New Delhi, May 23, 2018

The Union Cabinet on Wednesday approved an ordinance for amendments in the Insolvency and Bankruptcy Code (IBC). The ordinance provides a relief to homebuyers who have invested in housing projects of real estate companies that have gone bankrupt.

Once the proposed changes are incorporated in the Insolvency and Bankruptcy Code, 2016, homebuyers will be treated on par with financial creditors in terms of their legal rights. Like financial creditors or lenders, they will have the right to initiate a resolution process and get their money back. The ordinance also exempts MSMEs from disqualification under Section 29 of the Act.

Another change to be brought through the ordinance includes the reduction of the threshold for the committee of creditors to 51 per cent from earlier threshold of 75 per cent, which will help speed up the resolution process. The Cabinet committee has also rejected the proposal to raise minimum amount to Rs 10 lakh from Rs 1 lakh to trigger the resolution process.

Meanwhile, the committee rejected the recommendation under the section 29A for disqualification for MSMEs. The MSMEs (Micro Small and Medium Enterprises) will now be exempted from all conditions under the Section 29 of the IBC. Under Section 29 of the IBC Act, a person or a company suffering disqualification can't participate in the resolution process.

The government brought the ordinance after the Union Ministry of Corporate Affairs received complaints against bankrupt real estate companies from homebuyers. In these cases, despite paying full amount for their properties, people were not handed over homes as these companies were facing financial troubles.

The government had formed a 14-member committee to address the issue. The committee brought out ordinance suggesting changes in the conflicting provisions of the Bankruptcy Code and the Real Estate (Regulation and Development) Act and making the process easier for potential bidders. It also proposed to make the recovery process for lenders easier, and speed up the decision-making process by creditors.

The biggest beneficiaries from this ordinance will be homebuyers. Since the present version of the IBC does not consider homebuyers as secured creditors, they have no right to initiate a resolution process if a real estate company goes bankrupt or can't complete housing projects.

[Business Today]