Homebuyers will now get the status of financial creditors during the insolvency and bankruptcy court proceedings of the real estate companies.
In a major relief to thousands of homebuyers stuck in incomplete housing projects, including Jaypeee's, the Union Cabinet on Wednesday approved an ordinance to amend the Insolvency and Bankruptcy Code (IBC).
Homebuyers will now get the status of financial creditors during the insolvency and bankruptcy court proceedings of the real estate companies. This will make it easier for them to recover their investments in a housing project.
"The Cabinet has approved the ordinance," Union law and justice minister Ravi Shankar Prasad said after the Cabinet meeting.
The ordinance is likely to be promulgated in a couple of days after getting the President's assent.
"The homebuyers have been granted the financial creditors' status, though unsecured. They have been placed right after banks in the hierarchy under waterfall mechanism for liquidation," sources said.
As of now, flat owners fall under both operational as well as financial creditors' category, depending on the nature of the project based on assured returns.
If homebuyers are treated as unsecured financial creditors, their claims shall be subordinated to the claims of senior secured creditors such as financial institutions.
Parveen Jain, Vice Chairman of National Real Estate Development Council, said the move gives a solid right to the buyers to act as financial creditors in case of insolvency and the buyers shall not be left helpless in case of non-delivery or delay in projects.
Soumyajit Niyogi, an analyst of India Ratings and Research, said, "They (buyers) will form a part of the committee of creditors that approves a resolution plan, and their voting rights will be in line with their advances. However, the final contours of the code need to be seen for smooth functioning of the committee, considering several homebuyers and voting rights."
Describing it as a positive thing for homebuyers, Ramakant Rai, a partner at Trilegal, said in most real estate companies, the contribution of the homebuyers is more than that of banks. "Earlier, it was difficult for the homebuyers to have fair treatment in the process, leave aside preferential treatment," he said.
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