MANISH KUMAR v. UNION OF INDIA AND ANOTHER

[K. M. JOSEPH, J.]

or highway, and includes any garage or room (whether or not adjacent to the multi-storeyed building in which such apartment is located) provided by the promoter for use by the 4 owner of such apartment for parking any vehicle or, as the case may be, for the residence of any domestic aide employed in such apartment;”

100Copy pinpoint100. Section 3(e) defines ‘apartment owner’ and it reads as follows: “3(d) “apartment number” means the number, letter or combination thereof, designating an apartment;

101Copy pinpoint101. Section 3(f) defines ‘association of apartment owners’ as follows: C

“3(e) “apartment owner” means the person or persons owning an apartment and an undivided interest in the common areas and facilities appurtenant to such apartment in the percentage specified in the Deed of Apartment; D

102Copy pinpoint102. Section 4, 4(1), (2) and (3), read as follows: “4. Ownership of apartments.—(1) Every person to whom any apartment is allotted, sold or otherwise transferred by the promoter, on or after the commencement of this Act, shall, save as otherwise provided in section 6, and subject to the other provisions of this E Act, be entitled to the exclusive ownership and possession of the apartment so allotted, sold or otherwise transferred to him. (2) Every person to whom any apartment was allotted, sold or otherwise transferred by the promoter before the commencement of this Act shall, save as otherwise provided under section 6 and subject to the other provisions of this Act, be entitled, on and from such commencement, to the exclusive ownership and possession of the apartment so allotted, sold or otherwise transferred to him. (3) Every person who becomes entitled to the exclusive ownership and possession of an apartment under sub-section (1) or sub- section (2) shall be entitled to such percentage of undivided interest in the common areas and facilities as may be specified in the Deed of Apartment and such percentage shall be computed by taking, as a basis, the value of the apartment in relation to the value of the property. xxx xxx xxx” H

p. 998 Copy page pinpoint

103Copy pinpoint103. Section 5 provides that subject to the provisions of Section 6, the apartment owner may transfer his apartment and his right is heritable.

104Copy pinpoint104. Section 14 provides for registration for the deed of apartment, which is to be executed under Section 13.

105Copy pinpoint105. Section 15 declares that there shall be an association of B apartment owners in relation to the apartment and property pertaining thereto and for the management of common areas and facilities. Model byelaws are to be framed by the Administrator and the Association of Apartment Owners can make departure from the model byelaws only with the prior approval of the Administrator.

106Copy pinpoint106. There are similar laws made in the States which relate to the right of the apartment owners. We will revert back to the specific questions which have been raised by the petitioners. THE CONTENTIONS

107Copy pinpoint107. The contention which is raised is that under the impugned provisos inserted in Section 7(1) of the Code, an application by an allottee, can be made only if there are hundred allottees or a number representing one-tenth of the total number of allottees, whichever is less, with a further rider that the allottees must be part of the same real estate project. It is contended that the word ‘allottee’ is to be understood in the sense in E which the word has been defined in the RERA. If that is so, it is contended that the impugned amendment would be inflicted with the vice of vagueness and it is arbitrary.

108Copy pinpoint108. What is to be meaning of the word ‘allottees’? The following questions are posed: F i. Is the total number of the allottees, to be calculated qua the Units promised? Or ii. Is it to be based on the number of units constructed or is it to be the number of units allotted or units where the agreement to sell is entered into?

109Copy pinpoint109. There is an information asymmetry. There is no published data available of status of allotted units. No builder shares the information. It is impossible for the buyers to obtain the information. Ten per cent of allotted units, even it is assumed to be qua letter of allotment, is a dynamic

p. 999 Copy page pinpoint

[K. M. JOSEPH, J.]

figure and keeps changing. A buyer may calculate ten per cent of the hundred units allotted by morning and it may become 110 by night rendering the filing impossible.

110Copy pinpoint110. Further, it is complained that it is not clear as to whether in determining allottees, in a real estate project, whether it is a tower? the entire colonization? Or a SPV? Ten per cent of a real estate allottees could mean ten per cent of the allotted units or ten per cent of the total legal persons, who have bought into the project, particularly, in cases of multiple ownership of the same property. The provision, in fact, renders group members prone to corruption by cash settlement by the builder. The coram will be disrupted, if one or two members are bought of or even legally settled. This will necessitate fresh filing. C

FINDINGS

111Copy pinpoint111. We have referred to the definition of the word allottee and real estate project and Section 3 of the Act which requires prior registration. We have also referred to the definition of real estate project. D In all these definition clauses, the words ‘as the case may be’ is found after the words plot, apartment or building. Thus, the Act is meant to regulate the dealings in plots, apartments and buildings. A real estate project, in other words, as defined, is the development of a building or apartments or the development of land into plots or apartments. The development is contemplated as being towards selling apartments, plots E or buildings. It would also necessarily include common areas. The expression ‘apartment’, as defined in RERA, is a very comprehensive one. It takes in, blocks, chamber, dwelling unit, flat, office, showroom, shop, godown, premises, suite, tenement, unit or by any other name and which is a separate and self-contained part of any immovable property. F It includes any one or more rooms or enclosed spaces located on one or more floors or any part thereof, in a building or on a plot of land. It may be used or intended to be used for any residential or commercial use such as residence, office, shop, showroom or godown or for carrying on any business, occupation, profession, trade or any other type of use, which his ancillary. G

112Copy pinpoint112. ‘Building’ has been defined as including any structure or erection or part of any structure and intended to be used for residential or commercial purposes, inter alia. Thus, an allotment under RERA can be in relation to a plot, an apartment or a building. In other words, a H

p. 1000 Copy page pinpoint

A project, would be in relation to plots, apartments or buildings. It could also be for a composite one for plots and apartments or for plots and buildings. We have noticed the expansive definition of the word apartment and flats are comprehended within the definition of the word apartment. We have also noticed in this regard, the definition of the word apartment, in the Delhi Apartment Ownership Act, 1986. We have also seen that B under the Delhi Apartment Ownership Act, allottee has been defined in relation to an apartment to mean the person to whom such apartment has been allotted, sold or otherwise transferred by the promoter.

113Copy pinpoint113. For appreciating the meaning of the word ‘allottee’, for the purpose of the Code, undoubtedly, it is necessary to travel to Section C 2(d) and 2(zn)of RERA for the reason that in Section 5(8)(f) of the Code, the following Explanation was inserted by Act 26 of 2018 w.e.f. 06.06.2018. This provision has been upheld by this Court in Pioneer (supra). “5(8)(f) xxx xxx xxx D Explanation.—For the purposes of this sub-clause,— (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and E (ii) the expressions, “allottee” and “real estate project” shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016;”

114Copy pinpoint114. Real estate project may relate to plots, apartments, or buildings F or plots/apartments and plots/buildings. As far as the expression ‘allottee’ is concerned, since the Code in the Explanation to Section 5(8)(f), incorporates the definition of the word ‘allottee’ in RERA, for the purpose of the provisos in question, we must necessarily seek light only from the expression ‘allottee’ defined in Section 2(d) of RERA.

115Copy pinpoint115. If we breakdown Section 2(d), it yields the following component parts: i. An allottee may be an allottee of a plot or an apartment or a building. A real estate project may relate to plots or apartments or buildings; or plots/buildings or plots/apartments. H

p. 1001 Copy page pinpoint

[K. M. JOSEPH, J.]

ii. An allottee, in the case of an apartment, which expression A includes flats, among other structures, would include the following categories of persons. It would include a person to whom the apartment is allotted. It would also include a person to whom the apartment is sold, whether as freehold or leasehold. B iii. Thirdly, it would include a person to whom the promoter has transferred the apartment, otherwise than by way of a sale; iv. Lastly, it would include persons who have acquired the allotment through sale, transfer or otherwise, with the caveat that it will not include a person to whom the apartment is given on rent. Whatever we have mentioned about apartments, is equally true qua allotment of plots or buildings. A MISCELLANY OF CONTENTIONS REGARDING ALLOTTEES

116Copy pinpoint116. The definition of the word ‘promoter’ in RERA may be noticed in this regard. It includes a person who constructs or causes to be constructed an independent building or apartments or convert an existing building or a part thereof into apartments for the purpose of selling or some of the apartments to other persons. In regard to such a person, it is clear that there is no allotment of any plot as such. It may be another matter that the contract may contemplate the assignment of the undivided interest in the land upon which the construction is made to the allottee but the allottee is the allottee of the building or the apartment as defined in the Act. Coming to clause (ii) of Section 2(zk) defining ‘promoter’, it contemplates a developer who develops land into a project. The promoter in such a case may also put up construction on any of the plots for the purpose of sale either with or without structures thereon. Therefore, this category of promoter and therefore real estate project would be a hybrid project which involves the development of the land into plots sale of plots aloneafter development or sale of the plot with the construction thereon. Coming to clause (iii) of the definition of ‘promoter’ G it includes any public body or development authority in respect of allottees of building or apartments constructed by such authority or body on lands owned by them or placed at their disposal by the Government. There may be such promoters who are development authorities or public bodies, if they own plots or have plots at their disposal by the Government which H

p. 1002 Copy page pinpoint

A is then, allotted. The allotment must be for the purpose of selling. The plots and the apartments must be intended for sale. In regard to Apex Level Co-operative Housing Society or Primary Co-operative Housing Society, they are treated as promoters in regard to apartments or buildings for its purpose or in respect of allottees, apartments or buildings. This necessarily mean that in regard to such societies the allottees could be the members or non-members. Clause V also includes person who acts as builder, colonizer, contractor, developer, estate developer or any other name or claiming to be the Power of Attorney of the holder of the land on which the building, apartment constructed or the plot developed for sale. This must be further understood in the light of the definition of the real estate project in Section 2 (zn). It defines as meaning the various activities. It consists of the following:

