Flat buyers get status of financial creditor. How it impacts you

  • The Supreme Court has upheld the ability of homebuyers to take real estate developers into bankruptcy proceedings
  • Homebuyers now share equal rights of recovery in the developer’s assets

Staff Writer
First Published17 Aug 2019, 08:26 AM IST
The amendment to the IBC that now treats homebuyers as financial creditors, works in the buyers’ favour
The amendment to the IBC that now treats homebuyers as financial creditors, works in the buyers’ favour(Photo: Shutterstock)

Last week, the Supreme Court (SC) ruled that the homebuyers’ rights will remain at par with the lenders. The apex court has upheld the ability of homebuyers to take real estate developers into bankruptcy proceedings. A three judge bench headed by Justice Rohinton F Nariman said that once a homebuyer establishes default before a bankruptcy court, the onus is on the builders to prove that the consumer does not wish to take possession of their house to avoid proceedings. Here is what it means for you:

YOU HAVE THE RIGHT FOR LEGAL RECOURSE

If you are a homebuyer, you will be treated as financial creditor. The SC’S judgment re-affirms the rights of the homebuyers as financial creditors under the bankruptcy code.

“The stay on National Company Law Tribunal (NCLT) proceedings is to continue till the NCLT/ National Company Law Appellate Tribunal (NCLAT) decides each petition of homebuyers in light of section 65 IBC (malicious proceedings). This adjudication will bring in a lot of clarity on the ongoing litigations,” he added.

The amendment to the IBC that now treats homebuyers as financial creditors, works in the buyers’ favour.

“This is a landmark judgment as far as genuine home buyers are concerned. However, this may not be happy news for the investorhome buyers who have initiated the Insolvency and Bankruptcy Code (IBC) against the developers for seeking exit from their investments on account of the current condition of the real estate market,” said Abhilash Pillai, partner, Cyril Amarchand Mangaldas, in an email.

“Homebuyers are now legally recognised as being at par with banks and other institutional creditors for recovering their dues from real estate firms that have gone bankrupt. Simply put, it means that homebuyers share equal rights of recovery in the developer’s assets which are liquidated as part of the bankruptcy process. Earlier, their recovery status was vague and only banks and other financial institutions which had lent money to the developer had first claim. For developers, it means that they have to pay off lending institutions as well as homebuyers in the first tranche of cash recovery from liquidated assets,” said Anuj Puri, chairman, Anarock Property Consultants.

WHAT DOES IT MEAN FOR YOU, THE HOMEBUYER?

You will now have a say if there is dispute of liquidation.

“Homebuyers should have equal rights since they are the main financiers of a project because when a property is sold during the underconstruction phase, the money takes care of the project. In cases of dispute in property where it has to be liquidated, earlier the first right was of the lender. After liquidation, whatever the money comes in the liability of the lender is cleared. After that, if anything is left, it would be distributed to the consumer or other party. Now, the consumer also has equal rights. This weakens the position of the lender but empowers the homebuyer,” said Pankaj Kapoor, CEO of Liases Foras Real Estate Rating and Research Pvt Ltd.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.MoreLess
First Published:17 Aug 2019, 08:26 AM IST
HomeMoneyPersonal FinanceFlat buyers get status of financial creditor. How it impacts you

Most Active Stocks

Tata Steel

167.05
03:57 PM | 16 JUL 2024
0.25 (0.15%)

Oil & Natural Gas Corporation

322.40
03:58 PM | 16 JUL 2024
-0.15 (-0.05%)

Bandhan Bank

198.30
03:41 PM | 16 JUL 2024
2.95 (1.51%)

Coal India

512.35
03:59 PM | 16 JUL 2024
14.4 (2.89%)
More Active Stocks

Market Snapshot

  • Top Gainers
  • Top Losers
  • 52 Week High

Natco Pharma

1,281.05
03:59 PM | 16 JUL 2024
73.2 (6.06%)

Century Textiles & Industries

2,217.55
03:48 PM | 16 JUL 2024
116.85 (5.56%)

Tata Teleservices Maharashtra

81.33
03:54 PM | 16 JUL 2024
4.23 (5.49%)

India Cements

323.05
03:55 PM | 16 JUL 2024
15.8 (5.14%)
More from Top Gainers

Recommended For You

    More Recommendations

    Gold Prices

    • 24K
    • 22K
    Bangalore
    75,246.00928.00
    Chennai
    75,099.00344.00
    Delhi
    74,806.00-460.00
    Kolkata
    75,466.00419.00

    Fuel Price

    • Petrol
    • Diesel
    Bangalore
    102.86/L0.00
    Chennai
    100.76/L0.00
    Kolkata
    104.95/L0.00
    New Delhi
    94.72/L0.00
    OPEN IN APP
    HomeMarketsCibilPremiumMint Shorts