The centre is seeking a resolution for the problematic issue of the homebuyers having a very little right on the real estate firm’s assets which is facing liquidation under the insolvency & bankruptcy code IBC. The government may put them above with the secured creditors, who are currently above all others in order of precedence. However, since this requires an amendment in the IBC (Insolvency and Bankruptcy Code) 2016, the change, if comes in effect, could be limited to only future cases. However, for the central government to provide such kind of relief, the IBC law needs to be amended, and the government is not going to rush into such amendment without looking at all the
angles and have surplus inputs, according to a source.
Such kind of relief is not going to benefit the 32,000Jaypee homebuyers – who are fighting their case in the Supreme Court to protect their investment in the insolvency resolution or liquidation process, unless the Supreme court or any other legal authority grants them such kind of relief right now, similar is the case with the 3,000-Amrapali Silicon City homebuyers where the National Company Law Tribunal (NCLT) has already ordered the initiation of insolvency proceedings. Right now, secured creditors are ranked third in the preference order to share the proceeds, after meeting cost of liquidation & workers’ dues, the IBC doesn’t explicitly protect the rights of homebuyers who are neither financial nor operational creditors.
“The proposal (to put homebuyers ahead of secured creditors) is yet to be finalised. But such amendments to the IBC will be considered by the government in order to strengthen the insolvency framework. The Supreme Court’s judgment in the Jaypee case will have a bearing on the course of policy-making in this regard,”
It appears that the government wants to wait for Supreme Court judgement in Jaypee case; it is also carefully monitoring the effect of the Real Estate (Regulation and Development) Act 2016 (RERA), which provides for additional benefits to the homebuyers for under-going projects. But, many states have diluted their RERA provisions, homebuyers are feeling that their rights are not protected adequately. Other than human grounds, home buyers take loans from banks to purchase the flats, so they will have to repay their loans regardless of the fact that they will get the possession of their flats or not, “So it will be a double trouble for them if they are not given priority over the secured creditors’ in case of the insolvency resolution or liquidation of the builder; it will be a travesty of justice.” said a source.
Right now, homebuyers’ rights, including Jaypee and Amrapali, could be decided on basis of the contracts they have gone into with the developer, unless Supreme Court decides to provide extra relief to them, said another source. “The government wants to ease difficulties of the flat buyers and is completely sympathetic towards their pain. It will see the best way to address their problems,” he added. The IBC is evolving and as and when the unique and sectoral issues like the present flat buyers’ issue crop up, the Insolvency and the Bankruptcy Board of India (IBBI) and the government will respond to these challenges, they added.
Coming to the relief for homebuyers who have invested their hard earned money in the Jaypee projects, the IBBI introduced a new form to enable the homebuyers to submit their claims in case of any insolvency resolution/liquidation is made under IBC. Before this move, claim forms were meant only for financial and operational creditors, including regular workers and employees of the company going under liquidation.
NCLT last month admitted a petition filed by the IDBI Bank, for initiating insolvency proceedings against thr Real estate firm, Jaypee Infratech for defaulting a loan amount of Rs 526 crore. To safeguard their rights in the insolvency process, the homebuyers approached the Apex Court. The Supreme court restored the insolvency proceedings against Jaypee Infratech last week but directed Jaiprakash Associates, its parent company to deposit an amount of Rs 2,000 crore before October 27, to ensure that homebuyers’ interest is also protected. A Bench lead by CJI Dipak Misra directed the Anuj Jain, IRP appointed by NCLT, to take over the management of the real estate giant and submit an interim resolution within 45 days which should include the interest of homebuyers.