1. Development of the building

2. A building which consists of apartments

D 3. Converting an existing building or a part thereof into apartment

4. The development of land into plots or apartments as the case may be.

117Copy pinpoint117. The aforesaid activities must be for the purpose of sale of all or some of the apartments, plot or building along with the common areas and other work and rights. The task of ascertaining who will be an allottee as also the question as to what will be the total number of allottees and therefore what would constitute one-tenth of total number of allottees must depend upon the nature of the real estate project in question. It will depend on what is offered by the promoter under the project. It may be real estate project which seeks to develop a building and sale of the building. It may be a project for the construction of apartments with the agreements to convey the undivided interest of land also. It may be a project which envisages converting an existing building or a part into an apartment. It may be a project for merely development of land into plots and sale of the plotted land as such. It may be also that the same person may also develop either apartments or building to be sold. In this regard we may remember the explanation in Section 2(zk) (vi) defining the word ‘promoter’. The said section reads as under: “(zk) “promoter” means,— (i) xxx xxx xxx H

p. 1003 Copy page pinpoint

[K. M. JOSEPH, J.]

(ii) xxx xxx xxx A (iii) xxx xxx xxx (iv) xxx xxx xxx (v) xxx xxx xxx (vi) such other person who constructs any building or apartment for sale to the general public. Explanation.—For the purposes of this clause, where the person who constructs or converts a building into apartments or develops a plot for sale and the person who sells apartments or plots are different person, both of them shall be deemed to be the promoters and shall be jointly liable as such for the functions and responsibilities specified under this Act or the rules and regulations made thereunder;”

118Copy pinpoint118. Therefore, a conspectus of the provisions would show that having regard to the legislative intention the term ‘allottees’ as defined in D Section 2(d) must be understood undoubtedly on its own terms predominantly. But at the same time the other provisions which form part of the Act and therefore the scheme must also be borne in mind. The Argument that the definition of ‘allottee’ suffers from over inclusiveness and under inclusiveness needs to be considered. Under E inclusiveness and over inclusiveness are aspects of the guarantee under Article 14. Equals must be treated equally. Unequals must not be treated equally. What constitutes reasonable classification must depend upon the facts of each case, the context provided by the statute, the existence of intelligible differentia which has led to the grouping of the persons or things as a class and the leaving out of those who do not share the intelligible differentia. No doubt it must bear rational nexus to the objects sought to be achieved.

119Copy pinpoint119. Coming to the definition of the word ‘allottee’ it appears to be split up into three categories broadly, they are- plot, apartment and buildings. In the context of the impugned proviso, it must be remembered that if an applicant is able to garner a magical figure of 100 allottees, then he can present the application under Section 7 of the Code. This is for the reason that the further requirement of one-tenth of total number of allottees is meant to apply in a situation only if one-tenth of the total number of allottees is less than 100. This is for the reason that the word H

p. 1004 Copy page pinpoint

A ‘whichever‘ has been used. No doubt in the context of one-tenth of the allottees, the greater the number of total number of allottees, the greater will be the number of one-tenth. In other words, if the total number of allottees is less, then, one-tenth of the total number will be less, and if in such circumstances, it is lesser than hundred, such number of allottees can make application under Section 7 under the impugned provisos. B Therefore, in calculating the total number of allottees in one sense is a double-edged sword as the more is the numerator, the more will be the resultant figure required under the proviso.

120Copy pinpoint120. Be that as it may, as we have noticed the question must be decided with reference to real nature of the real estate project in which the applicant is an allottee. If it is in the case of an apartment, then necessarily all persons to whom allotment had been made would be treated as allottees for calculating the figure mentioned in the impugned proviso. The word ‘allotment’ does mean allotment in the sense of documented booking as is mentioned in Section 11(1)(b) in regard to apartment or plot with which we are largely concerned. Such detail regarding the quarterly up-to-date list of the number and the types of apartments are to be uploaded as provided in Section 11. It is this information incidentally, which is the reservoir of data which the legislature intends that the allottees can use even though it is not necessarily confined to them. The allottee would also include a person who acquires the allotment either through sale, transfer or otherwise. The transferee of the allotment is contemplated. There can be no difficulty in including such assignee of the allotment as also the allottee for the purpose of complying with the threshold requirement under the impugned proviso. Thus, all allottees and all assignees of allotment would qualify both to be considered for the purpose of calculating the total number of allottees but confined to the particular real estate project and therefore for arriving at the figure of 100 allottees or one-tenth of the allottees as the case may be. Then, there is a third category, which is introduced by the expression ‘sold’ (whether as ‘leasehold’ or ‘freehold’ or otherwise transferred by the Promoter). Here a question may arise, if the word G ‘sold’ is applied to the expression ‘plot’, then undoubtedly the transferee would be an allottee. If the sale is to the allottee in a real estate project which is a hybrid project consisting of development of land into plots and also development of buildings as is contemplated under Section 2(zk) then the transferee of the plot undoubtedly would be an allottee. He may H have a complaint regarding the default by the promoter in the matter of

p. 1005 Copy page pinpoint

[K. M. JOSEPH, J.]

development of the plot under hybrid project. As far as sale whether A ‘freehold’ or ‘leasehold’ of an apartment or a building is concerned, once an apartment or building is sold, it presupposes that the construction of the building or the apartment is complete ordinarily. No doubt, he may also have complaints against the promoter which may be addressed under the RERA. For the purpose of the proviso in question, going by the definition, undoubtedly, such transferee of an apartment or building, is to be treated as an allottee. Let us take an example. A Promoter constructs several apartments. An apartment is defined so as to include ‘flat’. It can be residential or commercial. Assume that the Promoter has constructed and completed construction, five out of the fifteen floors (which constitutes the project), on the basis of the occupation certificate, as different from the completion certificate, as the latter certificate is given only on the completion of the project. He assigns and transfers the apartment to those allottees to whom he allotted the apartment when he has completed the construction. Such transferees would be allottees under the RERA. The question, however, may arise from the point of view of the impugned proviso as to what is the common feature between such an allottee to whom the constructed apartment is already handed over after sale and the allottee of the remaining floors where there is no construction or only construction which is pronouncedly lagging behind the schedule. The question may arise whether banding together such allottees under the definition clause make out the case of over inclusive classification. Are unequals being treated equally?

121Copy pinpoint121. A mere charge of either under inclusiveness or over inclusiveness which is not difficult to make hardly suffices to persuade the court to strike down a law. There is a wide latitude allowed in the legislature in these matters. The examination cannot be extended to find out whether there is mathematical precision or wooden equality established. The working of the statute may produce further issues, all of it may not be fully perceived as which may not be wholly foreseen by the law giver. The freedom to experiment must be conceded to the legislature, particularly, in economic laws. If problems emerge in the working of law and which require legislative intervention, the court cannot be oblivious to the power of the legislative to respond by stepping in with necessary amendment. There is nothing like a perfect law and as with all human institutions there are bound to be imperfections. What is significant is however for the court ruling on constitutionality, the law must present a clear departure from constitutional limits. H

p. 1006 Copy page pinpoint

122Copy pinpoint122. In the example of an apartment which is sold where the project is not complete, we bear in mind the following features: In such cases if there is insolvency, the project would remain incomplete. Common areas/common facilities would not become available. The feature which attract a buyer is the whole project which is completed. The apartment owner may very well refuse to accept delivery as he may insist upon the completion of the project with all its promised facilities. Section 17 of RERA contemplates the transfer of title to the common areas to the association of allottees. Obviously, such a thing would not be possible ordinarily unless the construction is complete. In other words, unlike an allottee of a different project under the same promoter the different allottees as contained in the definition of the word ‘allottee’ would have room for common complaints. A realistic and pragmatic approach is not to be eschewed or abandoned. Thus, we cannot see merit in the contention.

123Copy pinpoint123. We have noticed Section 11 (1) (b) of RERA. It contemplates details of booking qua apartments and plots. This is sufficient to reject the argument that it could be based on a total number of the units promised. What is required is allotment and not promised flats as per a brochure. It is also not the total constructed units. This is as what is relevant under the impugned provisos read with Section 5(8)(f) explanation and section E 2 (d) of RERA read with Section 11(1)(b) and the rules made thereunder is the ‘booking’ of apartments or plots. What is allotted or booked may be more than what is constructed if there is a mismatch at any given point of time. It is the number of units allotted. Now, the allotment and the agreement to sell are not irreconcilable with each other and may signify the same. F

124Copy pinpoint124. The further contention that 10 percent is dynamic and what is 1/10 in the morning may fall short by night if more allotment is made, is untenable in law. The provisions of the Companies Act, 1913 (Section 153-C), Section 399 of the Companies Act, 1956 and Section 244 of the Companies Act, 2013 contain similar provisions. The mere difficulties in G given cases, to comply with a law can hardly furnish a ground to strike it down. As to what would constitute the real estate project, it must depend on the terms & conditions and scope of a particular real estate project in which allottees are a part of. These are factual matters to be considered in the facts of each case. H

p. 1007 Copy page pinpoint

[K. M. JOSEPH, J.]

