PRESIDENCY UNIVERSITY

PRIVATE UNIVERSITY IN ITIGALLPURA, INDIA

SCHOOL OF LAW

TOPIC:- MEMORIAL DRAFTING

SUBMITTED BY:- R. SANAT

CLASS:- BB.A.L.L.B(HONS.)

ROLL NO.:- 20191BBL0072

SECTION:-02

SUBJECT:- INSOLVENCY AND BANKRUPTCY CODE

COURSE CODE:- LAW405

SUBMITTED TO:-PROFESSOR ROSANTO ANTO

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BEFORE THE HONORABLE SUPREME COURT OF INDIA

M/S DIWAN CHAND INFRASTRUCTURE PVT.LTD

(THE PETITIONER)

VERSUS

UNION OF INDIA

(THE RESPONDENT)

SPECIAL LEAVE PETITION UNDER ARTICLE 136 OF INDIAN

CONSTITUTION

MEMORIAL ON BEHALF OF RESPONDENT

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 TABLE OF CONTENTS

LIST OF ABBREVIATIONS ......................................................................................................... 4

INDEX OF AUTHORITIES ........................................................................................................... 5
STATEMENT OF JURISDICTION ............................................................................................... 6
STATEMENT OF FACTS ............................................................................................................. 7
STATEMENT OF ISSUES ............................................................................................................ 8
SUMMARY OF ARGUMENTS .................................................................................................... 9
ARGUMENTS ADVANCED ...................................................................................................... 11
ISSUE 1:-THAT THE SECOND AMENDMENT IS NOT VIOLATIVE OF ARTICLE 14 AND ARTICLE 19
OF THE INDIAN CONSTITUTION ...................................................................................................................... 11
ISSUE:-2-THAT THE SECOND AMENDMENT IS NOT IN CONFLICT WITH THE RERA PROVISIONS
AND CONSUMER PROTECTION ACT .............................................................................................................. 13
ISSUE:3-THAT THE SECOND AMENDMENT HAS NO EFFECT ON THE REAL ESTATE BUSINESS
GETTING INSOLVENT ........................................................................................................................................ 15
ISSUE:4-THAT THE AMENDMENT OF THE CODE IS NOT ARBITRARY IN REGARD TO ALLOTTEES’
CLAIMS.................................................................................................................................................................. 17
PRAYER ....................................................................................................................................... 19

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 LIST OF ABBREVIATIONS

Pvt. Private
Ltd. Limited
NCLT National Company Law Tribunal
RERA The Real Estate (Regulation and Development),
Act
IBC Insolvency and Bankruptcy Code
CIPR Corporate Insolvency Resolution Process
SC Supreme Court
SCC Supreme Court Cases
AIR All India Reporter

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 INDEX OF AUTHORITIES

Cases

• Pioneer Urban Land and Infrastructure Ltd. Versus Union of India(Writ petition (civil) no.
43 of 2019
• Nikhil Mehta and Sons(HUF) Versus AMR Infrastructure C.P No(ISB)-03(PB)/2017)
• Anil Kumar Tulsani Versus Rakesh Kumar Gupta Company Appeal (AT) (Insolvency)
No. 35 of 2019
• M/s M3M India Pvt. Ltd. v. Dr Dinesh Sharma and Anr CRL.REV.P. 865/2019
• Alka Agarwal Vs. Parsvanath landmark Developers Pvt. Ltd, February 1, 2019
• Neeraj Gupta Vs. Emmar MGF Land Ltd C.P NO. IB-1403(PB)/2018
• Surendra Trading Company v. Juggilal Kamlapat Jute Mills Company Limited and Ors
CIVIL APPEAL NOS. 15091 OF 2017
• Fortune Infrastructure v. Trevor D’Lima CIVIL APPEAL NO(S). 3533-3534 OF 2017
• DLF Homes Panchkula Pvt Ltd v. DS Dhanda SLP© NoS. 3623-3654 OF 2019

Statutes

• The Constitution of India, 1949

• The Insolvency and Bankruptcy Code, 2016
• The Real Estate (Regulation and Development)Act , 2016

Websites

• https://indiankanoon.org/.
• https://realty.economictimes.indiatimes.com/amp/tag/flat+buyers.
• https://taxguru.in/.
• https://www.taxmann.com/.

