As many as 450 cases involving real estate projects are being heard by multiple branches of the National Company Law Tribunal (NCLT), CREDAI NCR estimates. Of these, 170 cases are being heard at NCLT Delhi-NCR branches and concern as many as 70 real estate developers.
Recently, CREDAI proposed to the Corporate Affairs Ministry that the minimum threshold for homebuyers, who should be able to initiate insolvency proceedings against realtors, should be at least two-third of homebuyers (in a project), Prashant Solomon, Managing Director, Chintels India, and Treasurer, CREDAI-NCR told Moneycontrol.
“We are concerned about the fact that under IBC a single homebuyer can take a real estate firm to NCLT. This is not only detrimental to the realtor but also to the homebuyer. In most cases, it is the speculator/investor who is taking buyers to this forum rather than the actual end-user,” said Gaurav Gupta of SG Estates and Joint Secretary, CREDAI-NCR.
Earlier this month, Corporate Affairs Secretary Injeti Srinivas had flagged off similar concerns and said the minimum threshold should be looked at. "It has been observed that in a few sectors there has been a spate of applications, where a single class borrower has triggered IBC. If a single homebuyer is triggering IBC because the Rs 1 lakh threshold has been crossed or one day default has been crossed, an otherwise well-functioning company comes to NCLT. It is not a very happy situation," he said.
The government is examining suggestions to raise the default threshold of Rs 1 lakh for triggering the Insolvency and Bankruptcy Code (IBC) with a view to reducing the number of cases in NCLT, Srinivas had said.
The IBC at present can only be triggered if there is a minimum default of Rs 1 lakh. This process can be triggered by way of filing an application before the NCLT. The process can be initiated by two classes of creditors: financial and operational.
In the last three years, 21,000 cases have come before IBC, of which nearly 10,000 cases have been settled. Of this, 8,500 cases have been resolved prior to their admission and about 1,500 cases via IBC. Over 1,500 cases are currently ongoing.
CREDAI NCR has welcomed the move but said it would want this limit to be further increased. “We feel at least two third of homebuyers, or 20 percent of the debt, should be the limit and have proposed the same to the ministry,” it said in a statement.
“It should be similar to mandatory approval by at least two-third homebuyers in case the developer requires to get his building plans changed. Something as serious as getting a company declared bankrupt should not rest on a single buyer,” said Solomon.
In August, the Supreme Court had ruled that the homebuyers’ rights will remain at par with the lenders. A three-judge bench headed by Justice Rohinton F Nariman had said that once a homebuyer is able to establish default before a bankruptcy court, the onus is on the builders to prove that the consumer does not wish to take possession of their house to avoid proceedings.
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