In our previous article we wrote about what are the various legal mechanisms a Home-Buyer can approach in case the Builder or the Developer defaults. Let’s now compare the two major mechanisms and which one shall give a speedy redressal to the Home-Buyer.
The Real Estate industry has always been infamous for constant delays in possessions, various dealings in black money etc. There was a need to streamline the entire industry. Hence RERA was introduced to regulate the entire Real Estate Industry. The Objectives of RERA are:
- Ensuring Transparency & Efficiency In Real Estate Sector
- Protecting The Interest Of Consumers In Real Estate Sector
- Establishing Adjudicating Mechanism For Speedy Dispute Redressal
The Insolvency and Bankruptcy Code, 2016 on the other hand is a Bankruptcy Law which streamlines the Bankruptcy proceedings of a Corporate Entity. How does IBC help Homebuyers? Well there are numerous judgements given by the High Court and Supreme Court which include the “Homebuyer” in the ambit of a Financial Creditor. After these judgements were given, the Insolvency and Bankruptcy (Amendment), 2017 included the Homebuyers as a financial creditor by amending it’s definition.
Section 5 (8) (f):- “any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of borrowing”
As per the initially envisaged IBC, home-buyers were not considered to be in a definite class of creditors and they were clubbed with unsecured creditors. In Col. Vinod Awasthy v AMR Infrastructure Ltd. home-buyers had approached the NCLT for being allowed to participate as creditors in the corporate insolvency resolution process of AMR Infrastructure Limited. However, they were not considered as creditors. The NCLAT however reversed the order of the NCLT and recognized home-buyers as financial creditors considering the factual matrix of the case.
The legislature took these events into account and now has provided recognition to home-buyers as financial creditors and amended the IBC vide the IBC (Amendment) Ordinance, 2018 to provide for the same.
Therefore, presently home-buyers are recognized as financial creditors under the IBC and are entitled to the receipt of a portion of the sale of the assets under the liquidation process. Secondly, being financial creditors, home-buyers are permitted to initiate the insolvency resolution process under Section 7. As financial creditors, home-buyers are also accorded the opportunity of being a part of committee of creditors under Section 24 and may vote during the corporate insolvency resolution process.
Both of the enactments have been laid down with the different agenda. Real Estate Regulatory Authority (RERA) was enacted for the utmost protection of the rights of the Homebuyers and to safeguard the hard earned money paid in lieu of the expectations of getting a home in return whereas the Insolvency and Bankruptcy code, 2016 was enacted to revive the company if possible and to safeguard the interest and money of all the creditors (Financial and operational creditors) of the company. Earlier no protection was provided to the Homebuyers under the IBC as they did not fall under the definition of either the financial creditor or operational creditor. However with the advent of Insolvency Law Reform Committee an amendment was introduced in the IBC, 2016 wherein the homebuyers were included in the definition of Financial Creditor.
Although now both of them provides recognition to the homebuyers and protects the interest of Homebuyers but in a different way but it is pertinent to understand the purposes of both the acts and the relief they provide as both have a different approach to get the relief.
The protection provided by the IBC is limited in nature and is only relevant when a company becomes insolvent or bankrupt. Therefore, it is not a suitable forum to claim relief in most cases and can only be used by home-buyers as and when the concerned real estate company is in a bad financial position and unable to continue and/or finish the concerned real estate project.Although the IBC amendment was brought to emplace the homebuyers in the IBC with the motive to protect and acknowledge the right of homebuyers in case the Insolvency Petition is filed against the Developer’s Company but RERA being a more specific act should be adopted when the construction of the project is at the urge of completion or when it is possible to get the refund or possession from the developer.
Therefore, both the laws provides with the subjective approach depending upon the facts of the case and the situation of the developer.
