The decision of the Court came as a huge blow to realty firms which had made a beeline in the Court to oppose the law contained in Section 5(8)(f) of the amendment to the IBC in 2018
The Supreme Court on Friday gave its stamp of approval on a Central law that empowered even a single homebuyer to trigger insolvency proceedings against a real estate company that failed to deliver flats on time.
The decision of the Court came as a huge blow to realty firms which had made a beeline in the Court to oppose the law contained in Section 5(8)(f) of the amendment to the Insolvency and Bankruptcy Code (IBC) in 2018. The law in question recognized allottees of flats or apartments as "financial creditors" and even made them stakeholders along with lender banks in the Committee of Creditors, who would then decide the future course of management of the insolvent firm.
The bench of Justices RF Nariman, Sanjiv Khanna and Surya Kant upheld the provision contained in the IBC and said that in the event there arose any conflict with regard to the rights of homebuyers under Code vis-a-vis the Real Estate Regulatory Authority (RERA) Act, the Code will prevail. Under RERA, consumers (allottees) were entitled to compensation for delay in completion of housing projects.
The bench read both laws harmoniously and held them to be "concurrent" remedies. The real estate firms had challenged the Code on the ground that homebuyers should not be given a say in the Committee of Creditors as they have a remedy to move under RERA or the Consumer Protection Act 1986. But the bench was not impressed as it felt that it was up to a genuine consumer to choose his remedy.
Moreover, the bench noted that the Parliament had brought the changes in the Code based on a report by the Insolvency Law Committee on March 26, 2018. This Committee recommended inclusion of homebuyers in insolvency proceedings against a realty firm as it found that the homebuyers, who invest a substantial amount in the housing projects, are left high and dry after losing their investment and their dream home as well.
HOMEBUYERS’ POINT OF VIEW
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A REASON TO CELEBRATE Seen from the standpoint of homebuyers, this decision has come as a reason to celebrate after past attempts by the apex court to protect the homebuyers of Jaypee and Amrapali Group. In both cases, the Court had stayed the insolvency proceedings. Although realty companies apprehended that such a law will act as a blackmailing tool by homebuyers, the Centre assured that winding up of the company is the last resort as the Committee of Creditors will allow the firm’s management to continue operations, if found to be solvent. The Court further clarified that compensation to homebuyers under RERA will be in addition to getting their flat constructed under IBC. The Court strengthened the machinery under RERA and the IBC by asking Centre to inform within three months what steps were taken to appoint sufficient officers in the National Company Law Tribunal (NCLT) and its Appellant Tribunal. In addition, the bench directed Chief Secretary of states to ensure that within three months, the Authority under RERA, its adjudicating officer, and Appellate Tribunals are made fully functional.
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