MANISH KUMAR v. UNION OF INDIA AND ANOTHER

[K. M. JOSEPH, J.]

continue to be valid as regards non-citizens. As regards classification A and the vice of under inclusive and over inclusive classification we may notice the following statement of the law: “54. A reasonable classification is one which includes all who are similarly situated and none who are not. The question then is: what does the phrase “similarly situated” mean? The B answer to the question is that we must look beyond the classification to the purpose of the law. A reasonable classification is one which includes all persons who are similarly situated with respect to the purpose of the law. The purpose of a law may be either the elimination of a public mischief or the achievement of some positive public good. C

55. A classification is under-inclusive when all who are included in the class are tainted with the mischief but there are others also tainted whom the classification does not include. In other words, a classification is bad as under-inclusive when a State benefits or burdens persons in a manner that furthers a D legitimate purpose but does not confer the same benefit or place the same burden on others who are similarly situated. A classification is over-inclusive when it includes not only those who are similarly situated with respect to the purpose but others who are not so situated as well. In other words, this type of classification imposes E a burden upon a wider range of individuals than are included in the class of those attended with mischief at which the law aims. Herod ordering the death of all male children born on a particular day because one of them would some day bring about his downfall employed such a classification. F

58. The piecemeal approach to a general problem permitted by under-inclusive classifications, appears justified when it is considered that legislative dealing with such problems is usually an experimental matter. It is impossible to tell how successful a particular approach may be, what dislocations might occur, what evasions might develop, what new evils might be generated in the G attempt. Administrative expedients must be forged and tested. Legislators, recognising these factors, may wish to proceed cautiously, and courts must allow them to do so. [ See Joseph Tussman and Jacobusten Brook The Equal Protection of the Law, 37 California Rev 341] H

p. 1038 Copy page pinpoint

A 62. In short, the problem of legislative classification is a perennial one, admitting of no doctrinaire definition. Evils in the same field may be of different dimensions and proportions requiring different remedies. Or so the legislature may think (see Tigner v. Texas). [310 US 141]

B 64. Laws regulating economic activity would be viewed differently from laws which touch and concern freedom of speech and religion, voting, procreation, rights with respect to criminal procedure, etc. The prominence given to the equal protection clause in many modern opinions and decisions in America all show that the Court feels less constrained to give judicial deference to legislative C judgment in the field of human and civil rights than in that of economic regulation and that it is making a vigorous use of the equal protection clause to strike down legislative action in the area of fundamental human rights. [See “Developments Equal Protection”, 32 Harv, Law Rev 1065, 1127]

D 65. The question whether, under Article 14, a classification is reasonable or unreasonable must, in the ultimate analysis depend upon the judicial approach to the problem. The great divide in this area lies in the difference between emphasising the actualities or the abstractions of legislation. The more complicated society becomes, the greater the diversity of its problems and the more does legislation direct itself to the diversities.

66. That the legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry, that exact wisdom and nice adaption of remedies cannot be required, that judgment is largely a prophecy based on meagre and uninterpreted experience, should stand as reminder that in this area the Court does not take the equal protection requirement in a pedagogic manner [See “General G theory of law and state” P-161].” (Emphasis supplied)

176Copy pinpoint176. In the decision of this Court in In Re The Special Courts Bill, 197856, a bench of seven learned judges of this Court laid down certain H 56 (1979) 1 SCC 380

p. 1039 Copy page pinpoint

[K. M. JOSEPH, J.]

propositions. We need only allude to those propositions which are apposite for deciding the fate of these cases before us: “(1) The first part of Article 14, which was adopted from the Irish Constitution, is a declaration of equality of the civil rights of all persons within the territories of India. It enshrines a basic principle of republicanism. The second part, which is a corollary of the first and is based on the last clause of the first section of the Fourteenth Amendment of the American Constitution, enjoins that equal protection shall be secured to all such persons in the enjoyment of their rights and liberties without discrimination of favouritism. It is a pledge of the protection of equal laws, that is, laws that operate alike on all persons under like circumstances. C

(2) The State, in the exercise of its governmental power, has of necessity to make laws operating differently on different groups or classes of persons within its territory to attain particular ends in giving effect to its policies, and it must possess for that purpose large powers of distinguishing and classifying persons or things to be subjected to such laws. (3) The constitutional command to the State to afford equal protection of its laws sets a goal not attainable by the invention and application of a precise formula. Therefore, classification need not be constituted by an exact or scientific exclusion or inclusion of persons or things. The courts should not insist on delusive exactness or apply doctrinaire tests for determining the validity of classification in any given case. Classification is justified if it is not palpably arbitrary. (4) The principle underlying the guarantee of Article 14 is not that the same rules of law should be applicable to all persons within the Indian territory or that the same remedies should be made available to them irrespective of differences of circumstances. It only means that all persons similarly circumstanced shall be treated alike both in privileges conferred and liabilities imposed. Equal G laws would have to be applied to all in the same situation, and there should be no discrimination between one person and another if as regards the subject-matter of the legislation their position is substantially the same.

p. 1040 Copy page pinpoint

A (5) By the process of classification, the State has the power of determining who should be regarded as a class for purposes of legislation and in relation to a law enacted on a particular subject. This power, no doubt, in some degree is likely to produce some inequality; but if a law deals with the liberties of a number of well defined classes, it is not open to the charge of denial of equal B protection on the ground that it has no application to other persons. Classification thus means segregation in classes which have a systematic relation, usually found in common properties and characteristics. It postulates a rational basis and does not mean herding together of certain persons and classes arbitrarily. C (6) The law can make and set apart the classes according to the needs and exigencies of the society and as suggested by experience. It can recognise even degree of evil, but the classification should never be arbitrary, artificial or evasive. (7) The classification must not be arbitrary but must be rational, that is to say, it must not only be based on some qualities or characteristics which are to be found in all the persons grouped together and not in others who are left out but those qualities or characteristics must have a reasonable relation to the object of the legislation. In order to pass the test, two conditions must be fulfilled, namely, (1) that the classification must be founded on an intelligible differentia which distinguishes those that are grouped together from others and (2) that that differentia must have a rational relation to the object sought to be achieved by the Act. (8) The differentia which is the basis of the classification and the object of the Act are distinct things and what is necessary is that there must be a nexus between them. In short, while Article 14 forbids class discrimination by conferring privileges or imposing liabilities upon persons arbitrarily selected out of a large number of other persons similarly situated in relation to the privileges sought to be conferred or the liabilities proposed to be imposed, it does not forbid classification for the purpose of legislation, provided such classification is not arbitrary in the sense abovementioned. xxx xxx xxx (11) Classification necessarily implies the making of a distinction or discrimination between persons classified and those who are H

p. 1041 Copy page pinpoint

[K. M. JOSEPH, J.]

not members of that class. It is the essence of a classification that A upon the class are cast duties and burdens different from those resting upon the general public. Indeed, the very idea of classification is that of inequality, so that it goes without saying that the mere fact of inequality in no manner determines the matter of constitutionality. B (12) Whether an enactment providing for special procedure for the trial of certain offences is or is not discriminatory and violative of Article 14 must be determined in each case as it arises, for, no general rule applicable to all cases can safely be laid down. A practical assessment of the operation of the law in the particular circumstances is necessary. C

(13) A rule of procedure laid down by law comes as much within the purview of Article 14 as any rule of substantive law and it is necessary that all litigants, who are similarly situated, are able to avail themselves of the same procedural rights for relief and for defence with like protection and without discrimination.” D

177Copy pinpoint177. In Ajoy Kumar Banerjee and ors. v. Union of India and ors.57, this Court, inter-alia, held, while dealing with the challenge to a scheme, as amended by employees of Insurance Companies, on the grounds that it violated the fundamental rights of Article 14, 19 (1)g and 31 of the Constitution. This Court held inter-alia as follows: E

“Whether the same results or better results could have been achieved and better basis of differentiation evolved is within the domain of legislature and must be left to the wisdom of the legislature.” F

178Copy pinpoint178. In the Constitution Bench decision of this Court in Subramanian Swami vs. Director, CBI and ors.58 the issue was the constitutional validity of Section 6A of the Delhi Special Police Establishment Act, 1946. Section 6A declared that the CBI shall not conduct any inquiry or investigation into any offence alleged to have been committed under the Prevention of Corruption Act 1988 except G with the previous approval of the Central Government where the allegation was in relation to employees of the Central government of the level of Joint Secretary and above and also officers appointed by the Central 57 1984) 3 SCC 127 58 (2014) 8 SCC 682 H

p. 1042 Copy page pinpoint

A Government in public sector corporations controlled by the Central Government. It is dealing with this challenge that this Court went on to hold after refering to the earlier case law including the judgment of this Court in the Special Courts case (supra) that it is well settled that the Courts do not substitute their views as to what the policy is. It held as follows: B “49. Where there is challenge to the constitutional validity of a law enacted by the legislature, the Court must keep in view that there is always a presumption of constitutionality of an enactment, and a clear transgression of constitutional principles must be shown. The fundamental nature and importance of the legislative process needs to be recognised by the Court and due regard and deference must be accorded to the legislative process. Where the legislation is sought to be challenged as being unconstitutional and violative of Article 14 of the Constitution, the Court must remind itself to the principles relating to the applicability of Article 14 in relation to invalidation of legislation. The two dimensions of Article 14 in its application to legislation and rendering legislation invalid are now well recognised and these are: (i) discrimination, based on an impermissible or invalid classification, and (ii) excessive delegation of powers; conferment of uncanalised and unguided powers on the executive, whether in the form of delegated legislation or by way of conferment of authority to pass administrative orders—if such conferment is without any guidance, control or checks, it is violative of Article 14 of the Constitution. The Court also needs to be mindful that a legislation does not become unconstitutional merely because there is another view or because another method may be considered to be as good or even more effective, like any issue of social, or even economic policy. It is well settled that the courts do not substitute their views on what the policy is.” (Emphasised)

179Copy pinpoint179. It was found that the classification made in Section 6A on the basis of status in Central Government service is not permissible under Article 14 of the Constitution. The Court posed the question as to whether there is sound differentiation between corrupt public servant based on their status. As noted, the provision was found to be unconstitutional. H

p. 1043 Copy page pinpoint

[K. M. JOSEPH, J.]

