Business Standard

As builders go under, govt looks to ease buyers’ pain

- ARUP ROYCHOUDHU­RY & VEENA MANI

The Central government is mulling ways to ensure homebuyers receive their dues as insolvency proceeding­s are initiated against more real estate companies on the lines of those against Jaypee Infratech.

This is being done keeping in mind that the salaried middle class, who invest their life’s savings in these houses, constitute a vocal constituen­cy.

A corporate affairs ministry official said homebuyers would be placed above bankers in insolvency cases. The government wanted to ensure that homebuyers did not have to take a haircut, the official added.

Homebuyers could be made trustees so that their money cannot be used to pay back creditors. Another plan is to ensure the projects are completed and homes delivered even as a builder goes under.

“Elevating homebuyers to the status of trustees will require a notificati­on, and if decided upon, can be done quickly. The other option is to raise their status on a par with large secured creditors. That will require amending the Insolvency and Bankruptcy Code (IBC) and will take time,” a source said.

If the government decides to accord homebuyers parity with secured creditors, it will have to amend the Section 9 of the code.

The Insolvency and Bankruptcy Board of India (IBBI) has issued a Form ‘F’ for homebuyers to submit their claims during insolvency proceeding­s, but priority is accorded to creditors in the restructur­ing process. Sovereign creditors have priority in claims, followed by large secured creditors, employees and then shareholde­rs. Homebuyers are now considered on a par with shareholde­rs.

Officials also said the government was working on a package for homebuyers. “The aim is to ensure that projects are completed and delivered even after builders face insolvency proceeding­s,” an official said. As the restructur­ing process has started for Jaypee Infratech, the National Building Constructi­on Corporatio­n (NBCC) is likely to complete its projects. NBCC Chairman and Managing Director A K Mittal said recently if any government entity asked it to take up Jaypee Infratech’s projects, it would do so.

Homebuyers in Jaypee’s Wish Town projects in Noida had filed a suit in the Supreme Court seeking to be declared secured creditors. Jaypee Infratech was one of 12 large loan accounts in default over which banks have moved the National Company Law Tribunal on directions of the Reserve Bank of India. The SC will hear the homebuyers’ plea on September 4.

The IBBI has also asked stakeholde­rs for comments on the code. The government might amend the code in a more holistic manner by taking into considerat­ion stakeholde­r comments.

A corporate affairs ministry official said homebuyers would be placed above bankers in insolvency proceeding­s

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