Recognition of homebuyers: Sympathy without security

By Varsha Banerjee and Juhi Bhambhani, Dhir & Dhir Associates

The fate of homebuyers when a real estate developer (RED) undergoes a corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC), has been intensely deliberated. An amendment of the IBC through an ordinance of 6 June 2018 recognized the rights of homebuyers in a CIRP by deeming the amounts they pay to a RED to have the “commercial effect of a borrowing”, thus clearly making homebuyers financial creditors.

Varsha Bannerjee Associate partner Dhir & Dhir Associates
Varsha Bannerjee
Associate partner
Dhir & Dhir Associates

Homebuyers may now initiate a CIRP and will have representation on the committee of creditors (CoC), under section 7 of the IBC, with voting rights in proportion to the amounts they have paid to a RED. This is reflected in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2018, dated 3 July, which lay down a detailed procedure for appointing an “authorized representative” in respect of a class of creditors.

Under this amendment, the interim resolution professional has been mandated to appoint three insolvency professionals to represent the interests and concerns of each class of creditors. The homebuyers being a specific class of creditors, they will be assigned one insolvency professional, who will represent their interests and exercise their voting rights in the CoC, in proportion to their financial debt.

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Varsha Banerjee is an associate partner and Juhi Bhambhani is an associate at Dhir & Dhir Associates. The views expressed are solely those of the authors and do not constitute definitive advice.

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