Real estate homebuyersIf you are a homebuyer, you will enjoy the status of a financial creditor of a real estate developer, the apex court has decreed. This will help home buyers get the same right as lenders during insolvency proceedings. The Supreme Court on Friday upheld the amendment in the Insolvency and Bankruptcy Code that confers the homebuyers the status of financial creditors. This means homebuyers will be on par with real estate lenders and they can claim their dues in the same way lenders claim their dues from bankrupt or insolvent real estate companies.

A bench headed by Justice RF Nariman upheld the constitutional validity of the amendment brought in the Insolvency and Bankruptcy Code, 2016. For those of you who are not aware, the 2018 amendment enabled homebuyers to have a place in the committee of creditors. In this way, one could start insolvency proceedings if there is delayed possession or default by the real estate company.

With the Supreme Court upholding the amendment, the interests of the home buyers will be greatly protected. We have read articles and seen TV programmes where it was shown how lakhs of harassed homebuyers have faced difficulties due to delayed possession and incomplete real estate projects. Without the financial creditor status, they had virtually no say. They were limited to appealing in consumer courts etc. As financial creditors now, they will have a say in the resolution process of the concerned cash-strapped realty developer. Thus, real estate project promoters will have to take homebuyers much more seriously now in line with how they treat banks.

Reacting to the decision, Abhilash Pillai, partner at law firm Cyril Amarchand Mangaldas says that the SC judgment re-affirms the rights of the home buyers as financial creditors under IBC. “This is a landmark judgment so far as genuine home buyers are concerned. However, this may not be happy news for the investor-home buyers who have initiated IBC against the developers for seeking an exit from their investments on account of the current condition of the real estate market,” Pillai cautioned.

The harsh truth is that the rights of homebuyer have so far been none. Homebuyers are the ones who are the end-consumers and also the ones whose hard-earned money is invested by the real estate developer in a project. Often, unscrupulous developers took the money and invested them in other projects, leading to delay and harassment for the homebuyer from banks who gave them home loans.

Treatment of home-buyers at par with other financial creditors during the insolvency proceedings of bankrupt real estate developers will shore up the confidence for home buyers and the real estate sector. By having a say, homebuyers can expect a recovery of their investments from insolvent developers in the same way other financial creditors do.

Author
Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at kumarsroy@rupeeiq.com.