Homebuyers have demanded that any amendment in the insolvency law that seeks to introduce a minimum threshold for flat buyers to approach the NCLT to initiate proceedings against builders who have defaulted should be dropped.
This is important "in order to be fair and just with homebuyers, who are the backbone of the real estate industry", homebuyers wrote in a letter to the Standing Committee on Finance.
"The proposed amendment is not only unfair to the interests of home buyers (putting us at a disadvantageous position vis-à-vis real estate developers, thereby against equity and natural justice), but is also against the future growth of the real estate sector, by distancing further its most important stakeholder. The sector is already grappling with loss of faith. It is therefore necessary, in order to infuse good governance in the sector and to usher into a policy of zero tolerance for malpractices/wrongdoing, that such a condition of minimum threshold to initiate insolvency proceedings is dropped," the letter said.
It noted that the ministry of Corporate Affairs had proposed the said amendments/insertions without giving an opportunity of hearing to homebuyers who were important stakeholders and are directly impacted by the proposed amendments.
This is the second memorandum sent to the Committee. Forum for People's Collective Efforts (FPCE) had sent a letter to Jayant Sinha, chairperson of Standing Committee on Finance, earlier this month requesting for a meeting so that buyers were given a fair hearing and the proposed changes be dropped.
The Standing Committee on Finance had invited the representatives of Forum for People’s Collective Efforts (FPCE) on February 24 to give the homebuyers a hearing on the proposed changes in the IBC.
The meeting was held today and was attended by FPCE President Abhay Upadhyay, OP Bangur, director and Tarun Jindal, member of the buyers' body.
The second letter argued that initiating legal action to protect one’s interest cannot be termed as an abuse by any stretch of imagination. As per rough estimates, around 1800 cases have been filed against real estate developers across the country, and in none of the cases it has been proved that the allegations levelled against the builders were false.
"Hence, the right of a home buyer to approach a court of law for succour cannot be termed as a ‘potential abuse'. By putting such conditions, lawmakers will only further encourage wrong doing by real estate developers, due to which the sector is already grappling with loss of faith. It is therefore necessary, in order to infuse good governance in the sector and to usher into a policy of zero tolerance for malpractices / wrong doing, that such a condition of minimum threshold to initiate insolvency proceedings is dropped," the letter said.
The letter pointed out that that homebuyers have not been consulted as there is not a single statement in their favour.
It stated that homebuyers' stake is much more than mere Rs. one lakh (which is the threshold for triggering IBC), and in many cases, goes up to even 90% of the cost of the apartment running in many-many lakhs. “This value for a home buyer cannot just be measured in terms of money since it is his life savings," it said.
"In-fact. it is possible that other financial creditors may have a claim of around 1 lakh rupees allowing him to approach NCLT, but there is no room for doubt that an individual home buyer by himself alone will always have a claim running into lakhs, thus a home buyer is the only financial creditor for whom the 1 lakh threshold is infructuous ab-initio,” the letter written by FPCE President Abhay Upadhyay said.
It noted that there is not a single legal case filed in any court of law on a mere one day delay as is being made out by the authorities.
On the narrative that that speculative investors are dragging developers to NCLT, the letter points out no law distinguishes between Speculative Investor or a Customer and their rights and obligations.
Also, asking for refund when there is unreasonable delay in giving possession “cannot be a crime for any category of customers. No person would like to buy apartments if he has to commit his money perpetually for eternity to developers,” the letter adds.
The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019 - introduced in the last session of Parliament - proposes to amend IBC, 2016. The bill has now been referred to the Standing Committee on Finance.
An ordinance in this regard was promulgated in December as bill could not be passed in the last session. The ordinance had introduced a minimum threshold of at least 100 allottees of the same real estate project or 10 percent of total allottees under that project, whichever is less, for moving a joint plea seeking initiation of insolvency process against the realtor.