Status as on: 11/03/2022
Buying a flat, house, apartment or any property from your hard-earned money and not getting it on time can lead to aggravation and depression. In the recent times, it has become a prominent issue that housing developers delays in delivering the possession even after receiving the consideration from the respective allottees for the same. The main issue that arises is that despite incurring the complete expenditure and pay the complete consideration, the allottees are left helpless when the developers stands either insolvent or incapable of delivering the possession even after passage of years beyond the date of delivery. Now, the main question come arises is, what can an allottee do and what is their position in case of insolvency?
Remedy for allottees in the case of insolvency with respect to RERA
The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 (Ordinance) has confirmed the status of financial creditors to all the home buyers and allottees in case of insolvency of the developer. The amendments made by the said ordinance bring IBC in sync with Section 18 of RERA. This has provided the allottees with the following rights:
- The right to demand refund of the entire amount paid by the allottees (with the prescribed rate of interest)
- The right to claim the interest for any delayed possession.
Position of allottees in the case of Insolvency
The Code defines a financial creditor as anyone who has extended any kind of loan or financial credit to the debtor. The Ordinance clarifies that an allottee under a real estate project (a buyer of an under-construction residential or commercial property) will be considered as a financial creditor, as the amount raised from allottees for financing a real estate project has the commercial effect of a borrowing.
This Ordinance has brought relief and protection to the allottees. However, the question that still needs to be addressed is whether the allottees can be treated as secured or unsecured financial creditors. To solve this mystery, there are certain provisions mentioned in RERA and IBC:
- Sec 11(4)(h) of RERA Act mentions that the mortgage cannot be created over the units for which the agreement to sell has been executed by the promoter and if in any case, such mortgage is created then the same shall not affect the rights and interest of the concerned allottee.
- The Section 8 of RERA Act gives powers to the RERA Authority to find a solution for taking steps to complete the construction of stalled projects with the consultation of the State Government. Moreover, the second proviso of the same section mentions that in case of revocation of registration, the association of allottees shall have the foremost right of refusal to carry out the remaining development work.
- The definition of “security interest” mentioned under Sec 3(31) of IBC states that “”Security Interest” means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person, provided that security interest shall not include a performance guarantee;”
If the above mentioned provisions of RERA are read with the definition of “secured interest”, it ensures that the allottees are treated as secured creditors but the interpretation may still be debatable. Moreover, the decision passed by NCLAT in the case of Nikhil Mehta & Sons (HUF) & Ors. V. M/s AMR Infrastructure Limited C.P. No. (ISB)-03(PB)/2017 says that the “assured return” is the amount payable by the developer till the delivery of the possession of the flat or apartment and is the consideration for the time value of money due to which it falls in the ambit of financial debt making all the allottees the financial creditor.
While the judgment of NCLAT and the ordinance has given the power of financial creditor to the allottee or the home buyers, the most pertinent issue still remains the same that whether such creditors would be termed as secured financial creditors or the unsecured financial creditors.
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