File Copyright Online - File mutual Divorce in Delhi - Online Legal Advice - Lawyers in India

Walking the Home Buyers Path: A Confused Identity of IBC

The real estate sector plays a catalytic role in pushing any economy along the path of progress. The Indian real estate industry by attracting massive investments into the sector has witnessed exponential growth in the previous two decades,[1] contributing for about six to seven per cent of the GDP.[2] However, the trends before 2018 indicated that the sector was reeling under a lot of pressure and had hit the road of stagnation.

The primary reasons for the brunt may be accorded to the dip in the confidence of prospective home buyers (real estate allottees) due to ever-rising delays in the completion and delivery of the real estate projects. The result was that the real estate allottees found their hard-earned money locked up in a project for perpetuity, which at times never saw the light of day. This fear of uncertainty was further aggravated by a lack of adequate remedies available in law to provide quick and efficient relief.

The enactment of the Insolvency and Bankruptcy Code, 2016 [the IBC] hardly seemed to appease the situation as it failed to classify the home buyers in any specific category of creditors and neglected them totally.

Having realised the large scale impact of frequent delays on the real estate market due to the high valuation of debts owed to home buyers - as high as INR fifteen thousand crore[3] in certain cases - which was more than what was due to the formal market lenders, and a corresponding stand taken by the Supreme Court in cases such as Unitech Residential Resorts,[4] a strong need was felt to bring the home buyers in line with the financial creditors so as to give them their due in the proceedings under the IBC. In this light, an amendment was brought in the IBC on July 2018, uplifting the status of the home buyers to that of the financial creditors.

Homebuyers qua IBC

The Insolvency and Bankruptcy (Second Amendment) Act, 2018 sought to amend the IBC and recognise the status of home buyers as financial creditors.' After the said amendment, home buyers are treated as allottees' under a real estate project, and the amount raised from such allottees is deemed as an amount having the commercial effect of a borrowing. This meant that the home buyers were finally armed with the weapon of triggering insolvency proceedings against the defaulting real estate developers under Section 7 of the IBC, and decide the future of the construction company.

Aftermath of the Amendment
The obvious fallout of the recognition of the status of homebuyers as financial creditors was that the benches of the National Company Law Tribunal [NCLT] were flocked with applications for initiating a corporate insolvency resolution process even in cases where a better remedy would have been obtained by proceeding under any other legislation. As per the data available with the IBBI, a total of 1,821 cases had been filed by the homebuyers under the IBC between the time of the 2018 amendment and September 2019.[5] The real estate developers further claimed that such a scenario has hampered successful completion of various projects as construction was getting stalled due to the imposition of moratorium consequent to the filing of insolvency applications by home buyers.[6]

This rampant filing of cases against the real estate developers by the home buyers in every case of default for a refund of amounts advanced by them reduced the status of the IBC to a mere debt recovery mechanism and the NCLT a debt recovery forum, which was far from what was intended by the amendment.

Therefore, the outcome is that half of the cause list for insolvency cases is filled with cases pertaining to real estate, and there has been a large number of cases where an otherwise well-functioning real estate company is being pulled into the insolvency proceedings by a single home buyer who wants a refund.

Demystifying the conflict of Laws

The fact that an aggrieved litigant can claim protection under the three different laws - the IBC, The Real Estate (Regulation and Development) Act, 2016 [the RERA] and The Consumer Protection Act, 2019 [the CPA] - makes the situation come off as conflicting. Moreover, the remedial measures granted under the three enactments are also somewhat similar, which adds to the confusion and conflict in the minds of the aggrieved people.

However, if we look at the statement of purpose behind these legislations, it is observed that there is no conflict among them inherently as they are made to operate on different sets of circumstances and events, and are directed to realise different objectives altogether. The need is to just bring the remedy desired by the home buyer in line with the objective of the legislation in order to determine which law would provide the best possible recourse in any given situation.

