“Post 1991 economic liberalization, there has been a phenomenal growth in the creation of new townships, urbanization and more particularly sub-urbanization. This trend is likely to accelerate. Economic growth gives rise to aspirations. More purchasing power, migration from rural areas and aspiration to improve the quality of life are increasing. In and around major townships massive real estate projects have been coming up. Many of these are by professional real estate developers. This is also an area where many “fly by night” operators have entered. Some developers have very little resources of their own. They use the homebuyer’s money to develop, invest in land banks and then get caught in debt trap. The homebuyer is the worst sufferer. He has a triple whammy. He has invested his savings with the developer. He may be paying EMIs on the loans taken and may continue to pay either rent of his currently occupied property or live in some alternate accommodation under compulsion. – Shri Arun Jaitley, Union Minister.
Key Highlights of the Ordinance
- Homebuyers given the status of financial creditors, which would imply that the homebuyers would be eligible to file petition under IBC against errant developers.
- Exemptions to Micro, Small and Medium Sector Enterprises (MSMES) which means the Code will not disqualify promoters to bid for his enterprise undergoing CIRP provided he is not a wilful defaulter.
- Withdrawal of cases permitted with 90% of votes of the creditors.
- Clarity on timelines mentioning the mandatory timelines, processes and no negotiation with the late bidders.
- Relaxation of voting threshold by lowering it to 66% as compared to 75% earlier considered mandatory by committee of creditors.
- Other security holders recognized in committee of creditors.
- Minimum 1 year grace period has been provided to the successful resolution applicant to remove disqualifications prescribed under section 29A of IBC.
- The other changes brought about by the Ordinance include non-applicability of moratorium period to enforcement of guarantee.
The new legislation is being welcomed along with amendments. This is one of those Laws which is known for its time bound disposal and now it’s attracting all the attention for quick amendments to adjust with the pressing needs of resolving NPA defaults and releasing money in the market. Finally the President has also given his assent to the Ordinance effecting amendments in insolvency code. This has come as a big relief to homebuyers and promoters and now they can be an equal part of the CoC.
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.