Jaypee Infra insolvency: Can homebuyers get relief under RERA?

Also Read : RERA effect—Homebuyers can now exit the real estate project at any stage

NCLT appointed insolvency professional Anuj Jain as the CEO of Jaypee Infratech. He was given six months to revive the company. This week the Supreme Court stayed the insolvency proceedings against Jaypee Infratech, ruling in favour of a petition filed by homebuyers. Flat-buyers had contended before the court that they will neither get a home nor a refund of their hard earned money on account of being "unsecured creditors".

A day later IDBI Bank urged the Supreme Court to lift the stay order on insolvency proceedings against the real estate developer, saying the move would not benefit home buyers. The next hearing is set for September 11.

This week, the NCLT also ordered the initiation of insolvency proceedings against another builder - Amrapali's Silicon City on a plea from Bank of Baroda and appointed Rajesh Samson of Deloitte as the Insolvency Resolution Professional to take control of the company. As many as 3,000 homebuyers who are against the move have decided to follow in the footsteps of Jaypee buyers and are planning to move Supreme Court.

As many as 3,000 homebuyers who are against the move have decided to follow in the footsteps of Jaypee buyers and are planning to move Supreme Court.

Also Read:  RERA, GST a big challenge for builders; sales may pick up during festive season

The big question here is to what extent can RERA help buyers in case insolvency proceedings are initiated against builders? Or does it cease to fulfill the very purpose for which it was created – to protect the rights of homebuyers and ensure that they get their due – their homes? Here’s a look.

RERA power

RERA provides for additional rights to homebuyers for under construction units. Under its umbrella, they can claim possession, title and even ask for refund of money paid to the builder with interest.

“RERA has codified rights that entitles them to get possession of the flat, ensure that the project does not get transferred and that buyers are entitled to get their refund with interest. Earlier, merely booking a house did not give them more than the contractual right,” says Sitesh Mukherjee, a partner at Trilegal, and part of the firm's dispute resolution practice group.

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The legal right emanating from RERA has to be recognised by the insolvency process. RERA gives buyers a right superior to that of a consumer court. It gives them the right to possession of property and title. Buyers need to pick the best strategy to make use of RERA. If they were to convert their right to a flat to that of a money claim, they are like any other creditors. They may then have to stand in a queue with other creditors, take a haircut with other creditors and their rights will be subservient to that of other creditors.

“Therefore, we have advised buyers to claim their right to ownership, the contractual right enforced by RERA. As long as they stake their claim for the flat, their rights are superior to that of secured creditors. That is one of the reasons that the IRP’s business plan has to include delivery of the flats as its mission,” he explains.

If buyers were to simply make a money claim, they may get just about 10 percent to 20 percent. “RERA is an important legislation that helps in the insolvency process and buyers must make use of RERA to put forward their right as that being superior to the other creditors, including secured creditors of the company.”

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RERA provides an important avenue for buyers to assert their rights in the insolvency process and those rights are superior to that of secured creditors. “ A flat specific right has been created in favour of homebuyers as they have lent money to the real estate company and whosoever takes over the assets following insolvency will do so subject to these rights of the homebuyers. What this means is that whosoever buys the company will have to fulfill the obligations towards homebuyers - which is to hand over the house as per the timelines,” he says.

Also, monies deposited by investors/allottees which are to be kept into a separate account under RERA, do not become the property of the developer (although the separate account is under the control of the developer) till the completion or proportionate completion of the project as the case may be, says Sudip Mullick, partner, Khaitan & Co.

What RERA does not provide for

Under RERA, the regulator does not have the power to take control of the management of the real estate company or the assets owned by the promoter – both personal and other companies. It cannot stop builders from filing for insolvency.

“RERA does not provide any powers to real estate regulators for attachment of assets of either the company developing such projects or other companies under the same promoter or even the personal assets of defaulting promoters,” says Abhay Upadhyay, Convener of Fight for RERA, in the letter to the prime minister.

"In the event of insolvency proceedings initiated against builders, it is the Insolvency and Bankruptcy Code that will override all other legislations. The real estate regulatory authority cannot issue any direction to the insolvency resolution professional. He is only guided by the IBC regulations," says Sumant Batra, an insolvency lawyer of international repute who was representing IRP for Jaypee Infratech Anuj Jain.

Also, the rights that accrue under RERA filing can be modified under a resolution plan approved by NCLT, he adds.

vandana.ramnani@nw18.com