Status as on- 21/11/2020

INTRODUCTION

There is a fundamental contradiction and inconsistency between the Insolvency and Bankruptcy Code, 2016 (herein referred as IBC) and Real Estate (Regulation and Development) Act, 2016 (herein referred as RERA), as one tries to give primacy to creditors and other attempts to put consumers before creditors. While IBC was passed with the intention to smoothen the process of “closing the business”, RERA has been implemented to “regulate and formalise the real estate sector”. Unfortunately, the inclusion of homebuyers as financial creditors under IBC has rather added to the multiple level of conflicts & confusions in the implementation of law. While the provisions under IBC, RERA for homebuyers, have been found to be mutually exclusive & contradictory in many cases.

SUPREME COURT’S OBSERVATION

After the Supreme Court’s judgment in the case of Pioneer Urban Land and Infrastructure Ltd. & Anr. Versus Union of India &Ors[W.P.(C) 43 of 2019], the homebuyers now have three options to seek remedy against stoppage, delay, of real estate projects or fraud/ criminal misappropriation, deficiency of service related to real estate builders, developers, agents etc.

1. Real Estate Regulatory Authority Act, 2016 (RERA)
2. Insolvency & Bankruptcy Act, 2016.

Real Estate Regulatory Authority Act, 2016 (RERA)

The aggrieved homebuyer can file a complaint against the promoter of the project before the Real Estate Regulatory Authority or the Adjudicating Officer under Section 31 of the RERA. Such a homebuyer has twofold remedies against the promoter who has failed to comply or has been unable to give possession in accordance of the terms agreed. Furthermore, the Authority under Section 28 of the RERA, is empowered to impose penalty on the developer for contravention of any other obligations casted on him under the RERA.

Insolvency& Bankruptcy Code, 2016 (IBC)

Under the IBC, once an application under Section 7 is accepted, the management of the corporate debtor vests in the hands of the Resolution Professional under Section 23 of the IBC during the CIRP, and later on after the approval of the Resolution Plan. Hence the IBC process ensures that the arbitrariness, fraud or any case of deliberate misadventure by builders/developers are checked/controlled by way of transfer of management & subsequent resolution. 

The IBC Ordinance has added Sub-Section 6A in Section 21, which provides that a class of creditors, who exceed a specified number, would be represented by a Resolution Professional in the meetings of COC. It also provides that the said Class is empowered to appoint the resolution professional themselves to protect their interests and voice their concerns.

CONFLICT BETWEEN RERA AND IBC – WHO WINS?

Section 88 of RERA states that the provisions of RERA are in addition to and not in derogation of the provisions of any other law for time being in force and whereas Section 89 of RERA states that the act is to have effect of notwithstanding anything inconsistent contained in any other law for the time being in force thereby making it clear that the remedies under RERA to the allottees were intended to be additional and not exclusive remedies.

Similarly, referring to Section 238 of Code, which states that the provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law, the Supreme Court has stated that there is no provision similar to Section 88 of RERA in the code, which is meant to be a complete and exhaustive statement of the law insofar as its subject matter is concerned.

The Supreme Court in the matter of Pioneer Urban Land and Infrastructure Ltd. & Anr. Versus Union of India & Ors [W.P.(C) 43 of 2019], further held that when dealing with two acts which have non-obstante clause, the later act should be given way to the earlier act, for the reason, that it is presumed that the Parliament is aware of the former act when making the later act and it is such wisdom, the later act has to be given precedence. Also, presence of Section 88 in RERA which states that remedies available under RERA are in addition to and not in derogation of other acts would also make it clear, that code would prevail over RERA.

Accordingly, the Court held that even by a process of harmonious construction, RERA and the IBC must be held to co-exist and, in event of clash, RERA must give way to the Code. RERA, therefore, cannot be held to be a special statute, which, in case of conflict, would override the general statute, the IB Code.

As a matter of fact, the Code and RERA operate in completely different spheres. The Code deals with a proceeding in rem in which the focus is the rehabilitation of the Corporate Debtor. On the other hand, RERA protects the interests of the individual investor in real estate projects by requiring the promoter to strictly adhere to its provisions. The object of RERA is to see that real estate projects come to fruition within the stated period and to see that allottees of such projects are not left in the lurch and are finally able to realise their dream of a home, or be paid compensation if such dream is shattered, or at least get back monies that they had advanced towards the project with interest.

If, however, the allottee wants that the Corporate Debtor’s management itself be removed and replaced, so that the Corporate Debtor can be rehabilitated, he may prefer a Section 7 application under the Code. That another parallel remedy is available is recognised by RERA itself in the proviso to Section 71(1), by which an allottee may continue with an application already filed before the Consumer Protection fora, he being given the choice to withdraw such complaint and file an application before the Adjudicating Officer under RERA read with Section 88.

CONCLUSION

From a conjoint reading of the various judgments of the Supreme Court, the judiciary has armed an aggrieved home buyer with a host of remedies to seek relief against a developer and bring you a step closer to owning your dream home. The IBC recognizes homebuyers under financial creditors to protect their rights even when a creditor, other than a homebuyer, invokes insolvency proceedings against the builder. Therefore, it may be in the interests of homebuyers to approach the National Company Law Tribunal (NCLT).

Disclaimer: The above article is based on the interpretation of the related laws and judicial pronouncements. The readers are expected to take legal advice before relying on this article. The author can be reached at support@centrik.in