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The insolvency law committee under the ministry of corporate affairs is preparing new draft for Insolvency and Bankruptcy Code (IBC) which is likely to be presented in the upcoming session of the Parliament for amendment, sources said.
As per the reports, the Winter session of Parliament is likely to commence from November 18 and may last for a month.
Sources said that with the proposed amendment, a single homebuyer or just a small group of buyers won’t be able to file insolvency case against the project. The proposed amendment will be introduced aiming to protect the interest of a large section of homebuyers and also to expedite the insolvency proceeding to revive the financial issue of the particular project going under IBC-2016.
The department is likely to put proposal that the number of homebuyers required to file an insolvency case must be at least in majority or they must collectively account for a minimum of five per cent of outstanding debt of the real estate developer.
At present, a homebuyer, using the power of financial creditor can file an insolvency case against the developer if the default amount crosses Rs 1 lakh. The proposed amendment is an aim to prevent the misuse of the IBC law and power given to homebuyers under it.
Mihir Kumar, an advocate who represent a section of Amrapali Group buyers in the Supreme Court said, “Earlier there was fight to give recognition to homebuyers and hence they were included in the list of financial creditors, however, gradually it was observed that the IBC is being used just as a tool of recovery process and it is derailing its real purpose. Therefore, bringing some changes has become must to restrict those who misuse the law. At present, nearly 400 real estate projects are going under IBC and none of them could be resolved so far.”
Kumar also viewed that fixing a certain number of homebuyers to file insolvency case may not be applicable in all the projects. “If the government puts a condition that there should be at least 100 homebuyers to file insolvency case, homebuyers, who have invested in smaller projects which has 150 or 200 flats, will find difficulty in fulfilling required number to go against the developer. In my view, there should be a criteria of percentage of total number of homebuyers instead.”
Also, as sources said the committee headed by corporate affairs secretary Injeti Srinivas is likely to raise the default threshold for any creditor to trigger insolvency against a financially weak real estate company from current Rs 1 lakh to Rs 10 lakh.
The committee is also working on a formula to distribute resolution proceedings between financial and operational creditors. Sources privy with the matter said the distribution of proceeds was major conflicting issue in many cases.
Recently, addressing the press persons after a high-level meeting chaired by Finance Minister Nirmala Sitharaman, corporate secretary Injeti Srinivas said that feedback from various sections have suggested for changes in current IBC Act.
KK Kausal, an Amrapali Group homebuyer said, “It is a good move as it is a fact that some homebuyers misuse the power for vested interest and using it for recovery process. But, while raising threshold very high for homebuyers, the government must keep in mind that homebuyers interest to be protected.”
While insolvency proceedings against key real estate players such as Amrapali and Jaypee have been invoked by lenders, in the first case, the IBC was amended last year to give financial creditor status to homebuyers. Supreme Court had upheld it later on.
However, the planned amendment will be applicable only prospectively and have no bearing on those real estate cases that have already been admitted by the National Company Law Tribunal (NCLT) or for which applications have been filed with the adjudicating authority.
