Insolvency and Bankruptcy Code (IBC) 2016 was a disappointment for home buyers as they were rated below banks as unsecure lenders in order of priority.
Considering that they are mere consumers, who didn’t invest their money in the company, their status needs to be upgraded above the lenders.
What is the current situation?
IBC came into force in November 2016 in order to help in speedy winding up of failed businesses and secure possible settlements to creditors.
When real estate companies fail, they need to settle multiple creditors – banks, bond/stock market investors, suppliers, and property buyers.
Notably, property buyers are neither investors nor lenders, but mere consumers who paid advances for the promised delivery of property.
In the current scheme, property buyers are treated as non-secure lenders, and list them below other financial creditors in the order of priority.
What changes are expected?
The Union Cabinet has recently cleared an ordinance for amending the IBC that came into force in November 2016.
While the government hasn’t divulged the specifics, the change to the law is expected to offer better treatment to property buyers.
It is yet to be known whether homebuyers will be treated better or worse than banks and other financial lenders under the amended law.
But there is a sound reason to treat them a step above these traditional lenders as they haven’t offered money in expectation of better returns.
Until now, homebuyers have had to knock on the doors of the courts to uphold their rights, while other stakeholders benefited significantly at their cost.
What are the possible implications?
The amendment could help in reducing inconsistencies between the IBC and the Real Estate Regulation Act (RERA).
Real Estate Regulation Act (RERA) was introduced with the goal of protecting the rights of buyers by ensuring the timely and honest delivery of homes.
But the lower ranking of buyers in the bankruptcy proceedings contradicted the provisions in RERA, which calls for a review.
Along with RERA, appropriate amendments to IBC can go a long way in stopping unscrupulous real estate developers from fleecing homebuyers.
