Insolvent firms’ homebuyers to now get status of creditors

NEW DELHI: Homebuyers of insolvent real estate companies such as Jaypee Infratech will get the status of a financial creditor as President Ram Nath Kovind on Wednesday promulgated an ordinance to amend the Insolvency and Bankruptcy Code — a move that protects them and their investments.

The move comes as a major relief to homebuyers who will now have a place in the Committee of Creditors (CoC) and be a part of the decisions on the future of the bankrupt real estate developer. Being a financial creditor also empowers a homebuyer to take action against errant real estate developers, said a press release issued by the government.

“Whether they are secured or unsecured financial creditor, will depend on how the homebuyers fight their case,” said Injeti Srinivas, secretary, ministry of corporate affairs.

More than 31,000 homebuyers have been affected by insolvency proceedings against Jaypee Infratech and Amrapali.

Their vulnerability stemmed from the fact that they were not recognised as creditors under the Insolvency and Bankruptcy Code (IBC) to protect their investment. “But rules about the mechanism through which representatives of homebuyers will secure a position in the CoC are being worked out,” Srinivas said.

The ministries of housing and corporate affairs have been trying to find a way to protect homebuyers since August 2017, after the Allahabad bench of National Company Law Tribunal allowed insolvency proceedings against Jaypee.