Not so long, all the creditors, as well as the debtors were welcoming the move of the legislature in introducing the now most complicated Insolvency and Bankruptcy Code, 2016 (Code) but now everybody has realized that the code which is well defined procedurally is actually having many issues which need to be settled. The most discussed among others is the place of "property buyers/home buyers" and where they stand on the list of creditors of any entity against whom the Corporate Insolvency Resolution Process has been triggered.
In the nascent stage, when the Code was introduced there were many home buyers who like any other creditor thought the Code is there to give them a relief, from the prolonged battle they are fighting with the Builders who failed to give them their dream house. Many of them reached the Adjudicating Authority (i.e. National Company Law Tribunal) without knowing that Code fails to recognize them under both the category of the Creditors recognized under the Code.
The situation at the moment w.r.t real estate projects and their buyers are as follows:
a) The buyer who has invested money on assured return basis
The National Company Law Appellate Tribunal (NCLAT) recently gave a piece of relief to those who invested in the real-estate projects and were assured a return, as they have been categorised as Financial Creditor under the Code.
b) The buyer who has been refused allotment due to non-availability of units
In many cases, the builders have taken booking amount from the intended buyers and have assured that they will be given unit in the projects, however, later due to non availability or other reason the buyers have been informed that they will not be allotted the unit but they will be given refund of the amount they have paid towards booking or otherwise. The NCLAT has recently decided that such unallottee will not fall under the category of Financial Creditor or Operational Creditor, thereby, meaning no relief for them under the Code.
c) The homebuyers:
The Code itself failed to recognize them as they don't fall under the definition of Financial Creditor or Operational Creditor.
The Insolvency and Bankruptcy Board of India (IBBI), recently on 16th August 2017, introduced a new form known as Form F for those Creditors who do not fall under the category of financial creditors and operational creditors. People thought that this Form F has been issued keeping in mind the dilemma of the home buyers who stands nowhere after the announcement of Corporate Insolvency Resolution Process in Jaypee by Allahabad Bench of Hon'ble NCLT.
However, on 18th August 2017, IBBI issued a press release wherein it mentioned that the new reports regarding "owner of undelivered properties can become part of the committee of creditors and stake a claim equivalent to the amount they have paid to realtors. Their claims, according to the regulator, would be treated on a par with claims of other financial and operational creditors and would not be pushed to the bottom of the list." is not correct as the IBBI has not made any such statements. In the release, IBBI further clarified that by issuing the Form F they have only tried to facilitate the process of collection and collation by the interim resolution professional / resolution professional of all the claims pertaining to corporate debtors.
Be that as may be as the new Form F has been introduced by IBBI and as the Board clarified in its release on 18h August 2017, the same is for all those who have a claim against the corporate debtors accordingly the home buyers/unallottee can submit their claim but still it is not clear at what footing they will stand, whether they will be kept at par with Financial Creditor or Operational Creditor. In order to give the Home Buyers right equivalent to Financial Creditors as they have also contributed a huge amount of money, the Code itself needs to have an amendment. It would be worth mentioning in some projects of real estate companies the amount deposited by the home buyers are much more than the amount taken by these companies from the Financial Institutions.
The ray of relief to such home buyers is the orders given by Supreme Court in Jaypee Infra case including the order to submit the resolution Plan keeping the rights of the home buyers in mind within 45 days though the time prescribed under the Code for submission is 180 days extendable for a further period of 90 days. Still, the question remains if the resolution plan even if given will be workable. Further, will NCLT or NCLAT will travel beyond the Code and since now the Supreme Court has taken cognizance of the Home Buyer's right, they will also consider the Home Buyers as Operational Creditor or Financial Creditor.
The situation will not be clear till the Code is amended and Home Buyers be kept at par with Financial Creditors.
(The author is founding partner of law firm Singh & Associates)