Increasing number of homebuyers are approaching the National Company Law Tribunal (NCLT) in case of delay in possession. But has the NCLT been able to resolve disputes under the Insolvency and Bankruptcy Code?
T he government’s amendment to the definition of “financial debt” in the Insolvency and Bankruptcy Code, 2016, (IBC) allows homebuyers to invoke commencement of corporate insolvency resolution process (CIRP) against the erring developer company at the National Company Law Tribunal (NCLT). Homebuyers at par with secured financial creditors, now have their say in the committee of creditors (CoC) with the voting shares of the class of creditor in the category of homebuyers in proportion to the debts.
“In a typical resolution set-up under the IBC, where there is corporate debtor under stress, a white knight picks up the asset after paying an agreed upon amount, albeit after banks agree to a haircut. This cannot apply in a real estate scenario as, someone has to step in and assess the pending work left, the cost of executing it and figure out the money available. There could be unsold inventory, or a piece of plot that can be sold, for instance. So the resolution applicant should state that this is the amount required to complete the project, this is his fee, and then complete the project and get out. This is what is required in a typical real estate case unlike what is prescribed in the IBC.” Sanjeev Ahuja, Director of Ensemble Resolution Professionals Ltd.
THE FAILURES OF IBC FOR THE HOMEBUYERS
• Genuine homebuyer’s claims get rejected on the grounds of non-production of evidence. Or, the adjudication of homebuyer’s claims get complicated as the developers did not maintain a proper statement of account and documents.
• If the CIRP fails to find a resolution, the developer company has to go into liquidation, which is a time-consuming process
THE FAILURES OF IBC FOR THE DEVELOPERS
• At times the homebuyers that have defaulted on payments, abuse the process of law by pressurizing the developer to enter into an unrealistic settlement under the threat of initiating CIRP.
• Merely an instance of dispute with one out of hundreds of homebuyers could result in driving a financially solvent and healthy real estate developer into insolvency.
