Bankruptcy Code not to be amended for homebuyers: Govt sources

In an order, the National Company Law Tribunal ruled that homebuyers are stakeholders of a realty firm. It directed that the resolution plan has to protect all stakeholders, including homebuyers.

india Updated: Nov 16, 2017 10:47 IST
P Suchetana Ray
P Suchetana Ray
Hindustan Times, New Delhi
Bankruptcy Code,Insolvency and Bankruptcy Board of India,Insolvency and Bankruptcy Code
A project coming up in Bengaluru. The housing ministry has recommended amendments to the Insolvency and Bankruptcy Code to protect homebuyers. (HT file photo)

The Insolvency and Bankruptcy Board of India (IBBI) has opined that sector-specific amendment cannot be done to the Insolvency and Bankruptcy Code (IBC), said government sources.

They also ruled out any new provisions to protect homebuyers of real estate firms such as Jaypee Infratech and Amrapali Silicon City project.

The housing ministry had recommended amendments to IBC to protect homebuyers, and is in touch with the ministry of corporate affairs. The IBBI is the supreme body dealing with IBC.

“The recent National Company Law Tribunal (NCLT) order rules out any vulnerability of homebuyers of real estate companies undergoing bankruptcy proceedings,” said a government official who was a part of the deliberations on IBC.

In an order in the Prabodh Gupta vs Jaypee Infratech case, the NCLT ruled that homebuyers are stakeholders of a realty firm. It directed that the resolution plan has to protect all stakeholders, including homebuyers.

“If the real estate company is liquidated, then all stakeholders will be treated equitably. There will be no advantage to financial institutions over homebuyers,” said the source quoted above.

Once insolvency proceedings against a company begin, an insolvency resolution professional is appointed to come up with a resolution plan within 180 days. An extension of another 90 days is allowed.Homebuyers have approached Supreme Court and their vulnerability stems from the fact that they figure very low in the creditors’ order for payment.

Once liquidation is initiated, proceeds first go to recovering liquidation costs, followed by payments to workmen, banks and financial institutions. Salaries of other employees are paid next, followed by government dues, then funds owed to buyers.

More than 31,000 homebuyers are affected due to the insolvency of Jaypee Infra and Amrapali.

But treating buyers as stakeholders will resolve their problem, said officials in the ministry of corporate affairs. “Treating homebuyers as financial creditors would mean that they take the same haircut on the investment that financial institutions will take in a bankrupt company,” said another official in the finance ministry, who did not wish to be quoted as he is not the authorised spokesperson.

Also, once the Real Estate (Regulation and Development) Act (RERA) kicks in, it will ensure homebuyers are treated as trustees for new projects. So, the IBBI does not advise amending the code, said sources.

First Published: Nov 15, 2017 23:33 IST