Status as on 21/09/2020
Ever since the Insolvency and Bankruptcy Code [“IBC”] came in force in 2016, there has been a tug of war going on between the companies involved in the real estate sector and the homebuyers. The story began with Nikhil Mehta’s Case, where the home buyers were given the status of financial creditor. Thereafter, the decision in Nikhil Mehta’s case gained legislative recognition vide the Insolvency & Bankruptcy Code (Amendment) Ordinance, 2018 [“Ordinance”].
Through this Ordinance, the homebuyers were deemed to be financial creditors under the IBC. It was further clarified that the current definition of ‘financial debt’ is sufficient to include the amounts raised from home buyers/allottees under a real estate project, and hence, they are to be treated as financial creditors under the Code.
The constitutional validity of this ordinance was challenged before the Supreme Court in Pioneer Urban Land and Infrastructure v Union of India. However, rejecting the challenge, the Supreme Court favored the stance of the homebuyers and upheld their status as financial creditors under the scheme of IBC.
These developments allowed the homebuyers to approach the National Company Law Tribunal u/s 7 of the IBC in cases where there is a delay by the builder/developer in handing over the possession of the unit purchased by the homebuyer. In most of the cases filed before the NCLT the builder to save himself from the corporate insolvency resolution process settles the matter with the concerned homebuyers. And in cases where the matter is not settled the NCLT, after consideration of the default of debt, initiates the Corporate Insolvency Resolution Process [“CIRP’] against the concerned builder.
But the struggle of the homebuyers does not end here. On 28th December 2019, the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 was introduced. Under the Amendment Ordinance, a single homebuyer was barred to approach the NCLT under section 7 of the IBC. As per the Amendment Ordinance, the homebuyers were now required to approach the NCLT with a joint application of at least 10% or 100 of the total homebuyers of a project (whichever is less). The Amendment Ordinance is applicable to all applications filed by the homebuyers which have not yet been admitted by the NCLT. In the event, the homebuyers fail to meet the prescribed threshold, the application filed by them will ipso facto be dismissed.
To conclude, the journey of the homebuyers under IBC has been the most challenging given the amendments and opposition being played by the corrupt builder lobbyists. But in the end, all what prevails is justice when the default of the builder is proven beyond any reasonable doubt.
Disclaimer- The above article is based on the interpretation of the related laws and judicial pronouncements. The readers are expected to take legal advice before relying on this article. The author can be reached at firstname.lastname@example.org or call the IP expert at 8383011629