THE PROBLEM OF DEFAULT AND LIMITATION A

125Copy pinpoint125. It is urged on behalf of the petitioners that the provisos requiring support of one hundred persons or one-tenth of the allottees, whichever is lower, is unworkable and arbitrary having regard to the provisions of the Code. There can only be one default in a complaint, it is contended. When the required number of allottees may have to be drawn from allottees who may have entered into agreements with the builder on different dates, the date of default would be different. This would adversely impinge on the absolute right which otherwise exist with an allottee to make an application under Section 7 of the Code.

126Copy pinpoint126. Per contra, the learned Additional Solicitor General would draw attention to Explanation to Section 7(1). She would further contend that as long as there is a default which need not be qua the applicant or applicants, an application would be maintainable and there is no merit in this contention.

127Copy pinpoint127. In this context, it is necessary to recapture Section 4 of the D Code. It reads as follows: “4. (1) This Part shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees: Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees.” The amount is now fixed at Rs.1 crore.

128Copy pinpoint128. It is thereafter that Section 6 declares that where any corporate debtor commits default, a financial creditor, an operational creditor or a corporate debtor may itself initiate CIRP in the manner provided in Chapter 2.

129Copy pinpoint129. Section 7 continues to declare that a financial creditor either by itself or jointly by other creditors or any other central government notified person, file an application before the Adjudicating Authority, when G a default has occurred. It is thereafter that the following Explanation is present, no doubt, after the impugned provisions, after the amendment: “7. (1) xxx xxx xxx

p. 1008 Copy page pinpoint

A Explanation.—For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor.”

130Copy pinpoint130. The Explanation makes it clear that a financial debt, which is owed to any other financial creditor of the corporate debtor would suffice to make an application on the basis that the default has occurred. Default has been defined in Section 3(12) of the Code as follows: “3(12) “default” means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be;”

131Copy pinpoint131. Interpreting these provisions and the Rules as well, this Court in Innoventive (supra), held as follows: “28. When it comes to a financial creditor triggering the process, D Section 7 becomes relevant. Under the Explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor — it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under sub-section (1) in such form and manner as is E prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, F particulars of the proposed interim resolution professional in Part III, particulars of the financial debt in Part IV and documents, records and evidence of default in Part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the G registered office of the corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied H

p. 1009 Copy page pinpoint

[K. M. JOSEPH, J.]

that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the “debt”, which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be.” C (Emphasis supplied)

132Copy pinpoint132. It is true that Section 238A (inserted with effect from 06.06.2018) of the Code provides that the provisions of the Limitation Act shall be applicable as far as may be to the proceedings or appeals before the Adjudicating Authority and the NCLAT, as the case may be, D inter alia. Interpreting this provision, inter alia, this Court in B.K. Educational Services Private Limited (supra), has held that Article 137 in Schedule I of the Limitation Act, 1963, will apply in regard to an application under Sections 7 and 9 of the Code. This Court held, inter alia, as follows: E “42. It is thus clear that since the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. “The right to sue”, therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application.”

133Copy pinpoint133. In fact, the Court, in the said case, in the course of its judgment, gives an example of a debt which is due since 1990 and which has become barred but which is sought to be revived through the medium of Section 7 of the Code which law came into being in 2016. It is to avoid such situations that this Court noted that even if Section 238A was inserted after the original enactment, the Limitation Act, 1963, would, H

p. 1010 Copy page pinpoint

A indeed apply, right from the inception of the Code. It is to be noticed that this Court has applied Article 137, and also, at the same time, countenanced the applicability of Section 5 of the Limitation Act, providing for condonation of delay in appropriate cases.

134Copy pinpoint134. It is, therefore, clear that the requirement of the Code in B regard to an application by a financial creditor does not mandate that the financial debt is owed to the applicant in terms of the Explanation. This is for the reason that apparently that the CIRP and which, if unsuccessful, is followed by the liquidation procedure is in all a proceeding, in rem. The Law Giver has envisaged in the Code, an action, merely for setting in motion the process initially. The litmus test on the anvil of which, the C Adjudicating Authority will scrutinize the matter, is only the existence of the default, as defined in Section 4 of the Code. As on date, the amount of default is pegged at Rs.1 crore. Present a financial debt which has not been paid, the doors are thrown open for the processes under the Code to flow in and overwhelm the corporate debtor. The further barrier is limitation, no doubt, as noticed in B.K. Educational Services Private Limited v. Parag Gupta & Associates50. As with anything in life, not only will imperfections stand out and mathematical nicety be flouted, a law may end up seemingly trampling upon the interests of a few or even many. Since, the Code undoubtedly bears the brand of an economic measure upon its face, and in true spirit, being one of the most significant and dynamic economic experiments indulged in by the Law Giver, not by becoming servile to Parliament, but by way of time hallowed deference to the sovereign body experimenting in such matters, this Court will lean heavily in favour of such a law. The complaint of the petitioners that an increase in the required strength of applicants, will create legal knots which do not admit of solution, do not appeal to us and we intend lay bare how the law can indeed be worked, even with the extra burden which is cast on the persons covered by the provisos.

135Copy pinpoint135. It is indisputable that in order to successfully move an application under Section 7 that there must be a default which must be in G a sum of Rs.1 crore. It is equally clear that the amount of Rs.1 crore need not be owed by the corporate debtor in favour of the applicant. It must be noted that the Explanation existed even prior to the provisos being inserted. It is open to a financial creditor, to move an application in the company of another financial creditor or more than one other financial 50 (2019) 11 SCC 633 H

p. 1011 Copy page pinpoint

[K. M. JOSEPH, J.]

creditor. In fact, a perusal of the Rules, which we have already extracted, would indicate that irrespective of the number of applicants the Court Fee would remain Rs. 25,000/-. This answers the alleged vagueness about court fees where the provisos are given effect to. Thus, dehors the impugned provisos in terms of the Explanation in sub-Section 7(1), a financial debt need not be owed to the applicant and as joint application by more than one applicant was and is contemplated, the resultant position would be that any number of applicants, without any amount being due to them, could move an application under Section 7, provided that they are financial creditors and there is a default in a sum of Rs.1 crore even if the said amount is owed to none of the applicants but to any another financial creditor. This position has not undergone any change even with the insertion of the provisos. In other words, even though the provisos require that in the case of a real estate project, being conducted by a corporate debtor, an application can be filed by either one hundred allottees or allottees constituting one-tenth of the allottees, whichever is less, if they are able to establish a default in regard to a financial creditor and it is not necessary that there must be default qua any of the applicants. We have taken an extreme example to illustrate how the Code can possibly be worked.

136Copy pinpoint136. In practice, it may be unlikely, however, that persons would come together as applicants under the Code, if they are real estate allottees, particularly knowing what the admission of application under E Section 7 entails, and the destiny of an application which has reached the stage of compulsory winding up under Section 33. However, taking a more likely example, viz., of the corporate debtor operating in the real estate sector and an allottee moving an application upon there being amounts due to him, prior to the amendment, undoubtedly, a single allottee could set the ball in motion and all he had to satisfy is default to him or any other financial creditor. The change that is brought about is only that apart from establishing the factum of default, he must present the application endorsed by the requisite number introduced by the proviso. Since, default can be qua any of the applicants, and even a person, who is not an applicant, and the action is, one which is understood to be in rem, in that, the procedures, under the Code, would bind the entire set of stakeholders, including the whole of the allottees, we can see no merit in the contention of the petitioner based on the theory of default, rendering the provisions unworkable and arbitrary. H

p. 1012 Copy page pinpoint

137Copy pinpoint137. In this regard, it is necessary to notice Form 1, in which, an application is to be maintained under Section 7 of the Code read with Rule 4 of the Rules. In the said Form, in Part IV, there are two columns. The first column is total amount of debt granted, dates of disbursement. Under the second column in Part IV, the applicant must show the amount claimed to be in default and the date on which the default occurred (the applicant is required to attach the workings for computation of the amount and days of default in tabular form). Part V deals with particulars of the financial debt (documents, records and evidence of default). The applicant is called upon to attach copy of record of default with information utility, if any. The applicant may attach list of any other document to prove the existence of the default, as can be seen from clause 8 of Part V.

138Copy pinpoint138. In this regard, question may arise as to how the application would have to be filled-up, if there are hundred allottees in a given case to comply with the requirement of the proviso. In the very first place, we must notice that as far as the workability of this provision in such a D situation is looked at, it cannot be called into question, having regard to one aspect in particular. Even before the amendment, and what is more also, after the amendment, a joint application is permissible (though not mandated) in respect of all classes of financial creditors. This means, even in the case of any application filed by more than one applicant, if the requirements of the Code are otherwise fulfilled, there can be cases where the applicants can file a single application by giving the details which we have adverted to. Secondly, we must bear in mind again, that the application is contemplated to be an application in rem. One or more financial creditors activises the Code with reference to the threshold figure of Rs.1 crore, being in default. The Authority is alerted. He verifies this aspect, finding that the debt is established under Section 7(5), and further that it is not barred by limitation or if he invokes the power under Section 5 of the Limitation Act, to condone the delay [as contemplated in B.K. Educational Services Private Limited (supra)], the curtains are raised for the Code to be applied since the default in the sum may be owed to any financial creditor. It suffices that the said sum can be claimed as a sum in default in terms of the Explanation in Section 7(1). Undoubtedly, the record of default, as contemplated in the Code, which need not be the record of default with the information utility alone, has to be furnished. If the default is qua all the applicants, then also, as long as the statutory requirements regarding the amount, and it not being barred, are fulfilled, it will be open to the applicants to plead the same.

p. 1013 Copy page pinpoint

[K. M. JOSEPH, J.]

