The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, which included "real estate allottees" within the meaning of "financial creditors" under Section 5(8)(f) of the Insolvency and Bankruptcy Code, was upheld as constitutionally valid by the Supreme Court in the case of Pioneer Urban Land and Infrastructure Limited v. Union of India. Allottees are now protected by the ruling, which also grants them the authority to enforce the Code and membership in the Committee of Creditors on par with banks and other financial organisations.
The Insolvency Law Committee Report, which was published by the Ministry of Corporate Affairs in March 2018, offered recommendations that were implemented by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018. The decisions reached by the National Company Law Appellate Tribunal (NCLAT) in Nikhil Mehta and Sons (HUF) v. AMR Infrastructure Limited served as the foundation for the recommendations. The real estate developers in this case entered into "assured returns/committed returns" agreements with the allottees, whereby the developer agreed to pay the allottees a specific amount each month starting from the date of execution of the agreement in exchange for payment of a significant portion of the total sales consideration in advance at the time of execution. According to the ruling, the money collected by developers under the guaranteed return schemes had the "commercial effect of borrowing," as was clear from the developer's yearly filings, which listed the money acquired under the category "finance charges" as "commitment payments." The suggestions for the Amendment were made in light of this. As a result, several Writ Petitions challenging the legality of the 2018 Amendment were submitted to the Honorable Supreme Court.In the instant case titled Pioneer Urban Land and Infrastructure Limited & Anr. Vs. Union of India & Ors the issues raised for clarification before the Supreme Court were:
Whether Insolvency and Bankruptcy Code (Second Amendment) Act 2018 is constitutionally valid as it infringes Articles 14, 19(1)(g) read with Article 19(6), or 300A of the Constitution of India?
Whether the amendment is disproportionate to the Real Estate (Regulation and Development) Act, 2016?
With regard to the second issue, the Court held that the RERA should be interpreted in accordance with the Amendment Act's amendments to the Code. The Code will take precedence over the RERA only if there is a dispute. Allottees of flats and apartments are consequently provided with concurrent remedies, allowing them to take use of those provided by the Consumer Protection Act of 1986, RERA, as well as the activation of the Code. The original version of Section 5(8)(f) in the Code was a residuary clause that always included those who were assigned flats or apartments. This legal position is only clarified by the explanation and the deeming fiction supplied by the Amendment Act.