Revision as of 12:19, 17 December 2020

The legal position

2019/ Homebuyers given creditor status under IBC

AmitAnand Choudhary, July 10, 2019: The Times of India

Backing the homebuyers in their fight against builders, who duped them and are facing insolvency proceedings, the Centre on Tuesday told the Supreme Court that there was no illegality in amendment brought by it in the Insolvency and Bankruptcy Code (IBC) to give them a say in the proceedings by classifying them as financial creditors like banks.

Responding to a batch of more than 140 petitions filed by real estate companies challenging the constitutional validity of the amendment in IBC, the Centre filed its affidavit in the apex court and said the law was amended to protect the interests of lakhs of homebuyers who had paid money for flats but were cheated by the companies. It said the amendment was brought after the apex court itself had in 2017 expressed concern over the plight of homebuyers and had said that they should be represented in the Committee of Creditors under IBC.

The real estate companies have challenged the validity of Section 5(8)(f) of the IBC, 2016 which ensures inclusion of homebuyers as financial creditors. The Centre, however, said the amendment was brought to insert an explanation to the definition of financial debt to clear doubts on inclusion of homebuyers within the ambit of financial creditors. “It means that homebuyers and other financial creditors who have entered into purchase agreements having the commercial effect of borrowing were already covered under the code as it stood before the amendment. The explanation inserted under Section 5(8)(f) providing that the allottees under the real estate project are considered as financial creditors was only for the purpose of abundant clarity,” the affidavit said.

Countering the stand of companies that homebuyers should not be part of the proceedings under IBC as they can raise grievances before consumer courts and the authority under Real Estate (Regulation and Development) Act, the Centre said providing alternative remedy to them under a separate law does not violate any constitutional

provisions and sought dismissal of all the petitions.

“The amendment is only aimed at real estate developers who default in payment of financial debt owed to financial creditors, be it homebuyers or other financial creditors. The amendment has no effect of driving solvent and healthy real estate developers to insolvency,” it said.

Opposing the plea of companies, the homebuyers too filed a reply. “Objective of the instant legislation was never to liquidate the company but to restructure the company and come up with a resolution plan to correct the default committed. It is pertinent to mention here that homebuyers being the highest stakeholders in the project, their interests need to be safeguarded and the same is of paramount importance,” said advocate Aditya Parolia, who is representing a batch of homebuyers.

Court judgements

Builders to face separate trials in cases filed by buyers

Abhinav Garg, July 11, 2019: The Times of India

Builders who dupe thousands of homebuyers, or those accused of Ponzi schemes to defraud investors will now face multiple prosecutions in Delhi — based on complaints of individual victims — and can be awarded long and consecutive prison terms.

The Delhi HC ended the current practice of Delhi Police (mostly EOW and crime branch) of lodging a single FIR in cases of cheating of a large number of investors/ depositors where, for instance, a lone homebuyer is treated as the complainant while the others are shown as witnesses in a criminal case.

In such cases, many are left in the lurch if the sole complainant withdraws the case or reaches a settlement with the builder/accused.

A bench of Justices Vipin Sanghi and I S Mehta termed as “erroneous and not sustainable in law” the practice “of registering a single FIR on the basis of the complaint of one of the complainants/victims, and of treating the other complainants merely as witnesses.”

HC makes punishment for errant builders rigorous

Trial Courts Can Now Give Consecutive Prison Terms The court said it “raises very serious issues with regard to deprivation of rights of such complainants to pursue their complaints, and to ensure that the culprits are brought to justice”.

Spelling out the law in this regard, HC was categorical that in a case of inducement, allurement and cheating of a large number of investors/ depositors, “each deposit by an investor constitutes a separate and individual transaction” and noted that “all such transactions cannot be amalgamated and clubbed into a single FIR by showing one investor as the complainant, and others as witnesses.”

“In respect of each such transaction, it is imperative for the state to register a separate FIR if the complainant discloses commission of a cognisable offence,” the court observed.

The court rejected the police’s stand that only a single FIR is required in cases where all investors/depositors were cheated in pursuance of a single conspiracy. The EOW argued that commission of multiple acts did not require the registration of separate FIRs for each victim.

In its ruling, the court highlighted how such a procedure denies other victims the right to “oppose, or to seek cancellation of bail that the accused may seek in relation to their particular transaction.”

The high court’s answer came on a reference sent to it by additional district and sessions judge Kamini Lau while dealing with a case involving 1,852 different victims cheated in a ponzi scheme.

In the process, the high court also made it clear that police or any investigating agency probing such an economic offence “cannot amalgamate the separate offences investigated under separate FIRs, into one chargesheet”, as is the current practice.

The high court also held that a limit on the quantum of sentence imposed by the CrPC (where courts award concurrent jail terms in a single trial for more than one IPC section) won’t apply in these cases, where an economic offender faces multiple trials that result in more than one conviction. This means trial courts can now give consecutive prison terms where the second term starts only once the first sentence ends, making the punishment much more rigorous.

See also

Consumer protection: India

Homebuyers and the law: India

Housing: India

Insolvency, bankruptcy: India

Land acquisition: India

Real Estate (Regulation & Development) Act (RERA)

Real estate: India