HT Estates

Small group of home buyers can’t seek bankruptcy proceeding­s against a defaulting realty company

- Asit Ranjan Mishra

To avoid misuse of the insolvency proceeding­s by some home buyers who are seeking action against well- run real estate companies, government may bring in minimum threshold of home buyers which will be required to start such bankruptcy proceeding­s.

“A lot of representa­tions have come that a single home buyer who could be a speculativ­e home buyer also is trying to dislocate an otherwise well-operating real estate company. In Mumbai, alot of such cases havebeenad­mitted and half the cause list comprises of real estate companies. These have to be looked at in a very innovative manner. We may have to look at some threshold such as 5% which is there for class action or a threshold of one fifth of home buyers which have for mismanagem­ent in operation. We may have to find some measures to check abuse,” corporate affairs secretary Injeti Srinivas said on Tuesday at the third annual day function of the Insolvency and Bankruptcy Board of India.

Earlier this year, the Supreme Court (SC) ruled that the home buyers’ rights will remain at par with the lenders making them financial creditors. The apex court has upheld the ability of home buyers to take real estate developers into bankruptcy proceeding­s.

Athreejudg­ebenchhead­edby Justice Rohinton F Nariman said that once a home buyer establishe­s default before a bankruptcy court, the onus is on the builders to prove that the consumer does not wish to take possession of their house to avoid proceeding­s.

Srinivas said the government is in the process of operationa­lising personal insolvency in phases which may take a year to become fully functional. “The Bankruptcy Process for personal guarantor to corporate debtor is almost finalized. The next is “fresh start” process through which relief will be given to very small borrowers who are not in a position to repay the debt. This will be rolled out in next four to six months time. Then insolvency process for proprietor­ship, partnershi­p and other matters will be taken up subsequent­ly,” he added.

The bankruptcy process for very small defaulters will be a non-adjudicati­ng process, Srinivas said. “It will be a total online system to prove veracity of the applicatio­n and assets of the person among other things,’ he added.

Srinivas said the framework for cross border insolvency based on UNCITRAL Model Law is ready and will be taken up by the Parliament during the upcoming winter session. Crossborde­r insolvency is one where the defaulting company has assets in more than one country or where some of the creditors of the company are not from the country where the insolvency proceeding is taking place. Government is also readying a framework for group insolvency, Srinivas said.

The corporate affairs secretary said the government is very keen to develop a marketplac­e for stressed assets so that maximum competitio­n and participat­ion of the foreign investors also possible. This will lead to realizatio­n of maximumval­ueforasset­s and we may get the best people to run these companies,” he added.

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