Home >Politics >Policy >Govt moves to prevent misuse of IBC provision
Photo: Shutterstock
Photo: Shutterstock

Govt moves to prevent misuse of IBC provision

  • Govt may specify a threshold of homebuyers for starting insolvency proceedings against real estate companies
  • Earlier this year, the Supreme Court ruled that rights of homebuyers will be at par with the lenders, making them financial creditors

The government may specify a minimum threshold of homebuyers for starting bankruptcy proceedings against real estate companies to prevent misuse of insolvency proceedings by some homebuyers against well-run companies.

“A lot of representations have come that a single homebuyer who could be a speculative homebuyer who is trying to dislocate an otherwise well-operating real estate company. In Mumbai, a lot of such cases have been admitted and half the cause list comprises real estate companies. These have to be looked at in a very innovative manner. We may have to look at some threshold such as 5%, which is there for class action or a threshold of one-fifth of homebuyers for mismanagement in operation. We may have to find some measures to check abuse," corporate affairs secretary Injeti Srinivas said on Tuesday at the third annual day function of the Insolvency and Bankruptcy Board of India.

Earlier this year, the Supreme Court ruled that rights of homebuyers will be at par with the lenders, making them financial creditors. A three-judge bench of the apex court headed by Justice Rohinton F. Nariman had 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 the house.

Srinivas said the government is operationalizing personal insolvency in phases and it may take a year to be fully functional. “The bankruptcy process for personal guarantor to corporate debtor is almost finalized. The next is a “fresh start" process through which relief will be given to very small borrowers who are not in a position to repay the debt."

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