Undoubtedly, if the debt, in a sum of Rs.1 crore, happens to be set up, A which is barred, then, unless Section 5 of the Limitation Act is successfully invoked, the applicants would risk rejection of the application, which cannot be stated to be unfair as it is in accordance with law. What we are indicating is that in view of the special provision, contained in the Explanation to Section 7(1), the arguments appear to be farfetched. We B must bear in mind that when we reasonably contemplate, a state of insolvency, while in law, the corporate debtor, being in default to a single financial creditor in a sum of Rs. 1 crore, is sufficient, it is highly unlikely that the corporate debtor would not be similarly financially in dire straits towards the other creditors (allottees). Another aspect, which is raised, is that in the example of a hundred allottees, if they have agreements, under which, the date of default is different, how is the application to be drafted and processed? What, if the debt is barred qua some of the applicants, whereas, it is not so in regard to the other applicants. Taking a cue from the Explanation to Section 7(1), all that would be required is, to plead the default, no doubt, in the sum of Rs. 1 crore, which is not barred as the cause of action. In other words, if a law contemplates that the default in a sum of Rs.1 crore can be towards any financial creditor, even if he is not an applicant, the fact that the debt is barred as against some of the financial creditors, who are applicants, whereas, the application by some others, or even one who have moved jointly, fulfill the requirement of default, both in terms of the sum and it not being barred, the application would still lie. ALLOTTEES TO BE FROM SAME REAL ESTATE PROJECT: IS IT UNCONSTITUTIONAL?

139Copy pinpoint139. We have referred to the definition of the word ‘allotee’ in Section 2(d) of the RERA. In regard to a real estate project, all persons, who are treated as allottees, as per the definition of allottee would be entitled to be treated as allottees, for the purpose of Section 5(8)(f) (Explanation) and also, for the purpose of the impugned provisos. All that is required is that the allottees must relate to same real estate project. In other words, if a Promoter has a different real estate project, be it in relation to apartments, in the case an application under Section7, those would not be reckoned in computing one-tenth as well as the total allotments.

140Copy pinpoint140. The rationale behind, confining allottees to the same real estate project, is to promote the object of the Code. Once the threshold H

p. 1014 Copy page pinpoint

A requirement can pass muster when tested in the anvil of a challenge based on Articles 14, 19 and 21, then, there is both logic and reason behind the legislative value judgment that the allottees, who must join the application under the impugned provisos, must be related to the same real estate project. The connection with the same real estate project is crucial to the determination of the critical mass, which Legislature has in mind, as a part of its scheme, to streamline the working of the Code. If it is to embrace the total number of allottees of all projects, which a Promoter of a real estate project, may be having, in one sense, it will make the task of the applicant himself, more cumbersome. It becomes a sword, which will cut both ways. This is for the reason that the complaints, relating to different projects, may be different. With regard to one project of a Promoter of real estate project, maybe, in the advanced stage, the allottees in a particular project, may not have much of a complaint. The complaint, in relation to yet another project, may be more serious. If the complaint in respect of the latter, attracts the attention of a critical mass of allottees, and the proposed applicant is part of that project in the said project, then, it may be easier for the allottees to fulfil the statutory mantra in the impugned provisos, with the junction of likeminded souls. If, on the other hand, the requirement was to make a search for allottees of different projects, as would be the case, if the entirety of the allottees, under different projects, were to be reckoned, the task would have been much more cumbersome. The requirement of the allottees, being drawn from the same project, stands to reason and also does not suffer from any constitutional blemish, as pointed out. THE POINT OF TIME TO COMPLY WITH THE THRESHHOLD REQUIREMENTS

141Copy pinpoint141. The question, then arises, as to the alleged lack of clarity about the point of time, at which the requirements of the impugned provisos, are to be met. Is it sufficient, if the required number of allottees join together and file an application under Section 7 and fulfil the requirements, at the time of presentation? Or, is it necessary that the G application must conform the numerical strength, under the new proviso, even after filing of the application, and till the date, the application is admitted under Section 7(5)? There can be no doubt that the requirement of a threshold under the impugned proviso, in Section 7(1), must be fulfilled as on the date of the filing of the application. In this regard, we find support from an early judgment of this Court, which was rendered H

p. 1015 Copy page pinpoint

[K. M. JOSEPH, J.]

under Section 153-C of the Companies Act, 1913. Section 153-C is the predecessor to Sections 397 and 398 read with Section 399 of the Companies Act, 1956. Its most recent avatar is contained in Sections 241 and 242 of the Companies Act, 2013 read with Section 244. In fact, Section 399 (3) of the Companies Act, 1956, read as follows: “399(3) Where any members of a company are entitled to make an application in virtue of sub-section (1), any one or more of them having obtained the consent in writing of the rest, may make the application on behalf and for the benefit of all of them.”

142Copy pinpoint142. In the decision of this Court in Rajahmundry Electric Supply Corporation Ltd. v. A. Nageshwara Rao and others51, the provision in question, viz., Section 153-C of Companies Act, 1913 dealt with the power of the Court to Act, when the Company acts in a prejudicial manner or oppresses any part of its members. It, inter alia, provided that no application could be made by any member, in the case of a company having a share capital unless the member has obtained consent, in writing, of not less than one hundred in number of the members of the company or not less than one-tenth in number of the members, whichever is less. There was also an alternate requirement, to which, resort could be made in regard to company, not having share capital. There was another mode of fulfilling the threshold requirement. In the facts of the said case, the number of the members of the company were 603. Sixty-five members consented to the application. The problem, however, arose as it was contended that 13 of the members who had consented, had, subsequent to the presentation of the application, withdrawn their consent. This Court went on to hold as follows: “5 xxx xxx xxx F We have no hesitation in rejecting this contention. The validity of a petition must be judged on the facts as they were at the time of its presentation, and a petition which was valid when presented cannot, in the absence of a provision to that effect in the statute, cease to be maintainable by reason of events G subsequent to its presentation. In our opinion, the withdrawal of consent by 13 of the members, even if true, cannot affect either the right of the applicant to proceed with the application or the jurisdiction of the court to dispose of it on its own merits.” 51 AIR 1956 SC 213 H

p. 1016 Copy page pinpoint

143Copy pinpoint143. In the matter of presentation of an application under Section 7, if the threshold requirement, under the impugned provisos, stands fulfilled, the requirement of the law must be treated as fulfilled. The contention, relating to the ambiguity and consequent unworkability and the resultant arbitrariness, is clearly untenable and does not appeal to us. If an allottee is able to, in other words, satisfy the requirements, as on B the date of the presentation, the requirement of the impugned law is fulfilled. HOLDINGS BY FAMILY MEMBERS ETC. AND JOINT HOLDINGS OF A UNIT; SINGLE ALLOTTEE?

144Copy pinpoint144. One of the contentions, which is raised is that in Section 399 (2) of the Companies Act, 1956, it was provided that in applying the threshold test of requisite number of members, to join in an application under Sections 397 and 398, where any share or shares are held by two or more persons, they shall be counted only as one member. Section 244 of the Companies Act, 2013, corresponds to Section 399 of the D Companies Act, 1956. The Explanation in Section 241(1) contains an identical provision as in Section 399(2). It is, however, pointed out by the petitioners that in the matter of an allotment, being made to more than one person, of an apartment or other real estate property, it is not laid down as to how the matter is to be dealt with. It is vague. It is arbitrary. E It is true that in the impugned proviso, introduced in Section 7(1), there is no indication as to how the number of allottees are to be reckoned in the case of more than one person. It will be of interest to note that in Section 14 of the RERA, the Promoter is forbidden from making any additions and alterations in the sanctioned plans, layout plans and specifications, the nature of the fixtures, fittings and amenities, which are agreed to be undertaken, without the consent of that person. Of course, minor additions or alterations, in circumstances provided in the proviso, can be carried out.

145Copy pinpoint145. Thereafter, Section 14(2)(ii) contemplates that any other alterations in the sanctioned plans, layout plans and specifications or the common area within the project, cannot be carried out except with the previous written consent of at least two-thirds of the allottees, other than the Promoter, who had agreed to take the apartments in such building. In this context, there is an Explanation. The Explanation purports to declare that if an allottee has taken more than one apartment or plot in his name or in the name of his family, it will be treated as a single allotment.

p. 1017 Copy page pinpoint

[K. M. JOSEPH, J.]

In the case of persons, such as companies or firms or association of individuals, bookings in its name or in the name of associated entities or related enterprises, are to be treated as a single allotment.

