Since the Insolvency and Bankruptcy Code, 2016 came into effect for corporates last year, all three categories of applicants—financial creditors, operational creditors and corporate debtors began filing applications under the code. Undue delay Homebuyers who were facing undue delay in their real estate projects causing them financial and mental hardship thought that the Code is their rayof hope. Many homebuyers who were assured a return during the pendency of the project initiated insolvency proceeding against the real estate majors. But to their dismay, National Company Law Tribunal (NCLT) in its earliest ruling on the matter gave an adverse ruling that a homebuyer did not qualify as a ‘financial creditor’ and also that the assured return did not qualify as a ‘financial debt’.
On appeal, National Company Law Appellate Tribunal (NCLAT) after scrutinising the consideration of the ‘assured return’ agreement with the purchaser held that the corporate debtor treated the appellants as investors. Common homebuyers But what about the common homebuyers who do not have an ‘assured return agreement’? The NCLT in this regard held that a homebuyer doesn’t qualify as an ‘operational creditor’ and also cannot be treated as ‘financial creditor’ since such debts are not disbursed against the consideration of the time value of money. This decision led to a wide ranging implication that gave rise to a possibility that certain kinds of debts may not fit into either the operational debt or financial debt buckets.
The common homebuyers without any assured return agreement have also technically financed (in part) these real estate projects, so by logic should they not be treated as ‘financial creditors’?
Claim through IRP The homebuyer’s attempt to use the Code to pursue remedies against real estate developers failed, but NCLAT held that homebuyers can file a claim once the insolvency proceedings have been admitted by NCLT and Insolvency Resolution Professional (IRP) invites the claims from the creditors. But whether they will qualify as a ‘financial creditor’ or ‘operational creditor’ or ‘secured creditor’ or ‘unsecured creditor’, and accordingly, what will be their place at the time of repayment, were some questions that remain unanswered.
Some teeth to homebuyers
To facilitate homebuyers to file their claims, a new form was prescribed under the Code for those creditors who neither qualify as a ‘financial creditor’ or ‘operational creditor’. Also, homebuyers can submit proof of their claims with the IRP and hence have a better chance at recovery. The Insolvency and Bankruptcy Board of India (IBBI) is working on a war-footing to resolve issues that come in the way of a speedy resolution. But is that enough for homebuyers, who have taken hefty loans to buy their dream houses?
Though there is some relief, homebuyers will still not be able to take any realtor to the insolvency tribunal. There is a chance that the homebuyers would be clubbed with the unsecured creditors, thereby pushing them to the end, when nothing may be left with the company to repay. Any interpretation by courts in future are expected to take into account the hardship being faced by aggrieved homebuyers. This is also evident from the fact that the apex court has recently given an early hearing to the 24 buyers who have challenged Insolvency Proceedings against Jaypee Infratech expressing their concern that they may be clubbed with unsecured creditors, thereby neither getting a refund nor a home.
The author is managing partner, Nangia & Co LLPA