Paying heed to the concerns of homebuyers and bringing them much cheer, the Central government on Friday said they would now be treated as financial creditors and would have a share in the proceeds earned by sale of assets of bankrupt real estate companies.
"Good news for home buyers: Now in situation of real estate companies going bankrupt, home buyers will have a share along with banks in the auction of assets of such companies," Finance Minister Piyush Goyal said in a tweet in Hindi.
"This decision will bring relief to lakhs of home buyers in the country," he added.
It is clear the Minister was referring to an ordinance approved by the Union Cabinet on Wednesday making amendments to the Insolvency and Bankruptcy Code (IBC) and now awaiting the President's approval. Also, Goyal shared a news article in Hindi about Cabinet approval to the ordinance.
IT and Law Minister Ravi Shankar Prasad had then refrained from revealing details of the ordinance saying protocol prevented him from divulging more details before its approval by President Ram Nath Kovind.
Under the existing law, the lending bank and other institutional creditors recover their money first through the sale of assets of the builder in case of insolvency. Only if anything is left, do the buyers get their money back.
Earlier, the Insolvency Law Committee (ILC) set up by the Corporate Affairs Ministry had suggested that home buyers be treated as financial creditors to enable them to participate equitably in an insolvency resolution process.
The report of the 14-member ILC, headed by Corporate Affairs Secretary Injeti Srinivas, that was made public last month had also suggested relaxations for micro, small and medium Enterprises (MSMEs) under the IBC which came into force in December 2016.
Recommending relief for home buyers stranded due to real estate projects left incomplete by promoters facing insolvency proceedings, the panel suggested home buyers be treated as financial creditors owing to the unique nature of real estate financing and their treatment by the apex court in ongoing cases.
Notably, classification as financial creditors would enable home buyers to participate at par with banks and lending institutions in the insolvency resolution process under the Code.
Under the IBC, 'financial creditor' refers to any person to whom a financial debt is owed.