Homebuyers have opposed any amendment in the insolvency law that seeks to introduce a minimum threshold for flat buyers to approach the National Company Law Tribunal to initiate proceedings against builders who have defaulted. It said that it was an “unreasonable condition”, “regressive”, “illegal”, against their interests and was aimed at destroying the level- playing field that currently exists.
The letter written by homebuyers to a Parliamentary panel on finance also said that the ministry of corporate affairs had proposed the said amendments/insertions without giving an opportunity of hearing to home buyers who were important stakeholders and are directly impacted by the proposed amendments.
The said amendment / insertions require a minimum threshold for homebuyers to come together in order to initiate proceedings under the code against any real estate developer/companies. This is against the interest of homebuyers as it puts unreasonable conditions on them, destroys the level playing field which currently exists and makes the law lop-sided in favour of real estate developers.
“The amendment being brought under influence of builders is not only illogical, illegal but also regressive to say the least,” said the letter written to Jayant Sinha, chairperson of Standing Committee on Finance, by Forum for People's Collective Efforts (FPCE).
“It is clearly visible that the proposed amendments / insertions have been proposed by the real estate developers and their associations i.e. NAREDCO, which has even taken public credit that the proposed amendments / insertions in the IBC is their recommendation,” the letter said.
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.
"We vehemently oppose the proposed amendments/insertions specified in clause 3 of the proposed Bill which seeks to amend section 7 of IBC, 2016," FPCE President Abhay Upadhyay said.
The letter also noted that the Government had amended IBC to make home buyers ‘Financial Creditors’ in order to empower them to be a part of the Committee of Creditors (CoC). The said amendment was challenged for its constitutional validity before the Supreme Court by the real estate developers. Realtors had made a suggestion before the court for introducing a minimum threshold for home buyers to initiate proceedings under the IBC against them but the same was not accepted by the apex Court.
“Hence, the matter of minimum threshold has been already rejected by the apex court and hence the same should not be inserted by the Legislatures which will only be seen as confrontation with the Judiciary just to please the developers,” the letter by homebuyers said.
FPCE said the amendment to insert a minimum threshold for homebuyers to approach the NCLT is ridden with practical difficulties and listed out various problems.
“Sale is a continuous process. How will a home buyer know how many units have been sold to determine the 10 percent of total number of units sold in real estate project especially in a situation when 10 percent is less than 100?,” it said.
The association said it would be difficult for a buyer to find the contact details of the requisite number of buyers in the projects to start bankruptcy proceedings against the builder.
"Assuming even if the homebuyer comes to know of the total number of units sold in a real estate project till any particular day and assuming that 10 percent constitutes less than 100, still by the time he gets in touch with the rest of the buyers, which will surely be time consuming, the units sold will increase in the meantime. It will simply be impossible for homebuyers to keep track of everyday sales,” it said.
“Like the political parties do, it will neither be practical nor possible for home buyers to stay in a hotel or a resort in order to keep their flock together. Once a filed case is dismissed due to lack of meeting the absurd requirements proposed, home buyers will lose the huge fees already paid to the lawyer and will be literally pre-empted from re-approaching the NCLT,” the letter said.