The government may amend section 7 of IBC, which allows financial creditors to file application seeking insolvency resolution against errant developers
A single homebuyer may soon not be able to drag a real estate company to the National Company Law Tribunal (NCLT) over an incomplete or a delayed project. The government is considering a minimum number for homebuyers to allow them to initiate insolvency proceedings against a builder.
Currently, even if one homebuyer moves the NCLT, the company can go in for insolvency.
The government is looking at amending section 7 of the Insolvency & Bankruptcy Code (IBC), which allows financial creditors to file application seeking insolvency resolution against errant developers.
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- The government may amend section 7 of IBC, which allows financial creditors to file application seeking insolvency resolution against errant developers
- The threshold for homebuyers could be on the lines of class action suits where members representing 5% of the total members can sue the company
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The government feels the IBC framework is being misused by homebuyers.
"The government may have to look at it in a very innovation manner such as a threshold considering that homebuyers are large in number..," Ministry of Corporate Affairs (MCA) Secretary Injeti Srinivas said on Tuesday.
The need for such a change has been triggered by the representations by the developers to the government, expressing concerns over an increasing number of homebuyers taking the builders to the NCLT.
"A lot of representations have come that a single homebuyer is trying to dislocate an otherwise well-running, well operating real estate company. And in Mumbai, a lot of such cases have been admitted and half of the cause list comprises real estate companies," Srinivas said.
"You may look at threshold to build in those checks and balances by way of regulation and, if necessary, by way of amendment," he said.
The threshold for homebuyers could be on the lines of class action suits. A class action application can be filed by a member or members representing 5% of the total members of a company. Similarly, in case of mismanagement and oppression in a company, it takes a minimum of 20% shareholders to move against the firm under the Companies Act, 2013.
Opposing such a proposal, Abhay Upadhyay of homebuyers' pan-India body Forum for People's Collective Efforts (FPCE) said, "On one hand, you empower homebuyers, on the other, you take away powers from them. Getting 20% or any number of buyers will be difficult for homebuyers. In the meantime, the builder will be able to dupe more homebuyers."
A year ago, the government had amended the IBC to empower homebuyers to file application seeking insolvency resolution process.
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