CHITRA SHARMA AND ORS. versus UNION OF INDIA AND ORS.

Citation: [2018] 12 S.C.R. 1044 · Decided: 09-08-2018 · Supreme Court of India · Bench: DIPAK MISRA · Disposal: Leave Granted & Disposed off

Cited by 6 judgment(s) · cites 3 · see the full citation network in Lexace

Judgment (excerpt)

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SUPREME COURT REPORTS
[2018] 12 S.C.R.
CHITRA SHARMA AND ORS.
v.
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.]
Insolvency 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 township
developer defaulted in repayment of its dues to IDBI bank  –  Bank
sought the initiation of a Corporate Insolvency Resolution Process
(CIRP) against JIL – For submission of claims, JIL separated home
buyers from financial and operational creditors – Writ Petition by
home buyers who pleaded that their interest was getting ignored as
only financial and operational creditors were recognized by CIRP
– They further pleaded for pro-rata disbursement of the amount
deposited by the JIL among buyers who sought a refund – Held:
Plea cannot be accepted – Firstly, during the pendency of the CIRP,
as a matter of law, it was impermissible for the Court to direct a
preferential payment to be made to a particular class of financial
creditors, whether secured or unsecured – Directing disbursement
of amount to home buyers who seek refund would be manifestly
improper and cause injustice to the secured creditors since it would
amount to a preferential disbursement to a class of creditors –
Secondly, only 8% of the home buyers have sought refund of their
monies, while 92% preferred possession of the homes which they
have purchased – Allowing a refund to one class of financial
creditors would not be in the overall interest of a composite plan
formulated under the provisions of the IBC – Thirdly, one of the
major reasons for the enactment of the IBC was to protect the interest
of lenders i.e. banks and financial institutions, who are answerable
to their stakeholders – Fourthly, the RBI constituted an Internal
Advisory Committee (IAC), which recommended to also initiate a
CIRP against JAL (the holding company of JIL) under the IBC –
Banking Regulation Act, 1949 – ss. 35AA and 35AB (enacted by
amendment 2017) – Constitution of India – Art.32.
 [2018] 12 S.C.R. 1044
     1044
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JIL, a high-tech township developer defaulted in
repayment of its dues to IDBI bank. Bank sought the initiation
of a Corporate Insolvency Resolution Process (CIRP) against
JIL. Pursuant thereto, a petition u/s.7 of the Act was filed against
the JIL by the bank before the National Company Law Tribunal
(NCLT). JIL called for submission of claims by creditors and
released a press note clarifying that home buyers were required
to fill a separate form as they could not be treated at par with
financial and operational creditors. Thereafter, proceedings
u/Art.32 were initiated to protect the interest of the home buyers.
Petitioners pleaded that CIRP was ignoring the interest of the
home buyers and was only recognizing financial and operational
creditors. The Court had directed JAL, the holding company of
JIL to deposit a sum of Rs.2,000/- crores. However, only Rs.750
crores were deposited. Home buyers sought interim directions
to facilitate a pro-rata disbursement of this amount among buyers
who sought a refund.
Disposing of the petitions, the Court
HELD: This Court is conscious of the fact that the claim of
the home buyers who seek a refund of monies deserves to be
considered with empathy.  Yet, after due consideration to the plea
and on the balance, this Court is not inclined to accede to it for
more than one reason.  Firstly, during the pendency of the
Corporate Insolvency Resolution Process (CIRP), it would as a
matter of law, be impermissible for the Court to direct a
preferential payment being made to a particular class of financial
creditors, whether secured or unsecured.  For the present,
question as to whether the home buyers are unsecured creditors
or secured creditors is left open.  Directing disbursement of the
amount of Rs 750 crores to the home buyers who seek refund
would be manifestly improper and cause injustice to the secured
creditors since it would amount to a preferential disbursement
to a class of creditors.  Once recourse to the discipline of the
Insolvency and Bankruptcy Code, 2016 (IBC) is taken, it is
necessary that its statutory provisions be followed to facilitate
the conclusion of the resolution process.  Secondly, the figures
made available presently, indicate that 8% of the home buyers
have sought a refund of their monies while 92% would evidently
CHITRA SHARMA AND 

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