Supreme Court upholds amendments to Insolvency and Bankruptcy Code, gives status of financial creditors to homebuyers

The Supreme Court on Friday upheld amendments to the Insolvency and Bankruptcy Code (IBC), giving a status of financial creditors to homebuyers.

A bench headed by Justice RF Nariman, which disposed of a batch of over 180 petitions filed by various builders, said the RERA act 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 and asked the Centre to file an affidavit taking the corrective measures.

The judgement came on a batch of pleas filed by builders who have argued that remedies to homebuyers were available under the RERA Act and the amendments to IBC only enables duplication.

Last week, Lok Sabha passed amendments to the Insolvency and Bankruptcy Code, with the government asserting that the spirit behind the law is not to allow companies to die.

Moody’s Investors Service had said the amendments to the Insolvency and Bankruptcy Code are credit-positive for Indian banks.

It further said the third amendment states that in cases where the creditors include homebuyers, the committee of creditors can approve the resolution process as long as more than 50 percent of the homebuyers on the committee give their approval.

“This amendment is credit positive for Indian banks because it will facilitate the resolution of real estate projects. Under the IBC, homebuyers in a real estate project are treated on a par with secured creditors, which means that their approval is required before the committee can approve the resolution plan,” Moody’s said.

Because homebuyers in a large project are likely to be relatively numerous, obtaining the approval of all the affected homebuyers has proved a logistical challenge.

“With the proposed change, only the approval of a majority of those present will be required for the resolution to be approved,” Moody’s added.

With input from agencies