Bankruptcy code amendments offer some hope to troubled home buyers
Bankruptcy code amendments place home buyers on an equal footing with lenders, giving them much more confidence and security
New Delhi: Granting home buyers financial creditor status and opening up new streams of finance for completing halted projects under the amended bankruptcy code are set to offer relief to consumers.
Real estate industry players said the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2018, passed by Lok Sabha on Tuesday and the willingness of some banks to provide interim finance will allow stalled housing projects to be completed, bringing an end to the troubles of home buyers who were denied possession of their properties for long.
“The amendments place home buyers on an equal footing with lenders, giving them much more confidence and security. We have urged the Real Estate Development Authority (RERA), which is not only a regulator but also has the mandate to develop the sector, that it should take the lead in ensuring that stalled projects are completed,” said Niranjan Hiranandani, president of the National Real Estate Development Council (NAREDCO), the apex industry body of real estate firms. Real estate developers in distress have proposed to the government that NBCC Ltd., a state-owned real estate consultancy and developer, should step in to complete the projects. NBCC is working on the proposals.
As a financial creditor, home buyers will be represented among the panel of lenders who by vote, decide on reviving bankrupt real estate firms. This gives them a say in ensuring a turnaround plan that best suits their interest of completing the project. For voting on key decisions, they are at par with lenders, although in the case of a decision to wind up the company, homebuyers will be among the first to lay hands on the proceeds of asset sale only if they qualify as secured creditors. That would depend on the nature of their contract with the builder as well as its terms. If not qualified as secured creditors, home buyers as unsecured creditors will have to wait for their turn till dues to employees of the firm are paid from the sale of assets.
While the amendments to the Code, which will have to be passed by Rajya Sabha to replace the 6 June Ordinance that brought the provision into force, provide a way of serving home buyers’ interest, home buyers are divided on how best to go about it. While some home owners may wait for the projects to be completed with new investors stepping in, some believe that unlike lenders, home buyers have little access to legal expertise and would rather prefer upfront compensation than voting along with lenders on business decisions.
“The builder’s unencumbered assets should be attached to compensate home buyers. We are not defaulters, nor speculators. We have used our hard earned savings for the house,” said Chitra Sharma, a Delhi resident who had booked home in a Jaypee Infratech project and had filed a public interest litigation in the Supreme Court. The apex court’s order is awaited.
In the meanwhile, news agencyPTI reported on Wednesday that the apex court pulled up another builder for “defrauding investors” and playing “dirty games” with the court and ordered attachment of all bank accounts and movable properties of 40 firms belonging to the real estate company.