Seller beware: homebuyers and Bankruptcy Code

Seller beware: homebuyers and Bankruptcy Code

News

1. The Union Cabinet decision to amend the Insolvency and Bankruptcy Code (IBC), give a relief to home buyers.

Important Analysis

1. 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.
2. The government has refused to give details of the amendment.
3. The amendment is expected to offer better treatment to homebuyers when it comes to recovering their dues from bankrupt companies.
4. 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.
5. 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.
6. Homebuyers are only customer to real estate developers who want the delivery of their house that was promised to them.
7. 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.

1. 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.

1. 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.