There seems to be no end to agony of home-buyers in India. While they have been coping with delayed deliveries, poor quality construction and hidden charges, a new and much bigger challenge has arrived with the possibility of real estate companies going bankrupt, forcing thousands of home-buyers to march on streets fearing they will lose their life-time savings if their developer goes into liquidation.
It all started with National Company Law Tribunal (NCLT) initiating bankruptcy proceedings filed by IDBI bank against loan default of Rs 526 crore by Jaypee Infratech, one of the big developers in Noida.
The admission of bankruptcy petition has left home-buyers in limbo, who are not certain what their rights would be if the company goes into liquidation. Rumours have already been doing rounds about other real estate companies such as Amrapali who have not been able to complete their projects on time.
Meanwhile, NCLT has appointed a chartered accountant Anuj Jain who is required to prepare a resolution plan and submit it to the court. The plan will then have to be approved by 75 per cent financial creditors (by value) in the committee. Moreover, the process has to be completed within 180 days of the takeover by the professional, though in some cases 90 more days can be provided.
If the plan provides for action to ensure "continuation of corporate debtors as a going concern" the debtor will survive. If it is rejected, Jaypee Infratech will go for liquidation.
Dealing with liquidation would not be such a big challenge in case of manufacturing or production businesses where assets can be sold off to interested parties offering best value. But the equation has not been so simple where third party rights are involved. While IDBI Bank has been a creditor in case of a Jaypee Infratech, allottees or home-buyers have third party rights on the property.
So, dealing with liquidation of developers will not be easy for court and they will have to take constructive view to protect the rights of home-buyers who have already suffered delayed delivery of eight years in the hands of Jaypee Infratech.
Lawyers of the country are trying to understand this complex situation and are confident that irrespective of the final outcome right of home-buyers will surely be protected. Let's figure out what can be the possible outcomes of initiation of bankruptcy proceedings against Jaypee Infratech.
1) Most of the lawyers say that the ruling will not have any impact on homebuyers as individuals have entered into a contract with Jaypee Associates and not Jaypee Infratech. Jaypee Associates transferred the project to Jaypee Infratech just for completion.So the final liability always lies with Jaypee Associates. In that case Manoj Gaur, Chairman and CEO, Jaypee Group, should go by his promise to handover all the houses within next three years. But then, promises are meant to be broken.
2) If we assume that not all projects are with Jaypee Associates but with Jaypee Infratech then homebuyers will have certain rights under the UP Apartment Act if the money is paid fully. If the money is paid partially then homebuyers will not have any contractual rights and he or she will be treated as a creditor in case of liquidation.
Most probably in such a scenario, NCLT will have to ask banks to set aside some amount for the completion of the project as refunding money could bring the project to a complete standstill.
Considering most of the allottees have already paid money the Court will have to take sympathetic view otherwise a common man will suffer without having any fault. As a precautionary measure experts say every allottee either through RWA or individually should file a claim before the court in case of delayed possession.
In case of Jaypee Infratech the deadline is till 24th August. According to Insolvency and Bankruptcy Code any creditor with payment default of Rs 1 lakh can file the application.
The current turmoil in the real estate industry has forced us to ask how did we manage to end up here. How developers on the first place got permission to construct a township when they were already having so much debt on their books. Whose duty was it to look at the competency of a developer to deliver the project? The leasing model of Noida, where land is not bought but taken on lease from the authority, has also raised serious question mark on blind-folded approval of such projects.
Though Real Estate (Regulation and Development Act) has been enacted from May 1 but it is too late for people who put in their life savings to buy a house and have now been struggling to pay EMIs.
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