2 min read.Updated: 20 Jan 2021, 08:22 PM ISTRenu Yadav
Setback for homebuyers as SC upholds IBC amendment requiring no less than 100 or 10% of homebuyers to initiate Corporate Insolvency and Resolution Process vs builders
Quashing the hopes of the homebuyers, the Supreme Court on Tuesday upheld the Indian Bankruptcy Code (IBC) amendment and dismissed the writ petitions filed by homebuyers last year. The Section 7 (1) of the IBC was amended by the government last year and a minimum threshold limit of 100 or 10% of homebuyers whichever is lower was introduced to initiate proceedings against a defaulting developer under IBC. Earlier, even a single homebuyer could approach the National Company Law Tribunal (NCLT) against the defaulting developer.
The Supreme Court has upheld the constitutional validity of the amendment.
In the writ petitions filed, the homebuyers had said that it is practically impossible to bring together 100 or 10% of the homebuyers in the absence of availability of the details of the homebuyers in the public domain.
Homebuyers have also opposed the differentiated treatment compared to other financial creditors. Home buyers are considered financial creditors but this minimum threshold limit applies only to homebuyers and debenture holders but not other financial creditors.
Last year, in February the representatives of home buyers association- Forum For People’s Collective Efforts (FPCE)- met the Standing Committee of Finance headed by Jayant Sinha, former minister of state for civil aviation on February 24th to put across their objections regarding the amendment of the Insolvency and Bankruptcy Code,2016.
Abhay Upadhyay, president, FPCE said “This judgement by the Supreme Court has only upheld the legal validity of the amendment but our opposition was not on the legality of this change. We were opposing this primarily because this amendment makes it almost impossible for the home buyers to seek relief under IBC against the defaulting developer. The threshold of 100 or minimum 10% whichever is lower is practically not possible to achieve."
“It would have been better if the apex court had gone into the intent of rather than only checking legality of the amendment," he added
Aditya Parolia of PSP Legal, Advocates and Solicitors, who was representing homebuyers of 17 different projects, said, “Though the Hon'ble Supreme Court has dismissed challenge made by the homebuyers to the amendment, there are two silver linings in the Judgment which are favourable to the homebuyers."
“As per the judgement, not all the homebuyers approaching IBC have to have dues against the defaulting developers. Even in cases where 20 homebuyers are approaching the NCLT with dues over ₹1 crore but are backed by the 80 homebuyers (which possession date may not have passed but it is clearly visible that the developer has abandoned the project or not in a position to complete the project), the proceedings under Section 7(1) of the IBC can be initiated. So, still a few allottees can set the ball in motion if they are backed by 99 others or the minimum required number."
Apart from this the 10% limit will not apply on the total units under the project but will apply to the number of allotted units. So, for example, in case a project has 400 units but only 70 units are sold then 10% of 70 that is 7 homebuyers can approach the NCLT against the builder," he added.
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