Homebuyers approach parliamentary committee against ordinance infringing their rights to approach NCLT


Status as on- 21/02/2020

The national lobby for homebuyers, Forum for People’s Collective Efforts (FPCE), has approached the parliamentary standing committee on finance with its objection to a proposed amendment to the Insolvency and Bankruptcy Code (IBC), 2016 which greatly limits remedies available to homebuyers against errant builders. The highly contentious proposed amendment requires a minimum threshold of homebuyers (100 homebuyers or 10% of total homebuyers in a project, whichever is less) to come together in order to initiate proceedings under the IBC against an errant builder. The amendment was passed as an ordinance in December 2019. The Lok Sabha referred the proposed amendment to the Parliament Standing Committee on 23 December 2020 and is expected to submit its report on the proposed amendment within 3 months. In a letter submitted to the government the FPCE submitted:

“This is against the interest of homebuyers as it puts unreasonable conditions on them, destroys level playing field which currently exists and makes the law lopsided in favor of real estate developers. The amendment being brought under influence of builders is not only illogical, illegal but also regressive to say the least” 

The Proposed amendment greatly dilutes the rights of Homebuyers as Financial Creditors which was strengthened by the judgment of the Hon’ble Supreme Court in Pioneer Urban Land and Infrastructure Limited vs. Union of India the Court observed Homebuyer be the raison d’être and stated further that no good reason can be provided for excluding home buyers from the Committee of Creditors 

a. It can be seen that the Insolvency Law Committee found, as a matter of fact, that delay in completion of flats/apartments has become a common phenomenon, and that amounts raised from home buyers contributes significantly to the financing of the construction of such flats/apartments. b. It was important, therefore, to clarify that home buyers are treated as financial creditors so that they can trigger the Code under section 7 and have their rightful place on the Committee of Creditors when it comes to making important decisions as to the future of the building construction company, which is the execution of the real estate project in which such home buyers are ultimate to be housed.”

The Supreme Court envisioned all rights of the Homebuyers to be harmonious with respect to RERA, Consumer Protection Act and the Insolvency and Bankruptcy Code and that the remedies under RERA and Consumer Protection Act are additional, concurrent and not exclusive remedies ;

“It is difficult to accede to arguments that RERA is a special enactment which deals with real estate development projects and must, therefore, be given precedence over the Code, which is only a general enactment dealing with insolvency generally. From the introduction of the explanation to Section 5(8)(f) of the Code which came into force on 6th June 2018, it is clear that Parliament was aware of RERA, and applied some of its definition provisions so that they could apply when the Code is to be interpreted. 

c. It is clear that both tests (as above) are satisfied, namely, that the Code as amended, must be given precedence over RERA. 

d. Even by a process of harmonious construction, RERA and the Code must be held to co-exist, and, in the event of a clash, RERA must give way to the Code. RERA, therefore, cannot be held to be a special statute which, in the case of a conflict, would override the general statute, the Code. e. The Code and RERA operate in completely different spheres. The Code deals with a proceeding in rem in which the focus is the rehabilitation of the corporate debtor by means of a resolution plan, so that the corporate debtor may be pulled out of the woods and may continue as a going concern, thus benefiting all stakeholders involved. On the other hand, RERA protects the interests of the individual investor in real estate projects by requiring the promoter to strictly adhere to its provisions.”

It is curious to note that the demand for a minimum threshold for Homebuyers to initiate the Corporate Insolvency Resolution Process has already been rejected by the Hon’ble Supreme Court, it is thus disheartening to see that no public comment was sought from the relevant stakeholders before such ordinance was passed and an arbitrary period of 30 days were provided to homebuyers to withdraw cases pending before the NCLT.

The present Ordinance and proposed Amendment unjustly violates the rights of the Homebuyers and diminishes the observations succinctly made by the Supreme Court in support of the Insolvency Code (Second Amendment) Act of 2018 which made Homebuyers Financial Creditors in terms of Section 7 IBC read with Section 5(8)(f) of Insolvency and Bankruptcy Code. Indeed it is absurd that as per the Insolvency and Bankruptcy Code a single financial creditor/ operational buyer can trigger the corporate insolvency process in event of default of 1 Lakh, however, homebuyers whose investment often run in crores are unjustly barred from the same.  

 The FPCE has previously written to the Prime Ministers Office, Finance Minister Nirmala Sitharaman, Injeti Srinivas, secretary, ministry of corporate affairs and M. S. Sahoo, Chairperson, Insolvency and Bankruptcy Board of India (IBBI), the insolvency regulator against persistent efforts of the Real Estate Developers to water down or remove rights and remedies available to the homebuyers. The FPCE has also raised concerns with respect to the functioning under RERA and the growing comfort with which builders have been able to navigate its provisions. Demands for RERA authorities to be put under the ambit of the Central Vigilance Commission (CVC) to keep a tab on their activities and that all the orders of RERA should be subjected to audit by the Comptroller Auditor General of India (CAG) to keep a check on the adherence to RERA provisions have been made.

The present ordinance as it stands is unworkable and it worryingly puts Homebuyers at a status more limited than that of operational creditors, it must be noted that sale is a continuous process thus it is not reasonable to expect an individual 

Homebuyer to at any time is aware of what would constitute 10% of homebuyers and thus approach the NCLT as a collective. It further infringes on the right of a home buyer to choose the forum through which to contest their rights and grievances and make the provisions of the Insolvency and Bankruptcy Code viz Homebuyers simply illusory.

Disclaimer– The above article is based on the personal interpretation of related laws, which may differ from person to person. The readers are expected to take expert opinion before relying on this article. For more clarification, the readers can be expected at support@centrik.in  

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