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 STATEMENT OF JURISDICTION

The appeal in this instant case have exercised under the Article 136 of Indian Constitution.
Article 136 :- Special leave to be applied by Supreme Court
(1) Notwithstanding anything in this Chapter, the Supreme Court may, in its discretion, grant
special leave to appeal from any judgment, decree, determination, sentence or order in any
cause or matter passed or made by any court or tribunal in the territory of India
(2) Nothing in clause ( 1 ) shall apply to any judgment, determination, sentence or order
passed or made by any court or tribunal constituted by or under any law relating to the
Armed Force.

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 STATEMENT OF FACTS

M/s Diwan Chand Infrastructure Pvt. Ltd. is a company incorporated under the Companies Act,
1956 and engaged in the business of real estate development. The company has an authorized share
capital of Rs. 25,00,00,000/- (Rs. Twenty-Five Crores) and a worth of approx. Rs. 500/- crores.
Mr. Mukesh Sachdeva, one of the allottees, has booked one flat of approx. value of Rs. 50,00,000/-
(Rs. Fifty Lakhs Only) and has paid an initial booking amount of Rs. 5,00,000/- (Rs. Five Lakhs
Only) and two installments of Rs. 2,00,000/- (Rs. Two Lakhs Each) each. He has paid a total
amount of Rs. 9,00,000/- (Rs. Nine Lakhs Only) against the flat value of Rs. 50,00,000/- (Rs. Fifty
Lacs Only). An agreement to Sale has been executed between the company and Mr. Sachdeva,
detailing the terms and conditions of The possession of a flat will be delivered within three and
half years with a grace period of six months due to force majeure. When Mr. Sachdeva defaulted
in making the payment of installments, the company-imposed interest and penal interest as per the
agreement. After several demands of installments, Mr. Sachdeva did not pay the installments
further, resulting in an amount of Rs. 55,00,000/- (Rs Fifty-Five Lakhs Only) more than the current
price of the flat in question.

Mr. Sachdeva has filed a case against M/s Diwan Chand Infrastructure Pvt. Ltd. to initiate a
corporate Insolvency Resolution process. The Hon’ble NCLT has admitted the application and
issued notice to the Corporate Debtor (M/s Diwan Chand Infrastructure Pvt. Ltd). The Corporate
Debtor has taken several preliminary objections including the Second Amendment made by the
Govt. including the Allottee as a Financial Creditor is in violation of Article 14 of the Constitution
of India. M/s Diwan Chand Infrastructure Pvt. Ltd. has challenged the validity of the Second
Amendment, including Mr. Mukesh Sachdeva as Financial Creditor before the Hon’ble Supreme
Court of India.

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 STATEMENT OF ISSUES

1. Whether the Inclusion of the Allottee in the Second Amendment is Violative of Articles 14
and 19 of the Constitution of India.
2. Whether the amendment is in conflict with the provisions of RERA (Real Estate Regulatory
Authority) and Consumer Protection Act, where the remedies available to the allottees for
refund, delay compensation, and possession of flat/plot.
3. Whether the second amendment has the effect of driving to insolvency, financially solvent,
and healthy real estate developers/business, who do not have any defaults on debts from
other financial creditors. Is it contrary to law that even a single allottee (irrespective of the
amount invested) can liquidate the financially solvent company.
4. Whether the second amendment is arbitrary in its differential impact on allottees who seek
a refund of monies and allottees who seek possession of the units booked by them.

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 SUMMARY OF ARGUMENTS

ISSUE-1: WHETHER THE INCLUSION OF THE ALLOTTEE IN THE SECOND

AMENDMENT IS VIOLATIVE OF ARTICLES 14 AND 19 OF THE CONSTITUTION OF
INDIA.

It is humbly submitted before the Hon’ble court that inclusion of the allottees as financial creditors
in the second amendment of the Insolvency Bankruptcy Code is not violating Article 14 and Article
19 of the constitution of India since the amendment was made in order to direct the problems faced
by home-buyers who invest their hard work-earned money into the business.

ISSUE-2: WHETHER THE AMENDMENT IS IN CONFLICT WITH THE PROVISIONS

OF RERA ACT AND CONSUMER PROTECTION ACT, WHERE THE REMEDIES
AVAILABLE TO THE ALLOTTEES FOR REFUND, DELAY COMPENSATION, AND
POSSESSION OF FLAT/PLOT.

