The insolvency law committee (ILC) was set up to work upon the ordinances in the Insolvency and Bankruptcy Code, 2016 which came up with its report in March 2018. Amongst other objectives ILC resolved one of the major confusion regarding the status of home buyers as financial creditors, consequently the Insolvency and Bankruptcy (Amendment), 2018 (IBC Ordinance) came into effect pursuant to which the homebuyers were classified as the financial creditors and the intent behind such categorization was to enable homebuyers to participate in the CIRP process and provide them with a proper representation in the committee of creditors.
The IBC Ordinance has amended the definition of financial debt under Section 5(8) (f) by adding another ‘Explanation’, which states: “An amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing”, pursuant to which the amount paid by the homebuyers to the real estate developer comes under the definition of financial debt.
Subsequent effect of the said ordinance has been seen in the amendments in the regulations adopted by the Insolvency and Bankruptcy Board of India under the Corporate Insolvency Resolution Process (CIRP) regulations to provide a new mechanism.
The new regulation:-
“For every class of creditors having at least ten creditors in the class, the interim resolution professional will have to offer a choice of three insolvency professionals in the public announcement to act as the authorized representative of creditors in each class.”
IMPLEMENTATION
After the issuance of public announcement, each homebuyer or creditor would choose one of the Insolvency professional out of three options provided by the Interim Resolution Professional and the one who will obtain the majority of voters in his favor will be acting as an authorized representative that category of creditors or home buyers.
CURRENT SCENARIO
There have been various cases being initiated by the aggrieved homebuyers against the real estate developers but the discrepancy regarding the actual status of homebuyers, whether as secured or unsecured creditors, remains unanswered. However, the Hon’ble Supreme Court, as well as NCLAT in the cases against developers like Jaypee Infratech and Amrapali, settled the law by approving the maintainability of cases only by those homebuyers who have been assured of ‘assured returns’ from the developer.
CONCLUSIONS
Only those homebuyers who have been assured of committed returns from the developer could trigger IBC as a financial creditor under section 7 whereas all the homebuyers have been granted the right to represent themselves as a participant of the committee of creditors.
The homebuyers have the right to represent themselves through the Insolvency Professional out of three options suggested by the Interim resolution Professional.
Disclaimer – The above summary is based on the personal interpretation of the revised regulations, which may differ person to person. Hence, the readers are expected to take expert opinion before placing reliance on this article.
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