Status as on- 26/12/2022
According to the Insolvency and Bankruptcy Code, 2016 (the “IBC”), homebuyers are financial creditors. There are two types of creditors: financial creditors and operational creditors sections 5 (8) and 5 (20) of the IBC. Initially, homebuyers were not viewed as financial creditors. It was questioned whether they qualified as operational creditors. Following the failure of the housing projects of Jaypee Infratech Ltd. (Chitra Sharma v. Union of India), and the Amrapali Group of Companies (Bikram Chatterji v. Union of India), the anguish of homebuyers was brought before the Supreme Court in litigation.
To explore changes to the IBC, the Central Government established the Insolvency Law Committee (‘ILC’). The ILC advised that “homebuyers should be considered as financial creditors owing to the particular character of financing in real estate projects and the treatment of home buyers by the Hon’ble Supreme Court in ongoing cases” in its report dated March 26, 2018. The government agreed with this suggestion. The Real Estate (Regulation and Development) Act of 2016’s definition of “amounts raised by allottees of real estate projects” was added to the IBC (Second Amendment) Act of 2018’s definition of “financial debt” under section 5(8). Homebuyers consequently become financial debtors.
Rights of dissenting Individual Homebuyers
The Apex Court examined the legislative history and concluded that homebuyers, while financial creditors, did not have rights. Homebuyers could only engage in the IBC procedure as a class of financial creditor. Individual homebuyer rights were absorbed by homebuyer rights as a class. Dissenting homebuyers could not claim to be dissenting financial creditors because the homebuyers as a class had accepted the resolution plan.
Homebuyers can participate in the IBC Process only as a Class
Individual Homebuyers Cannot Intervene in the Resolution Professional’s Decisions: Financial creditors are entitled to question the resolution professional (‘RP’) admission of the claims of another financial creditor before the Adjudicating Authority under section 60 (5) (c) IBC. This is because an erroneous admission of a claim by the RP would affect the voting rights of the other financial creditors in the committee of creditors (COC). However, individual homebuyers cannot institute applications questioning the RP’s admission of claims of other financial creditors. If individual homebuyers are so permitted, adjudicating authorities may not have the time to decide such applications.
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