This conflict between the IBC and the RERA was brought to the judicial eyes of the Supreme Court in the case of Pioneer Urban Infrastructure,[1] which called for a harmonious construction of the two legislations and observed that they must be held to co-exist, the IBC prevailing over the RERA only in the event of a conflict. It further held that the remedies given to the allottees of a flat or apartment are concurrent remedies, and such allottees have the provision to avail remedies under all the three aforesaid laws.

This means that the home buyers are free to approach all the three forums set up under the aforesaid laws simultaneously, however, such a practice should be deprecated in wake of the mounting burden of cases before the authorities.
[1] Pioneer Urban Land and Infrastructure Limited & Anr. v. Union of India & Ors., AIR 2019 SC 4055 [hereinafter, Pioneer Urban Land & Infrastructure].

IV. Choice of appropriate Law and Forum
The trigger lies in the hands of the home buyers, who have to make a conscious decision with respect to selecting the recourse under any particular law. They need to identify the remedy best suited for themselves, having regard to the factors and circumstances endemic to their particular case. Let us see the prospects of a home buyer approaching the three forums under their respective laws separately.

A. The IBC

Starting with the IBC, the path ahead may prove to be bumpy and counterproductive in the end for the home buyers because, under the IBC, once an application under Section 7 is accepted, the management of the corporate debtor vests in the hands of the Resolution Professional under Section 23 of the IBC during the CIRP, and later on after the approval of the resolution plan, in the hands of the resolution applicant whose resolution plan has been accepted by the Committee of Creditors.

Thus, a home buyer filing an application would undertake a huge risk in the nature and extent of remedy that may be granted to him ultimately, as the ball passes onto the court of the new management that takes over the corporate debtor. It would all depend on the kind of resolution plan that is approved in the insolvency process. Brushing aside other things, this inter alia makes one fact almost certain that the construction will be stalled throughout the insolvency process and the project will not see its completion in the foreseeable future.

Further, as correctly pointed out by the Supreme Court in case of Pioneer Urban Land & Infrastructure[8], the outcome at the end of the process is also not always positive for the creditors, and there is a possibility, as per the resolution plan, that the home buyers who are desirous of obtaining a complete refund of the principal sum might never get it in full, let alone the amount of interest, on account of the claims of various other stakeholders.

All the while, however, the sword of the construction company slipping down the liquidation path in case no suitable resolution plan appears to be forthcoming is always hanging down its throat, in which event, only paltry sums can be expected out of the amounts claimed by the home buyers.[9]

B. The RERA

The aggrieved home buyer can file a complaint against the promoter of the project before the Real Estate Regulatory Authority [the Authority] or the Adjudicating Officer under Section31 of the RERA. Such a home buyer has twofold remedies against the promoter who has failed to comply or has been unable to give possession in accordance of the terms agreed, namely:
  1. Under Section 19 (4) r/w Section 18 (1) of the RERA, in case the allottee wishes to withdraw from the project, then he may ask for a refund of the amount paid by him along with the prescribed interest, and compensation as per the RERA; or
  2. Under Proviso to Section 18 (1) of the RERA, in case the allottee does not intend to withdraw from the project, then he would be entitled to claim an amount of interest for every month of delay till the possession is handed over at a prescribed rate.

Similarly, in the case of Turab Fidvi v. Kohinoor Developers[10]ญญญญญญญญ, the Maharashtra Real Estate Regulatory Authority directed Kohinoor Developers to pay simple interest at the rate of 10.55 per cent on the investment of the home buyer for every month of delayed possession.

Further, under the RERA, the registration is granted to a promoter for a real estate project only for the period declared by the promoter under sub-clause (C) of clause (l) of Section 4 (2) of the RERA, and such registration may be revoked by the Authority on the ground of violation of the terms and conditions of the approval granted by the Authority. Thus, a developer who is delaying the construction work risks his registration getting cancelled on a complaint filed by a home buyer with the Authority, in which case, the remaining work of that particular project may be completed by the competent authority or by the association of allottees.[11]

Moreover, the Authority, under Section 28 of the RERA, is empowered to impose penalty on the developer for contravention of any other obligations casted on him under the RERA. As regards the time involved in adjudication is concerned, the RERA also facilitates expeditious disposal of complaints on account of a mandatory period of sixty days from the date of filing of complaint, fixed under Section 29 of the RERA, within which a complaint has to be disposed of.