180Copy pinpoint180. In the context of the argument that a sub-class cannot be A created within a class, the following decisions of this Court were relied upon by the Union to contend that it depends on the availability or absence of a rational basis.

181Copy pinpoint181. In 1960 1 SCR 39/AIR 1959 SC 1124, the petitioners challenged the constitutionality of the Sugar Export Promotion Act, 1958 B apart from certain orders passed thereunder. The contention taken by the petitioners was that since the declared object of the Act was to earn foreign exchange, compelling only sugar manufacturers which manufactured by vacuum pan process to export sugar was discriminatory. They also pointed out that manufactures of commodities other than sugar were not compelled to export in the same manner and there was further discrimination. It was while repelling this contention that the Court laid down as follows: “21. In our opinion, this argument is without substance. The power of Parliament to make laws in relation to foreign exchange is manifest. Entry No. 36 of the Union List specifically confers jurisdiction on Parliament to legislate in relation to foreign exchange. That Entry, if interpreted widely, would embrace within itself not only laws relating to the control of foreign exchange but also to its acquisition to better the economic stability of the country. The need for foreign exchange to finance the various development schemes was, very properly, not disputed. It is, thus, plain that the object of the Act is in the public interest. If we are to exist as a progressive nation, it is very necessary that we carve out a place for ourselves in the International market. The beginning has to be made, and many a time, it is at a great loss. That the Central Government has selected the sugar industry for an export programme does not mean that it cannot make a classification of the commodities, bearing in mind which commodity will have an easy market abroad for the purpose of earning foreign exchange. During the Suez crisis, sugar was exported in large quantities from this country, and earned 12.4 crores as foreign exchange. There G is nothing on the record to show that export of other commodities was not also undertaken, though it was pointed out in arguments that manganese ore was also exported in a similar manner to earn foreign exchange. It is quite obvious that the Central Government cannot order the export of all and sundry manufactured H

p. 1044 Copy page pinpoint

A commodities from the country, without being assured of a market in foreign countries. Necessarily, the Government can only embark upon an export policy in relation to those products, for which there is an easy and readily available market abroad. For this reason also, sugar produced by the vacuum pan process may have been selected, because such sugar is perhaps in demand abroad and B not sugar produced by any other process. It must be realised that goods manufactured in our country have to stand heavy competition from goods produced abroad, and even this export can only be made at great sacrifice, and is made only to earn foreign exchange, which would not, otherwise, be available. C

182Copy pinpoint182. In 1976 2 SCC 310, this Court was dealing with the challenge to the judgment of the High Court by which it had upheld the challenge by the respondent to a rule which granted power to the appellant State to grant further exemption to the members of scheduled castes and scheduled tribes to pass the departmental test necessary for being considered for promotion. The learned ASG drew support from the following statement in the judgement by Justice K.K. Mathew: “83. A classification is reasonable if it includes all persons who are similarly situated with respect to the purpose of the law. In other words, the classification must be founded on some reasonable ground which distinguishes persons who are grouped together and the ground of distinction must have rational relation to the object sought to be achieved by the rule or even the rules in question. It is a mistake to assume a priori that there can be no classification within a class, say, the lower division clerks. If there are intelligible differentia which separates a group within that class from the rest and that differentia have nexus with the object of classification, I see no objection to a further classification within the class. It is no doubt a paradox that though in one sense classification brings about inequality, it is promotive of equality if its object is to bring those who share a common characteristic under a class for differential treatment for sufficient and justifiable reasons. In this view, I have no doubt that the principle laid down in All India Station Masters and Assistant Station Masters Association v. General Manager, Central Railway [(1960) 2 SCR 311 : AIR 1960 SC 384.] ; S.G. Jaisinghani v. Union of H India and State of J&K. v. Triloki Nath Khosa [(1974) 1 SCR 771

p. 1045 Copy page pinpoint

[K. M. JOSEPH, J.]

: (1974) 1 SCC 19 : 1974 SCC (L&S) 49.] has no application A here.”

183Copy pinpoint183. In Indira Sawney v. Union of India59, this Court held, “This merely sees goes to show that even among backward classes, there can be sub-classification on a reasonable basis.” B

184Copy pinpoint184. In State of West Bengal and ors. v. Rash Bihari Sarkar and ors.60, exemption was granted under Bengal Amusements Act, 1922 as amended in 1981 from Entertainment Tax for theatre groups which were bonafide and which performed not for monetary gain which tax exemption was not given to theatre groups which performed for monetary gains. Both were theatre groups. Noticing however, the distinction between the theatre groups, this Court went on to hold as follows: “4. Equality means equality in similar circumstances between same class of persons for same purpose and objective. It cannot operate amongst unequals. Only likes can be treated alike. But even amongst likes the legislature or executive may classify on distinction which are real. A classification amongst groups performing shows for monetary gains and cultural activities cannot be said to be arbitrary. May be that both the groups carry out the legislative objective of promoting social and educational activities and, therefore, they are likes but the distinction between the two on monetary gains and otherwise is real and intelligible. So long the classification is reasonable it cannot be struck down as arbitrary. Likes can be treated differently for good and valid reasons. The State in treating the group performing theatrical shows for advancement of social and educational purpose, differently, on basis of profit-making from those formed exclusively for cultural activities cannot be said to have acted in violation of Article 14.”

185Copy pinpoint185. In State of Kerala v. Aravind Ramakant Modawdakar and ors.61, reduction in taxes was given to inter-state stage carriage operators which benefit was not extended to intra-state stage carriage operators. The Court though noted, that both the inter-state operators and intra-state operators were, in a generic sense, state carriage 59 1992 Supp 3 SCC 217 60 (1993) 1 SCC 479 61 1999 7 SCC 400 H

p. 1046 Copy page pinpoint

A operators, there was a distinction between the two. It is apposite to refer to what this Court laid down in para 10 of the judgement. “10.The validity of Section 22 of the Act has not been questioned which section empowers the State in public interest to grant exemptions in such a manner as it deems fit to a class of people. B Once we hold that the contract carriages covered by intra-State permits and inter-State permits can form two distinct and separate classes within the larger class of contract carriages, we find it difficult to hold that this classification is either unreasonable or it lacks a nexus to the object or is violative of Article 14.”

186Copy pinpoint186. In Sansar Chand Atri v. State of Punjab and another62, relied upon by the petitioners, for contending that Article 14 frowns upon creation of a sub-class within a class, the case turned on its facts. What is significant, however, is the reasoning. The question, in short, was whether the appellant was an ex-serviceman or not, on the basis of the provisions of the Punjab Recruitment of Ex-Servicemen Rules, 1982, as D amended by Notification dated 22.09.1992. The contention of the respondent was that since the appellant was discharged from the army on his own request, he could not be treated as an ex-serviceman. After considering the Rules, as amended and on the facts, it was held as follows: “8. …If the contention raised on behalf of the Service Commission E and the State Government that since the appellant has been discharged from the army at his own request, he cannot be treated as an ex-serviceman, is accepted then it will create a class within a class without rational basis and, therefore, becomes arbitrary and discriminatory. It will also defeat the purpose for which the provision for reservation has been made.”

187Copy pinpoint187. We have already adverted to the decision of this Court in relation to the taboo, which is alleged by the petitioners against creating a class within a class.

188Copy pinpoint188. We are of the view that the principles, which governed the legitimacy of the sub-class within a class, is based, essentially, on the very principles, which are discernible in regard to reasonable classification under Article 14. It is clear that the law does not interdict the creation of a class within a class absolutely. Should there be a rational basis for creating a sub-class within a class, then, it is not impermissible. This is 62 H (2002) 4 SCC 154

p. 1047 Copy page pinpoint

[K. M. JOSEPH, J.]

the inevitable result of an analysis of the judgments relied upon by the A petitioner themselves, viz., Sansar Chand Atri v. State of Punjab and another (supra). The decisions, which have been relied upon by the Union and which we have adverted to, clearly indicate that a class within a sub-class, is indeed not antithetical to the guarantee of equality under Article 14. B

