There are clear signs that homebuyers could be treated on a par with unsecured financial creditors in the matter of insolvency proceedings for real estate companies. This is one of the proposals made by a committee tasked with reviewing the Insolvency and Bankruptcy Code (IBC) and under consideration by the government.
If adopted, the move will give hope to those who have booked residences in projects of now beleaguered companies like Jaypee Infratech, Unitech and Amrapali and find themselves at the end of the queue when it comes to seeking recompense.
Thousands have been left in the lurch after Jaypee Inftratech and Amrapali were referred to the NCLT by IDBI Bank and Bank of Baroda, respectively, after they failed to pay their dues. Besides this, the ministry of corporate affairs has moved the bankruptcy court to take control of realtor Unitech.
This 14-member insolvency law committee was set up to identity factors that “impact the efficiency of the corporate insolvency resolution and liquidation framework” and make recommendations to sort these issues out.
If the measure on homebuyers is adopted, the biggest advantage for them will be the right to take part in the insolvency resolution process and be part of the committee of creditors. It would also give them voting rights on resolution plans.
“A proposal is actively considered to give homebuyers a status of unsecured financial creditors — a move which is aimed to take care of the interests of all the stakeholders,” said one of the official cited above.
The current IBC norms provide for a so-called waterfall mechanism - eight levels for the order of distribution of proceeds from the sale of liquidated assets among stakeholders. After resolution professionals and administrators, financial creditors and workmen’s dues have priority, followed by unpaid dues of employees other than workmen. The next in line are the unsecured financial creditors, followed by government dues and equity shareholders in that order. Homebuyers are currently at the end of the line when it comes to developers.
The proposed amendment would make it possible for homebuyers to jump to a higher position and have a say in the resolution plan. Close to 31,000 homebuyers of Jaypee Infratech and 41,000 of Amrapali’s Silicon City project have appealed to the Supreme Court that they should be treated on a par with financial creditors. To safeguard the interest of homebuyers, the Supreme Court directed Manoj Gaur and family, promoters of Jaypee Infratech, not to sell personal assets and deposit Rs 2,000 cr with the court.
In the case of Amrapali, the Supreme Court has asked the developer to submit a plan to deliver apartments to all homebuyers. With regard to Unitech, about 19,000 homebuyers find themselves stranded with the corporate affairs ministry having moved the National Company Tribunal Law under the Companies Act to take control of the company over accusations of fund diversion. The Supreme Court has stayed the move following an appeal by Unitech.