146Copy pinpoint146. Similarly, Section 15 of RERA interdicts transfer or assignment of his majority rights and liabilities to a third party, without obtaining the prior written consent of two-thirds of the allottees and also without the prior written approval of the Authority. A similar Explanation, as is found in Section 14, which we have already described, is to be found in Section

15. Such an Explanation is, however, not found in the definition of ‘allottee’ in Section 2(d) of RERA. The object of the Explanation, both in Sections 14 and 15, is apparent. It is to avoid defeating the object, which would occur, if members of the same family, monopolises a project or associated and related concerns of a company, firm or association, corner the allotments. It is also possible that they may be hand-in-glove with the Promoter, which would result in defeating the rights of the other allottees, as the figure of two-thirds, would cease to represent the interest of the actual two-third majority, which is intended by the Legislature, be it in a D matter or alterations or additions in the sanctioned plans or layout plans, etc., or in the matter of the Promoter getting out of the project in regard to his majority rights, by transfer or assignment. These Explanations are intended to hold the Promoter responsible to the sanctioned plans as also to prevent the Promoter from wriggling out of his majority rights, without a real majority, as would be represented by two-thirds of the separate allottees, agreeing to the same. We cannot read the Explanations in Sections 14 and 15 into the definition of ‘allotee’ in Section 2(d), as, in Sections 14 and 15, a perusal of Explanations, makes it clear that they are enacted for the purpose of Sections 14 and 15, respectively. We would have to take the definition of the ‘allottee’ from Section 2(d), as it is. Therefore, it does not matter whether a person has one or more allotments in his name or in the name of his family members. As long as there are independent allotments made to him or his family members, all of them would qualify as separate allottees and they would count both in the calculation of the total allotments, as also in reckoning the figure of hundred allottees or one-tenth of the allottees, whichever is less. G

147Copy pinpoint147. As far as the situation projected about, there being no clarity regarding whether, if there is a joint allotment of an apartment to more than one person, is it to be taken as only one allottee or as many allottees as there are joint allottees, it would appear to us, on a proper understanding H

p. 1018 Copy page pinpoint

A of the definition of the word ‘allottee’ in Section 2(d) and the object, for which the requirement of hundred allottees or one-tenth has been put, and also, not being oblivious to Section 399(2) of the Companies Act, 1956, as also the Explanation in Section 244(1) of the Companies Act, 2013, in the case of a joint allotment of an apartment, plot or a building to more than one person, the allotment can only be treated as a single allotment. This for the reason that the object of the Statute, admittedly, is to ensure that there is a critical mass of persons (allottees), who agree that the time is ripe to invoke the Code and to submit to the inexorable processes under the Code, with all its attendant perils. The object of maintaining speed in the CIRP and also the balancing of interest of all the stakeholders, would be promoted by the view that as in the case of the Companies Acts, 1956 and 2013, that for the purpose of complying with the impugned provisos in Section 7(1), while the allottee can be of any of the categories, fulfilling the description of an allottee in Section 2(d) of RERA, as interpreted earlier by us joint allottees of a single apartment, will be treated as only one allottee. Any other view can lead to clear abuse and defeating of the object of the Code. If, for instance, a single apartment is taken in the name of hundred persons, a single allottee, who in turn comprise of relatives or family members or friends, can move an application, even though the position ante would be restored, which means that only the allottee qua one apartment, plot or building, is before the Authority and it would not really represent a critical mass of the allottees in the real estate project concerned. Therefore, we have no hesitation in rejecting the contentions of the petitioner on having made the said interpretation. THE POWER OF WAIVER, BEING DENIED, UNLIKE F THE COMPANIES ACTS

148Copy pinpoint148. There is another argument, which is pressed before us as one, which distinguishes the impugned provisions from those contained in the Companies Act. Section 399(4) of the Companies Act, 1956, read as follows: G “399.(4) The Central Government may, if in its opinion circumstances exist which make it just and equitable so to do, authorise any member or members of the company to apply to the Tribunal under section 397 or 398, notwithstanding that the requirements of clause (a) or clause (b), as the case may be, of H sub-section (1) are not fulfilled.”

p. 1019 Copy page pinpoint

[K. M. JOSEPH, J.]

149Copy pinpoint149. It is, therefore, contended that the said provision rendered the threshold requirement in Section 399(1), a fair one. This is for the reason that where it was found just and equitable by the Central Government, it could authorize any member or members to apply under Section 397 or Section 398, even though the numerical strength of members, as required in Section 399(1), did not come forward to present the application.

150Copy pinpoint150. We are called upon to pronounce on the constitutionality of the law. Having regard to the salutary object and the distinguishing features, which clearly distinguish the allottees and also the creditors falling in the first proviso from the other creditors, both financial and operational, we see no merit in the contention. It is another matter that we may entertain the belief that it would have been more wise on the part of the Legislature to have incorporated a safety valve to provide for situations where without complying with threshold requirement, a single allottee could move the application. In this regard, we should also bear in mind the scope of an application under Sections 397 and 398. D

151Copy pinpoint151. The Central Government, having regard to the scheme of Companies Act, is intricately interconnected with the management of the companies. It had powers of investigation into the affairs of the companies under Section 235 and Section 237. The purport of Sections 397 and 398 include the conduct of the affairs of the company in any manner prejudicial to the public interest or also, no doubt, prejudicial to member or members. In such circumstances, clothing the Central Government with the power to waive the requirement and permitting the application to be presented by even a single member, is in sync with the scheme of the Companies Act. The role of the Central Government is different under the Code. In fact, the Central Government does not have any role, as such under the Code. It acts only through the designated Authorities under the Code. The Code is about insolvency resolution and on failure liquidation. The scheme of the Code is unique and its objects are vividly different from that of the Companies Act. Consequently, if the Legislature felt that threshold requirement representing a critical mass of allottees, alone would satisfy the requirement of a valid institution of an application under Section 7, it cannot be dubbed as either discriminatory or arbitrary. A LOOK AT ORDER I RULE 8 OF THE CODE OF CIVIL PROCEDURE, 1908 (THE CPC) AND SECTION 12 OF THE H

p. 1020 Copy page pinpoint

A CONSUMER PROTECTION ACT, 1986 and the contentions based on the same.

152Copy pinpoint152. The argument of the petitioners is that under Order I Rule 8 of the CPC, where there are numerous persons having the same interest in one suit, one or more such persons can, with the permission of the B court, sue or be sued or may defend such suit on behalf of or for the benefit of all persons so interested, at the instance of a single person with whom numerous persons share the same interest. The court, after giving permission, is to give notice of the institution of the suit as provided. Thereupon, any person, on whose behalf or for whose benefit the suit is instituted or defended, can apply to the court, to be made a party. Finally, C Sub-Rule (6) of Order I Rule 8 declares that the Decree passed in the suit under Order I Rule 8, shall be binding on all persons, on whose behalf or for whose benefit, the suit is instituted or defended, as the case may be. The Explanation in Order I Rule 8 of CPC, reads as follows: “Explanation.— For the purpose of determining whether the D persons who sue or are sued, or defend, have the same interest in one suit, it is not necessary to establish that such persons have the same cause of action as the persons on whose behalf, or for whose benefit, they sue or are sued, or defend the suit, as the case may be.”

153Copy pinpoint153. This provision is sought to be contrasted with the provisos inserted by the impugned amendment. It was sought to be contended that the procedure contemplated in Order I Rule 8, on the one hand, countenances the setting in motion of a civil suit by a single person, no doubt with the permission of the Court and after a Notice is given, as provided therein, any of the persons, who have the same interest, can come forward and seek to be made a party. By the device, embedded in Order I Rule 8, the interest of all the persons, who are having the same interests, is best safeguarded. Should he wish to oppose the applicant, he is free to do so. Should he wish to, on the other hand, support the Plaintiff, it is equally open to him to adopt such a course. At the end of the proceedings, when the Decree is passed, it shall be binding on all the persons, for whose benefit or on whose behalf, the suit is laid even by a single person. On the other hand, for reasons, which are entirely arbitrary, it is pointed out that a most cumbersome and unachievable threshold requirement is thrust upon a class of the financial creditors alone, by requiring that should an allottee wish to invoke Section 7 of the Code, he H

p. 1021 Copy page pinpoint

[K. M. JOSEPH, J.]

should muster the support of at least 99 other allottees or one-tenth of A the total number of allottees, whichever is lower. Again, it is emphasized that matters are made worse by insisting that the allottees must be drawn from the same project. It is, similarly, submitted that the Consumer Protection Act also has embraced the principle of Order I Rule 8 of the CPC, as can be seen from Section 12 of the Consumer Protection Act. B The definition of the word ‘complainant’, in Section 2(b)(iv) of the Consumer Protection Act, 1986, includes one or more consumer, where there are numerous persons having the same interest. Section 12 provides for the manner in which a complaint is to be made. Section 12(1)(c) reads as follows: “12(1)(c). One or more consumers, where there are numerous C consumers having the same interest, with the permission of the District Forum, on behalf of, or for the benefit of, all consumers so interested; or

154Copy pinpoint154. The last provision, in a string of provisions, which provide the scheme in regard to an action modelled on Order 1 Rule 8 of the D CPC, is found in Section 13(6) of the Consumer Protection Act, 1986. It reads as follows: “13(6) Where the complainant is a consumer referred to in sub- clause (iv) of clause (b) of sub-section (1) of section 2, the provisions of rule 8 of Order I of the First Schedule to the Code of E Civil Procedure, 1908 (5 of 1908) shall apply subject to the modification that every reference therein to a suit or decree shall be construed as a reference to a complaint or the order of the District Forum thereon.”