189Copy pinpoint189. Now, let us apply the principles, which are indisputable to the facts before us. Allottees are, indeed, financial creditors. They do possess certain characteristics, however, which appear to have appealed to the Legislature as setting them apart from the generality of financial creditors. These features, which set them apart, have been clearly indicated in the stand of the Union. They are: C

i. Numerosity; ii. Heterogeneity; iii. The individuality in decision making. D

190Copy pinpoint190. Section 21(6A) and Section 25A, constitutionality of which has been upheld by this Court in Pioneer (supra), would go to show that the debenture holders and security holders would be covered by 21(6A)(a). As far as the allottees of a real estate project are concerned, they would be governed by 21(6A)(b). Both these categories, have a common feature. The distinguishing hallmark which separates them from the generality of the financial creditor is numerosity. In fact this aspect has been noticed by this Court in Swiss Robbins (supra)(para 49). By the sheer numbers of these creditors, they have come in for special treatment under Section 21(6A). Another feature, which is to be noticed in this regard in heterogeneity. Lastly, there is also the aspect of individualized decision-making. Authorized representatives are contemplated in regard to these categories of financial creditors under Section 21(6A). The manner in which these authorized representatives are to vote is also provided in Section 25A. There is another aspect also to be noticed. Section 7 always contemplated the possibility of a joint application. The impugned amendments incorporating the provisos 1 and G 2 only builds upon the edifice erected already by way of Section 21(6A) and 25A based on the experience of the Legislature as also the Report of the Expert Body. This certainly is a highly important input which persuades us further that the classification in regard to these classes of financial creditors does not represent forbidden classification. H

p. 1048 Copy page pinpoint

191Copy pinpoint191. Section 25A of Code, reads as follows: “25A. Rights and duties of authorised representative of financial creditors.- (1) The authorised representative under sub-section (6) or sub-section (6A) of section 21 or sub-section (5) of section 24 shall have the right to participate and vote in meetings of the committee of creditors on behalf of the financial creditor he represents in accordance with the prior voting instructions of such creditors obtained through physical or electronic means. (2) It shall be the duty of the authorised representative to circulate the agenda and minutes of the meeting of the committee of creditors to the financial creditor he represents. (3) The authorised representative shall not act against the interest of the financial creditor he represents and shall always act in accordance with their prior instructions: Provided that if the authorised representative represents several financial creditors, then he shall cast his vote in respect of each financial creditor in accordance with instructions received from each financial creditor, to the extent of his voting share: Provided further that if any financial creditor does not give prior instructions through physical or electronic means, the authorised representative shall abstain from voting on behalf of such creditor. (3A) Notwithstanding anything to the contrary contained in sub- section (3), the authorised representative under sub-section (6A) of section 21 shall cast his vote on behalf of all the financial creditors he represents in accordance with the decision taken by a vote of more than fifty per cent. of the voting share of the financial creditors he represents, who have cast their vote: Provided that for a vote to be cast in respect of an application under section 12A, the authorised representative shall cast his vote in accordance with the provisions of sub-section (3).] (4) The authorised representative shall file with the committee of creditors any instructions received by way of physical or electronic means, from the financial creditor he represents, for voting in accordance therewith, to ensure that the appropriate voting instructions of the financial creditor he represents is correctly

p. 1049 Copy page pinpoint

[K. M. JOSEPH, J.]

recorded by the interim resolution professional or resolution professional, as the case may be. Explanation.- For the purposes of this section, the “electronic means” shall be such as may be specified.]”

192Copy pinpoint192. We will expatiate on these aspects. In the case of the allottees of a real estate project, it is the approach of the Legislature that in a real estate project there would be large number of allottees. There can be hundreds or even thousands of allottees in a project. If a single allottee, as a financial creditor, is allowed to move an application under Section 7, the interests of all the other allottees may be put in peril. This is for the reason that as stakeholders in the real estate project, having invested money and time and looking forward to obtaining possession of the flat or apartment and faced with the same state of affairs as the allottee, who moves the application under Section 7 of the Code, the other allottees may have a different take of the whole scenario. Some of them may approach the Authority under the RERA. Others may, instead, resort to the Fora under the Consumer Protection Act, though, the remedy of a D civil suit is, no doubt, not ruled out. Ordinarily, the allottee would have the remedies available under RERA or the Consumer Protection Act, as the more effective option. In such circumstances, if the Legislature, taking into consideration, the sheer numbers of a group of creditors, viz., the allottees of real estate projects, finds this to be an intelligible differentia, which distinguishes the allottees from the other financial creditors, who are not found to possess the characteristics of numerosity, then, it is not for this Court to sit in judgment over the wisdom of such a measure.

193Copy pinpoint193. The enquiry, we realize, must not end with finding that there is an intelligible differentia, to be found in the numerosity, heterogeneity and individuality in decision-making of the allottees. The law further requires that the differentia must have bear a rational nexus with the object of the law.

194Copy pinpoint194. The object of the law is clear. A radical departure was contemplated from the erstwhile regime, which was essentially contained in The Sick Industrial Companies (Special Provisions) Act, 1985, and which manifested a deep malaise, which impacted the economy itself. To put it shortly, the procedures involved under the Act, simply meant procrastination in matters, where speed and dynamic decisions were the crying need of the hour. The value of the assets of the Company in distress, was wasted away both by the inexorable and swift passage of H

p. 1050 Copy page pinpoint

A time and tardy rate at which the forums responded to the problem of financial distress. The Code was an imperative need for the nation to try and catch up with the rest of the world, be it in the matter of ease of doing business, elevating the rate of recovery of loans, maximization of the assets of ailing concerns and also, the balancing the interests of all stakeholders. The Code purports to achieve the object of maximization of the assets of corporate bodies, inter alia, which have slipped into insolvency. Present a default, which, no doubt, is not barred by time (subject to the power of the Authority under Section 5 of the Limitation Act), the Insolvency Resolution Process can be triggered. It falls into two stages. In the first stage or the calm period, every attempt is contemplated to rescue the corporate debtor from falling into liquidation. No doubt the moratorium under section 14 is inevitable. The most significant feature of the Code is the seemingly inexorable time limit, which is fixed under Section 12. On the application being admitted under Section 7(5), an Interim Resolution Professional makes his appearance. In him, vests the powers to manage the affairs of the corporate debtor. D He may be replaced by a Resolution Professional or he may be appointed as a Resolution Professional. The most striking feature of the Code is the constitution of the Committee of Creditors and the role, which it plays. In short, the show is run by the Resolution Professional, subject to the control of the Committee of Creditors. The Resolution of Insolvency E is essentially sought through the instrument of a Resolution Plan to be submitted by a Resolution Applicant. Various restrictions are cast, in regard to a Resolution Applicant, through the device of Section 29A of the Code. A Resolution Plan is intended to resuscitate an ailing corporate debtor and keep it going as a going concern. The importance of rescuing ailing businesses in the form of infusing new life in such concerns, cannot be understated. Its significance lies in various directions. There would be various categories of creditors, of which, the legislative choice appears to show some degree of preference for the financial creditors, particularly in the form of banks and financial institutions. One of the chief goals of the Code is to prevent the loss of the value of capital. If the recovery of the loan is effected at the earliest, it translates into the availability of the recovered capital for being lent to other entrepreneurs, and this is an aspect, which goes to the root of the matter. With every passing hour, not unnaturally, depreciation will claim its victim in the form of diminution of value of the assets. Should insolvency pass into the stage of liquidation, the loss is not only of the concerned businesses, but it also would represent H

p. 1051 Copy page pinpoint

[K. M. JOSEPH, J.]

a loss for the Nation. This is, undoubtedly, apart from the impairment of A the interests of all stakeholders. The stakeholders would include the financial creditors and the operational creditors, as well. Employees of the failed business, would take a direct hit. Therefore, the Code accords the highest importance to speed in the matter of undergoing the process of insolvency. B

195Copy pinpoint195. Section 12 contemplates, in short, a maximum period of 330 days from the date of the insolvency commencement date, which we have already explained. Though, the word ‘mandatorily’ has been struck down by this Court in the decision in Committee of Creditors of Essar Steel India Limited (supra), this Court has only balanced the interest of all concerned, by permitting an enlargement of the time, only in those C cases, where the delay occurs not on account of the fault of the players concerned and it is based on the principle actus curiae nemiem gravabit, which means that the act of Court shall prejudice no man. This Court has not undermined the timeline fixed by the Legislature and, in fact, it has underlined the importance of conforming to the time limit. Speed, D indeed, continues to be of the essence of the Code.

196Copy pinpoint196. The speed, with which the processes can be conducted and completed, is based on the volume of the litigation. The Adjudicating Authorities and the Appellate Bodies, viz., N.C.L.A.T., are authorities under other enactments, as well. They are hard-pressed for time. The E matters, which are covered by the Code, may present convoluted facts. The issues may bristle with complications, both in points of law and also facts. If, out of a large body of financial creditors belonging to a sub- group, as for instance allottees of a real estate project, were to be given the freedom to activise the Code, then, the possibility of multiple individual actions, is a spectre, which the Legislature, must be presumed to be aware of. In other words, the Legislature became alive to the peril of entire object of the Code, being derailed by permitting the individual players crowding the docket of the Authorities under the Code, and resultantly, reviving the very state of affairs, which compelled the Legislature to script a new dawn in this area of law. Instead, having regard to the numerosity, the Legislature has thought it fit to adopt a balanced approach by not taking the allottee out of the fold of the financial creditors altogether. The allottee continues to be a financial creditor. All that is envisaged is the legislative value judgment that a critical mass is indispensable for allottees to be present before the Code, can be activised. H

p. 1052 Copy page pinpoint

A The purport of the critical mass of applicants would ensure that a reasonable number of persons similarly circumstanced, form the view that despite the remedies available under the RERA or the Consumer Protection Act or a civil suit, the invoking of the Code is the only way out, in a particular case. As held by this Court, in Pioneer (supra), after having analyzed, what awaits an allottee, moving an application under B Section 7 of the Code, as contrasted with what he could get under RERA or what we note under the Consumer Protection Act and finding that the Code would be ordinarily activised by an allottee, when he feels that the solution lies in the remedy provided under the Code, viz., replacing the management of the real estate project with a new management, this C Court took notice of the fact that should Insolvency Resolution reach a stage of liquidation, being unsecured creditors, the allottees would not even get the amount, which he has invested. In fact, after insertion of the explanation to section 33 (2) at any time after a committee of creditors is constituted such an eventuality is possible. In short, numerosity of the allottees of a real estate project, necessitated, in the view of the D Legislature, as gleaned from the provisions, to condition an absolute right, which does have a clear rational nexus with the object sought to be achieved. We have noticed, one of the objects is the balancing of the interests of all stakeholders. By imposing a threshold limit of either hundred allottees or if the number of allottees going by the criteria of one-tenth of the allottees is, even less than hundred, then, the said number of allottees must agree to invoke the Code. This is again, based on the intelligible differentia of heterogeneity. By heterogeneity, is meant, differences between a seemingly homogenous group. All allottees of a real estate project form a class. All of them have stakes in the prompt and effective completion of the real estate project. We must proceed on the basis that what the allottee would legitimately look forward is the completion of the project and the handing over of the possession of the flat or apartment in due time. The achievement of this object, which must be attributed reasonably to each and every allottee, as his goal, may be possible in the views of different allottees differently. As noted, there is a plurality of remedies, which the law provides. More importantly, the outcome of activising the Code, is almost like an uncertain wager. The outcome of invoking the Code by individual allottees would be apart from clogging the dockets of the Adjudicating Authorities with even more voluminous files leading to greater delay, that at the instance of such individual allottees, what would be perceived as an avoidable calamity, is H

p. 1053 Copy page pinpoint

[K. M. JOSEPH, J.]

