Home Buyers as Financial Creditors 2019


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Homebuyers will now be treated as financial creditors under the insolvency law. The government gave assent to the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, providing significant relief to homebuyers by according them financial creditors’ status. This will allow the home buyers to participate in the insolvency resolution process of the developers or builders and have creditors’ rights similar to that of banks and other lenders for the project. The ordinance has been structured on the basis of recommendations of the 14-member panel, headed by the Corporate Affairs Ministry.

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The ordinance is a landmark step as:

  • It allows home buyers to participate in the insolvency proceedings against the developers and represent their rights.
  • It also means that home buyers will get equal priority to recover their dues from the builder at par with that of banks and other lenders.
  • It strengthens home buyers’ right and power in case of bankruptcy of the developer, default in payment or failure to deliver by the planned schedule.
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The ordinance is expected to promote positive sentiment in home buyers as they can hope to recover some portion of their dues on a priority base in case the builder defaults or goes bankrupt.‭ ‬Home Loan Buyers representatives can be a part of the committee which will look in the insolvency proceedings.‭ ‬At present,‭ ‬the buyers have to depend on realizing their dues from the residual value after financial creditors are paid. Most of the time,‭ ‬liquidation doesn’t really help home buyers as for them getting the home they had booked is in their best interest as opposed to initiating insolvency proceedings against the builder.‭ ‬In the past,‭ ‬homebuyers have filed cases in courts to stop the insolvency proceedings against their builders

The process of participating in the credit committee,‭ ‬voting rights and choosing buyers representatives requires a lot more clarity

Protection of home buyer’s interests falls under the purview of RERA and having an alternative route will create confusion for common home buyers with their limited understanding of legal and commercial matters.

This could negatively impact the lender’s balance sheets since the home buyers will have a right on the recovery proceeds which was not factored by the lenders at the time of approving loans.‭ ‬Banks may become cautious to lend to real estate projects.

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However,‭ ‬experts highlight that the ordinance e in its current form might not be that beneficial for home buyers as it seems to be.‭ ‬Some points to know are:

Jaypee homebuyers seek more clarity

In the latest development, Jaypee homebuyers, who are stuck with incomplete real estate projects for almost a decade, want more clarity on the new ordinance passed by the government. In a letter addressed to the Insolvency and Bankruptcy Board of India (IBBI), as many as 2460 buyers of Jaypee Infratech Limited (JIL) and Jaiprakash Associates Limited (JAL) have requested that IBBI should consider requests of the homebuyers while framing the regulations for the implementation of the new ordinance.

  • Homebuyers have demanded that the voting share of home buyers should be an aggregate of the principal amount paid to the developer along with compensation for delay in the form of interest at 15% per annum on the principal amount, calculated from the date when the delivery of flats was promised.
  • As per homebuyers, the first meeting of the creditors would be considered only after the implication of regulations.
  • They have requested the Board to allow the use of electronic means for voting.
  • They have also pointed out the problems that may arise due to the non-participation of some homebuyers in the voting process. Further, they have suggested that the votes cast by the homebuyers be extrapolated to be representative of the remaining home buyers who has not cast their votes.

In summary,‭ ‬the ordinance is definitely a welcome step towards recognizing common home buyer’s challenges and equip them with more rights against their defaulting builders. ‭At the same time, the process of participating needs more fine-tuning and detailing for the ordinance to be effective and practically implementable.

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