Supreme Court order
With several real estate companies going bust the Supreme Court in its latest order on August 9 had made it easier for home buyers to get their money back by considering them on par with other creditors.
The Supreme Court order grants homebuyers the status of financial creditors enabling them to claim their dues together with banks. The court ruled that homebuyers rights will remain at par with other lenders.
The court reading out the operative part of the judgment, said that the August 2018 amendment in the Insolvency and Bankruptcy Code, section 5(8)(f) is being upheld with certain safeguards, especially in view of the adjudicatory role of the NCLT and NCLAT in deciding individual cases. The bench added that the IBC amendment shall be read harmoniously with the RERA provisions
The bench headed by Justice RF Nariman upheld the constitutional validity of the amendment made in the IBC which enables homebuyers to have a place in the committee of creditors and initiate insolvency proceedings in case of a delayed possession as well as in other cases of default by the real estate companies.
Homebuyers now have the option to avail legal remedies before consumer court, real estate regulatory authorities, as well as bankruptcy courts, said Justice Rohinton F. Nariman. In case of conflicts with other laws, provisions of IBC will prevail, said the judge.
The first challenge to the amendment was laid by the Pioneer Urban Land and Infrastructure filed in the apex court in January 2019. It challenged the validity of section 5(8)(f) of the IBC 2016, where homebuyers were given the right to be considered as financial creditors. Subsequently more than 130 similar writ petitions were filed by builders like Supertech, Parsvnath, BPTP, Ansal Hi-Tech Townships, Today Homes Noida, Ireo, SARE Shelters Projects, Wave MegaCity Centre, CHD Developers, Spaze Towers, Orris Infrastructure, AVP Buildtech, Three C Shelters, Emaar Hills Township, TDI Infrastructure, ATS Realty, among others.
Pending the final outcome of these petitions, the Supreme Court had stalled all proceedings before the NCLT, NCLAT. While the government defended its amendment, saying the new law was meant to protect the interests of the home buyers. The amendment helped in their representation in the committee of creditors under IBC, argued the government’s law officer.
It was further contended by the government that the explanation was inserted under Section 5(8)(f), providing that the allottees under the real estate project are considered as financial creditors, was only for the purpose of abundant clarity.
But the builders maintained that the home buyers must make their claim through RERA and consumer fora. They argued that the amendment in IBC has only created more confusion and also resulted in additional encumbrance upon them. The definition of ‘default’ in the pertinent amendment was also disputed as the law stated that financial creditors can initiate the insolvency proceedings against a corporate debtor when it commits a ‘default’.
In case of delay of a project the definition of ‘default’ becomes vague, said the real estate firms, adding one of the reasons of delay could even be buyers’ default in paying the instalments. They also dispute the ambiguity about treating home buyers as secured or unsecured creditors.
“Such cases when referred to insolvency forum turns into abuse of process of law and also sometimes lead to delay in project delivery,” builders had said.
But the Supreme Court today held that there is a proper mechanism in place before the NCLT and the NCLAT and that it cannot be accepted that a trigger happy homebuyer can abuse the provision in the law The court has also directed the government to ensure adequate manning of RERA and NCLT, and gave it three months to submit an affidavit in this