perpetuated. In other words, while a vast majority of allottees may see A reason in either giving time and reposing faith in existing management of real estate project or successfully invoking the other remedies available to them, an individual allottee, out of the heterogenous group, would throw the spanner in the works and bring the entire real estate project itself to a possible doom. Under the newly added Explanation to Section B 33(2), at any time, after the constitution of the Committee of Creditors, there can be liquidation.

197Copy pinpoint197. The third distinguishing feature, which has been projected by the Union, is the difference in individuality in decision-making process, attributed to the allottees. This means that unlike a bank or a financial institution, where the decision-making process is more institutionalized, an individual allottee, left free to file an application under Section 7, would exhibit a high-level of subjectivity. As the learned ASG points out, and which is also part of the argument, based on both, numerosity and heterogeneity, what Parliament has instated upon is, the presence of the commendable value of exhibiting concern for the other allottees, who may think completely differently about the wisdom of invoking the Code. Here again, this distinguishing feature, which becomes an intelligible differentia, in the view of the Legislature, and which cannot be shown to be demonstrably a mere pretense, it bears a rational nexus with the objects of the Code, which we have already delineated. To recapitulate, the individual allottee, with a high-level of subjectivity in decision-making, may take a plunge at invoking the Code, without having a more global view of the consequences, which will follow. Any such attempt would only be dubbed as frivolous. This attempt by individual allottees would have the following consequences: i. It would crowd an already heavy docket; F

ii. It would consequently slow down the processes under the Code, even with respect to matters, which may be more genuine and require greater and more timely attention; iii. It will defeat the object of the balancing the interests of all G stakeholders. We must indicate that the aspect about delaying of the processes, when allottees are pulling at each other, having conflicting views about the appropriateness of the Code being invoked, is the clear prospect of allottees coming into collision in the Fora by way of opposing the application, would H

p. 1054 Copy page pinpoint

A be an undeniable reality. This is despite the fact that it could always be argued by the individual allottee that what the law mandates in Section 4, is only the proving of the fact of default in a sum of Rs.1 crore, as thing stand. It is also the argument of the petitioners that since what is relevant for the other financial creditors, is proving the default of Rs.1 crore, the insistence on a threshold for allottees alone, makes it discriminatory. Allottees being financial creditors, must be assumed to know what is in their best interest. What is given through one hand, cannot be taken away by another, is another allied submission. It is also contended that there is no empirical evidence of there being misused, after the judgment of this Court in Pioneer (supra), upholding the rights of the allottees, including debunking the argument that a lone ranger will end up abusing the system;

198Copy pinpoint198. This aspect, in fact, is countered by the learned ASG, by reeling out facts. Between 2016, when the Code was enacted and June, 2018, there were 241 applications by the allottees. In the aftermath of the amendment, i.e., from 06.06.2018, there was a sudden spurt of applications by allottees (2201 cases in a short span of about eighteen months). This is again sought to be contrasted by a mere 130 applications, which came to be filed from 29.12.2019, over a period of eight months till August, 2020. There is also the case for the Union that an Expert Body, viz., the Committee has recommended for the threshold. This recommendation was born out of experience of the pitfalls, which follow, allowing a completely free hand to individual allottees to move the application. We are not impressed by reference to the discordant notes struck, both by reason of the nature of jurisdiction we exercise as also the merit we see otherwise in the rationale behind the law.

199Copy pinpoint199. We see considerable merit in the stand of the Union. This is not a case where there is no intelligible differentia. The law under scrutiny is an economic measure. As laid down by this Court, in dealing with the challenge on the anvil of Article 14, the Court will not adopt a doctrinaire approach. Representatives of the people are expected to operate on democratic principles. The presumption is that they are conscious of every fact, which would go to sustain the constitutionality of the law. A law cannot operate in a vacuum. In the concrete world, when the law is put into motion in practical experiences, bottlenecks that would flow H

p. 1055 Copy page pinpoint

[K. M. JOSEPH, J.]

from its application, are best envisaged by the Law Givers. Solutions to vexed problems made manifest through experience, would indeed require a good deal of experimentation, as long as it passes muster in law. It is no part of a court’s function to probe into what it considers to be more wise or a better way to deal with a problem. In economic matters, the wider latitude given to the Law Giver is based on sound principle and tested logic over time. In fact, though there is no rigid separation of powers in India, as it obtains in the United States, there is broadly separation of powers, which in fact, has been recognized as a basic feature of the Constitution (see His Holiness Kesavananda Bharti Sripadagalvaru v. State of Kerala and another63). In any case, the Court errs in the judicial veto of legislation, in a manner of speaking, it is usurping the power, which is earmarked to another organ of the State, viz., the Legislature. The large number of validating acts would produce undeniable proof of the same. ALLOTTEES VS. OPERATIONAL CREDITORS

200Copy pinpoint200. One of the contentions raised by petitioners is as regards the hostile discrimination between petitioner (allottees) and operational creditors. The advantages which, financial creditor have over operational creditors is referred to.

201Copy pinpoint201. In regard to the advantages, which the financial creditors enjoyed over operational creditors, which constituted also differences between them, the following are highlighted, apart from the difference in procedure, by which, the operational creditor could stand ousted, if the corporate debtor could set up a plausible dispute: i. Firstly, it is pointed out that the financial creditor is on the Committee of Creditors and manages the affairs of the debtor with the Resolution Professional; The operational creditors have no such power. ii. Financial creditors decide who is to be the Resolution Professional; G iii. The financial creditors approve or disapprove the resolution plan. iv. Almost, all, major decisions require the sanction of financial creditors. 63 (1973) 4 SCC 225 H

p. 1056 Copy page pinpoint

A v. Financial debts enjoy priority over third party, operational claims under Section 53 in liquidation. It is despite all this, post the impugned amendment, a large number of financial creditors covered by the provisos are required to initiate a proceeding. It is palpably arbitrary. The financial creditor in the category of the allottees are now worse off. B

202Copy pinpoint202. As far as the argument relating to violation of Article 14 qua operational creditor is concerned, we are of the view that there is no merit in the same. Quite apart from the fact that under the code they are dealt with under different provisions and a different procedure is entailed thereunder, even the decisions of this Court relied on by the allottees have treated the financial creditor differently from the operational creditor.

203Copy pinpoint203. In Innoventive Industries Limited v. ICICI Bank and another64, this Court elaborately analysed the scheme of the Code and the distinction between the financial creditors and the operational creditors. This Court noticed that in the case of application, under Section 8, by an operational creditor, the corporate debtor within ten days of the notice, issued under Section 8 can bring to the notice of the operational creditor, the existence of the dispute or a record of a proceeding in a court or before an Arbitrator. This exercise, successfully carried out by the corporate debtor, will enable it to get out of the purview of the Code. In case of a financial creditor, if the debt is due, that it is payable unless it is interdicted by some law or it has not become due, the default, contemplated under the Code, has occurred and the application, filed by the financial creditor, must be admitted and the matter proceeded with.

204Copy pinpoint204. In Swiss Ribbons (supra) the classification in controversy was between operational and financial creditor. Apart from dealing with the policy behind the Code and the reasons which led to it, this Court inter alia held as follows: “42. A perusal of the definition of “financial creditor” and “financial debt” makes it clear that a financial debt is a debt together with interest, if any, which is disbursed against the consideration for time value of money. It may further be money that is borrowed or raised in any of the manners prescribed in Section 5(8) or otherwise, as Section 5(8) is an inclusive definition. On the other hand, an “operational debt” would include a claim in respect of the provision 64 H (2018) 1 SCC 407

p. 1057 Copy page pinpoint

[K. M. JOSEPH, J.]

of goods or services, including employment, or a debt in respect A of payment of dues arising under any law and payable to the Government or any local authority.