155Copy pinpoint155. Thus, the procedure, under Order I Rule 8, is squarely made applicable to the proceedings under the Consumer Protection Act, in a situation, where, there are more than one consumer, having the same interest. It is true that the words “same interest”, has been understood in the light of the Explanation under Order 1 Rule 8 of the CPC and therefore, it is not necessary that all the numerous persons, within the meaning of the Consumer Protection Act or in a civil suit, need establish that they have the same cause of action. What is essential is that they have the same interest. Interpreting the words “same interest”, it is still further true that this Court, in Chairman, Tamil Nadu Housing Board v. T. N. Ganapathy52, has held that what is required is only community of 52 (1990) 1 SCC 608 H

p. 1022 Copy page pinpoint

A interest. This was a case where a suit was filed by allottees of plots of low-income groups against the appellant-Housing Board seeking injunction from demanding and collecting any additional price and the suit was held maintainable under Order I Rule 8, even though separate demand notices were issued to each allottees.

156Copy pinpoint156. In appreciating this argument, it is important to not be oblivious to the scheme of the Code and to distinguish it from a civil suit laid invoking order I Rule 8 or the consumer complaint presented by one consumer, sharing the same interest with numerous others, again invoking Order I Rule 8. It is true that once Order I Rule 8 is made applicable, a single plaintiff or a consumer, in a civil suit or a consumer complaint respectively, can set the ball rolling. All the persons, having the same interest, are free to join in the proceedings. Irrespective of whether they join or not, a Decree or order, which is pronounced, will bind all the persons having the same interest. The procedure, under Order I Rule 8, if it had been made applicable in regard to an application by the allottee of a real estate project, would indeed have made it very easy for a single allottee to invoke Section 7 of the Code and it would also have countenanced the participation of the other allottees, should they wished to be made parties upon the publication of the Notice contemplated in Order I Rule 8(2).

157Copy pinpoint157. So far so good. Now, we will examine the other side of the story and that is the object of the Code and the scheme of the Code. Under the Code, once an application is moved and is admitted under Section 7, the stage is set for resolving the insolvency. The Resolution of the Insolvency may be attained by replacing the existing management. The Law Giver has contemplated last mile funding. It has, however, fixed a time limit, as contemplated in Section 12 of the Code, no doubt as explained by this Court. Once, the application is admitted under Section 7(5), initially, the Interim Resolution Profession (IRP) would supplant the very management by virtue of the suspension of the powers of the management, as contemplated in the Code. The IRP may or may not continue as the Resolution Professional (RP) but a RP is, undoubtedly, to be appointed under the scheme of the Code. The management passes into the hands of the RP. Thereafter, depending upon the receipt of the Resolution Plan and its acceptability to the Committee of Creditors and finally the approval by the Adjudicating Authority of the Resolution Plan,

p. 1023 Copy page pinpoint

[K. M. JOSEPH, J.]

which is approved by the Committee of Creditors, depends the Resolution A of the Insolvency. All of this is to be completed within a period of 330 days again subject to the limit not being ‘mandatory’ as explained by this Court in Essar Steel(supra). Should this not happen, the Adjudicating Authority is obliged, under Section 33, to pass an Order for winding up of the Corporate Debtor. Section 53 provides for the priority in the matter B of payment of the amounts which are collected by way of liquidation value. The allottees would rank as unsecured creditors. The inevitable conclusion is that unlike in an ordinary civil suit or in a consumer complaint, the drastic consequences, as the inexorable liquidation of the corporate debtor, contemplated under the Code, is the inevitable consequence, of the application reaching the stage of Section 33 of the Code. Liquidation C could take place even earlier under Section 33(4). As to whether the procedure contemplated in Order I Rule 8 is suitable, more appropriate and even more fair, is a matter, entirely in the realm of legislative choice and policy. Having regard to the scheme of the Code, which we have detailed above, there cannot be scintilla of doubt that what the petitioners are seeking to persuade us to hold, is to make a foray into the forbidden territory of legislative value judgment. This is all the more so, when the dangers lurking behind full play to Order I Rule 8 being given appear to be fairly clear. We have, therefore, no hesitation in rejecting this contention, which no doubt, at first blush, may appear attractive. We only need add that invalidating a law made by a competent Legislature, on the basis of what the Court may be induced to conclude, as a better arrangement or a more wise and even fairer system, is constitutionally impermissible. If, the impugned provisions are otherwise not infirm, they must pass muster.

158Copy pinpoint158. Are the Amendments violative of the ‘Pioneer Judgment’ in Pioneer Urban Land and Infrastructure Ltd. and another v. Union of F India and others53, certain amendments to the Code were challenged. The challenged provisions included the Explanation added to Section 5(8)(f).

159Copy pinpoint159. The challenge was made in a batch of Writ Petitions filed by a group of Real Estate Developers. This Court was invited to adjudicate G upon the constitutionality on a wide range of grounds. It is important to cull out the findings rendered by the Court in the said decision as much reliance has been placed by the Petitioners on the decision:

53 (2019) 8 SCC 416 H

p. 1024 Copy page pinpoint

A i. The Code is a Legislation which deals with economic matters and, therefore, the Legislature must be given free play in the joints; ii. The legislative judgment in economic choices must be given a certain degree of deference by the Courts; B iii. The amendment by which the explanation was inserted in Section 5(8) was clarificatory in nature and allottees/home buyers were included in the main provision, i.e., Section 5(8)(f) from the inception of the Code; iv. The amending Act did not infringe Articles 14, 19(1)(g) read C with Article 19(6) or 300A of the Constitution of India; v. RERA and the Code must be held to co-exist, and in the event of a clash, RERA must give way to the Code. The Code and RERA operate in completely different spheres.

D vi. Paragragraph-30 of the judgment in Pioneer Urban Land and Infrastructure Ltd.(supra) reads as follows: “30. As a matter of fact, 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. This is to take place by replacing the management of the corporate debtor by means of a resolution plan which must be accepted by 66% of the Committee of Creditors, which is now put at the helm of affairs, in deciding the fate of the corporate debtor. Such resolution plan then puts the same or another management in the saddle, subject to the provisions of the Code, so that the corporate debtor may be pulled out of the woods and may continue as a going concern, thus benefitting all stakeholders involved. It is only as a last resort that winding up of the corporate debtor is resorted to, so that its assets may be liquidated and paid out in the manner provided by Section 53 of the Code. 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 object of RERA is to see that real estate projects come to fruition within the stated period and to see that allottees of such projects are not left in the lurch and are finally able to realise their dream of a home, or be paid compensation if such dream is shattered, or at least get back monies that they had advanced

p. 1025 Copy page pinpoint

[K. M. JOSEPH, J.]

towards the project with interest. At the same time, recalcitrant allottees are not to be tolerated, as they must also perform their part of the bargain, namely, to pay instalments as and when they become due and payable. Given the different spheres within which these two enactments operate, different parallel remedies are given to allottees under RERA to see that their flat/apartment is constructed and delivered to them in time, barring which compensation for the same and/or refund of amounts paid together with interest at the very least comes their way. If, however, the allottee wants that the corporate debtor’s management itself be removed and replaced, so that the corporate debtor can be rehabilitated, he may prefer a Section 7 application under the Code. C That another parallel remedy is available is recognised by RERA itself in the proviso to Section 71(1), by which an allottee may continue with an application already filed before the Consumer Protection Fora, he being given the choice to withdraw such complaint and file an application before the adjudicating officer under RERA read with Section 88. In similar circumstances, this Court in Swaraj Infrastructure (P) Ltd. v. Kotak Mahindra Bank Ltd. [Swaraj Infrastructure (P) Ltd. v. Kotak Mahindra Bank Ltd., (2019) 3 SCC 620 : (2019) 2 SCC (Civ) 136] has held that the Debts Recovery Tribunal proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and winding-up proceedings under the Companies Act, 1956 can carry on in parallel streams (see paras 21 and 22 therein).” [para 30] vii. It is apposite to advert to paragraph-41 in the nature of the contentions raised in this case. To quote: F

“41. It is also important to remember that the Code is not meant to be a debt recovery mechanism (see para 28 of Swiss Ribbons [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17]). It is a proceeding in rem which, after being triggered, goes completely outside the control of the allottee who triggers it. G Thus, any allottee/home buyer who prefers an application under Section 7 of the Code takes the risk of his flat/apartment not being completed in the near future, in the event of there being a breach on the part of the developer. Under the Code, he may never get a refund of the entire principal, let alone interest. This is H

p. 1026 Copy page pinpoint

A because, the moment a petition is admitted under Section 7, the resolution professional must first advertise for and find a resolution plan by somebody, usually another developer, which has then to pass muster under the Code i.e. that it must be approved by at least 66% of the Committee of Creditors and must further go through challenges before NCLT and NCLAT before the new management can take over and either complete construction, or pay out or refund amounts. Depending on the kind of resolution plan that is approved, such home buyer/allottee may have to wait for a very long period for the successful completion of the project. He may never get his full money back together with interest in the event that no suitable resolution plan is forthcoming, in which case, winding up of the corporate debtor alone would ensue. On the other hand, if such allottee were to approach the Real Estate Regulatory Authority under RERA, it is more than likely that the project would be completed early by the persons mentioned therein, and/or full amount of refund and interest together with compensation and penalty, if any, would be awarded. Thus, given the bona fides of the allottee who moves an application under Section 7 of the Code, it is only such allottee who has completely lost faith in the management of the real estate developer who would come before NCLT under the Code hoping that some other developer takes over and completes the project, while always taking the risk that if no one were to come forward, corporate death must ensue and the allottee must then stand in line to receive whatever is given to him in winding up. Given the reasons of the Insolvency Committee Report, which show that experience of the real estate sector in this country has not been encouraging, in that huge amounts are advanced by ordinary people to finance housing projects which end up in massive delays on the part of the developer or even worse i.e. failure of the project itself, and given the state of facts which was existing at the time of the legislation, as adverted to by the Insolvency Committee Report, it is clear that any alleged discrimination has to meet the tests laid down in Ram Krishna Dalmia [Ram Krishna Dalmia v. S.R. Tendolkar, 1959 SCR 279 : AIR 1958 SC 538] , V.C. Shukla [V.C. Shukla v. State (Delhi Admn.), 1980 Supp SCC 249 : 1980 SCC (Cri) 849] , Shri Ambica Mills Ltd. [State of Gujarat v. Shri Ambica Mills Ltd., (1974) 4 SCC 656 : 1974 SCC (L&S) 381] H

p. 1027 Copy page pinpoint

[K. M. JOSEPH, J.]

