directionsto any banking company to initiate an insolvency resolution process inrespect of a default as understood under the IBC. Such an order wasissued by the Central government on 5 May 2017. The RBI constitutedDan Internal Advisory Committee (IAC) consisting primarily of itsindependent directors. The IAC took up for consideration accountswhich were classified either partly or wholly non-performing from amongstthe top 500 exposures in the banking system as on 31 March 2017. Asa first step, the IAC recommended all such non-performing assetEaccounts with fund and non-fund based outstandings exceeding Rs 5,000crores. The IAC has initially taken up twelve accounts involving totalexposure of Rs1,79,769 crores. JIL was one of the twelve accounts inrespect of which directions have been issued to banks for initiatinginsolvency resolution. Subsequently, the IAC recommended that inrespect of those accounts where 60% or more had been classified asFNPAs as on 30 June 2017, banks may be directed to implement a viableresolution plan within six months failing which the accounts may bedirected for a reference under the IBC by 31 December 2017. JALwas one such entity. No viable resolution plan could be found as a resultof which it is also required to be referred for CIRP. RBI has carried outGthis exercise as a matter of economic policy in its capacity as the primebanking institution in the country, entrusted with a supervisory role, andthe power to issue binding directions. The position of the RBI as anexpert regulatory body particularly in matters of economic and financialpolicy has been reiterated in several decisions of this Court:[R.K. Garg H

v Union of India[11], Peerless General Finance and InvestmentCo.Ltd. v RBI[12],T N Generation and Distribution Corpn. Ltd. vCSEPDI-Trishe Consortium[13]"].

41. JAL was classified under the SMA – II category (demandsoverdue for more than 60 days) by banks as early as on 3 October 2014and as an NPA since 31 March 2015. We agree with the submission ofthe RBI that any further delay in resolution would adversely impact aviable resolution being found for JAL and JIL. The facts which haveemerged before the Court from the application filed by the RBI clearlyindicate the financial distress of JAL and JIL. The apprehensions of thehome-buyers in regard to their financial incapacity is borne out by RBI,as a responsible institution has urged before the Court. The IBC hasbeen enacted in the form of a comprehensive bankruptcy law and witha specific legislative intent. With the amendment brought about by theOrdinance promulgated in June 2018, the interests of the home buyershave been sought to be safeguarded. Accordingly, we accede to therequest made on behalf of the RBI to allow it to follow therecommendations of the IAC to initiate a CIRP against JAL under theIBC.

42. We, accordingly, issue the following directions:

42. We, accordingly, issue the following directions:

(i) In exercise of the power vested in this Court under Article 142 ofthe Constitution, we direct that the initial period of 180 days forthe conclusion of the CIRP in respect of JIL shall commencefrom the date of this order. If it becomes necessary to apply for afurther extension of 90 days, we permit the NCLT to passappropriate orders in accordance with the provisions of the IBC;

(ii) We direct that a CoC shall be constituted afresh inaccordance with the provisions of the Insolvency and Bankruptcy(Amendment) Ordinance, 2018, more particularly the amendeddefinition of the expression “financial creditors”;

(iii) We permit the IRP to invite fresh expressions of interest for thesubmission of resolution plans by applicants, in addition to the threeshort-listed bidders whose bids or, as the case may be, revisedbids may also be considered; 11(1981) 4 SCC 675 at para 1912(1992) 2 SCC 343 at para 3113(2017) 4 SCC 318 at para 36

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A(iv) JIL/JAL and their promoters shall be ineligible to participate inthe CIRP by virtue of the provisions of Section 29A;

(v) RBI is allowed, in terms of its application to this Court to directthe banks to initiate corporate insolvency resolution proceedingsagainst JAL under the IBC; B(vi) The amount of Rs 750 crores which has been deposited in thisCourt by JAL/JIL shall together with the interest accrued thereonbe transferred to the NCLT and continue to remain invested andshall abide by such directions as may be issued by the NCLT.

43. We see no reason to keep these proceedings pending beforeCthe Court any further. The proceedings shall stand disposed of. However,we grant liberty to all concerned parties to adopt appropriate proceedingsin accordance with law, should it become necessary to do so in future.Applications, if any, pending are also disposed of.

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Ankit Gyan

Petitions disposed of.

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