43. A financial creditor may trigger the Code either by itself or jointly with other financial creditors or such persons as may be notified by the Central Government when a “default” occurs. The B Explanation to Section 7(1) also makes it clear that the Code may be triggered by such persons in respect of a default made to any other financial creditor of the corporate debtor, making it clear that once triggered, the resolution process under the Code is a collective proceeding in rem which seeks, in the first instance, to rehabilitate the corporate debtor. Under Section 7(4), the adjudicating authority shall, within the prescribed period, ascertain the existence of a default on the basis of evidence furnished by the financial creditor; and under Section 7(5), the adjudicating authority has to be satisfied that a default has occurred, when it may, by order, admit the application, or dismiss the application if such default has not occurred. On the other hand, under Sections 8 and 9, an operational creditor may, on the occurrence of a default, deliver a demand notice which must then be replied to within the specified period. What is important is that at this stage, if an application is filed before the adjudicating authority for initiating the corporate insolvency resolution process, the corporate debtor can prove that the debt is disputed. When the debt is so disputed, such application would be rejected.

49. It is obvious that debenture-holders and persons with home loans may be numerous and, therefore, have been statutorily dealt with by the aforesaid change made in the Code as well as the F Regulations. However, as a general rule, it is correct to say that financial creditors, which involve banks and financial institutions, would certainly be smaller in number than operational creditors of a corporate debtor.

50. According to us, it is clear that most financial creditors, G particularly banks and financial institutions, are secured creditors whereas most operational creditors are unsecured, payments for goods and services as well as payments to workers not being secured by mortgaged documents and the like. The distinction between secured and unsecured creditors is a distinction which H

p. 1058 Copy page pinpoint

A has obtained since the earliest of the Companies Acts both in the United Kingdom and in this country. Apart from the above, the nature of loan agreements with financial creditors is different from contracts with operational creditors for supplying goods and services. Financial creditors generally lend finance on a term loan or for working capital that enables the corporate debtor to either set up and/or operate its business. On the other hand, contracts with operational creditors are relatable to supply of goods and services in the operation of business. Financial contracts generally involve large sums of money. By way of contrast, operational contracts have dues whose quantum is generally less. In the running of a business, operational creditors can be many as opposed to financial creditors, who lend finance for the set-up or working of business. Also, financial creditors have specified repayment schedules, and defaults entitle financial creditors to recall a loan in totality. Contracts with operational creditors do not have any such stipulations. Also, the forum in which dispute resolution takes place is completely different. Contracts with operational creditors can and do have arbitration clauses where dispute resolution is done privately. Operational debts also tend to be recurring in nature and the possibility of genuine disputes in case of operational debts is much higher when compared to financial debts. A simple example will suffice. Goods that are supplied may be substandard. Services that are provided may be substandard. Goods may not have been supplied at all. All these qua operational debts are matters to be proved in arbitration or in the courts of law. On the other hand, financial debts made to banks and financial institutions are well documented and defaults made are easily verifiable.

51. Most importantly, financial creditors are, from the very beginning, involved with assessing the viability of the corporate debtor. They can, and therefore do, engage in restructuring of the loan as well as reorganisation of the corporate debtor’s business when there is financial stress, which are things operational creditors do not and cannot do. Thus, preserving the corporate debtor as a going concern, while ensuring maximum recovery for all creditors being the objective of the Code, financial creditors are clearly different from operational creditors and therefore, there is H

p. 1059 Copy page pinpoint

[K. M. JOSEPH, J.]

obviously an intelligible differentia between the two which has a A direct relation to the objects sought to be achieved by the Code. xxx xxx xxx xxx

119. It will be seen that the reason for differentiating between financial debts, which are secured, and operational debts, which are unsecured, is in the relative importance of the two types of debts when it comes to the object sought to be achieved by the Insolvency Code. We have already seen that repayment of financial debts infuses capital into the economy inasmuch as banks and financial institutions are able, with the money that has been paid back, to further lend such money to other entrepreneurs for their businesses. This rationale creates an intelligible differentia between financial debts and operational debts, which are unsecured, which is directly related to the object sought to be achieved by the Code. In any case, workmen’s dues, which are also unsecured debts, have traditionally been placed above most other debts. Thus, it can be seen that unsecured debts are of various kinds, and so long as there is some legitimate interest sought to be protected, having relation to the object sought to be achieved by the statute in question, Article 14 does not get infracted. For these reasons, the challenge to Section 53 of the Code must also fail.” E

205Copy pinpoint205. It must be remembered that the principles laid down came to be made in the context of challenge to the provisions of the Code pointing out violation of Article 14 insofar as the classification between operational creditor and financial creditor was alleged to be contrary to Article 14.

206Copy pinpoint206. In Pioneer (supra) the case and the decision is closer to the facts before us. The challenge was to the amendments to the Code including the explanation added to Section 5(8) to the Code. As we have noted the explanation purports to clarify that any loan raised from an allottee under the real estate project is to be deemed to be an amount having commercial effect of borrowing. Apart from the said provision, there were other provisions also called in question. This Court proceeded to find inter alia as follows: The amendment by way of insertion of explanation in 5(8)(f) was only clarificatory of the existing law. The allottees of flats and apartments were subsumed within the provisions of Section H

p. 1060 Copy page pinpoint

A 5(8)(f). In other words, an allottee was a financial creditor. After a conspectus of the provisions the Code and the RERA, this Court also held that the RERA and the Code co-exist and in the event of the confrontation, the Code will hold sway. RERA was thus found to be not a special statute which will override the general statute namely the Code. Dealing with the challenge to the amendment to the Code on the ground that there is violation of Article 14 on the basis that the equals are being treated unequally and unequals are being treated equally this Court found it unacceptable. This Court found the amendment to be an economic measure. This Court also pointed out the perils associated with an allottee pursuing remedy under the Code in paragraph 41 and thereafter went on to hold as follows: “42. It is impossible to say that classifying real estate developers is not founded upon an intelligible differentia which distinguishes them from other operational creditors, nor is it possible to say that such classification is palpably arbitrary having no rational relation to the objects of the Code. It was vehemently argued by the learned counsel on behalf of the petitioners that if at all real estate developers were to be brought within the clutches of the Code, being like operational debtors, at best they could have been brought in under this rubric and not as financial debtors. Here again, what is unique to real estate developers vis-à-vis operational debts, is the fact that, in operational debts generally, when a person supplies goods and services, such person is the creditor and the person who has to pay for such goods and services is the debtor. In the case of real estate developers, the developer who is the supplier of the flat/apartment is the debtor inasmuch as the home buyer/ allottee funds his own apartment by paying amounts in advance to the developer for construction of the building in which his apartment is to be found. Another vital difference between operational debts and allottees of real estate projects is that an operational creditor has no interest in or stake in the corporate debtor, unlike the case of an allottee of a real estate project, who is vitally concerned with the financial health of the corporate debtor, for otherwise, the real estate project may not be brought to fruition. Also, in such event, no compensation, nor refund together with interest, which is the other option, will be recoverable from the corporate debtor. One other important distinction is that in an

p. 1061 Copy page pinpoint

[K. M. JOSEPH, J.]

operational debt, there is no consideration for the time value of money—the consideration of the debt is the goods or services that are either sold or availed of from the operational creditor. Payments made in advance for goods and services are not made to fund manufacture of such goods or provision of such services. Examples given of advance payments being made for turnkey projects and capital goods, where customisation and uniqueness of such goods are important by reason of which advance payments are made, are wholly inapposite as examples vis-à-vis advance payments made by allottees. In real estate projects, money is raised from the allottee, being raised against consideration for the time value of money. Even the total consideration agreed at a time when the flat/apartment is non-existent or incomplete, is significantly less than the price the buyer would have to pay for a ready/complete flat/apartment, and therefore, he gains the time value of money. Likewise, the developer who benefits from the amounts disbursed also gains from the time value of money. The D fact that the allottee makes such payments in instalments which are co-terminus with phases of completion of the real estate project does not any the less make such payments as payments involving “exchange” i.e. advances paid only in order to obtain a flat/ apartment. What is predominant, insofar as the real estate developer is concerned, is the fact that such instalment payments E are used as a means of finance qua the real estate project. One other vital difference with operational debts is the fact that the documentary evidence for amounts being due and payable by the real estate developer is there in the form of the information provided by the real estate developer compulsorily under RERA. F This information, like the information from information utilities under the Code, makes it easy for homebuyers/allottees to approach NCLT under Section 7 of the Code to trigger the Code on the real estate developer’s own information given on its webpage as to delay in construction, etc. It is these fundamental differences between the real estate developer and the supplier of G goods and services that the legislature has focused upon and included real estate developers as financial debtors. This being the case, it is clear that there cannot be said to be any infraction of equal protection of the laws. H

p. 1062 Copy page pinpoint

A 43. Shri Shyam Divan relying upon Nagpur Improvement Trust v. Vithal Rao [Nagpur Improvement Trust v. Vithal Rao, (1973) 1 SCC 500] SCC para 26 and Subramanian swamy v. CBI [Subramanian Swamy v. CBI, (2014) 8 SCC 682 : (2014) 6 SCC (Cri) 42 : (2014) 3 SCC (L&S) 36] SCC paras 44, 58 and 68 argued that the object of the amendment is itself discriminatory in that it seeks to insert into a “means and includes” definition a category which does not fit therein, namely, real estate developers who do not, in the classical sense, borrow monies like banks and financial institutions. According to him, therefore, the object itself being discriminatory, the inclusion of real estate developers as financial debtors should be struck down. We have already pointed out how real estate developers are, in substance, persons who avail finance from allottees who then fund the real estate development project. The object of dividing debts into two categories under the Code, namely, financial and operational debts, is broadly to sub-divide debts into those in which money is lent and those where debts are incurred on account of goods being sold or services being rendered. We have no doubt that real estate developers fall squarely within the object of the Code as originally enacted insofar as they are financial debtors and not operational debtors, as has been pointed out hereinabove. So far as unequals being treated as equals is concerned, homebuyers/allottees can be assimilated with other individual financial creditors like debenture holders and fixed-deposit holders, who have advanced certain amounts to the corporate debtor. For example, fixed-deposit holders, though financial creditors, would be like real estate allottees in that they are unsecured creditors. Financial contracts in the case of these individuals need not involve large sums of money. Debenture holders and fixed-deposit holders, unlike real estate holders, are involved in seeing that they recover the amounts that are lent and are thus not directly involved or interested in assessing the viability of the corporate debtors. Though not having the expertise or information to be in a position to evaluate feasibility and viability of resolution plans, such individuals, by virtue of being financial creditors, have a right to be on the Committee of Creditors to safeguard their interest. Also, the question that is to be asked when a debenture holder or fixed-deposit holder prefers a Section 7 application under the Code will be asked in the case of allottees H

p. 1063 Copy page pinpoint

[K. M. JOSEPH, J.]

of real estate developers — is a debt due in fact or in law? Thus, A allottees, being individual financial creditors like debenture holders and fixed-deposit holders and classified as such, show that they are within the larger class of financial creditors, there being no infraction of Article 14 on this score.”