It, therefore, ensures that the projects are completed in the stipulated time, failing which compensation for the same and/or refund of amounts is paid together with interest at the very least.

C. The CPA

The third recourse available with the home buyers is to approach the appropriate Consumer Redressal Commission depending on the amount of the consideration. Any consumer' can file a complaint with the appropriate Consumer Redressal Commission, depending on their respective pecuniary jurisdiction, on the ground that the services hired or availed of suffer from deficiency.[12] In terms of relief, under Section 39 (1) of the CPA, the District Consumer Forum, or any other such forum, can direct the developer to return the money paid by the home buyer as consideration for the project along with the prescribed amount of interest.[13]

It may also award compensation for the loss suffered by the home buyer due to the negligence of the developer.[14] For instance, in the case of Shakti Kumar Matta & Anr. v. M/S Unitech Ltd. & Ors.,[15] the National Consumer Redressal Commission directed Unitech Ltd. to refund the amount of Rs. 58 lakhs (approx.) along with a compensation of simple interest at the rate of 10% p.a. on the ground of deficiency in service when Unitech failed to hand over the apartment within the stipulated period. The appropriate forum, by virtue of the Proviso to Section 39(1)(d) of the CPA, is further empowered to grant punitive damages in such cases as it deems fit.

Moreover, to ensure that the complaints are disposed of expeditiously, the CPA prescribes a time period of three months from the date of receipt of notice from the opposite party within which the appropriate forum should endeavor to dispose of the complaint.[16]

At the same time, as held by the Supreme Court in Pioneer Urban Land & Infrastructure,[17] the remedies under the CPA are independent and can be initiated alongside proceedings under other relevant legislations.

Analysis
Having regard to the various factors as aforesaid, the choice of appropriate law and forum will essentially differ from a case to case basis depending on inter alia the nature of remedy sought, time period to be invested in the litigation, and other relevant considerations.

However, considering the fact that the home buyers are not inclined towards rehabilitation or revival of the construction company, all they want being recovery of the amounts given to the developers or delivery of possession in certain cases, the RERA appears to be a better alternative to be taken recourse under in both the cases.

It grants remedies in the nature of refund of the amount with interest and/or compensation, or ensures completion of the project as early as possible by imposing an obligation on the developer to pay interest at a specified rate to the home buyers for the period of delay till the possession is handed over, serving the interests of both the ones opting out of the project and the ones interested in completion of the project.

Moreover, the fact that the Authority is a quasi-judicial forum meant exclusively for handling cases pertaining to the real estate sector would mean that it is in a better position to adjudicate on the disputes of the home buyers, and grant the requisite remedies accordingly.

The RERA also trumps CPA in regard to its speedy resolution of disputes. The complaints under the RERA are mandatorily required to be disposed of within a period of sixty days from the date of filing, as against ninety days under the CPA, which is also merely directory in nature. Thus, the RERA would also ensure early resolution of complaints of the home buyers.

As observed by the Supreme Court, this suggests that it is only such home buyers who want their project to be completed, however, have completely lost their faith in the management of the real estate developer and sincerely expects that a new developer takes over management of the ailing company and completes the project should file an application before the NCLT under Section 7 of the IBC while always reserving the risk that if no one were to come forward for the rescue of the company, corporate death must ensue and the allottee must then stand in line to receive whatever is given to him in winding up.[18]

Therefore, the inherent advantages of proceeding under the RERA on all counts as aforesaid make it the best possible remedy not only the home buyers expecting a refund of their amounts, but also for the ones wanting completion of their projects. Any reference by the home buyers under the IBC should be made very cautiously, only in limited cases where the facts of the case truly line with the intent of the enactment and warrant that the developer be proceeded under the insolvency law.

Conclusion
Given the prevalent state of affairs before the amendment, we definitely see the recognition of status of the home buyers in a positive light. However, the unrequited concomitant of flooding the gates of the adjudicating authorities recklessly with insolvency applications without much care and thought sure requires a check on the abuse of process by the home buyers.

