Homebuyers object to Insolvency code amendment, approach parliamentary committee

Economic Times, February 9, 2020

The Forum for People’s Collective Efforts (FPCE), a national lobby of homebuyers, has approached the Jayant Sinha-headed parliamentary standing committee on finance with its objection to a proposed amendment to the Insolvency and Bankruptcy Code (IBC), 2016. The second amendment to the bill was presented in the Lok Sabha in the winter session.

The proposed amendment requires a minimum threshold of homebuyers to come together in order to initiate proceedings under the IBC against an errant builder. In December 2019, the government had passed an ordinance to amend the code, with the result that a threshold of minimum 100 homebuyers or 10% of total homebuyers in a project, whichever is less, is required to take the builder to an insolvency court.

“This is against the interest of homebuyers as it puts unreasonable conditions on them, destroys level playing field which currently exists and makes the law lopsided in favour of real estate developers. The amendment being brought under influence of builders is not only illogical, illegal but also regressive to say the least,” said FPCE’s letter to the standing committee chairman.

The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019, which proposes to amend the code, was referred to the standing committee on Finance after it was introduced in Parliament in December. The Lok Sabha referred the second amendment bill to the standing committee on December 23 and the committee is expected to submit its report before the Lok Sabha within three months.

In in its letter, the FPCE also highlighted that the corporate affairs ministry had also proposed these amendments without giving an opportunity of hearing to homebuyers who are important stakeholders and are directly impacted by the proposed amendments. ET has seen a copy of the letter.

The FPCE highlighted that through an earlier amendment the government provided homebuyers the status of financial creditors in order to empower them to be part of the Committee of Creditors (CoC). However, builders had challenged the constitutional validity of that amendment before the Supreme Court. The court held the government’s stance to be constitutional and rejected the developers’ plea.

In this matter, the builders had made a suggestion before the court for introducing a minimum threshold for homebuyers to initiate proceedings under the IBC against them but that was not accepted by the court. Hence, the matter of minimum threshold has already been rejected by the apex court and it should not be inserted by the legislature which will only be seen as a confrontation with the judiciary just to please the developers, said the letter.

“It is important to state that the main reason behind such demands of builders is because they are not inclined to mend their ways and wish to continue with their unethical, wrong and illegal practices to cheat and dupe homebuyers. Thus, they are making an all-out effort to frustrate the rights of homebuyers which were made available by the government by amending the IBC and subsequently seconded by the Supreme Court,” said Abhay Upadhyay, president, FPCE.

According to the FPCE, the proposed amendments have been proposed by real estate developers and their association, the National Real Estate Development Council, which has even taken public credit that the proposed amendments and insertions in the IBC were being made at its recommendation.

The amendment to insert a minimum threshold for homebuyers to approach the NCLT is ridden with practical difficulties and is unimplementable, said the letter. “Sale is a continuous process. How will a homebuyer know how many units have been sold to determine the 10% of total number of units sold in real estate project specially in a situation when 10% is less than 100?” the FPCE said in the letter.

Besides, there are chances that the developer would make an attempt to break away some of the homebuyers to ensure that before the application is admitted by the National Company Law Tribunal the threshold is not met and the case is dismissed.

The homebuyers’ body has requested the committee to consider its reasoning for the objection and ensure that such amendments against homebuyers are removed from the amendment bill before it is passed by Parliament. It has sought an appointment for its pan-India delegation to depose before the committee and present the view of homebuyers.

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