It is humbly submitted before the Hon’ble court that the second amendment of the code is in sync
with the provisions of RERA. The amendment of the code declaring allottees as financial creditors
is duely complying with section 18 of the Real Estate (Regulations and Development) Act, 2016
which allows allottees to get refund of the entire amount paid by the allottees together with interest
at prescribed rates, and interest to be claimed for any delayed possession.

ISSUE-3: WHETHER THE SECOND AMENDMENT HAS THE EFFECT OF DRIVING

TO INSOLVENCY, FINANCIALLY SOLVENT, AND HEALTHY REAL ESTATE
DEVELOPERS/BUSINESS, WHO DO NOT HAVE ANY DEFAULTS ON DEBTS FROM
OTHER FINANCIAL CREDITORS. IS IT CONTRARY TO THE LAW THAT EVEN A
SINGLE ALLOTTEE (IRRESPECTIVE OF THE AMOUNT INVESTED) CAN
LIQUIDATE THE COMPANY FINANCIALLY SOLVENT.

It is the humble submission of the counsel that the second amendment has no effect on the real
estate business getting insolvent and it doesn’t pose a risk to healthy and solvent
developer/business. However, only in case of default the business/company will have to undergo
Corporate Insolvency Resolution Process (CIRP) on instructions provided by the NCLT. It is
further submitted that even if an allottee is given the position of financial creditor, thereby letting

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them start the CIRP process, it has got a due procedure, complying to which they will get the
benefit. Therefore, the Real Estate business developers have the opportunity to defend themselves
in between the procedures.

ISSUE-4: WHETHER THE SECOND AMENDMENT IS ARBITRARY IN ITS

DIFFERENTIAL IMPACT ON ALLOTTEES WHO SEEK A REFUND OF MONIES AND
ALLOTTEES WHO SEEK POSSESSION OF THE UNITS BOOKED BY THEM.

It is humbly submitted by the counsel that the amendment of the code is not arbitrary because
being financial creditors, it is upto the choice of the allottees to decide upon possession or refund
of the allotment amount and the flat/plot promised by the real estate developers/builders and
therefore doesn’t have any differential impact on allottees seeking their choice of claim.

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 ARGUMENTS ADVANCED

The counsel further argues before the Hon’ble Supreme Court -

ISSUE 1:-THAT THE SECOND AMENDMENT IS NOT VIOLATIVE OF ARTICLE 14

AND ARTICLE 19 OF THE INDIAN CONSTITUTION

It is the humble submission of the counsel that inclusion of the allottees as financial creditors in
the second amendment of the Insolvency Bankruptcy Code is not violating Article 14 and Article
19 of the constitution of India since the amendment was made to direct the problems faced by
homebuyers who invest their hard work-earned money into the business.

In the case of Pioneer Urban Land and Infrastructure Limited Vs Union of India1, several Allottees
entered an arrangement with real estate developers, whereby the developer undertook to pay a
certain amount to allottees monthly from the date of execution of the agreement. It was urged that
the sums collected by developers under the guaranteed return schemes had the “Commercial effect
of borrowing”. Therefore, various Writ Petitions have been filed before the Hon’ble Supreme
Court challenging the validity of the 2018 Amendment. The Supreme Court observed that the Code
helps the corporate debtor to be successful against the interest of unsecured creditors like allottees,
so that a proper management can perform the real estate project as originally planned and deliver
the flat/apartment as soon as possible or pay compensation in the event of late delivery, or non-
delivery, or refund amounts advanced together with interest.

As far as Article 19(1)(g) is concerned it was not infringed as the Amendment Act is made for
public interest, and it is not an unreasonable restriction on the Petitioner’s fundamental right under
Article 19(1)(g). Also, there is no violation of Article 300-A as no person is deprived of its property
without the authority of a constitutionally valid law. The court therefore, upheld the constitutional
validity of the Insolvency and Bankruptcy Code Amendment Act, 2018 which provided for
inclusion of ‘Real estate allottees’ within the meaning of ‘Financial creditors’ under Section 5(8)(f)
of the Insolvency and Bankruptcy Code.

1
Writ petition (civil) no. 43 of 2019

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Prior to the Amendment Ordinance, the National Company Law Appellate Tribunal (NCLAT) in
the matter of Nikhil Mehta and Sons (HUF) v AMR Infrastructure Limited has held that amounts
raised by developers under the assured return schemes had the ‘commercial effect of borrowing’
and accordingly can be called as ‘financial creditor’ to trigger the corporate insolvency resolution
process (CIRP) under IBC.

