FATE OF RERA CASES AFTER COMMENCEMENT OF INSOLVENCY

The home buyer spends money from his entire life savings to buy a home. While the real estate market continues to flourish, some apprehensions continue to haunt the homebuyers/allottees. Sometimes the duration between purchasing the property and its possession becomes too long to wait. And this is where the burden of homebuyers starts.

Real Estate Regulation and Development Act 2016 (RERA), was enacted to regulate the real estate sector of the country. The legislative intent of the RERA is to resolve the disputes between Promoters and Allottees. Promoters are the builders and the Allottees are the home buyers.

In recent times it is common to see builders go into insolvency, where the under-construction homes of the home buyer go standstill, there might be a delay in the registry process and the possession time can get extended.

What if your builder is declared Insolvent?

The IBC and RERA enactments of 2016, provide homebuyers with alternative forums to get justice. Homebuyers can file claims before the Consumer court under RERA, and before the National Company Law tribunal under IBC. As per data, there is a steady increase in several CIRP cases in which real estate accounts for nearly 20%.

Once a builder is declared Insolvent, the builder themselves or the buyer can file for insolvency at the National Company Law Tribunal (NCLT). Then NCLT will appoint an Insolvency Professional who will try to resolve the builder’s financial situation. If revival cannot be done, the authority will verify the claims of creditors/allottees and direct for liquidation and settlement process. Buyers can raise claims for a refund of the amount they invested in the property and damage suffered by them due to the delay in the transfer of possession. However, primary creditors such as banks are likely to get the first right to claim the debt if the builder’s assets are liquified.

Possible relief that can be sought by Allottee in case the Builder is declared insolvent?

• The project will be completed by selling the assets of the Builder and handed over to the buyers
• Buyers may form a resident welfare and take the under-construction project and complete the project
• The buyers may be asked to pay the balance amount of the units, which will be used to complete the project.
• Buyers can even file for a refund by terminating the purchase agreement. In this case, demand of possession can’t be claimed.

Judicial Precidents:

Pioneer Urban Land and Infrastructure Ltd and Anr v. Union of India

In this case, many writ petitions were filed to challenge the constitutional validity of the 2018 amendment in the Insolvency and Bankruptcy Code by the Insolvency Law Committee.

The amendment so made deems allottees of real estate projects to be “Financial Creditors” in Section 5(8)(f) of IBC. So that they may trigger the code under section 7, against real estate developers. Being financial creditors, they are even entitled to represent in the Committee of Creditors.

Conclusion:

In the public interest, the amending of the Code provides big relief to home buyers by treating them as Financial creditors. How far the interest of the home buyers is protected would depend on the issues taking shape in future. The NCLT applied the decision in the Pioneer case and held that in the event of a conflict between RERA and IBC, the IBC would prevail.