Home buyers looking for relief from the government and courts are unlikely to be given the status of financial creditors, senior officials in government have indicated. While home buyers are petitioning the courts to get errant builders to either complete construction of properties or return their money, a key demand is also that they be given a higher status equivalent to that of financial creditors under the Insolvency and Bankruptcy Code, 2016 (IBC). Under Section 53(1) (f) of the IBC, home buyers’ claims would rank below those of workmen, secured creditors, employees, unsecured creditors and so on, just ahead of the preference and equity shareholders. In other words, they would be among the last to receive their dues. Though a task force is examining how to deal with home buyers, sources said the government is not keen to allow this since this could lead to other creditors making similar demands, in the process undermining the IBC’s legal foundation.
In a letter to the ministry of corporate affairs dated September 29, the ministry of housing and urban affairs had sought a review of the IBC to help home buyers recover as much as possible in the event the builder went bankrupt. The housing and urban affairs secretary, Durga Shankar Mishra, suggested home buyers be made “primary secured creditors” so that their right to claim over distribution of assets should be above all other “secured creditors”. The ideal way to protect the interest of home buyers is to recognise them as “financial creditors”, which would automatically make them part of the “creditors committee”, the ministry suggested.
The ministry has been making a case for home buyers saying they needed to repay home loans even if they failed to get possession of the flats and, therefore, they should be given more rights. In August, in some relief to home buyers who had invested in stressed real estate projects of companies such as Jaypee, the Insolvency and Bankruptcy Board of India came up with a new form to enable them to submit their claims in case of any liquidation of such firms under the new IBC.