Rules must be tweaked to make homebuyers “primary secured creditors” so that they don’t lose out to banks and financial institutions when a defaulting builder’s properties are liquidated and his debts settled, the Union housing and urban affairs ministry has suggested.
Making homebuyers “primary secured creditors” will mean placing them above other secured creditors such as banks when it comes to recovering money from failed projects. The ministry has also suggested that homebuyers be paid interest on their principal investment when a failed builder’s assets are liquidated and its proceeds distributed.
The recommendations made to the ministry of corporate affairs on September 25 are the strongest yet move made by the housing ministry to protect the interest of thousands of homebuyers, who were hit after bankruptcy proceedings were initiated against big builders such as Jaypee Infratech and Amrapali.
The Insolvency and Bankruptcy Code (IBC) puts homebuyers right at the bottom of list of creditors. This means that by the time their turn comes, there might be nothing left from the liquidation proceeds of a failed project to settle their dues. It says money must first go towards recovering liquidation costs, paying workmen such as security guards and settling the dues of banks and financial institutions.