APRIL 25, 2018
NEW DELHI – The Union Cabinet on Wednesday may give its nod to an amendment to the Insolvency and Bankruptcy Code (IBC) to provide relief to buyers who invested in housing projects that are still incomplete, and whose builders are facing bankruptcy, government sources said.
Across India, scores of real estate projects are in financial trouble; buyers havent got the homes they paid for, and are fighting legal battles to recover their money. The Ministry of Corporate Affairs, which was flooded with complaints, set up a 14-member committee to suggest suitable changes to the IBC.
The new ordinance wasn’t listed on the cabinet’s agenda on Tuesday evening, but sources say that it may be taken up during the meeting as a tabled item. If approved, it will be the second major change to the IBC since it was passed last year.
The ordinance is aimed at clearing the conflicting provisions of the Bankruptcy Code and the Real Estate (Regulation and Development) Act, which have affected home buyers’ interests.
A top source in the Ministry of Corporate Affairs said that in its current form, the IBC identifies home buyers as unsecured creditors.
As a result, they don’t have the right to initiate a resolution process if a builder – or real estate firm – faces insolvency, and is unable to deliver the home they were promised. Currently, the right to begin insolvency proceedings is reserved for financial creditors – banks and other lenders.
A source said that technically, the amendment will drop a clause in the IBC which differentiates between home buyers and financial creditors. Once promulgated, the ordinance will make them equal partners in the insolvency resolution process.
In simple terms, while financial institutions currently have the right to recover their dues during insolvency or bankruptcy proceedings, the amendment will also allow home buyers the right to get back the money they’ve invested.
The government is keen to bring the provision into play quickly as the next session of Parliament, which begins around 75 days from now.
Sources say the ordinance will also provide much-needed relief to companies categorised as small and medium enterprises.
Once in play, it will allow the owners of Micro, Small and Medium Enterprises to bid for their own companies in the resolution process.
However, this provision won’t apply to those who’ve been identified as wilful defaulters.
Courtesy/Source: India Today