Bankruptcy Code not to be amended, say govt sources
NEW DELHI: The Insolvency and Bankruptcy Board of India( I BB I) has opined that sector-specific amendment can not bed one to the Insolvency and Bankruptcy Code (IBC), said government sources.
They also ruled out any new provisions to protect homebuyers of real estate firms such as Jaypee Infratech and Amrapali Silicon City project.
The housing ministry had recommended amendments to I BC to protect homebuyers, and is in touch with the ministry of corporate affairs. The IBBI is the supreme body dealing with IBC.
“The recent National Company Law Tribunal( NC LT) order rules out any vulnerability of home buyers of real estate companies undergoing bankruptcy proceedings ,” said a government official who was a part of the deliberations on IBC.
In an order in the Prabodh Gupta vs Jaypee Infratech case, the NC LT ruled that home buyers are stakeholders of a realty firm. It directed that the resolution plan has to protect all stakeholders, including homebuyers.
“If the real estate company is liquidated, then all stakeholders will be treated equitably. There will be no advantage to financial institutions over homebuyers,” said the source quoted above.
Once insolvency proceedings against a company begin, an insolvency resolution professional is appointed to come up with a resolution plan within 180 days. An extension of another 90 days is allowed. Home buyers have approached Supreme Court and their vulnerability stems from the fact that they figure very low in the creditors’ order for payment. Once liquidation is initiated, proceeds first go to recovering liquidation costs, followed by payments to work men, banks and financial institutions. Salaries of other employees are paid next, followed by government dues,thenfunds owedto buyers.
More than 31,000 home buyers are affected due to the insolvency of Jaypee Infra and Amrapali.
But treating buyers as stakeholders will resolve their problem, said officials in the ministry of corporate affairs. “Treating home buyers as financial creditors would mean that they take the same haircut (??) on the investment that financial institutions will take in a bankrupt company,”said anotherofficial in the finance ministry, who did not wish to be quoted as he is not the authorised spokesperson.
Also, once the Real Estate (Regulation and Development) Act( RE RA) kick sin, it will ensure homebuyers are treated as trustees for new projects. So, the IBBI does not advise amending the code, said sources.
THE HOUSING MINISTRY HAD RECOMMENDED AMENDMENTS TO THE INSOLVENCY AND BANKRUPTCY CODE TO PROTECT HOMEBUYERS