Alert! Insolvency action by homebuyers against builders to become difficult; Here’s why

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Updated: Dec 21, 2019 10:50 AM

A recent proposal to amend the Insolvency and Bankruptcy Amendment Bill (IBC), 2019 will make it difficult for the home buyer to take the builder to the court.

 Homebuyers, real estate sector, projects stuck, Insolvency and Bankruptcy Amendment Bill (IBC), 2019, NCLT,The new amendment will ensure commonality of intent, and then they can seek insolvency action, avoiding arbitrariness by just one or two individuals.

Homebuyers in the country who find their residential projects stuck due to insolvent developers may have tougher times ahead. A recent proposal to amend the Insolvency and Bankruptcy Amendment Bill (IBC), 2019 will make it difficult for homebuyers to take builders to the court. As of now, those who have not yet got the possession of their flat can initiate legal corporate action against the builder in the National Company Law Tribunal (NCLT). Even a single home buyer can do so. However, going forward, as per the proposals, a single home buyer cannot do so. As per the new rule, if enacted, one will have to bring more home buyers who are yet to receive the possession of their flats from the same developer.

The Union Cabinet has already approved the proposal to make amendments in the Insolvency and Bankruptcy Code, 2016 (code), through the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019. So, what is the new amendment all about. “ For the real estate sector, the IBC Amendment Bill 2019 stipulates that insolvency action can be initiated against developers only if 10 per cent or 100 home buyers (whichever is lower) or debenture holders agree to the move,” informs Surendra Hiranandani, Chairman and Managing Director, House of Hiranandani.

This will require the aggrieved home buyers to bring other home buyers together as well. So, if there are 500 home buyers who are yet to get their flats, at least 10 per cent i.e. 50 buyers have to approach NCLT in a group.

The bringing of this amendment may also be seen as a positive development. “It will stop the misuse of the law and ensure that it is used only in genuine cases in the larger interest of home buyers and real estate companies. Earlier, in some cases, it was used as an arm-twisting tool against developers and jeopardized the interest of genuine home buyers. The new amendment will ensure commonality of intent, and then they can seek insolvency action, avoiding arbitrariness by just one or two individuals. This amendment is a welcome step which focuses on the greater good of the project and also ensures that no unreasonable pressure is brought upon the project or the developer by one or two individuals,” says Hiranandani.

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