207Copy pinpoint207. Thus, we notice the following aspects: B In Swiss Robbins (supra) on the basis of the challenge involved to the legislation, this Court noted that a financial creditor can trigger the Code either by itself or jointly with other financial creditors when a default occurs. The procedure in regard to operational creditors is however different. At the stage prior to admission of the application, it is open to the corporate debtor to show that the debt is disputed in which event the application stands rejected. In paragraph-49, this Court took the view that the debenture holder and the persons with home loans may be numerous and therefore have been statutorily dealt with by the changes made in the Code. But as a general rule it was found that financial creditors which involved banks and financial institutions will be certainly smaller than the operational creditors. Further it was held that most financial creditors particularly Banks and financial institutions are secured creditors whereas most operational creditors are unsecured. In para 50 of Swiss Ribbon E this Court distinguished between secured and unsecured creditors and noted that a divide existed from the earliest of the Companies Acts both in U.K. and in India. Financial creditors generally lend on a term loan or for working capital. Operational creditors are creditors on account of supply of goods and services. The sums involved in the financial contracts are generally large sums in contrast with amounts involved in operational credit which are generally less. Repayment schedules are different. Other distinctions are noticed between the two. It is further found that even more importantly financial creditors are involved with the assessing of viability of the corporate debtor from the very beginning. This enables the financial creditor to indulge in restructuring of the loan. Preserving the corporate debtor as a going concern while securing the highest recovery for all creditors is the objective of the Code. Financial creditors were therefore clearly different from operational creditors. There is obviously an H

p. 1064 Copy page pinpoint

A intelligible differentia between the two which has the direct relation with the object to the object which is to be achieved by the Code. This Court further noticed in the context of challenge to Section 53 of the Code which deals with the manner of distribution of assets of corporate debtor in liquidation proceedings, that there is difference in relative importance between financial debt which are secured and operational debts which are unsecured. The distinction was found in the relative importance of two types of debts when it comes to the objects sought to be achieved. This Court was of the view when repayment takes place in regard to financial creditors it leads to fresh infusion of capital into the economy which results in the money being available to be lent to other businessmen.

208Copy pinpoint208. In Swiss Ribbons (supra), dealing with the challenge to the provisions based on Article 14 of the Constitution of India, this Court adopted the following reasoning. Financial creditors were essentially identified as being banks and other financial institutions. Banks and financial institutions, are generally secured creditors. The procedure adopted by these institutions, right from the time the loan is applied for, and it being processed, the largeness of the sums involved, the method of repayment, the re-arrangement of the repayment of the loan, the study conducted, in fact, before the loan is given the control, which the banks and the financial institutions retain over the debtor, and finally, the importance of the repayment to such institutions, for the economic stability and progress of the country, by way of the recovered amounts being infused a fresh capital for other entrepreneurs, was contrasted with the operational debtors, who were, in the first place, unsecured creditors, generally. Operational creditors are creditors to whom the corporate debtor owes money for having availed goods and services. The features which mark out the banks and financial institution were found in applicable to the operational creditors.

209Copy pinpoint209. Coming to Pioneer (supra), this Court has recognized that allottees under a real estate project are unsecured creditors (See paragraph-61, wherein it is so found). Equally, it is noted in paragraph- 43 as follows: “43. for example, fixed deposit holders, though financial creditors, would be like real estate allottees in that they are unsecured creditors.”

p. 1065 Copy page pinpoint

[K. M. JOSEPH, J.]

210Copy pinpoint210. It is further found that financial contracts in the case of these individuals, (allottees) need not involve large sums of money [See paragraph-43 of Pioneer (supra)].

211Copy pinpoint211. It could be urged, therefore, that the real foundation on the basis of which, this Court justified the difference in procedure under Section 7 on the one hand and Sections 8 and 9 on the other hand between financial creditors and operational creditors, is that after conflating financial creditors with banks and financial institutions and noting them to be secured creditors, lending large sums of money, both of which features are not present in the case of an allottees under a real estate project as allottees remain unsecured creditors and also their contract need not involve large sums of money, they should, therefore, fall to be treated at least like the operational creditors with whom they bear the greater resemblance. What is complained of is before the impugned amendments, allottees being treated as part of the larger group of financial creditors, could invoke the provisions of Section 7 singly and without having to garner the support of any fellow traveller. The operational debtor could also, likewise, file such an application without having to search around for kindred souls. After the amendment, however, the advantageous position which was occupied by the allottee as a financial creditor, has been extinguished and the allottee is worse off than even an operational creditor. This is for the reason that a single operational creditor could all by himself, activise the Code whereas the allottee is left far behind. This amounts to treating the allottee with discrimination.

212Copy pinpoint212. While it may be true that the allottee is not a secured creditor and he is not in the position of a bank or the financial institution, the contentions of the petitioners that there is hostile discrimination forbidden Article 14 is untenable. There cannot be any doubt that intrinsically a F financial creditor and an operational creditor are distinct. An operational creditor is one to whom money is due on account of goods or services supplied to the debtor. The financial creditor on the other hand, is so described, on account of there being the element of borrowing. This distinction is indisputable. The other distinctions are articulated with clarity G in paragraph-42 of the judgment of this Court in Pioneer (supra) which we have already adverted to. As noticed by this Court, what is unique to the real estate developer vis-a-vis operational debts is that the developer is the debtor as an allottee funds his own apartment by paying amounts in advance. On the other hand, in case of operational debt, the person H

p. 1066 Copy page pinpoint

A who has supplied the goods and services, becomes the creditor and the corporate debtor is one who has availed such services. Another distinction noticed is that an operational creditor has no interest or stake in the corporate debtor. The allottee is, on the other hand, vitally concerned with the financial health of the corporate debtor. Should financial ruin occur, the real estate project will come to a nought. Should such an event take place also, the allottee would not be in a position to either claim or get compensation or even refund with interest. Thirdly, as again noticed by this Court, there is no consideration for the time value of money in the operational debt. This is not so in the case of an allottee. The non-availability of documentary evidence in respect of operational debts as against information available under the RERA qua real estate developers is yet another feature which was noticed in Pioneer (supra) dealing with the differences between an operational debtor and an allottee.

213Copy pinpoint213. The operational debtor, is concerned with the payment of the amount due to it for the goods and services supplied. When an allottee invests money in a real estate project, his primary and principal concern is that the project is completed and he gets possession of the apartment or the flat. The problem really arises as there are many stakeholders whose interests are affected. It cannot be in dispute that under the law, an allottee can seek remedies under the RERA. An allottee can also seek remedies under the Consumer Protection Act or even file a suit. E No doubt, Section 71 of the RERA permits a person who has filed a complaint in respect of matters governed by Sections 12, 14, 18 and 19 of RERA to withdraw the complaint and file the same before the Adjudicating Officer under RERA. There are large number of cases where allottee seek refuge either under the RERA or under the Consumer F Protection Act. An action under the Code by way of an application under Section 7 is an action in rem. The recovery of the amounts paid is not what is primarily contemplated under the Code. In paragraph-41 of judgment of this Court in Pioneer (supra), this Court has painted the rather dismal but realistic picture of the fruits of litigation launched under Section 7 by an allottee of a real estate project. This Court has gone on to hold that only such allottee who has completely lost faith in management would come under Section 7 in hope that some other developer will take over and complete the project. At the same time, this Court noticed that such an adventure would be in the teeth of an impending peril, that should things do not go as planned, corporate demise follows and the allottee would stand reduced to receiving whatever little may

p. 1067 Copy page pinpoint

[K. M. JOSEPH, J.]

remain and found on the basis that he is a mere unsecured creditor in the A order of priority prescribed under Section 53 of the Code. This Court has painted a more rosy picture for an allottee approaching under the RERA, as there is a great likelihood, it is noted that the project could be completed or the full amount of refund together with penalty is awarded. Thus, the vires of the impugned provisions must be judged without turning B a blind eye to the distinction between the wisdom and the legislative value judgment behind the Statute being immune from judicial scrutiny on the one hand and a hostile discrimination falling foul of the mandate of equality under Article 14, being fatal to the Statute. In this case, while it may be true that the allottees are unsecured creditors and in that regard, they are similar to the operational creditors and it also may be true that many contracts under real estate projects, may not involve large sums as the subject matter of advances by banks and other financial institutions, the similarity between the two ends there. What is of greater importance is the distinctions which we have already noted and the most vital point which sets them apart, in the matter of pronouncing on the vires of the provisos under Section 7 is the numerosity of the allottees, and what is more not being homogeneous in what they want in a particular situation, since the law has indeed endowed the allottees with different remedies, having different implications, be it under the Consumer Protection Act or under RERA. If the Legislature felt that having regard to the consequences of an application under the Code, when such a large group of persons, pull at each other, an additional threshold be erected for exercising the right under Section 7, certainly, it cannot suffer a constitutional veto at the hands of Court exercising judicial review of legislation. In fact, this Court in Pioneer was invited to hold that the allottees were more like operational creditors than financial creditors and many aspects were pointed out and this Court after referring to the differences pointed out to it in a tabular form in [para 48], rejected the contentions. The rejection is supported with reference to the findings in Swiss Robbin (supra) which is alluded to in para 32 of Pioneer (supra).