“51. One other argument that is made on behalf of the counsel for the petitioners is that allottees of flats/apartments who do not want refunds, but who want their flats/apartments constructed so that they may occupy and live in their flats/ apartments, will be jeopardised, as a single allottee who does not C want the flat/apartments, but wants a refund of amounts paid for reasons best known to him, can trigger the Code and upset the construction and handing over of such flats/apartments to the vast bulk of allottees of a project who may be genuine buyers who wish to occupy such flats/apartments as roofs over their heads. D Another facet of this argument is that the bulk of such persons will never be on the Committee of Creditors, as they may not be persons who trigger the Code at all. These arguments are met by the fact that all the allottees of the project in question can either join together under the Explanation to Section 7(1) of the Code, or file their own individual petitions after the Code gets triggered by E a single allottee, stating that in addition to the construction of their flat/apartment, they are also entitled to compensation under RERA and/or under the general law, and would thus be persons who have a “claim” i.e. a right to remedy for breach of contract which gives rise to a right to compensation, whether or not such right is F reduced to judgment, and would therefore be persons to whom a liability or obligation in respect of a “claim” is due. Such persons would, therefore, have a voice in the Committee of Creditors as to future plans for completion of the project, and compensation for late delivery of the flat/apartment. This contention, therefore, also has no legs to stand upon.” G ix. This Court also held that the erstwhile Management is free to offer a resolution plan in the event of an Application under Section 7, being admitted in favour of an allottee, subject, no doubt, to Section 29 (A) of the Code, which may be accepted. H

p. 1028 Copy page pinpoint

160Copy pinpoint160. It is clear that impugned provisos do not set at nought the ruling of this Court in Pioneer (supra). In a challenge by real estate developers upholding the provisions in the manner done including the explanation in Section 5 (8)(f) and allaying the apprehension about abuse by individual allotees cannot detract from the law giver amending the very law on its understanding of the working of the Code at the instance of certain groups of applicants and impact it produces on the economy and the frustration of the sublime goals of the law. INFORMATION ASYMMETRY

161Copy pinpoint161. The contention on behalf of the petitioner’s both in regard to the debenture holders and security holders as also the allottees is that the provisos are unworkable. This is for the reason that information relating to allottees in respect of real estate projects and the debenture holders and security holders in regard to the first proviso is not available. In regard to shareholders with respect to Section 399 of the Companies Act, 1956 and section 244 of the Companies Act 2013, it is pointed out that the threshold requirements can be fulfilled having regard to the documented information regarding the shareholding available in law. This is not the position it is pointed out in regard to the categories covered by provisos one and two. This renders the provisions manifestly arbitrary.

162Copy pinpoint162. Per contra, the stand of the union is as follows. As far as allottees in a real estate project is concerned, there is information available under the provisions of Real Estate Regulation Act. Firstly, it is pointed out that the said act contemplates an association of allottees. The association plays an important role. The promoter has to take a lead in the formation of the Association. The allottees are also obliged to take interest in the formation of the Association. Once the association is formed, the law giver contemplates naturally that information relating to allotment would become available. The provisions of the Act, which we have referred to earlier, are emphasised. Secondly, it is pointed out that under Section 11 of the Act as also the rules the promoter is bound to open a webpage and post information relating to allotments. This is to be updated. Therefore, there is no merit in the contention. Similar submissions are made in regard to debenture holders and security holders. It is submitted that information is available in terms of section 88 of the Companies Act, 2013. It is open to any of the security holders or debenture holders to inspect the registers and ascertain about security holders and debenture holders.

p. 1029 Copy page pinpoint

[K. M. JOSEPH, J.]

163Copy pinpoint163. As far as allottees are concerned in regard to apartments and plots, Section 11(1)(b) of the RERA makes it mandatory for the promoter to make available information regarding the bookings. We have conflated bookings with allotments. We cannot proceed on the basis of the contention of the petitioners that the impugned provisos are unworkable and arbitrary on the basis that the court must take notice of the ‘reality’ which is that the promoters do not make available information as required of them. The burden it is well settled to prove all facts to successfully challenge the statute is always on the petitioner. There cannot be a priori reasoning, and there is no burden on the state. If there is defiance of the law by promoters, the allottees are not helpless. They can always seek proper redress in the appropriate forum. No doubt, we also would observe that it becomes the duty of all the authorities to ensure that the promoters will stringently abide by their duties under the act. Section 11(1)(b) of the RERA speaks about information being made available regarding bookings which can be understood as the ‘allotments’. The word ‘allottee’ as defined in Section 2(d) also takes in a person who subsequently acquires the allotment through sale, transfer or otherwise. In Section 11(1)(b) there is reference to bookings. If the information is to be limited to the original booking then the information about assignment just mentioned may not be made available. In this regard we may notice the Haryana Real Estate Regulatory Authority, Gurugram (Quarterly Progress Report) Regulations 2018. Regulation 4 E provides inter alia that the promoter shall upload on the webpage which he has to create for the project within 15 days from the expiry of each quarter, namely, the list of number and types of apartments/plots booked. Our attention has also been drawn to the format for Quarterly Progress Report to be submitted under Haryana Regulations. A perusal of the report would show that the promoter is obliged to submit the names of the allottees. Obviously, if there is change in the allotment the changed name should be reflected in the Report. This must undoubtedly be ensured by the authorities stringently. We also find merit in the contention of the Union that the Association of allottees has to be formed under the mandate of the law it is expected to play an important role. Information will certainly be forthcoming in regard to allotments upon the allottees becoming members of the Association as required. We cannot ignore the role of the association in the matter of becoming the transferee of the common areas, being clothed with the right of first refusal within the meaning of section 7 of the Act and also the right to complain otherwise under the H

p. 1030 Copy page pinpoint

A Act. This aspect of the association of allottees is not a matter of mere trifle. The allottees cannot truly possess and enjoy their properties be it an apartment or building without their having right of common areas. The promoter is bound under Section 17 to transfer title to the common areas to the association. Section 19(9) of RERA makes it a duty on the part of the allottee to participate towards the formation of the association or cooperative society or the federation of the same. The possession of the common areas is also to be handed over to the association of the allottees. The law giver has therefore created a mechanism, namely, the association of allottees through which the allottees are expected to gather information about the status of the allotments including the names and addresses of the allottees. We cannot proceed on the basis in a case which involves a challenge to a statute that the information to be gathered under the statute will not be available on the basis that the statute will not be worked as contemplated by the law giver. Hence, we reject the contentions of the allottees.

164Copy pinpoint164. In regard to the debenture holders and security holders also we would see no merit in the contentions. There is a statutory mechanism, which is comprised in the provisions of the Companies act 2013, namely Section (88). Section 88 (1) reads as follows: “88. Register of members, etc E (1) Every company shall keep and maintain the following registers in such form and in such manner as may be prescribed, namely:— (a) register of members indicating separately for each class of equity and preference shares held by each member residing F in or outside India; (b) register of debenture-holders; and (c) register of any other security holders.

165Copy pinpoint165. Violation of Section 88 (1) is made punishable under Section G 88 (3).

166Copy pinpoint166. There is no case established that the version of the Union about availability of information contained in the registers which can be perused is not correct. Again, the burden is on the petitioners and they have not discharged their burden. H

p. 1031 Copy page pinpoint

[K. M. JOSEPH, J.]

THE FIRST AND SECOND PROVISOS CLASSIFICATION A DOWN MEMORY LANE: ARTICLE 14 AND REASONABLE CLASSIFICATION

167Copy pinpoint167. Both sides have placed reliance on a large number of decisions in relation to reasonable classification under Article 14 of the Constitution. Even in the first decade of the Republic, this Court has, in B a large number of cases, settled the principles in regard to what constitutes hostile discrimination and what is reasonable classification. Since, we would be in the region of platitude, if we were to chronicle the principles laid down in each of those cases, we think it suffices to refer to some of the decisions of this Court alone. C

168Copy pinpoint168. In Ameerunnissa Begum (supra), which involved the challenge to law made by the Nizam as Raj Pramukh of the former State of Hyderabad, we need notice the following: “11. The nature and scope of the guarantee that is implied in the equal protection clause of the Constitution have been explained and discussed in more than one decision of this court and do not require repetition. It is well settled that a legislature which has to deal with diverse problems arising out of an infinite variety of human relations must, of necessity, have the power of making special laws to attain particulars objects; and for that purpose it must have large powers of selection or classification of persons and things upon which such laws are to operate. Mere differentiation or inequality of treatment does not per se amount to discrimination within the inhibition of the equal protection clause. To attract the operation of the clause it is necessary to show that the selection or differentiation is unreasonable arbitrary; that it does not rest on any rational basis having regard to the objects which the legislature has in view.”

