The Insolvency and Bankruptcy Code (IBC) is a law which consolidates the existing frameworks by bringing a single law for insolvency and bankruptcy. It has been brought to solve the long-held problems of the insolvency of companies in the country, and the law has made it easier for bankrupt companies to exit from the market. Under this new law, an independent body known as the Insolvency and Bankruptcy Board of India (IBBI) was created, which will work on the lines of other independent regulatory bodies like Securities and Exchange Board of India (SEBI) which proved highly effective in regulative India share markets.
Since the IBC law has been implemented, two high profile cases of bankruptcy were solved as Tata steel acquired Bhushan steel for Rs 352 billion and Anil Agrawal led Vedanta acquired Electrosteel for Rs 5300 crores, while many other companies like Essar Steel and Jaypee Infra are going through the winding up process. The IBC will also solve the problem faced by homebuyers through an amendment approved by the cabinet. According to the amendment which is yet to get presidential assent, the homebuyers who had given money to builders in advance will be considered as financial creditors and will be given priority in recovering their debt from the bankrupt companies.Earlier the homebuyers, many of whom used to pay in advance to builders to book their homes were not considered as financial creditors like banks and other lending institutions. Therefore, despite the fact that many of the building projects were majorly funded by homebuyers’ money, they were nowhere in the resolution process if the project was abandoned.
The Confederation of Real Estate Developers Association of India (CREDAI) NCR president Pankaj Bajaj said, “It is a good move for the protection of the money of homebuyers. RERA protects the money of buyers in an ongoing concern. Now the buyer’s investment is protected even in the case of insolvency. This will instill a sense of confidence amongst buyers of under construction property. However, for the continued flow of institutional and bank credit to the real estate sector, the system must uphold the superiority of a bank mortgage over any other claim otherwise banks may become hesitant in lending to this sector.”
People in many newly built cities like Noida, Greater Noida, Gurgaon, Navi Mumbai etc were facing problems because the existing laws were tilted towards the builder rather than the homebuyer. They paid in advance to the builders to buy their dream homes because builders promised that they will give possession within months. Everyone wants to have their own home and this dream urges the people to readily pay to the builders without evaluating the project seriously. After receiving the money, builders like Jaypee Group did not hand over possession to the apartments for many years as work was still incomplete. The people suffered and there was no strong law to punish the builders, despite there being many cases of Dharna, hartals and even suicide by people as they did not have a home even after paying the full money
The Modi government brought Real Estate Regulation and Development Act (popularly known as RERA) to effectively regulate the real estate sector. RERA favours the consumer, unlike the earlier existing frameworks which were in favor of builders. The projects which are under RERA are completely safe and secure, but other projects which are not under RERA framework and the builders have gone bankrupt they were creating problems for the homebuyers. However, Minister Ravi Shankar Prasad did not elaborate on whether the amendment will be prospective or retrospective.
“This is a billion dollar question. Most likely it has to be prospective. Where COC is yet not constituted, where the meeting has to be called at a future date. It cannot be linked to the date of commencement of the CIRP, it has to be the date on which buyers have been declared as a financial creditor,” says an insolvency expert.
If the IBC amendment’s applicability is prospective, then only those consumers will benefit whose companies’ proceedings are already in National Company Law Tribunal (NCLT), as most of the large real estate firms are facing insolvency proceeding currently. If the law is retrospective then all of the homebuyers who did not get homes despite paying the money will get back their share on completion of the insolvency proceedings. This is a huge relief for thousands of middle class citizens who had invested large sums of money with the dream of having a permanent home to themselves.