214Copy pinpoint214. It is to be noted also that it is not a case where the right of the allottee is completely taken away. All that has happened is a half- G way house is built between extreme positions, viz., denying the right altogether to the allottee to move the application under Section 7 of the Code and giving an unbridled license to a single person to hold the real estate project and all the stakeholders thereunder hostage to a proceeding under the Code which must certainly pass inexorably within a stipulated H

p. 1068 Copy page pinpoint

A period of time should circumstances exists under Section 33 into corporate death with the unavoidable consequence of all allottees and not merely the applicant under Section 7 being visited with payment out of the liquidation value, the amounts which are only due to the unsecured creditor. B It must be remembered that, the point of distinction, between a financial creditor in this case, the allottees of a real estate project and the operational creditors, as contained in Section 7 on the one hand and Sections 8 and 9 are preserved. In other words, the operational creditor still has to cross the threshold of not being shut off from the application not being processed in the teeth of the defense allowed to the corporate C debtor in regard to an operational creditor. All that has happened is the Legislature in its wisdom has found that the greater good lies in conditioning an absolute right which existed in favour of an allottee by requirements which would ensure some certain element of consensus among the allottees. It must be remembered that the requirement is a D mere one-tenth of the allottees. This is a number which goes to policy and lies exclusively within the wisdom of the Legislature. Hence, we have no hesitation in repelling the contentions in this regard. DEBENTURE HOLDERS/SECURITY HOLDERS: THE CHALLENGE TO THE FIRST IMPUGNED PROVISO

215Copy pinpoint215. Shri Rana Mukherjee, learned senior counsel in W.P.(C) No.579 of 2020 would submit that the first proviso appears to be clearly the result of a mistake. It is contended that the target of the legislature was the problem created by individual allottees invoking section 7 of IBC. As far as his clients are concerned, they are debenture holders and F other security holders to whom debt is owed by the corporate debtor. There is no rational basis for imposing a threshold requirement upon the security holders. Reference is made to the mention of ‘class’.

216Copy pinpoint216. Learned counsel would commend to us the principle of absurdity. It is pointed out that the principle of absurdity should guide this G Court to read down the first proviso to not apply it in regard to security holders and debenture holders. In this regard our attention has been drawn to the decision of this court in Vasant Ganpat Padave (D) by L.Rs. and Ors. v. Anant Mahadev Sawant (D) through L.Rs. and Ors.65. It is further brought to the notice of the court that the provision 65 H (2019) 12 SCALE 579

p. 1069 Copy page pinpoint

[K. M. JOSEPH, J.]

suffers from manifest arbitrariness. Counsel relies upon the judgement A of this Court in Shayara Bano v. Union of India and others66 decision which witnessed the striking down of the law relating to triple talak. Per contra, it is the stand of the Union that Section 21(6A)(a) and (b) read with Section 25A of the Code contemplated certain classes of financial creditors as falling in a separate class by themselves. B

217Copy pinpoint217. It is the stand of the Union that in regard to certain classes of creditors, financial creditors, i.e., having regard to the large numbers, they were to be treated differently. It is accordingly that with the insertion of sub-section (6A) in section 21 with clause (a) dealing with security holders including debenture holders which would cover the petitioners that an authorised representative was to be appointed to be on the committee of creditors.

218Copy pinpoint218. Section 25A provides for the rights and liabilities of the authorised representatives who include the authorised representatives of debenture holders, security holders and finally the allottees. As far as allottees are concerned, it is the stand of the Union that they would fall under Section 21 (6A)(b) whereas the security holders including debenture holders to whom the corporate debtor owes money would fall under section 21 (6A)(a). In regard to both these categories, in other words, the feature which stands out is the large number of the creditors as also the large number of allottees. No doubt, in the case of allottees there are other distinguishing features as well. The interplay of the Consumer Protection Act, the provisions of the Real Estate Regulation Act, the balancing of the interests of the allottees in the sense of the optimal securing of the stake of the allottees in the continuance of the real estate project itself would only strengthen the classification further in regard to allottees. However, that is not to say that in regard to the debentures and security holders they can individually be permitted to set in motion CIRP. In regard to the question of availability of information with respect to similarly placed debenture holders or security holders, the contention of the Union is that under section 88 of the Companies Act information is generated regarding debenture holders and security holders. Anyone G can inspect the records of the company and glean information with which application can be moved under the first proviso to Section 7(1). In regard to them also it is the case of the Union that the principle of heterogeneity applies. Equally, it is the case of the Union that the individual creditor in 66 (2017) 9 SCC 1 H

p. 1070 Copy page pinpoint

A the said class would make a highly individualised and subjective decision in regard to whether an application under Section 7 must be moved and this is sought to be contrasted with the institutional decision-making which would come into play in regard to banks and other financial institutions.

219Copy pinpoint219. We are of the view that the first proviso is invulnerable. As B pointed out by the learned Additional Solicitor General with the insertion of sub-section 6A in section 21 as also Section 25A, the intention of the legislature is to treat the financial creditors differently. They are marked by unique features in terms of numerosity and heterogeneity is clear. Section 21 (6A) (a)reads as follows: C “(6A) Where a financial debt – (a) is in the form of securities or deposits and the terms of the financial debt provide for appointment of a trustee or agent to act as authorised representative for all the financial creditors, such trustee or agent shall act on behalf of such financial creditors; D (b) xxx xxx xxx (c) xxx xxx xxx Section 25A provides as follows: “ 25A. Rights and duties of authorised representative of financial creditors. (1) The authorised representative under sub-section (6) or sub- section (6A) of section 21 or sub-section (5) of section 24 shall have the right to participate and vote in meetings of the committee of creditors on behalf of the financial creditor he represents in accordance with the prior voting instructions of such creditors obtained through physical or electronic means. (2) It shall be the duty of the authorised representative to circulate the agenda and minutes of the meeting of the committee of creditors to the financial creditor he represents. G (3) The authorised representative shall not act against the interest of the financial creditor he represents and shall always act in accordance with their prior intructions: Provided that if the authorised representative represents several financial creditors, then he shall cast his vote in respect of each H

p. 1071 Copy page pinpoint

[K. M. JOSEPH, J.]

financial creditor in accordance with instructions received from A each financial creditor, to the extent of his voting share: Provided further that if any financial creditor does not give prior instructions through physical or electronic means, the authorised representative shall abstain from voting on behalf of such creditor. (3A) Notwithstanding anything to the contrary contained in sub- B section (3), the authorised representative under sub-section (6A) of section 21 shall cast his vote on behalf of all the financial creditors he represents in accordance with the decision taken by a vote of more than fifty per cent. of the voting share of the financial creditors he represents, who have cast their vote: C Provided that for a vote to be cast in respect of an application under section 12A, the authorised representative shall cast his vote in accordance with the provisions of sub-section (3).”

220Copy pinpoint220. These provisions were unsuccessfully challenged before this Court as evident from the decision in the Pioneer (supra). As pointed out on behalf of the Union, in the said case the challenge was mounted by the promoters of real estate projects. These provisions have been accepted by creditors like the petitioners covered by sub-section 6A. The impact of the insertion of sub-section 3A in Section 25A is to be noticed. As already seen section 25A, inter alia, deals with the exercise of rights and the liabilities of authorised representative of creditors like debenture holders and allottees. After the insertion of sub-section 3A in section 25A, the majority of the creditors of a class is permitted to call the shots. It’s view, in other words, will hold sway. This is subject to the Code otherwise. The legislative understanding is clear that in regard to such creditors bearing the hallmark of large numbers they are required to be treated differently. If they are not treated differently it would spell chaos and the objects of the Code would not be fulfilled. It is an extension of this basic principle which has led to the insertion of the impugned proviso. Insisting on a threshold in regard to these categories of creditors would lead to the halt to indiscriminate litigation which would result in an uncontrollable docket explosion as far as the authorities which work the Code are concerned. The debtor who is apparently stressed is relieved of the last straw on the camel’s back, as it were, by halting individual creditors whose views are not shared even by a reasonable number of its peers rushing in with applications. Again, as in the case of the allottees, H

p. 1072 Copy page pinpoint

A this is not a situation where while treating them as financial creditors they are totally deprived of the right to apply under Section 7 as part of the legislative scheme. The legislative policy reflects an attempt at shielding the corporate debtor from what it considers would be either for frivolous or avoidable applications. What we mean by avoidable applications is a decision which would not be taken by similarly placed creditors keeping in mind the consequences that would ensue not only in regard to persons falling in the same category but also the generality of creditors and other stakeholders. All that the amendment is likely to ensure is that the filing of the application is preceded by a consensus at least by a minuscule percentage of similarly placed creditors that the time has come for undertaking a legal odyssey which is beset with perils for the applicants themselves apart from others. As far as the percentage of applicants contemplated under the proviso it is clear that it cannot be dubbed as an arbitrary or capricious figure. The legislature is not wanting in similar requirements under other laws. The provisions of the Companies Act, 2013 and its predecessors contained similar provisions. Allowing D what is described as ‘lone Ranger’ applications beset with extremely serious ramifications which are at cross purposes with the objects of the code. This is apart from it in particular spelling avoidable doom for the interest of the creditors falling in the same categories. The object of speed in deciding CIRP proceedings would also be achieved by applying the threshold to debenture holders and security holders. The dividing line between wisdom or policy of the legislature and limitation placed by the Constitution must not be overlooked.

