• Homebuyers to have say in insolvency proceedings against real estate companies

    March 12, 2018


    Considering the continuous harassment faced by homebuyers in cases of incomplete property transactions, a committee tasked with reviewing the Insolvency and Bankruptcy Code (IBC) may bring them at par with unsecured financial creditors, reportedWhile the proposal is currently being reviewed, it would bring relief to thousands of homebuyers, especially the ones those who have acquired apartments or residencies from companies such as Amrapali and Jaypee Infratech. Often, these homebuyers end up in the back of the queue when it comes to seeking compensation from bankrupt builders.  

    It may be noted that thousands of homebuyers have been left in a situation of worry after the aforementioned builders were referred to the National Company Law Tribunal (NCLT) by the IDBI and Bank of Baroda, respectively after then failed to repay their debts.  
    Amrapali promoters could go to jail
    The 14-member insolvency law committee had been set up to identify the key factors that "impact the efficiency of corporate insolvency resolution and liquidation framework" and give suggestions to overcome issues.  

    Corporate Affairs Secretary Injeti Srinivas, in an interview, said that the recommendations along with the draft amendments regarding the IBC are most likely to be presented towards the end of the month. If the suggestions are adopted, it would be a great boost for the aggrieved homebuyers, as it would grant them full participation in insolvency resolution process and also, be a part of a committee of the creditors. Further, the Homebuyers might also, be getting voting rights on resolution plans.  

    In the current IBC norms, something called a "waterfall mechanism" is followed. In this procedure, there are eight levels for distribution of proceeds generated from the sale of liquidated assets among stakeholders. However, after the fresh resolution, professionals, and administrators, financial creditors and workmen's dues will be given higher priority, followed by unpaid dues of employees other than workmen. Next in line would be unsecured financial creditors, followed by dues to the government and equity shareholders in the order. In the present scenario, homebuyers are last in line when it comes to developers.

  • Lawyer Comments

  • Under the old regime of Companies Act as well as the Insolvency & bankruptcy Code, hombuyers have never been recognised as a secured creditors, when in fact, they have the highest exposure in terms of money and are the most vulnerable. The IBC law is draconian in nature and immediately requires a relook. The first of its kind case was filed by me by way of a PIL in Jaypee Case (and also in Amrapali/Assotech) where over 30000 buyers hard earned money was unsecured and no legal remedy was available the homebuyers as well. It was in this background, the Apex court passed a series of protective orders securing the interest of homebuyers.
    Mr. Ashwarya Sinha

    Advocate Ashwarya Sinha

      Defence Colony, Delhi

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