There is good news for homebuyers who have been struggling with delayed possession, as the Cabinet on Wednesday clears an ordinance to amend the Insolvency and Bankruptcy Code (IBC) to treat home-buyers as financial creditors. The move will help homebuyers in case of liquidation of a real estate firm, as they will now be the third in line to get a share from the liquidation proceeds. Financial creditors get their due after meeting the cost of resolution and workers’ dues.
At present many debt-laden developers such as Jaypee Infratech and Amrapali are going through insolvency proceedings. The amendment will help home-buyers, as earlier there was no clarity about their rights if the company goes into liquidation. Banks were considered as financial creditors since they gave loans to developers for construction of the project, leaving homebuyers with no rights on the property. Following the amendment, representatives of home-buyers can now be a part of the committee of creditors to ensure that their rights are also protected while working out a resolution plan.
Nina Mehra, the Noida-based homebuyer, said, “It has been a welcome move considering now we will be part of the resolution process. I hope to get my money back even if my builder goes bankrupt.”
The Bankruptcy And Insolvency Act was passed in 2016 to mandate a new framework for debt recovery and time-bound resolution of cases, given the rise of bad debts in the economy.
Taranpreet Singh, Partner, TASS Advisory, said, “It’s a big relief for home buyer as they will now have legal rights to claim their hard earned money back from builders in case the builder goes bankrupt. This is in line with the government’s agenda to protect common taxpayers wealth.”
A 14-member panel was set up to review IBC, which recommended that home buyers should be treated as financial creditors. Diwakar Maheshwari, Partner, Khaitan & Co, agrees, “While the actual text of the latest IBC ordinance is awaited, it is expected that the same would have appropriately considered the various relevant changes suggested by the 14 member Insolvency law committee, more so, as the said committee had, inter alia, taken pertinent judicial guidance while suggesting its change(s) in its report.”
The Reserve Bank of India (RBI) earlier referred 12 large companies for proceedings under IBC. The second list of referred companies mostly included power and steel units. Last week Tata Steel successfully acquired Bhushan Steel under the provisions of IBC.