The Indian realty sector has witnessed exponential growth in the past two decades. However, the interest of the home buyers has witnessed a sharp decline due to the breach of trust on account of exponential delay in project delivery. On top of it, the buyers were treated as unsecured creditors, which means that they could not initiate insolvency proceedings against the developers. The only recourse available to the buyers was that they could just get the balance proceeds subsequent to payment of insolvency costs, financial creditors, workmen, and government dues on the event of builder/developer confronting liquidation.
Under the amendment of insolvency and bankruptcy code (IBC), the home buyers have been given the status of financial creditors. It implies that the sums paid by them will be considered as a financial debt. The home buyers after attaining the status of the financial creditor under the code have the right to invoke Section 7 of the IBC against an errant developer. By invoking section 7 of the IBC, the financial creditors can file an application in National Company Law Tribunal (NCLT) for initiating corporate insolvency resolution (CIRP) against a defaulting company. Additionally, the home buyers have representation in the committee of creditors through an authorized representative and can expect fast-tracking of pending court cases against leading real estate groups.
This landmark decision has been taken by our judicial system, which is a positive step and will have a deep impact on the realty sector. The most important stakeholder – the home buyer has now got the power to challenge the developers in the court of law for not delivering the projects under the promised timelines, thus being liable to pay back their hard-earned money with penalties. This will also lead to sincerity on the developer side to deliver their commitments. Also, coupled with Real Estate Regulatory Act (RERA), it is expected to have an increase in the professional discipline in business conduct, which will be beneficial for all the stakeholders. Thus, overall, the new regime of regulations will start getting back the trust in the business arena and sanity to the overall conduct of business.