Cabinet approves changes in bankruptcy code to empower homebuyers
24 May 2018
The union cabinet on Wednesday approved amendments to the Insolvency and Bankruptcy Code (IBC), incorporating provisions that allow homebuyers to be treated on a par with financial creditors, and giving them first right for recovering dues.
The amendments to the IBC are in line with changes suggested by a government appointed panel regarding treatment of investors in cases where realty firms turn insolvent.
Briefing reporters after the cabinet meeting, minister for law and justice Ravi Shankar Prasad, said, "I cannot disclose anything because it's a new legislation except to reinforce that the cabinet has approved it".
Asked about possible relief measures for home buyers as per the recommendations of the panel, Prasad said, "there is something called constitutional protocol. An Ordinance, till it is approved by the President, I cannot speak about the details".
A 14-member Insolvency Law Committee had made suggestions to the ministry of corporate affairs on ways to address home buyers’ woes and making recoveries easier for lenders.
The panel had suggested that home buyers should be treated as financial creditors, which will allow them to equitably participate in an insolvency resolution process.
The cabinet decision comes after homebuyers of Jaypee WishTown earlier opposed liquidation proposal of Jaypee Infratech.
Under the IBC, home buyers were “unsecured creditors”, whose priority comes after those institutional or secured creditors. Consequently, insolvency proceedings against some realty firms have left homebuyers who have put in their money, in jeopardy.
With the current rules against investors in housing projects, these homebuyers had moved the Supreme Court that directed that investors in housing projects be treated as financial creditors until they get possession of the homes.
The proposed amendments, as reportedly cleared by the Cabinet today, will accord homebuyers benefits similar to banks and institutional creditors if the realty firm undergoes insolvency proceedings.
The panel has also suggested relaxations for micro, small and medium enterprises (MSMEs) under the IBC.