Summary – The Hindu – RERA vs IBC: two laws that now ring fence homebuyers

(Practice Question: A number of cases of errant promoters/developers harrasing homebuyers have been reported recently. What are the recent steps taken by the government to address this issue? – 150 words)

Author: Sanjay Vijayakumar

The Real Estate (Regulation and Development) Act, 2016 (RERA) and the Insolvency and Bankruptcy Code (IBC) offer protection to homebuyers from errant promoters/developers.

How does RERA protect homebuyers?

RERA offers protection to homebuyers by imposing duties on promoters and consists of preventive and penal provisions. Every promoter shall register his project with RERA and 75% of the amount realised shall be deposited in a separate account; withdrawal from the account shall be in proportion to the degree of project completion, among others. Failure to comply entails penalty. On failure to give possession of the apartment, the homebuyer is given the choice to withdraw from the project and the promoter shall be liable to repay the amount received. In case of non-withdrawal, promoter shall pay interest for every month of delay till the date of handing over the possession.

Protection that IBC offers:

Post the The Insolvency and Bankruptcy Amendment (Ordinance) Act, 2018, homebuyers are included in the category of “financial creditors” under the IBC, thereby putting homebuyers at par with banks and financial creditors during insolvency proceedings. Prior to the amendment, homebuyers were neither treated as financial creditors nor as operational creditors but as an ‘unsecured creditor’, because of which they were not able to initiate insolvency proceedings against a defaulting developer.

By virtue of the amendment, homebuyers are now classified as an ‘allottee’ under a ‘real estate project’. Any amount raised from an allottee under a real estate project is deemed to be an amount having the commercial effect of a borrowing. Therefore, under the Code, the amounts paid by homebuyers to a developer will be treated as financial debt and homebuyers will be categorised as financial creditors. Homebuyers can now form part of the committee of creditors that has the power to appoint the interim resolution professional and approve resolution plans, ensuring that their interests are not backtracked by other creditors. Being financial creditors, their voting share will be in proportion to the financial debts owed to them.

Read the full article at The Hindu. Also read: The Hindu.

Categories: POINT IAS

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