IBC amendment gives voice to beleaguered homebuyers

The recent amendment to the Insolvency and Bankruptcy Code 2016 (IBC) has created a special status for the homebuyers as “financial creditors” with effect from 6 June 2018. The amendment was brought into force at a pivotal junction when the ongoing litigations in projects by Jaypee Infratech and Unitech brought to limelight the hapless situation of homebuyers and the lack of effective remedies available to them.

Pre-amendment scenario: The Real Estate (Regulation and Development) Act, 2016 (RERA), was not in existence when the IBC was brought into force and although there were certain civil remedies available for homebuyers both under central and state laws, they were not adequate in providing quick and effective relief. Even after the enactment of the IBC, homebuyers were not classified into any specific category of creditors under the code. Homebuyers had no right to voice their interests in the meetings of committee of creditors during a corporate insolvency resolution process. Further in the event of a liquidation they were placed right at the bottom of the waterfall in the category of any remaining debts and dues under section 53(f) of the IBC.

There were a lot of doubts regarding interpretation by the courts on how the homebuyers should be treated under the code. In the case of Col Vinod Awasthy v AMR Infrastructure Ltd, the NCLT, New Delhi, while dealing with the issue of whether homebuyers could be treated as operational creditors held that it is not possible to construe sections 9, 5(20) and 5(21) of the code relating to the concepts of operational creditors and operational debt so widely to include within its scope the cases of outstanding dues on account of advances made towards purchase of a flat from a construction company, especially when the homebuyers have remedies available under the Consumer Protection Act and the other civil laws.

Pranav Shroff is an associate at Vidhii Partners.