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Good news for homebuyers! SC upholds IBC amendment; grants them financial creditors status

It was argued before the SC that the homebuyers are significant contributors to finances for starting construction, therefore they should be given the status of financial creditors

twitter-logo Renu Yadav        Last Updated: August 9, 2019  | 18:26 IST
Good news for homebuyers! SC upholds IBC amendment; grants them financial creditors status
In a big relief to homebuyers, Supreme Court (SC) has upheld the amendment in Insolvency and Bankruptcy Code (IBC) which gave homebuyers the rightsof financial creditors

In a big relief to homebuyers, Supreme Court (SC) has upheld the amendment in Insolvency and Bankruptcy Code (IBC) which gave homebuyers the rightsof financial creditors.

Last year, Section 5 (8)(f) of IBC was amended by putting an explanation to include home buyers as financial creditors. Pioneer Urban Land and infrastructure had initiated a plea in the Supreme Court challenging the validity of Section 5 (8)(f) of IBC. Subsequently, around more than 200 developers filed a writ petition.

Dismissing the pleas of the developers, the SC has upheld the status of home buyers as financial creditors.

"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 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," said Abhilash Pillai, Partner, Cyril Amarchand Mangaldas.

The bench of the apex court has said that only genuine homebuyers can invoke insolvency proceedings against developers.

It was argued before the SC that the homebuyers are significant contributors to finances for starting construction, therefore they should be given the status of financial creditors.

"This is a landmark judgement which would shape the real estate industry for the better. It is a huge relief for home buyers who will have a remedy particularly against defaulting developers. We are thankful to the bench for giving the home buyers an opportunity to present their case in support of the Union of India and the amendment to the Insolvency and Bankruptcy Code, 2016," said Shohit Chaudhry, Advocate-on-Record, Supreme Court of India.

Now, as homebuyers will be included in the financial creditors' list, they can file their cases under Section 7 of the IBC, which provides for the initiation of corporate insolvency resolution process by financial creditors. This basically means that the financial creditors can initiate a process by which management can be changed.

"This will be a game-changer because home buyers who are waiting for their houses for many years and the builders were not doing any work on the ground level. Now, homebuyers at least have the opportunity to initiate the process to change the management and hope to get their houses," added  Chaudhry.

Also Read:Article 370: Jammu & Kashmir real estate market may take time to pick up pace

Also Read:Govt working on uniform proposal to address grievances of home buyers: Centre to SC

Also Read: Has Insolvency and Bankruptcy Code failed homebuyers?

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