SC upholds home buyers' status to approach NCLT as ‘Financial Creditor’
August 09, 2019The Supreme Court of India in one of its landmark judgments has upheld the constitutional validity of Section 5(8) (f) of the Insolvency and Bankruptcy Code (IBC) which gives home buyers the right to approach National Company Law Tribunal as ‘financial creditors’ of a defaulting builder company.
The said right was given to the home buyers through an amendment made to the Code which was challenged by a group of around 136 builders by way of writ petitions which were linked with a case filed by Pioneer Urban Land and Infrastructure against home buyers.
The Court has stated that this right shall be exercised in harmony with the rights given to the home buyers to seek remedy under Real Estate Regulatory Act (RERA) and Consumer Protection Act. This means that the home buyers can seek remedy under any of the acts i.e. Consumer Protection Act, IBC and RERA. In furtherance to this, all the insolvency resolution proceedings in the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) has been stayed by the Apex Court.
The central government had contended in the case that the amendment was made to protect the interests of the home buyers in their representation in the Committee of creditors under the IBC. Whereas, the lawyer appearing for the builders had stated that the amendment has created more confusion and has resulted in additional encumbrance for the builders as it stated that the financial creditors can initiate insolvency proceedings against a company in case of a ‘default’ and the definition of ‘default' becomes vague in case of delay of a project which can also be caused due to the buyer’s default in paying installments.
However, the SC has held that there is a proper mechanism in place before the NCLT and NCLAT and the fact that an antagonistic home buyer can abuse the provision cannot be accepted. It has further directed the government to ensure proper manning of NCLT and RERA and has asked it to submit an affidavit in this regard.