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ISSUE:-2-THAT THE SECOND AMENDMENT IS NOT IN CONFLICT WITH THE
RERA PROVISIONS AND CONSUMER PROTECTION ACT
It is humbly submitted before the Hon’ble court that the second amendment of the code is in sync
with the provisions of RERA. The amendment of the code declaring allottees as financial creditors
is duely complying with section 18 of the Real Estate (Regulations and Development) Act, 2016
which allows allottees to get refund of the entire amount paid by the allottees together with interest
at prescribed rates, and interest to be claimed for any delayed possession.

In the case of M/s M3M India Pvt. Ltd. v. Dr Dinesh Sharma and Anr2, it was held that from the
introduction of the explanation to Section 5(8)(f) of the Code which came into force on 6th June,
2018, it is clear that Parliament was aware of RERA, and applied some of its definition provisions
so that they could apply when the Code is to be interpreted. c. It is clear that both tests (as above)
are satisfied, namely, that the Code as amended, must be given precedence over RERA. d. Even
by a process of harmonious construction, RERA and the Code must be held to co-exist, and, in the
event of a clash, RERA must give way to the Code. RERA, therefore, cannot be held to be a special
statute which, in the case of a conflict, would override the general statute, the Code. e. The Code
and RERA operate in completely different spheres. The Code deals with a proceeding in rem in
which the focus is the rehabilitation of the corporate debtor by means of a resolution plan, so that
the corporate debtor may be pulled out of the woods and may continue as a going concern, thus
benefitting all stakeholders involved. On the other hand, RERA protects the interests of the
individual investor in real estate projects by requiring the promoter to strictly adhere to its
provisions.

The home buyers would not fall within the category of ‘financial creditor’ or ‘operational creditor’
and should therefore be subsumed only with RERA, which is a complete code dealing with real
estate industry. RERA being a special act as opposed to the Code, which is general act and ought,
therefore RERA has to prevail3.

The above judgment of Supreme Court makes it clear that the provisions of RERA should give
way to the provisions of IBC, when there is a clash among them. This judgment gives more
strength to the home buyers who were ill-treated/duped/deceived by the disgruntled developers to

2
CRL.REV.P. 865/2019
3
Chitra Sharma & Ors. (2018), 8, TMI 661, SC

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this time. No doubt, at the same time, it would be hard pill for digestion for a genuine developer,
but in our opinion, if the main objective of a home buyer is to get his flat/apartment, then invoking
the code is the last resort. There are necessary safeguards built in the Code to see that the genuine
developer is not kept away from the business.

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ISSUE:3-THAT THE SECOND AMENDMENT HAS NO EFFECT ON THE
REAL ESTATE BUSINESS GETTING INSOLVENT
It is the humble submission of the counsel that the second amendment has no effect on the real
estate business getting insolvent and it doesn’t pose a risk to healthy and solvent
developer/business. However, only in case of default the business/company will have to undergo
Corporate Insolvency Resolution Process (CIRP) on instructions provided by the NCLT. It is
further submitted that even if an allottee is given the position of financial creditor, thereby letting
them start the CIRP process, it has got a due procedure, complying to which they will get the
benefit. Therefore, the Real Estate business developers have the opportunity to defend themselves
in between the procedures.

At first, we have to analyse the meaning of the term “default”. In the case of Anil Kumar Tulsiani
v. Rakesh Kumar Gupta4, NCLAT observed that allottee cannot allege default on the part of
Corporate Debtor if the allottee does not pay the whole amount. Whereas, when the Corporate
Debtor did not complete the work within time and the allottee has been agreeing to pay the total
amount or has already paid the whole amount, the default can be alleged by the allottee. Again,
the allottee can claim the default on the part of the Corporate Debtor when he finds that the project
has not been completed by the Corporate Debtor on time and on the failure to refund the amount
paid to the Corporate Debtor. In the case of Alka Agarwal Vs. Parsvanath landmark Developers
Pvt. Ltd5 and Neeraj Gupta Vs. Emmar MGF Land Ltd6 the Principal Bench of the NCLT held that
a delay in handing over a residential unit will amount to default as defined under the Code.
Therefore, as per RERA, in case of default of the corporate debtor, allottees are entitled to become
financial creitors and therefore are eligible to initiate CIRP proceedings.