This requires dissemination of knowledge about and understanding of different laws and their purposes, so that the identity of each one of them is not mistaken for the other and the confusion surrounding which remedy to adopt is done away with.

The litigants have a major role to play in the crisis. The home buyers need to ruminate on the choices made available to them by law before treading along any particular path of judicial remedy so that it serves the twin purpose of providing an adequate recourse to their sufferings and at the same time ensuring that the framework of law is in its place.

End-Notes:
  1. Shubham Borkar and Rishabh Tripathi, India: Effect of Insolvency and Bankruptcy Code Amendment On Home Buyers, MONDAQ (Apr. 12, 2020, 2:30 PM), https://www.mondaq.com/india/real-estate/745916/effect-of-insolvency-and-bankruptcy-code-amendment-on-home-buyers [hereinafter, Mondaq].
  2. Rajani Sinha, Why Real Estate is Key to Economic Revival, FINANCIAL EXPRESS (Apr. 12, 2020, 4:00 PM), https://www.financialexpress.com/opinion/why-real-estate-is-key-to-economic-revival/1788022/.
  3. Chitra Sharma and Ors. v. Union of India and Ors., WP (C) No 744 of 2017.
  4. M/s Unitech Residential Resorts Ltd. v. Atul Gupta and Anr., Civil Appeal No(s) 6044/2015.
  5. Press Information Bureau, 1,821 cases filed by homebuyers against builders under the Insolvency and Bankruptcy Code, MINISTRY OF CORPORATE AFFAIRS (Apr. 13, 2020, 9:00 PM).
  6. Ashwini Kumar Sharma, Developers resent buyers filing cases under IBC, LIVEMINT (Apr. 14, 2020, 9:00 AM), https://www.livemint.com/money/personal-finance/will-homebuyers-remain-creditors-under-ibc-11574661744701.html.
  7. Pioneer Urban Land and Infrastructure Limited & Anr. v. Union of India & Ors., AIR 2019 SC 4055 [hereinafter, Pioneer Urban Land & Infrastructure].
  8. Id.
  9. Id.
  10. Turab Fidvi v. Kohinoor Developers, MahaRERA Complaint No. CC006000000056819.
  11. Real Estate (Regulation and Development) Act 2016 ง 8.
  12. The Consumer Protection Act, 2019 ง 2(6) (iii).
  13. The Consumer Protection Act, 2019 ง 39(1) (c).
  14. The Consumer Protection Act, 2019 ง 39(1) (d).
  15. Shakti Kumar Matta & Anr. v. M/S Unitech Ltd. & Ors., Consumer Case No. 2602 of 2017.
  16. The Consumer Protection Act, 2019 ง 38(7).
  17. Pioneer Urban Land & Infrastructure, supra note 7
  18. Id

Law Article in India

Ask A Lawyers

You May Like

Legal Question & Answers



Lawyers in India - Search By City

Copyright Filing
Online Copyright Registration


LawArticles

Section 482 CrPc - Quashing Of FIR: Guid...

Titile

The Inherent power under Section 482 in The Code Of Criminal Procedure, 1973 (37th Chapter of th...

How To File For Mutual Divorce In Delhi

Titile

How To File For Mutual Divorce In Delhi Mutual Consent Divorce is the Simplest Way to Obtain a D...

Whether Caveat Application is legally pe...

Titile

Whether in a criminal proceeding a Caveat Application is legally permissible to be filed as pro...

The Factories Act,1948

Titile

There has been rise of large scale factory/ industry in India in the later half of nineteenth ce...

Constitution of India-Freedom of speech ...

Titile

Explain The Right To Freedom of Speech and Expression Under The Article 19 With The Help of Dec...

Copyright: An important element of Intel...

Titile

The Intellectual Property Rights (IPR) has its own economic value when it puts into any market ...

Lawyers Registration
Lawyers Membership - Get Clients Online


File caveat In Supreme Court Instantly