Has Insolvency and Bankruptcy Code failed homebuyers?
Under Insolvency and Bankruptcy Code, in the event of liquidation, homebuyers may get little back since they are not 'secured creditors', whereas banks get preference.
- Jul 4, 2019,
- Updated Jul 11, 2019 1:23 PM IST
Recently, a homebuyer approached the Supreme Court to prevent the impending liquidation of Jaypee Infratech Limited. The developer failed to deliver thousands of homes in Noida. Under India's bankruptcy law, in the event of liquidation, homebuyers may get little back since they are not 'secured creditors'. These are parties - such as banks - that get precedence when spoils are distributed.
The lingering question - has the law, the Insolvency and Bankruptcy Code, 2016 (IBC), failed homebuyers?
Many sense this is the case. Advocate Aishwarya Sinha, who filed the petition in the Supreme Court on behalf of homebuyers, points out that the IBC was amended to help homebuyers but that was a job only half done. In June 2018, the President of India gave his assent to promulgate the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018. It provides "significant relief to homebuyers by recognising their status as financial creditors. This would give them due representation in the Committee of Creditors (CoC) and make them an integral part of the decision making process," an official release stated.
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"For hearing such issues, we intend to hear one of representatives of lenders (Banks), representatives of the NBCC (Resolution Applicant), who is dealing with the 'Resolution Plan', representatives of allottees (one or two lawyers), Resolution Professional and other stakeholders (representative of 'fixed deposit holders') to know as to what are factors to be noticed in a proposed 'Resolution Plan' for the purpose of finding out the validity and feasibility and other aspects and whether the NBCC should be allowed to recast its plan in a manner, which is beneficial to allottees and which may amount to maximisation of assets of the 'Corporate Debtor' and other stakeholders including lenders and fixed deposit holders," the order added.
NCLAT will deliberate over this case on July 17.
Recently, a homebuyer approached the Supreme Court to prevent the impending liquidation of Jaypee Infratech Limited. The developer failed to deliver thousands of homes in Noida. Under India's bankruptcy law, in the event of liquidation, homebuyers may get little back since they are not 'secured creditors'. These are parties - such as banks - that get precedence when spoils are distributed.
The lingering question - has the law, the Insolvency and Bankruptcy Code, 2016 (IBC), failed homebuyers?
Many sense this is the case. Advocate Aishwarya Sinha, who filed the petition in the Supreme Court on behalf of homebuyers, points out that the IBC was amended to help homebuyers but that was a job only half done. In June 2018, the President of India gave his assent to promulgate the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018. It provides "significant relief to homebuyers by recognising their status as financial creditors. This would give them due representation in the Committee of Creditors (CoC) and make them an integral part of the decision making process," an official release stated.
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"For hearing such issues, we intend to hear one of representatives of lenders (Banks), representatives of the NBCC (Resolution Applicant), who is dealing with the 'Resolution Plan', representatives of allottees (one or two lawyers), Resolution Professional and other stakeholders (representative of 'fixed deposit holders') to know as to what are factors to be noticed in a proposed 'Resolution Plan' for the purpose of finding out the validity and feasibility and other aspects and whether the NBCC should be allowed to recast its plan in a manner, which is beneficial to allottees and which may amount to maximisation of assets of the 'Corporate Debtor' and other stakeholders including lenders and fixed deposit holders," the order added.
NCLAT will deliberate over this case on July 17.