In the case of Surendra Trading Company v. Juggilal Kamlapat Jute Mills Company Limited and
Ors.7, certain thresholds were laid down for eligibility for initiating CIRP by the allottees. There
were 5 stages at which it would be open for the real estate developer to compromise with the

4
Appeal (AT) (Insolvency) No. 35 of 2019
5
February, 2019
6
C.P NO. IB-1403(PB)/2018
7
2017 (16) SCC 143

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allottee in question, before the sledgehammer under the Code comes down on the erstwhile
management.

They pointed out that settlements have taken place at:

(i) the stage of the Section 7 notice itself before replies were filed by the real estate developer;

(ii) after the NCLT issues notice on a Section 7 application and before admission;

(iii) after the hearing and before the order admitting the matter;

(iv) post-admission, and before appointment of the Committee of Creditors where both the NCLT
and NCLAT use their inherent power to permit settlements; and

(v) even post setting-up of the Committee of Creditors, whereby settlements can be arrived at under
Section 12A of the Code with the concurrence of 90% of the creditors.

On this basis, they pointed out that long before the chopper comes down on the management of
the corporate debtor, all these opportunities are given to the management of the corporate debtor
to settle with the individual allottee, showing thereby that there is no real infraction of Article 14,
19(1)(g) or 300-A of the Constitution.

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ISSUE:4-THAT THE AMENDMENT OF THE CODE IS NOT ARBITRARY IN
REGARD TO ALLOTTEES’ CLAIMS

It is humbly submitted by the counsel that the amendment of the code is not arbitrary because
being financial creditors, it is up to the choice of the allottees to decide upon possession or refund
of the allotment amount and the flat/plot promised by the real estate developers/builders and
therefore doesn’t have any differential impact on allottees seeking their choice of claim.

In Fortune Infrastructure v. Trevor D’Lima8 person cannot be made to wait indefinitely for
possession of the flat allotted to him, and is entitled to seek refund of the amount paid by him,
along with compensation. The respondent flat purchaser has made out a clear case of deficiency
of service on the part of the appellant builder. The respondent flat purchaser was justified in
terminating the apartment buyer’s agreement by filing the consumer complaint, and cannot be
compelled to accept the possession whenever it is offered by the builder. The respondent purchaser
was legally entitled to seek refund of the money deposited by him along with appropriate
compensation.

In terms of Section 18 of the RERA Act, if a promoter fails to complete or is unable to give
possession of an apartment duly completed by the date specified in the agreement, the promoter
would be liable, on demand, to return the amount received by him in respect of that apartment if
the allottee wishes to withdraw from the Project. Such right of an allottee is specifically made
“without prejudice to any other remedy available to him”. The right so given to the allottee is
unqualified and if availed, the money deposited by the allottee has to be refunded with interest at
such rate as may be prescribed. The proviso to Section 18(1) contemplates a situation where the
allottee does not intend to withdraw from the Project. In that case he is entitled to and must be paid
interest for every month of delay till the handing over of the possession. It is up to the allottee to
proceed either under Section 18(1) or under proviso to Section 18(1). The case of Himanshu Giri
came under the latter category. The RERA Act thus definitely provides a remedy to an allottee
who wishes to withdraw from the Project or claim return on his investment

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CIVIL APPEAL NO(S). 3533-3534 OF 2017

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Following the decision in DLF Homes Panchkula Pvt Ltd v. DS Dhanda9 and in modification of
the direction issued by the Commission, we direct that the interest on the refund shall be payable
from the dates of deposit. Therefore, the appeal filed by purchaser deserves to be partly allowed.
The interests shall be payable from the dates of such deposits. At the same time, we are of the
opinion that the interest of 9 per cent granted by the Commission is fair and just and we find no
reason to interfere in the appeal filed by the Consumer for enhancement of interest.

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SLP© NoS. 3623-3654 OF 2019

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 PRAYER

Wherefore, in the light of issues raised, arguments advanced and authorities cited, may this
commission be pleased to adjudge and declare that:-

• That the second amendment is not violative of article 14 and article 19 of the Indian
Constitution.
• That the second amendment is not in conflict with the RERA provisions and Consumer
Protection Act.
• That the second amendment has no effect on the real estate business getting insolvent.
• That the amendment of the code is not arbitrary in regard to allottees’ claims.

And/or

Pass any other order, direction, or relief that it may deem fit in the best interest of justice, fairness,
equity and good conscience. For this act of kindness, the informant shall forever pray.

All of which is most humbly and respectfully submitted.

Counsel for the Respondents

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