New rules set to protect interests of homebuyers

It says money must first go towards recovering liquidation costs, paying workmen such as security guards, settling the dues of banks and financial institutions, paying the salaries of other employees and clearing government dues.

The secretaries of the housing and corporate affairs ministries are expected to meet soon to discuss how to incorporate the recommendations into the IBC, government sources said. However, changes will not be retrospective, so ongoing insolvency cases will not be affected.

Once homebuyers are recognised as “financial creditors” they will automatically become part of the “creditors committee”. This will ensure that homebuyers have a say in how proceeds from insolvency proceedings should be used.

In his letter to the corporate affairs ministry, housing secretary DS Mishra also suggested that homebuyers be treated at par with financial institutions and be awarded interest on their principal amount invested in a project should the venture fail and its assets liquidated. HT has a copy of the letter.

The housing ministry can only recommend changes to IBC. Any amendment or modifications to the Code will have to be initiated by the corporate affairs ministry, which is piloting the IBC.

The housing ministry also suggests that the completion of a project be the goal of any insolvency resolution plan.

What makes real estate in India peculiar is that the builders are allowed to take money from homebuyers and use them for construction, unlike other countries where homebuyers pay money only after the construction is complete. As a result, builders raise money from both banks and homebuyers to use for construction.

The ministry wants the IBC to ensure that all real estate companies facing insolvency first register their projects under present laws and deposit 70% of the funds for construction in a separate escrow account.

“This would also aid the resolution process envisaged under the Code,” said Mishra’s letter. overruns for states,” said economist Mohan Guruswamy.

State’s share in the central tax pool was increased from 32% to 42% in 2015 following the recommendations of the 14th Finance Commission.

The share is calculated on the basis of a formula that takes into account a state’s geographic mass, demographic change and income.