'SC upholding homebuyers' financial creditor status under IBC will help complete stalled projects'

The Supreme Court's judgment upholding financial creditor status to homebuyers in insolvency proceedings will help in completion of stalled projects, according to property developers and consultants. However, builders feel that allowing buyers to approach the National Company Law Tribunal (NCLT), consumer courts and real estate regulators under RERA law with their grievances could create confusion and chaos.

The Supreme Court on Friday upheld amendments to the Insolvency and Bankruptcy Code (IBC) giving status of financial creditors to homebuyers. A bench headed by Justice R F Nariman, which disposed of a batch of over 180 petitions filed by various builders, said the Real Estate (Regulation and Development) Act, 2016, which regulates the real estate sector, should be read harmoniously with the amendments made in the IBC and in case of conflict the code will prevail. The bench said only genuine homebuyers can invoke insolvency proceedings against the builder.

NAREDCO President Niranjan Hirananadani said the judgment would "allow projects to reach their logical end in terms of completion of the projects, without getting foreclosed by banks". Accordingly, financial creditors status to homebuyers, on par with banks, will benefit lenders and consumers, he added.

However, Hiranandani said the SC judgment has also permitted homebuyers to approach three different bodies viz. NCLT, RERA and Consumer Forum in case of delayed or stalled projects. "This will add to a big confusion as decision approach of each of the bodies shall standout and differ from other." CREDAI President Satish Magar said, "After coming into effect of RERA, there were grounds to believe that the remedy for homebuyers lay before the authorities under RERA. In upholding Section 5(8)(f) of the IBC Code, 2016, whereby homebuyers were accorded rights as financial creditors, Supreme Court has set this controversy at rest."

Magar said the regulatory mechanism under RERA is comprehensive and will assume primacy to benefit the all homebuyers as a class with passage of time and experience gained. Anshuman Magazine, chairman and chief executive officer (India, South East Asia, Middle East & Africa), CBRE, said, "In a landmark judgment, the Supreme Court avowed the government's decision to grant homebuyers the status of financial creditors. The IBC has proved to be effective in light of the incidents of defaults by real estate developers and has given them a say in case the developer files an insolvency plea."

Abhilash Pillai, partner, Cyril Amarchand Mangaldas, said this is a landmark judgment for genuine homebuyers but not for investor-homebuyers who have initiated insolvency against developers seeking refund of their investments.

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