The Real Estate sector is going through a transformation phase, where most builders have deceived the buyer due to lack of specific laws. As per a recent survey, more than 80% of the real estate project is in delay. Further, due to biased builder buyer agreement where the delay compensation was very less or none, in some cases, as compared to the compensation payable to the builder in the delay in payment by the buyer, the homebuyer find them stuck in the legal fight.
Amendment under IBC
After the amendment dated 6th June 2018 the homebuyers have been categorized as financial creditors under Insolvency and Bankruptcy Code, 2016, meaning thereby that now a homebuyer can directly, without any notice of demand, file an application u/s 7 of IBC to the NCLT, if there is a default. Let me give the brief of filing an application.
Filing of Insolvency Application
Under section 7 of IBC, a financial creditor shall file the insolvency application if:-
- The creditor is a financial creditor – as the discussion above, homebuyers have been deemed as financial creditors
- There is a default of more than Rs. 1 Lac – if the quantum of default involved, is more than Rs. 1 Lac,
As per the amendment, the amount raised by the builder from the homebuyer has been treated as the financial debt.
As crux, the homebuyer shall be eligible to file an insolvency application under section 7 of IBC if the builder fails to deliver the possession of the unit/flat/property within the time frame stipulated in the builder buyer agreement or fails to refund the amount paid by the homebuyer at the time of booking of the said property.
Related judicial pronouncements
In the matter of Rajendra Kumar Saxena vs. Earth Gracia Buildcon Pvt Ltd. NCLT observed that “by the insolvency and bankruptcy code (Amendment) Ordinance, 2018 dated 6th June, 2018 followed by the act, in clause (8), in sub-clause (f), of section 5 an explanation has been inserted as per which any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of borrowing. Thereby, after a amendment of the act, the allottees of real estate project have been treated as financial creditors”
Furthermore, a similar issue was addressed by Hon’ble National Company Law Tribunal (NCLT) in the matter of Neeraj Gupta vs. EMAAR MGF Land Limited which can be summarized as under:
The homebuyer booked a flat in the project being constructed by EMMAR MGF Land Ltd. And paid an amount of Rs. 88,49,036 through various instalments. Thereafter the builder was supposed to deliver the said flat within 36 months but the builder failed to handover the flat/unit to the homebuyer even after the grace period of 3 months.
It is was held that the liability of the builder arises along with the interest when the builder fails to deliver the possession within a time period (including the grace period) stipulated in the agreement. Thus enabling the homebuyer to file the insolvency petition against the builder’s company.
In the light of above decisions and amendments, either if the builder delays in delivering the possession of the flat/unit/property or fails to refund the amount paid by the homebuyer as an advance to make the booking of the said unit, the application filed by the homebuyers under section 7 of IBC shall be maintainable. Therefore the homebuyers are advised to approach NCLT under IBC to recover their stuck money in a time-bound manner.
Disclaimer – Please note that the above view is based on personal interpretation and for general awareness. The readers are required to take opinion from the IBC professionals or Insolvency Professionals before relying on the article. For any clarifications, please write to us at firstname.lastname@example.org