INSOLVENCY AND BANKRUPTCY CODE, 2016 & CO-EXTENSIVE REMEDIES IN OTHER ACTS
Justice M. VENUGOPAL (Retd. Judge) Madras High Court
Commencement of insolvency process
A financial creditor as per section 7 of the Insolvency and Bankruptcy Code, 2016 can commence “insolvency process” either collectively or singly as regards a “corporate debtor” who had committed “default”. The term “financial debt” is defined in section 5(8) of the IBC Section 5(7) speaks of the aspect of “financial creditor”.
Earlier, the flat purchasers/home buyers/allottees were not included in the definition of “financial debt”. In the decision Chitra Sharma v. Union of India (2018) 210 Comp Cas 609 (SC), the hon’ble Supreme Court (three Judges Bench) at paragraph 11 had, inter alia, observed the following page 620) :
“….the court initiated steps to protect the interests of the home buyers. At the stage, it must be noted, the CoC as constituted under section 21 of the IBC did not include a reprehensive of the home buyers. Nor were the home buyers regarded as financial creditors under the IBC. The mechanism evolved by the court was intended to provide a workable arrangement under the then prevailing regime so that the interests of the home buyers would not be ignored.”
Continuing further, the hon’ble Supreme Court exercising its powers under article 142 of the Constitution of India to protect the rights and interest of home buyers in corporate insolvency resolution process permitted the nominated senior counsel to take part in “committee of creditors” meeting (as their representative) as per section 21 of the IBC.
Definitions
Seciton 3(6) of the IBC defines “claim” as a right to payment including secured or unsecured, for violation of contract under any law section 3(8) defines “corporate debtor” as a “corporate person” who owes a debt to any person. Section 3(1) defines “debt” means a liability or an obligation in respect of a claim which is due from any person and includes a “financial debt” and “operational debt”. Section 3(10) speaks of “creditor” meaning any person to whom a debt is owed including “financial creditor” an “operational creditor”, a “secured creditor”, an “unsecured creditor” and the “decree holder”. Section 3(30) defines “secured creditor” meaning a “creditor” in whose favour a security interest is created. Under section 3(12) of the Code upon a guarantor’s failure to pay “financial creditor” in respect of a claim of principal debt, it is default Section 5(20) enjoins that an “operation creditor” means a person to whom an operational debt is owed, etc.
Time limit
A clear, express and categorical time limit in unequivocal term is to be spelt out in IBC (by way of Amendment) to question, the rejection of claim of the operational creditor, which is presently lacking.
Creditor’s status
When a creditor seizes “goods” he is a “secured creditor” in respect of those “goods”. A “secured creditor” upon surrender of his “security” in the manner of “floating charge” will be treated as an “unsecured creditor” and thus paid as per decision Kelly v. Inflexion RE Sob nom Pal SC Realisations 2007 Ltd. (in liabilities), In re [2011] BCC 93 (Ch D).
The Transfer of Property Act, 1882
Section 3 of the Transfer of Property Act enjoins that an actionable claim means a claim to any debt other than a debt secured by mortgage or an immovable property, etc. Section 130 of the Transfer of Property Act deals with “transfer of actionable claims”. As a matter of fact, the term “creditor” in section 53 of the Transfer of Property Act will encompass not only the “creditors” of the “Transferor” at the time or prayer to the time of “assignment” complained of but also the subsequent “creditors” or transferors as per decision Hoosein Bhai v. Haji Ismail Sait (1903) 5 Bom. LR 255.
Corporate person
A corporate person will not include any financial service provide as per section 3(9) of the IBC. One cannot initiate an insolvency resolution proceeding against any financial service provider, since he is outside the purview of the Code. However a “financial provider” can commence proceedings as “financial creditors” against any “corporate debtor” under the code.
Amendment Act (26 of 2018)
By virtue of an amendment (with effect from June 6, 2018) the allottees/home buyers/flat purchases in real estate sector/project were roped within the definition of “financial creditor” in terms of section 5(7) of the IBC, inasmuch as any amount raised under any other transaction (inclusive of “purchase agreement”) as per section 5(8)(f) will have the “commercial effect of borrowing”. In this connection, the hon’ble Supreme Court recently upheld” home buyers” rights as “financial creditors”. The “home buyers” as “financial creditors” have a right to recover/make a claim the “financial debt”. In fact, the home buyers are placed on equal footing with that of “financial creditors”. Further, the hon’ble Supreme Court while directing the filling up of vacancies of the NCLT and NCLAT Benches to be filed in three months had ordered a stay of the cases projected by the home buyers.
The Consumer Protection Act, 1986
Section 2(d) defines “consumer”, Section 2(g) of the Act relates to “deficiency” section 2(o) speaks of “service” including Housing Construction (inserted by Act 50 of 1993) (with retrospective effect from June 18, 1993). Section 2(f) deals with defect meaning any fault, imperfection in quality, etc. Section 3 of the Act is not in derogation of any other law. Further, the remedy under the Consumer Protection Act is in addition to other remedies provided under other Acts, unless there is a clear bar as per decision of the hon’ble Supreme Court Thirumurugan Co-operative Agricultural Credit Society v. M. Lalitha, AIR 2004 SC 448.
Rational interpretation
The hon’ble Supreme Court in India Photographic Co. Ltd. v. H.D. Shourie, AIR 1999 SC 2453 had observed and held that the Consumer Protection Act is to be interpreted in a rational manner and not in a technical fashion, which is the mandate of law.
