SC upholds IBC amendments giving financial creditor status to homebuyers

SC upholds IBC amendments giving financial creditor status to homebuyers
10/08/2019 , by , in News/Views

The Supreme Court Friday upheld the constitutional validity of amendments made to the Insolvency and Bankruptcy Code (IBC) which conferred the ‘financial creditors’ status to homebuyers and entitled them to be a part of the Committee of Creditors (CoC) to safeguard their interest.

The apex court’s verdict came as a big relief for lakhs of harassed homebuyers who are facing difficulties due to delayed possession and incomplete real estate projects.

As financial creditors now, they will have a say in the resolution process of a cash-strapped realtor.

A three-judge bench headed by Justice R F Nariman held as “constitutionally valid” the amendments made to the IBC in August 2018 and said it “does not infringe” upon the rights of real estate developers and is neither “arbitrary” nor “discriminatory”.

It can be seen that the Insolvency Law Committee found, as a matter of fact, that delay in completion of flats/apartments has become a common phenomenon, and that amounts raised from home buyers contributes significantly to the financing of the construction of such flats/apartments, said the bench, also comprising Justices Sanjiv Khanna and Surya Kant.

Abhilash Pillai, Partner, Cyril Amarchand Mangaldas, 

“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 a happy news for the investor-home buyers who have initiated IBC against the developers for seeking exit from their investments on account of the current condition of the real estate market.

The stay on NCLT proceedings are to continue till NCLT/ NCLAT decides each petition of home buyers in light of Section 65 IBC (malicious proceedings). This adjudication will bring in lot of clarity on the on-going litigations.”

Dr. Niranjan Hiranandani -National President- National Real Estate Development Council (NAREDCO)

“The Hon’ble Supreme Court’s decision is a positive decision and we welcome the same. While giving home buyers status of financial creditors, on par with creditor banks, the effect will be beneficial to both lenders and the consumer, as it will help completion of delayed projects.

In a scenario of liquidity crisis where NBFCs have been impacted, this judgment will set ground to find a remedy in all those projects which have been delayed and builders are unable to complete the construction. This decision will allow projects to get to the logical ending in terms of completion of the projects without getting foreclosed by banks.

The law of IBC is very progressive in nature and it has the potential to restructure the real estate industry.”


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