In the last few months, certain amendments are introduced to the Insolvency and Bankruptcy Code 2016 to address the above issue.
The year gone by was nerve-wracking for few developers especially with all the bankruptcy uproar around. It was also an eye-opener situation for many prospective homebuyers who suddenly took a step back to consider – yes, things could go wrong. For most homebuyers, a reputed developer is an assurance and many who are stuck in different projects had not anticipated such a situation. Thankfully, there is some clarity today. There are some provisions that a homebuyer must know about the amendments related to the bankruptcy code.
But before that, let’s look at why amendments became so crucial to the Insolvency and Bankruptcy Code, 2016 (Code). When the code was first introduced, homebuyers welcomed the move. However, when the Jaypee Infratech case came to light homebuyers realised they were not recognised as creditors! Post this, everyone soon realised that some more provisions should be added and property buyers must be given their due and recognised as a creditor.
In the last few months, certain amendments are introduced to the Insolvency and Bankruptcy Code 2016 to address the above issue. So here is what these amendments mean to the homebuyers:
The homebuyer is recognised now
Insolvency and Bankruptcy Board of India amended the rules to mandate that any resolution plan proposed for the company must categorically show how it will protect the interest of all the stakeholders.
Before the amendment, the resolution plan was binding on the bankrupt/insolvent company, but there was no statutory obligation in the rules to protect the interest of the stakeholders other than financial creditors. The homebuyers, who were earlier not recognised as creditors, were left in a lurch.
Now with the amendment, the homebuyers are categorised as ‘Other Creditor’, and it is mandated that the resolution plan should show how it will protect the interest of all stakeholders including 'Other Creditors'.
The homebuyer still cannot initiate a resolution process
If the amendment is to be understood, the interests of all stakeholders other than the financial and operational creditors are to be secured too. With the good news, there is a grey shade too, apparently.
While the National Company Law Appellate Tribunal (NCLAT) declared home buyers in such projects be categorised as ‘Other Creditors’ of the developers’ company, the homebuyers or “Other Creditors” still do not have the right to initiate the resolution process. The power to initiate a resolution process is still with the financial or operational creditors, which is major discrimination.
The homebuyer is well represented now
Ever since the amendment, a “Form F” has been introduced which is exclusively for creditors other than financial and operational ones to file claims with the Insolvency Resolution Professional.
The creditors' committee is now mandated to figure out how home buyers can be incorporated and recognised in the resolution plan. Also, as an additional measure, the NCLAT will decide on the final resolution plan, and the tribunal would not clear the plan without giving notice to all stakeholders including home buyers, and home buyers can raise objections at that time.
There is penalty for contraventions too
Finance Minister, Arun Jaitley has said that the entire process has been a ‘learning experience’. And therefore, one of the provisions introduced is that if a person contravenes or breaches any provisions of the Code, for which no penalty has been specified, he/she will be punishable by a fine ranging between Rs 1 lakh to Rs 2 crore. For home buyers, this means an added layer of protection against unscrupulous ways of settling the issue.
There is scope for further amends
If these amendments did not mention anything concrete for a home buyer, one need not lose heart. The Finance minister addressed debates with the fact that given insolvency, bankruptcy and related proceedings are relatively new, the ground would be open to amendments as and when the case requires. It also vests power in the hands of the Insolvency Board to consider consequential amendments, if needed.
These amendments introduced are proof that there has been a re-look at the provisions for a buyer. The homebuyers’ status has been elevated, processes have been weighed and corrected where necessary but whether the homebuyer will be able to make use of these amendments to his/her advantage is yet to be understood.The writer is Group Chief Financial Officer of Housing.com, PropTiger.com and Makaan.com