221Copy pinpoint221. The contention based on the applicability of the Absurdity Doctrine on the Principle that the result which, ‘all mankind without speculation would unite in rejecting’ can have no application to the provision. The Code and object of the Code and the unique features which set apart the creditors involved in this case from the generality of the creditors, the challenge being to an economic measure and the consequential latitude that is owed to the legislature renders the Principle of Absurdity wholly inapposite. G

222Copy pinpoint222. There is no scope also having regard to their identification in paragraph-49 of Pioneer (supra) with reference to their numerosity. They cannot be heard to complain about their inclusion within the terms of the 1st proviso. Also Section 21(6A)(a) read with Section 25(A) puts the matter beyond the pale of doubt. H

p. 1073 Copy page pinpoint

[K. M. JOSEPH, J.]

223Copy pinpoint223. There is no basis for the petitioners to draw any support A from the decision of this Court in 2019(12) SCALE.579. The facts in the said case presented a clear situation which invited the application of the Principle. THE CHALLENGE TO EXPLANATION-II TO SECTION 11 OF THE CODE. B

224Copy pinpoint224. The Petitioner, in Writ Petition No. 267 of 2020, challenges the aforesaid Explanation.

225Copy pinpoint225. As already noticed, the Amendment Act, 2020 received the assent of the President of India on 13.03.2020 and it is deemed to have come into force on the 28.12.2019 (be it remembered that the Ordinance, C inserting the same Explanation, had been brought into force on 28.12.2019).

226Copy pinpoint226. The case of the Petitioner, in brief, is as follows: Respondent No.3 is a subsidiary company of the Petitioner. D Respondent No. 2 is also a corporate body. There were certain transactions between Respondent Nos.2 and 3. Alleging default by Respondent No.3, Respondent No.2 had filed an Application under Section 9 (the application to be filed by an operational creditor) against Respondent No.3. Respondent No.2 had filed the application under Section 9 of the Code on 24.08.2018. It is E the further case of the Petitioner that Respondent No.2, on the other hand, was itself undergoing a CIRP and the CIRP Application had been admitted against the Second Respondent on 12.09.2017. It is pointed out that the Respondent No.3 has taken a contention that Respondent No.2 was disentitled to file an application under F Section 11(a) of the Code as Respondent No.2 was itself facing a CIRP. It is further contended that during the pendency of the proceeding against the second Respondent, the Adjudicating Authority has passed an Order on 19.11.2018 to liquidate Respondent No.2 under Section 34 of the Code. This development invites the wrath of Section 11(d) as well. However, the G Adjudicating Authority had, on 24.08.2019, erroneously admitted the Application filed by Respondent No.2 under the Code. An Appeal was carried by the Petitioner against the same, which is pending. It is while so, that the Ordinance came to be promulgated on 28.12.2019 adding Explanation-II to Section 11 vis-à-vis H

p. 1074 Copy page pinpoint

A followed by passing of the impugned, amending Act on similar lines.

227Copy pinpoint227. The contention of the Petitioner can be summed-up as follows: An Explanation cannot modify the main provision to which it is an Explanation. B Section 11(a) and Section 11(b) unequivocally bar a Corporate Debtor from filing a CIRP Application qua another Corporate Debtor under Section 7 and Section 9 of the Code. Support is sought to be drawn from the exposition of the law qua an explanation laid down in S. Sundaram Pillai and others v. R. C Pattabiraman and others67 and Sonia Bhatia v. State of U.P. and others68. It is complained that the label of an Explanation has been used to substantially amend, which is an arbitrary and irrational exercise of power.

228Copy pinpoint228. It was pointed out that the word ‘includes’ in Explanation-I D to Section 11 would indicate that an Application for CIRP is barred not only against itself but also against any other Corporate Debtor when the applicant-Corporate Debtor is found placed in circumstances expressed in Section 11. It is further contended that the impugned Amendment, effectively repeals Sections 11(a) and 11(d). If the purport of the E Explanation, which is impugned, is that the intention of the law was to only bar an Application for CIRP by a Corporate Debtor against itself, then, it will be unworkable and practically impossible. Explanation-II is manifestly arbitrary. Support is sought to be drawn from Shayara Bano (supra). It was further contended that the amendment cannot be used retrospectively and take away the vested right. In fact, it is contended F that a clarificatory amendment is prospective but Explanation II is in reality a substantive provision. Attempt is made to lay store by the Judgment of this Court in Virtual Soft Systems Ltd. v. Commissioner of Income Tax, Delhi-I69, wherein this Court was dealing with Section 271 of the Income-Tax Act, 1961, in which, an Explanation was added. The G Section in question, was a penal provision.

229Copy pinpoint229. It was further contended that the law has been settled by National Company Law Tribunal (NCLT) and National Company Law 67 (1985) 1 SCC 591 68 (1981) 2 SCC 585 H 69 (2007) 9 SCC 665

p. 1075 Copy page pinpoint

[K. M. JOSEPH, J.]

Appellate Tribunal (NCLAT) that a Corporate Debtor, covered by Section A 11(a) and 11(d), cannot file application for CIPR against another Corporate Debtor. The impugned amendment cannot be used retrospectively in cases instituted before 28.12.2019, which is the day on which the impugned amendment came into force. It is submitted that the amendment is violative of Article 14 and the relevant law. B

230Copy pinpoint230. Respondent No.2, in its submissions, contends as follows: Respondent No. 3 owes Respondent No.2, more than a sum of Rs. 26 crores, which is 20 per cent of the liquidation value of Respondent No.2. It is further contended that the notes on clause explains the purpose of the provision. The amendment is defended as reasonable and not arbitrary. It is pointed out that it will be contrary to the object of the Code if the debt due to the Corporate Debtor cannot be secured. The duties of the Resolution Professional under the Code to protect and preserve the assets of the Corporate Debtor are pointed out. An order of the Appellate Adjudicating Authority in support of Respondent No.2 is also pointed out. Explanation-II, it is pointed out, only clarifies what was always the correct position.

231Copy pinpoint231. Learned Additional Solicitor General, appearing on behalf of the Union of India would also support the amendment. Reference is made to the Report dated February, 2020 of the Insolvency Law E Committee, which, inter alia, reads as follows: “6. ELIGIBILITY OF A CORPORATE DEBTOR TO INITIATE CIRP AGAINST OTHER PERSONS 6.1. Under Section 11(a) and (d) of the Code, corporate debtors F “undergoing a corporate insolvency resolution process” and “in respect of whom a liquidation order has been made” are not permitted to file an application to initiate CIRP. It was brought to the Committee that this has created confusion over whether a corporate debtor which is undergoing CIRP or liquidation process, may file an application to initiate CIRP against other corporate G persons who are its debtors. 6.2. The Committee noted that different Adjudicating Authorities had taken different approaches regarding the right of a resolution professional to initiate CIRP against other corporate debtors. On the one hand, the right of the resolution professional to initiate H

p. 1076 Copy page pinpoint

A CIRP against other corporate debtors was upheld by relying on the statutory duty of the resolution professional to recover outstanding dues of the corporate debtor under Section 25(2)(b). On the other hand, the resolution professional had been prevented from doing so, on the basis of a literal interpretation of Section 11(a). While the Appellate Authority had dismissed the appeals B filed against some of these orders without endorsing either of these approaches, in Abhay N. Manudhane v Gupta Coal India Pvt. Ltd., it had taken the latter approach and denied the liquidator the right to file an application to initiate CIRP against other corporate debtors (in the context of Section 11(d)). C 6.3. However, according to the Notes on Clauses to Section 11, the section was enacted to prevent “repeated recourse to the corporate insolvency resolution process in order to delay repayment of debts due or to keep assets out of the reach of creditors” and to “ensure finality of the liquidation order” by D preventing a corporate debtor to initiate CIRP after a liquidation order is passed. Thus, it is clear that Section 11 aims at preventing a corporate debtor from abusing the statutory process under Chapter II of Part II of the Code by repeatedly initiating CIRP against itself or by initiating CIRP even after a liquidation order is passed against it. The Committee discussed that if Section 11 E were instead, interpreted to prevent the resolution professional or the liquidator of a corporate debtor from initiating CIRP against other defaulting entities, it would cause serious detriment to the ability of a corporate debtor to recover its dues from its debtors.” ANALYSIS F

232Copy pinpoint232. Before we address the argument with regard to the provisions of the Code, it is necessary to cull-out the principles applicable in regard to the function of an Explanation. A bench of three learned Judges, in an off-quoted judgment in S. Sundaram Pillai (supra) came to elaborately examine the scope of an Explanation. Incidentally, the Court had to deal G with an Explanation which was appended to a proviso and, therefore, its judgment also deals with the principles applicable in regard to a proviso. On a conspectus of various decisions, this Court made a survey of the earlier case law. We may refer to paragraphs-49, 50, 52 and, finally, its conclusions in paragraph-53 as follows: H

p. 1077 Copy page pinpoint