Union Cabinet Clears Proposed Change to Insolvency and Bankruptcy Amendment Bill

Recently the union cabinet has cleared a proposed change to SECTION 7 of the Insolvency and Bankruptcy Amendment Bill (2019) which suggests that at least 100 or 10% of the total buyers, whichever is lower in a real estate project will have to come together to initiate the corporate insolvency resolution process against a developer in the National Company Law Tribunal (NCLT). While the consumer activists have raised their voice against it, the real estate developers have welcomed the proposed change since it would reduce cases of misuse of the law.

Amid all this the leading Advocate Ishanee Sharma has come forward to support the move by explaining the proposed amendment further. According to her, the very stringent legal sanctions and the moratorium imposed every now and then is detrimental to the growth and proper functioning of the entire real estate sector. Now the Cardinal nexus between the homebuyer and the developer needs to be explored since it is a producer-consumer relationship and if the money of the consumer is stuck with the producer, how will the product be delivered, if the wheels of production won't move.

Advocate Ishanee Sharma

Advocate Ishanee Sharma said, "At first glance the proposed change in the Insolvency and Bankruptcy Amendment Bill (IBC) that a single homebuyer can't take the builder to bankruptcy court may look like an anti-homebuyers move but it's exactly in line with the honourable Supreme Court's recent confirmation on the constitutional validity of the Insolvency and Bankruptcy Code (Second Amendment) Act of August 2018 which empowered the harassed home buyers to initiate bankruptcy proceedings against errant real estate builders by giving them the status of financial creditors with power to vote in the Committee of Creditors."

"In the current real estate market scenario marred by growing number of abandoned housing projects and their developers preferably seeking to take bankruptcy route as an easiest option, such stringent provision will compel the errant developers to complete and deliver their projects rather than short-changing the majority of the homebuyers by getting a single homebuyer to their side and indirectly opting for bankruptcy," she added.

She is of the opinion that with this amendment, nothing will change for the homebuyers whose applications have already been accepted by the NCLT and if an application filed by the homebuyer has not been admitted before the amendment bill comes into effect as an Act of Parliament, then such application will have to be modified to meet the new requirement, within 30 days of the Act coming into effect. If no modifications are performed within 30 days the application will be deemed to have been withdrawn. The change would reduce cases of misuse and protect the developers.

Actually the final relief for the homebuyer isn't putting the Builder behind bars, it still is a home for which they have saved and dreamt all their lives. In realising this dream we need a healthy cohabitation of both the parties without the exploitation of the vulnerabilities of either. The construction works have a complete economic eco system co- dependent on it. The number of defaulters is huge, beyond doubt, but those who are in a position to deliver should not be penalised by the misuse of the act.

The Developers have been demanding an increase in the minimum number of people required to take a company to NCLT to two-thirds of the total homebuyers in a project. They have also been demanding that the real estate regulatory authority (RERA) be made the sole authority to address the grievances of homebuyers.

According to government data, about 1,600 projects and over 4,50,000 units are stalled across India. It still needs to be seen what course the resolution process takes in the future.