The Supreme Court today upheld the amendment on Insolvency and Bankruptcy Code (IBC) 2016 by the Centre giving home buyers the status of financial creditors. The land mark judgment by the Apex Court brought a win win situation for home buyers who have been fighting for heir rights of voting and their representation in the projects they had invested and the project developing firms are going under insolvency proceedings.
Before 2016, the home buyers despite investing a huge amount of money were not considered as financial creditors and in case the real estate firm declared bankrupt and insolvency proceeding initiated under IBC, the home buyers were barred from taking part in resolution process. Only stake holders, lenders and the government had right to take part in the proceeding.
At the time when Amrapali and Jaypee Infratech and many real estate firms went under the insolvency proceeding, the lenders started demanding their share leaving lakhs of home buyers helpless. Then home buyers along with demand of their flats also demanded for their rights under the IBC.
The government gave special status to home buyers and included them in the list of financial creditors. KK Kaushal, one of the home buyers in Amrapali group said, “Before 2016, if a real estate company goes under insolvency proceedings, secure creditors such as stakeholders, fund raising company or subsidiary firms and those have direct profit and loss with the company, they were considered as secure creditors. Reference shareholders who were involved with a certain amount were given second to secure their rights. The home buyers were at the last preference which now have included in the list of secure creditors’ list.”
With this amendment, not only the home buyers’ money was secured but they were also given rights in decision making committees with their voting rights. However, the decision giving home buyers the status of financial creditors did not go down well with the real estate developers and they filed a petition in the Supreme Court to challenge the amendment made by the government.
Developers have opposed the amendment also arguing that judicial bodies such as Consumer Courts, Real Estate Regulatory Authority (RERA) are already available for home buyers to raise their grievances, thus their grievances need not to be made part of proceeding under IBC. Real estate developers also argued that giving home buyers status of financial creditors under IBC would be misused and there would always be a threat to derail resolution process. However, the government has defended the amendment asserting that amendment was done aiming to secure the rights of home buyers and it would affect only defaulting real estate companies.
Hearing the matter today, the apex Court court said, “IBC gives an additional forum to the home buyers to raise their grievances and the provisions under the code (IBC) and RERA can work harmoniously.”
On the issue giving status of financial creditors to home buyers, the apex court said that the original provisions concerning Financial Creditors under the IBC always subsumed home buyers and the amendment had only added an explanation to the Section.