Homebuyers and the law: India
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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.
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Homebuyers and the law: India
