Insolvency and Bankruptcy Code: Has IBC been effective in safeguarding the rights of buyers?

Updated: September 30, 2018 11:26 AM

IBC can only hasten the resolution process but can never take away the pain of all those who are impacted due to the builder's insolvency or inability to meet the commitments.

Insolvency and Bankruptcy Code, IBC, Insolvency and Bankruptcy Code India, homebuyers, Amrapali, Jaypee GroupIt is very unlikely that the home buyers will get any significant recovery from the sale of the uncompleted projects either.

The interest of home buyers continues to remain in jeopardy as many real estate developers who have collected money from the flat owners have not utilized the same for construction of building, resulting in stalled projects. The balance amount of money required to complete the under construction property is substantially higher compared to the balance money receivable/ value of unsold inventory.

The case in example is Amrapali & Jaypee Group. Even though the Hon’ble Supreme Court has ordered that all the personal assets of the directors / promoters be sold to fund the shortfall in completion of the project, but the gap in funding vis-à-vis the assets of the promoters is so huge that different solution will be required to complete the project. Unless the government incentivizes the new developers by allotting enhanced sale area (FSI) to cover up the investment and profit for the efforts, the woes of home buyers will not get resolved.

Even NBCC (India) Limited, a Navratna Central Public Sector undertaking, is having jitters to take over the stalled project as they would be saddled with losses. NBCC is also demanding that a feasible proposition is given by the government for them to take over the project, including funding the gap in construction cost vis-à-vis the balance collection. The complication is getting compounded with the bankers filing further proceedings to recover their dues from the developers as they also have a secured charge over the assets.

It is very unlikely that the home buyers will get any significant recovery from the sale of the uncompleted projects either. It is quite likely that the buyers may have to fund in additional money to complete the construction beyond their original purchase price.

However, this resolution will not work in cases where the amount already paid by the buyers plus the additional contribution is significantly greater than the market value of the property in surrounding area. If this is the case, the buyers would like to put money in ready flats instead. For example, if all the buyers have paid Rs 2000/- per sft and the additional money required based on the stage of completion is Rs 1500/- and the new flat is available for 2500/-, it is unlikely that all the flat buyers will put in additional 1500/- and still deal with the uncertainty of project completion.

In conclusion, the buyers of stalled projects are sticking out like a sore thumb!

(By Sandeep Shah, Partner, N.A Shah Associates LLP)

(Disclaimer: These are the views of the author) 

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