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.
The amendment subjected homebuyers to the misery of consolidating other homebuyers and meeting requisite criteria, because, failing this, the filed but unadmitted applications were to be deemed as withdrawn.
Recently, the government, vide its notification dated 24 March 2020 raised the minimum amount of default under section 4(1) of the IBC to ₹10 million (US$132,142) from ₹100,000 for the initiation of the CIRP.
Admittedly, the notification was issued in wake of COVID-19 to relieve small businesses from facing insolvency proceedings, but the amendment further burdened homebuyers with an increased amount of minimum default.
The government is also planning to suspend the triggering of the insolvency proceedings, under sections 7, 9 and 10 of the IBC, for a period of six months, to prevent corporate debtors from being forced into insolvency proceedings in wake of force majeure conditions due to the pandemic.
This notification will encumber relief to homebuyers who had approached the tribunal with a belief of efficient remedy under the IBC vis-à-vis consumer forums or the Real Estate Regulation Authority. The amendment should not shelter the defaults of developers that have no nexus with the pandemic.
Although the amendments have been made to relieve corporate debtors and avert forced liquidation due to the pandemic, all these amendments collectively impeach the remedy of homebuyers under the purported “beneficial legislation”.
All these steps continue to make homebuyers suffer, on account of delay by the developers and postponement of the legal remedies, particularly when they have invested their life savings in the projects. The government should provide some relaxations to homebuyers, given their distinct miseries, in its upcoming policies and amendments in wake of the COVID-19.
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