- Anubha Agarwal
The government came up with the Insolvency and Bankruptcy Code (IBC) in 2016 to help struggling businesses resolve their financial problems and avoid liquidation. The code had its share of successes, but a huge collateral damage has been the interests of homebuyers, many of whom have lost their life savings. The IBC does not consider homebuyers as a definite class of creditors and clubs them with unsecured creditors. This leaves them with no option but to approach the National Company Law Tribunal (NCLT) for being allowed to participate in corporate insolvency resolution process as creditors. The number of homebuyers whose savings are stuck with big builders such as Jaypee Infratech, Supertech, Amrapali, Lotus 3C runs into lakhs.
Prior to the enactment of specific laws, the only option before homebuyers was to approach consumer courts or civil courts for redressal of grievances. The remedy available to them was return of the money along with compensation for the negligence of builders. The builders also faced punitive damages in such cases. Thereafter, a more time-bound adjudication mechanism came about in 2016 in the form of the Real Estate (Regulation and Development) Act (RERA), which stipulated the creation of separate bank accounts to park homebuyers’ money. The builders could withdraw funds from these accounts only as per the stages of completion of the project.
To address the issues faced by homebuyers in the Jaypee Infratech matter, the government amended the IBC vide the IBC (Amendment) Ordinance, 2018 to make homebuyers financial creditors and to give them a chance to recover their money through the resolution process. But the ordinance is now being revisited after a Supreme Court order in January 2019, seeking opinion `on whether making the homebuyer a financial creditor would drive financially solvent and healthy real estate developers into insolvency. The Court has sought responses from the ministries of corporate affairs, law and justice and housing on the constitutional validity of the amendment.
Striking a balance between the RERA and the IBC is a difficult task. Once a petition against the builder is admitted under IBC, proceedings under RERA will not be unavailable to the petitioner.
In April 2019, the Insolvency and Bankruptcy Board of India (IBBI) released draft regulations to amend the IBC, learning liquidation experience both in India and abroad. The amendment opens the option for the sale of a corporate debtor as a going concern without dissolution and for sale of the business of the corporate debtor without transfer or sale of ownership. This seems like a viable solution true to the spirit of IBC. This also gives the shareholders and the owners of the company an opportunity for a compromise solution before complete closure.
It remains to be seen if this would remove the apprehensions of the creditors and protect the interests of the employees. The IBC already has the interim resolution professional, the resolution professional and the liquidator who look into the interests of the creditors. It is to be seen if this will create a new watchdog that will take a relook at the whole procedure before liquidation leading to a prolonged dispute resolution.
Is there a way to end the confusion between the two laws RERA and IBC by giving RERA authorities a say in IBC proceedings? There is much to be resolved before the spirit of the resolution can be fulfilled. Until then we shall hope that the lawmakers and the government will find a fair resolution to the problem.
Anubha Agarwal is an Advocate and a Company Secretary specialising in corporate, commercial and bankruptcy laws. She is a Senior Associate at Corporate Law Group, a New Delhi-based law firm. The views expressed are the author’s own.