Creditor status for homebuyers
India’s President Ram Nath Kovind approved the Insolvency and Bankruptcy Code Ordinance, 2018, which places home buyers on a par with other financial creditors of a bankrupt realty firm. The amendment allows home buyers to be treated as secured “financial creditors” for the insolvency process, so that their total investments are reflected in the sum which can be recovered from the sale of assets.
Home buyers can now invoke Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016, against errant developers, just as banks do.
Besides, the buyers will be represented in the Committee of Creditors. Earlier, home buyers were treated as “unsecured creditor”, which graded their investment as an unsecured loan, to be dealt with only after the bankers and other secured lenders recovered their money. This meant that once a realty firm went bankrupt, the flats for which home buyers had given money would become the property of banks who could auction them without bothering about the investments made by the buyers.
The move assumes significance amid hundreds of home buyer facing difficulties due to delayed and incomplete real estate projects, with quite a number of realty firms coming under insolvency proceedings.