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Seller beware: homebuyers and Bankruptcy Code
News
- The Union Cabinet decision to amend the Insolvency and Bankruptcy Code (IBC), give a relief to home buyers.
Important Analysis
- The Union Cabinet has cleared an ordinance amending the Insolvency and Bankruptcy Code (IBC), a law which came into force in November 2016 to hasten the process of winding up failed businesses.
- The government has refused to give details of the amendment.
- The amendment is expected to offer better treatment to homebuyers when it comes to recovering their dues from bankrupt companies.
- A 14-member panel formed by the Ministry of Corporate Affairs had recommended last month that homebuyers should be treated as financial creditors during the bankruptcy resolution process.
- But economically, homebuyers are not like traditional creditors such as banks and institutional investors, they do not offer their money in expectation of excess returns.
- Homebuyers are only customer to real estate developers who want the delivery of their house that was promised to them.
- The amendment is expected to reduce the inconsistencies between the IBC and the Real Estate Regulation Act (RERA).
- RERA was introduced with the goal of protecting the rights of buyers by ensuring the timely and honest delivery of homes. RERA have had a relatively low status among the various stakeholders in a bankruptcy proceeding.
- The removal of this inconsistency can help courts deliver better justice to homebuyers in the future.
- In Jaypee Insolvency Case SC had to intervene in the Bankruptcy resolution Process to uphold the right of homebuyers.
- Upholding the right of homeowner could impact the real estate developers and large creditors like banks. But it will help in the development of a transparent and more efficient real estate market.
