RSTV SUMMARY – 10TH JULY, 2019

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By moderator July 11, 2019 10:50

The Big Picture – Protecting Home Buyers

The Supreme Court asked the Central government to come out with a uniform proposal for all cases to resolve the difficulties faced by lakhs of homebuyers who have not yet got possession of their flats despite paying huge amounts of money to the builders. The apex court said this while hearing home buyers matter related to Jaypee Infratech Limited. Meanwhile, responding to a batch of more than 140 petitions filed by different real estate developers challenging the constitutional validity of the amendment in the IBC, the central government has informed the apex court that the law was amended to protect the home buyers who had invested their hard earned money to purchase flats but were cheated by the real estate corporates.

Background

  • It was seen that home buyers are at the receiving end of any issues faced when problems arose in the process. The builder and the developer always controlled the business.
  • Laws were thus enacted to bring a change in the situation.
  • Earlier, a general law was made called the Consumer Protection Act. But it failed to protect the interest of the homebuyers.
  • Hence, a specific law called the Real Estate Regulatory Authority/RERA Act was enacted in which the interests of the home buyers were protected. There were certain obligations put on the developer on the utilization of money collected from the home buyers and carrying out of the project. In the case of one-sided conditions in the contract, the buyers can approach the court saying their rights are infringed.
  • The problem again arose with the enactment of the Insolvency and the Bankruptcy code where the homebuyers were affected. The IBC does not mention the position of the homebuyers and their money invested in the company goes into insolvency.
  • The homebuyers again approached the court citing a violation of Article 21 of the Constitution – Right to life and liberty.
  • Thus, an amendment was brought to the IBC bringing the money given by the homebuyers under the definition of financial debt.
  • Unfortunately, it did not solve the problems of the homebuyers after which the SC directed the Centre to bring out a policy to protect the interests of the homebuyers.

Issues

  • The builders are provided land after paying 10% of the amount. Though they are asked to pay the rest of the amount in 9 years or so, they default on the payment after one or two installments even after taking 50-60% of the money from the homebuyers for paying the installments. This money is being siphoned off by the builders.
  • Ultimately, when the builders go into insolvency, it is the hard earned money and time of the homebuyers that are being wasted.
  • Issues arise with the projects which started off before 2016 as the RERA Act and the IBC were enacted after 2016.
  • Even if the case is resolved through the insolvency process, it is not necessary that homebuyers would be given the whole amount they had invested. Homebuyers get what is left of the dividend.

Way forward

  • Instead of making the builder go into insolvency, the government can positively interfere in the matter to give time to the builders to pay off the dues in a stipulated period of time after providing the occupancy certificate.
  • The first priority during insolvency proceedings should be to settle the amount paid by the home buyers for the project. Priority should also be given to the employees of the real estate companies as they are also innocent in the play by builders.
  • Banks can join hands with the homebuyers vis-à-vis the builders to arrive at a solution during the insolvency proceedings.
  • To continue the projects, money can be pooled by selling the assets of the builders or the developers.
  • The IBC may be amended to provide the same priority to the homebuyers as that of the financial creditors.
  • The RERA should come out with a policy to keep a check on the new projects so that there is no default on the part of the developers and the builders.
  • With respect to ongoing projects, a monitoring committee should be appointed under the direction of the Supreme Court consisting of representatives of the builders, homebuyers and the financial creditors which should be given the authority to decide how the project should be processed further.
moderator
By moderator July 11, 2019 10:50