Specific pleading
In respect of any deficiency in service to a consumer as well as against any loss or injury arising out of “unfair trade practice” punitive damages are normally granted against a conscious wrong doing, unrelated to the real loss suffered and such a claim is to be specifically pleaded vide General Motors (India) P. Ltd. v. Ashok Remnok Lol Tolat, AIR 2015 SC 562.
Features of new Consumer Protection Act, 2019
One can file a complaint before the “consumer forum” where an individual works or resides (instead of at seller’s location/office under the 1986 Act. A compensation claim can be lodged before a consumer forum (earlier one has to approach a civil forum). The District Forum limit is Rs. 1 crore. The State Forum’s limit is up to Rs.10 crores and the National Consumer Forum’s limit is above Rs.10 crores. All these increase in pecuniary jurisdiction is a welcome augury for the consumers. Even, a settlement through “Mediation” can be reached upon a reference made by the consumer forum. A video conferencing “hearing” is a “boon”. In request of “e-commerce”, the direct purchase/selling “Rules and Regulations” well govern the field.
The Specific Relief Act 1963
For the enforcement of “civil rights” a “court of law” can grant specific relief, as per section 4 of the Act. Section 2(a) of the Act 1963 says “obligation” includes every duty enforceable by law. In Union of India v. Millennium Mumbai Broadcast P. Ltd., AIR 2006 SC 2751 it is held that the provisions of the Specific Relief Act, 1963 would not apply to contracts which are governed by statutory provisions. Where the performance of “contract” became an “impossibility” one can claim a “compensation” relief than that of the Specific Performance Relief. A person can apply for cancellation of contract or decree, if there is a default on purchaser’s part or lessee and this default is possible only when the court had fixed time for performance of an obligation under decree by purchaser.
Ingredients of the Real Estate (Regulation of Development) Act, 2016
For ensuring a sale of apartment/flat or sale of real estate project in an transparent and effective manner and also keeping in view of “consumers” interests, the Act 2016 was brought into force. The Act showers certain responsibilities on consumers and promoters. Compensation can be determined by the “authority” appointed under the Act. Section 2(zm) deals with “real estate agent”. Section 2(n) concerns with “real estate project”.
An appraisal
As on date, an “allottee”/”home buyer” has co-extensive/plurality of remedies under “Specific Relief Act, 1963”, the Consumer Protection Act 1986, the Real Estate (Regulation of Development) Act, 2016 and the Insolvency and Bankruptcy Code, 2016. Section 238 of the IBC over rides any other laws. Also the Consumer Protection Act is in addition to the other remedies provided under other Acts, unless there is a clear prohibition. Indeed, the Consumer Protection Act, is a curative one and because of inadequacies pertaining to the concern of purchasers and promoters of flats/real estate projects, the Real Estate (Regulation of Development) Act, 2016 (Act 16 of 2016) was introduced by the Union Government.
In many major cities of India, numerous “housing projects” are/were stalled for one reason or the other. Because of “financial crunch” or entangled in litigation in various forums, there is less/no construction activity going on. The market value of stalled units is around Rs.1.77 lakhs crores. It is for the NCLT to decide whether the “home buyer” is a “Speculator” or a genuine person based on the plea of “developer”. A “home buyer” can safe guard his interests, being one of the members of the “committee of creditors” before the Tribunal. Although, he is a “financial creditor” he may be an “unsecured creditor” in “insolvency proceedings” and an unanimous opinion will be “distant possibility”. The object of the IBC is to speed up the “insolvency process” and not to close down a company. Till June, 2019, 123 matters were brought by the “financial creditors”, as compared to 178 filed in previous quarters (IBBI data). For a mala fide legal proceedings, exemplary costs must be imposed as a punitive measure.
Doctrine of election
The principle of “Election” in United Kingdom, Scotland it is termed as “approbate and reprobate”. The aspect of “election” is “Species of Estoppel” in pair/equitable estoppel, being a rule of equity. In M.D. Frozen Foods Experts P. Ltd. v. Hero Fincorp Ltd. [2018] 207 Comp Cas 558 (SC). The Supreme Court while considering the provisions of the SARFAESI Act and the Arbitration and Conciliation Act, 1996, had observed that the “doctrine of election” of remedies is applicable only when there are two or more co-existent remedies available to the litigants at the time of “election” which are repugnant and inconsistent.
Parallel proceedings
If the two proceedings are comparable inform and substance it can be termed as parallel one.
Moratorium
In a proceeding against the debtor before the Debts recovery Tribunal (under the SARFAESI Act) and before the National Company Law Tribunal under the IBC, upon admission of section 7 application/petition, the proceedings of the DRT are to be necessarily stayed as per section 14 of the Code.
Disposition
In view of the fact that the Insolvency and Bankruptcy Code, 2016 overrides any other laws, as per section 238, it is for the concerned authorities (like consumer affairs, housing, RERA, corporate affairs, etc.) to bring in a suitable amendment to the concerned relevant Act(s) (thereby avoiding surplasage, redundancy/supernumerary provision(s) pertaining to the home buyer/flat purchaser in a real estate sector thereby granting adequate relief of “doctrine of election” so that unnecessarily a promoter/real estate agent/real estate developer may not be persecuted, by way of prosecution, in our processual system of jurisprudence, which is time consuming/procrastinating reminding one that a “litigant is mortal” and the “litigation is an immortal one”. No wonder, unnecessary laws” can be wiped out to prevent an aberration of justice and to promote substantial cause of justice.