New IBC amend­ment puts home­buy­ers at par with fi­nan­cial cred­i­tors

Hindustan Times (Chandigarh) - Estates - - HT ESTATES - Priyanka Mit­tal and Prashant K Nanda let­ters@hin­dus­tan­ Gireesh Chan­dra Prasad con­tributed to this story.

NEW DELHI : The Union cabi­net re­cently ap­proved an or­di­nance to amend the In­sol­vency and Bank­ruptcy Code (IBC) 2016 to put home­buy­ers on par with fi­nan­cial cred­i­tors when de­cid­ing the fate of real es­tate firms that have de­faulted on loan pay­ments.

The or­di­nance will come into force once it is ap­proved by the pres­i­dent. Un­til now, home­buy­ers were treated as un­se­cured cred­i­tors who came af­ter se­cured and in­sti­tu­tional cred­i­tors in terms of pri­or­ity for re­cov­ery of dues.

“The cabi­net has ap­proved it,” said law min­is­ter Ravi Shankar Prasad af­ter a meet­ing of the cabi­net. He de­clined to give fur­ther de­tails.

The move is likely to pos­i­tively im­pact the claims of home­buy­ers in pend­ing court cases against lead­ing real es­tate groups such as Jaypee In­frat­ech and Am­ra­pali Group.

The changes were based on sug­ges­tions made by a 14-mem­ber in­sol­vency law com­mit­tee to the min­istry of cor­po­rate af­fairs. The panel, chaired by sec­re­tary In­jeti Srini­vas, made a strong case for treat­ing home­buy­ers as fi­nan­cial cred­i­tors, en­abling them to take builders de­fault­ing on their obli­ga­tions to a bank­ruptcy court and de­cide their fu­ture along with lenders.

Le­gal and real es­tate ex­perts hailed the or­di­nance as a move that will ben­e­fit mil­lions of home­buy­ers. “The de­ci­sion to in­clude home­buy­ers un­der the am­bit of fi­nan­cial cred­i­tors... will be re­ceived with a cheer. Sev­eral de­vel­op­ers have mis­ap­pro­pri­ated funds of home­buy­ers, whose po­si­tion in the re­sult­ing in­sol­vency pro­ceed­ings has been the topic of spec­u­la­tion for a while now. The de­ci­sion to end this un­cer­tainty is a step in the right direc­tion,” said Pu­nit Dutt Tyagi, ex­ec­u­tive part­ner at law firm Lak­sh­miku­maran & Srid­ha­ran At­tor­neys.

Tyagi, how­ever, said that banks may not wel­come the de­vel­op­ment as their dom­i­nant po­si­tion in the pro­ceed­ings may be threat­ened. Ramesh Nair, chief ex­ec­u­tive of­fi­cer and coun­try head of real es­tate con­sul­tant JLL In­dia, said the move will ben­e­fit home­buy­ers and help re­vive the stag­nant real es­tate mar­ket.

“This will in­fuse con­fi­dence in the home­buy­ers to in­vest their money as it gives them pri­or­ity in the re­cov­ery of dues if the re­alty firm in which they have in­vested goes bust,” he added. Changes in the code will also help mi­cro, small and medium en­ter­prises by al­low­ing their pro­mot­ers to sub­mit their res­o­lu­tion plan in in­sol­vency cases. Small and medium firms are key to In­dia’s jobs growth. The com­mit­tee also pro­posed to make it eas­ier to get res­o­lu­tion plans as well as rou­tine de­ci­sions ap­proved.

Ac­cord­ingly, it sug­gested that the cur­rent re­quire­ment of votes from 75% of cred­i­tors be re­laxed to 66% of fi­nan­cial cred­i­tors for crit­i­cal de­ci­sions and 51% for rou­tine de­ci­sions. Crit­i­cal de­ci­sions have been de­fined as ap­point­ment or re­moval of res­o­lu­tion pro­fes­sion­als and ap­proval or re­jec­tion of res­o­lu­tion plans.

The cabi­net also ap­proved spend­ing Rs7,330 crore to im­prove mo­bile con­nec­tiv­ity in 96 districts in 10 states that have been af­fected by left-wing ex­trem­ism. It also ap­proved the waiver of around Rs1,400 crore pe­nal in­ter­est on loans taken by Paradip and Visakha­p­at­nam ports.


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