Pioneer Urban Land and Infrastructure Limited v. Union of India - Synopsis
Ahir Mitra 20 May 2021

Pioneer Urban Land and Infrastructure Limited V. Union of India

(2019) 8 SCC 416

In Pioneer Urban Land and Infrastructure Limited V. Union of India, the Supreme Court confirmed the constitutional validity of the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, which included ‘real estate allottees' as ‘financial creditors' under Section 5(8)(f) of the Insolvency and Bankruptcy Code. The ruling marks a watershed moment for allottees, who will now not only be able to enforce the Code, but will also be able to join the Committee of Creditors on the same terms as banks and other financial organisations.

The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, was enacted in response to the Insolvency Law Committee Report, which was released by the Ministry of Corporate Affairs in March 2018. The suggestions were based on the National Company Law Appellate Tribunal's (NCLAT) ruling in the case of Nikhil Mehta and Sons (HUF) v. AMR Infrastructure LimitedAllottees filed numerous petitions against real estate developers who engaged into "guaranteed returns / committed returns" agreements with those developers, whereby the developer agreed to pay a particular sum to allottees on a monthly basis from the date of signature of the agreement, in exchange for payment of a major portion of the entire sales consideration in advance, Till the date of handing over of possession to the allottees.

The payments collected by developers under the guaranteed return scheme had the "commercial effect of borrowing," according to the court, as evidenced by the developer's yearly returns, which listed the sums obtained as "commitment payments" under the heading "financial costs." In light of this, recommendations for the Amendment were made. Therefore, various Writ Petitions were been filed before the Hon’ble Supreme Court challenging the validity of the 2018 Amendment.

It was stated that the Insolvency Law Committee discovered that delays in the construction of flats/apartments have grown common, and that monies collected from property buyers contribute significantly to the funding of these flats/apartments. It was also necessary to explain that home buyers are considered financial debtors, Section 7 of the Code.As well as it is not infringing Article 14, 19(1)(g) read with Article 19(6) or 300A of the Constitution of India. Homebuyers should be recognised as operational creditors, as they are similar to individual financial creditors who advance corporate debtors' payments, such as debenture holders and fixed-deposit holders. The funds obtained by homeowners make a substantial contribution to the real estate projects' funding.

The Supreme Court concluded the judgement and stated that the amendment act to the code doesn’t infringe Article 14, 19(1)(g) read with Article 19(6) or 300A of the Constitution of IndiaThe RERA should be read in conjunction with the Code, as it has been amended by the Amendment Act. The Code will take precedence over the RERA only in the event of a disagreement. Allottees of flats/apartments are thus entitled to concurrent remedies, with allottees of flats/apartments being able to seek relief under the Consumer Protection Act, 1986, RERA, and the triggering of the CodeSection 5(8)(f),as written in the Code, is a residuary clause that has always included allottees of flats/apartments. The explanation, together with the deeming fiction imposed by the Amendment Act, only serves to clarify this legal situation.

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