Govt clears ordinance to protect homebuyers
IBC amended to ensure buyers are on par with creditors
NEW DELHI: The Union cabinet on Wednesday approved an ordinance to amend the Insolvency and Bankruptcy Code (IBC) 2016 to put home buyers on a par with financial creditors when deciding the fate of real estate companies that have defaulted on loan payments.
The ordinance will come into force once it gets the approval of the President of India.
Until now, home buyers were treated as unsecured creditors who came after secured and institutional creditors in the list of priority for recovery of dues.
“The cabinet has approved it,” law minister Ravi Shankar Prasad said after a meeting of the Union cabinet but declined to give further details.
The move is likely to positively impact the claims of home buyers in pending court cases against leading real estate groups such as Jaypee Infratech, Supertech and Amrapali.
The changes were based on suggestions made by a 14-member insolvency law committee to the ministry of corporate affairs, chaired by secretary Injeti Srinivas who made a strong case for treating homebuyers as financial creditors, enabling them to take builders defaulting on their obligations to a bankruptcy court and deciding their future along with lenders.
Legal and real estate experts hailed the ordinance as a move that will benefit millions of home buyers.
“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 like the development as their dominant position in the insolvency proceedings stands threatened. Real estate consultant JLL India said the
The changes were based on suggestions made by a 14-member insolvency law committee to the ministry of corporate affairs
The panel also suggested easing voting rules at committee of creditors meetings move will benefit home buyers and help the stagnant real estate market revive.
“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,” said Ramesh Nair, chief executive officer and country head, JLL India.
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% in the case of routine decisions. Critical decisions have been defined as appointment or removal of a resolution professional and approval or rejection of resolution plan.
The Union cabinet also approved an expenditure of ₹7,330 crore to improve mobile connectivity in 96 districts in 10 states that have been affected by leftwing extremism. It also approved the waiver of around ₹1,400 crore penal interest on loans taken by Paradip and Visakhapatnam ports.
(Gireesh Chandra Prasad contributed to the story)