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Legal Case Shots

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Legal Case Shots is a searchable database of Supreme Court of India judgments, each broken down into the case type, the court's key holding, and a practical lesson learnt, with the full judgment available as a PDF for citation or deeper reading.

Company & Insolvency LawSupreme Court of India

Manish Kumar v. Union of India

Writ Petition (Civil) · 2021 INSC 28Decided 19 Jan 2021
Writ Petition (Civil) No. 26 of 2020
Justice Rohinton Fali Nariman · Justice Navin Sinha · Justice K.M. Joseph

Background

Homebuyers and other creditors challenged the constitutional validity of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, which introduced a minimum-threshold requirement, at least 100 allottees/creditors in a class, or 10% of the total, whichever is lower, before such creditors could jointly file an application to start insolvency proceedings against a builder or company. The amendment also required pending applications that did not meet this threshold to be treated as withdrawn unless refiled in compliance within 30 days, and added Section 32A, which shields a company (and its new owners) from prosecution and attachment of its property for offences committed by the previous management once a resolution plan is approved. Petitioners argued these changes were arbitrary, retrospectively took away vested rights, and made it practically impossible for individual homebuyers to seek relief.

Decision Breakdown

The Supreme Court upheld the constitutional validity of all three challenged provisions: the threshold requirement for financial creditors and real-estate allottees, the "deemed withdrawal" of non-compliant pending applications, and the immunity under Section 32A for a clean successor company and its new management. The Court reasoned that the threshold was meant to filter out frivolous individual petitions in cases involving thousands of similarly placed creditors and to protect the insolvency process from being misused as a pressure tactic, and found the 30-day compliance period, while tight, not "manifestly arbitrary." However, exercising its special powers under Article 142, the Court softened the blow for petitioners already before it: it allowed them two months to refile compliant applications without paying fresh court fees and directed that the time already spent on their earlier applications be excluded (condoned) for limitation purposes.

Lesson Learnt

Homebuyers and small creditors generally cannot individually trigger insolvency proceedings against a builder/company anymore: they must come together with a minimum number of similarly placed creditors; and once a company's ownership and management genuinely change under an approved resolution plan, the company (though not the individuals responsible) is shielded from being prosecuted for the previous owners' wrongdoing.

Manish Kumar v. Union of India – Legal Case Shots | LegalAware