COVID-19: Relief for forgotten homebuyers

Homebuyers were included as financial creditors under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) vide an amendment in the code in 2018. Pursuant to their inclusion, homebuyers could either individually or jointly file to initiate corporate insolvency resolution proceedings (CIRP) before the National Company Law Tribunal against the defaulting corporate debtor. The primary reasons for their inclusion were that they often fully financed their projects, and developers had made delays in completion of the projects a common phenomenon. The inclusion assured them of an efficient and speedy revival of the developers, failing which liquidation would follow.

However, this remedy was recently nearly stifled, and the hope for any relief for homebuyers was nearly strangled. This can be imputed to multiple recent steps taken by the legislature to iron out gaps in the code.

Foremost, the legislature introduced an amendment vide the IBC (Amendment) Ordinance, 2019, on 28 December 2019. The amendment barred individual homebuyers from initiating the CIRP until they are at least 100, or 10%, whichever is less, of the total number of allottees of the “same real estate project”, with retrospective applicability, particularly when there exists no public database for consolidation of other homebuyers, and compliance with the amendment.