169Copy pinpoint169. In Nagpur Improvement Trust (supra), the petitioner before the High Court alleged discriminatory proceedings for acquiring his land under the Improvement Trust Act instead of the Land Acquisition Act. G This Court while dismissing the appeal and affirming the view of the High Court that there was hostile discrimination proceeded to lay down as follows: “26. It is now well-settled that the State can make a reasonable classification for the purpose of legislation. It is equally well-settled H

p. 1032 Copy page pinpoint

A that the classification in order to be reasonable must satisfy two tests: (i) the classification must be founded on intelligible differentia and (ii) the differentia must have a rational relation with the object sought to be achieved by the legislation in question. In this connection it must be borne in mind that the object itself should be lawful. The object itself cannot be discriminatory, for otherwise, B for instance, if the object is to discriminate against one section of the minority the discrimination cannot be justified on the ground that there is a reasonable classification because it has rational relation to the object sought to be achieved. xxx xxx xxx xxx C

28. It would not be disputed that different principles of compensation cannot be formulated for lands acquired on the basis that the owner is old or young, healthy or ill, tall or short, or whether the owner has inherited the property or built it with his own efforts, or whether the owner is politician or an advocate. Why is this sort of classification not sustainable? Because the object being to compulsorily acquire for a public purpose, the object is equally achieved whether the land belongs to one type of owner or another type.

29. Can classification be made on the basis of the public purpose for the purpose of compensation for which land is acquired? In other words can the Legislature lay down different principles of compensation for lands acquired say for a hospital or a school or a Government building? Can the Legislature say that for a hospital land will be acquired at 50% of the market value, for a school at F 60% of the value and for a Government building at 70% of the market value? All three objects are public purposes and as far as the owner is concerned it does not matter to him whether it is one public purpose or the other. Article 14 confers an individual right and in order to justify a classification there should be something which justifies a different treatment to this individual right. It seems to us that ordinarily a classification based on the public purpose is not permissible under Article 14 for the purpose of determining compensation. The position is different when the owner of the land himself is the recipient of benefits from an improvement scheme, and the benefit to him is taken into consideration in fixing compensation. Can classification be made on the basis of the

p. 1033 Copy page pinpoint

[K. M. JOSEPH, J.]

authority acquiring the land? In other words can different principles A of compensation be laid if the land is acquired for or by an Improvement Trust or Municipal Corporation or the Government? It seems to us that the answer is in the negative because as far as the owner is concerned it does not matter to him whether the land is acquired by one authority or the other.” B

170Copy pinpoint170. It is also correct that this decision has come to be relied upon by this Court recently in Union of India vs. Tarsem Singh54.

171Copy pinpoint171. What is emphasized before us by the petitioners is the principle that the object itself cannot be discriminate. It is pointed out that the object in the case of impugned provisos between different sections of financial creditors is such discrimination. Further the corporate debtors are discriminated again in that builders are accorded special treatment qua other corporate debtors.

172Copy pinpoint172. In Triloki Nath Khosa(supra), this Court was called upon to pronounce on subordinate legislation which according to writ petitioners denied them the guarantee of Article 14. This Court held, inter-alia, as follows: “18. This submission is erroneous in its formulation of a legal proposition governing onus of proof and it is unjustified in the charge that the record discloses no evidence to show the necessity of the new Rule. There is always a presumption in favour of the constitutionality of an enactment and the burden upon him who attacks it to show that there has been a clear transgression of the constitutional principles. [Ram Krishan Dalmia v. Justice S. R. Tendolkar AIR 1958 SC 538: 1959 SCR 279, 297(b): 1959 SCJ 147] A rule cannot be struck down as discriminatory on any a F priori reasoning. “That where a party seeks to impeach the validity of a rule made by a competent authority on the ground that the Rules offend Act. 14 the burden is on him to plead and prove the infirmity is too well established to need elaboration.” The burden thus is on the respondents to set out facts necessary to sustain the G plea of discrimination and to adduce “cogent and convincing evidence” to prove those facts for “there is a presumption that every factor which is relevant or material has been taken into account in formulating the classification”. [State of U. P. v. Kartar 54 (2019) 9 SCC 304 H

p. 1034 Copy page pinpoint

A Singh AIR 1964 SC 1135 : (1964) 6 SCR 679, 687 : (1964) 2 SCJ 666.] In G.D. Kelkar v. Chief Controller of Imports and Exports [AIR 1967 SC 839 : (1967) 2 SCR 29, 34 : (1967) 2 SCJ 182] Subba Rao, C.J., speaking for the Court has cited three other decisions of the Court in support of the proposition that “unless the classification is unjust on the face of it, the onus lies upon the B party attacking the classification to show by pleading the necessary material before the Court that the said classification is unreasonable and violative of Article 16 of the Constitution”.

19. Thus, it is no part of the appellants’ burden to justify the classification or to establish its constitutionality. C Discrimination is the essence of classification and does violence to the constitutional guarantee of equality only if it rests on an unreasonable basis.

31. Classification, however, is fraught with the danger that it may produce artificial inequalities and therefore, the right to classify is hedged in with salient restraints; or else, the guarantee of equality will be submerged in class legislation masquerading as laws meant to govern well marked classes characterized by different and distinct attainments. Classification, therefore, must be truly founded on substantial differences which distinguish persons grouped together from those left out of the group and such differential attributes must bear a just and rational relation to the object sought to be achieved.

32. Judicial scrutiny can therefore extend only to the consideration whether the classification rests on a reasonable basis and whether it bears nexus with the object in view. It cannot extend to embarking upon a nice or mathematical evaluation of the basis of classification, for were such an inquiry permisible it would be open to the Courts to substitute their own judgment for that of the legislature or the Rule-making authority on the need to classify or the desirability of achieving a particular object.” (Emphasis supplied)

173Copy pinpoint173. Justice Krishna Iyer in his concurring judgement laid down inter-alia as follows:

p. 1035 Copy page pinpoint

[K. M. JOSEPH, J.]

“Mini-classifications based on micro-distinctions are false to our egalitarian faith and only substantial and straightforward classifications plainly promoting relevant goals can have constitutional validity. To overdo classification is to undo equality.”

174Copy pinpoint174. The case in Murthy Match Works (supra), involved a challenge to the levy of Excise duty on match box directed against medium sized manufacturers and it was impugned as being discriminatory. This Court’s conclusions are apposite and are as follows: “There can be hostile discrimination while maintaining façade of equality.

13. Right at the threshold we must warn ourselves of the limitations of judicial power in this jurisdiction. Mr Justice Stone of the Supreme Court of the United States has delineated these limitations in United States v. Butler [(1936) 297 US 1: Tresolini and Shapiro: American Constitutional Law, 3rd Edn.] thus: “The power of Courts to declare a statute unconstitutional is subject to two guiding principles of decision which ought never to be absent from judicial consciousness. One is that Courts are concerned only with the power to enact statutes, not with their wisdom. The other is that while unconstitutional exercise of power by the executive and legislative branches of the government is subject to judicial restraint, the only check upon our exercise of power is our own sense of self-restraint for the removal of unwise laws from the statute books appeal lies not to the Courts but to the ballot and to the processes of democratic Government.”

14. In short, unconstitutionality and not unwisdom of a legislation is the narrow area of judicial review. In the present case unconstitutionality is alleged as springing from lugging together two dissimilar categories of match manufacturers into one compartment for like treatment.

15. Certain principles which bear upon classification may be mentioned here. It is true that a State may classify persons and objects for the purpose of legislation and pass laws for the purpose of obtaining revenue or other objects. Every differentiation is not a discrimination. But classification can be sustained only it is founded on pertinent and real differences as distinguished from H

p. 1036 Copy page pinpoint

A irrelevant and artificial ones. The constitutional standard by which the sufficiency of the differentia which form a valid basis for classification may be measured, has been repeatedly stated by the Courts. If it rests on a difference which bears a fair and just relation to the object for which it is proposed, it is constitutional. To put it differently, the means must have nexus with the ends. B Even so, a large latitude is allowed to the State for classification upon a reasonable basis and what is reasonable is a question of practical details and a variety of factors which the Court will be reluctant and perhaps ill-equipped to investigate. In this imperfect world perfection even in grouping is an ambition hardly ever accomplished. In this context, we have to remember the relationship between the legislative and judicial departments of Government in the determination of the validity of classification. Of course, in the last analysis Courts possess the power to pronounce on the constitutionality of the acts of the other branches whether a classification is based upon substantial differences or is arbitrary, fanciful and consequently illegal. At the same time, the question of classification is primarily for legislative judgment and ordinarily does not become a judicial question. A power to classify being extremely broad and based on diverse considerations of executive pragmatism, the Judicature cannot rush in where even the E Legislature warily treads. All these operational restraints on judicial power must weigh more emphatically where the subject is taxation.

18. Another proposition which is equally settled is that merely because there is room for classification it does not follow that legislation without classification is always unconstitutional. The F Court cannot strike down a law because it has not made the classification which commends to the Court as proper. Nor can the legislative power be said to have been unconstitutionally exercised because within the class a sub-classification was reasonable but has not been made.” G (Emphasis supplied)

175Copy pinpoint175. In State of Gujarat and Another v. Shree Ambica Mills Ltd.55, this Court has laid down certain principles relating to under inclusive and over inclusive classification. This is, no doubt, apart from holding that a law which contravenes fundamental rights of the citizens may 55 H (1974) 4 SCC 656

p. 1037 Copy page pinpoint