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Supreme Court Upholds Homebuyers’ Status As Financial Creditors Under IBC

Petitions filed by 140 builders had argued that homebuyers should not be included as financial creditors.

A crane stands next to residential buildings under construction at an Amrapali Group development in Noida. (Photographer: Anindito Mukherjee/Bloomberg)
A crane stands next to residential buildings under construction at an Amrapali Group development in Noida. (Photographer: Anindito Mukherjee/Bloomberg)

The Supreme Court today rejected a batch of petitions challenging the status of homebuyers as financial creditors under the Insolvency and Bankruptcy Code, 2016.

A bench headed by Justice Rohinton Fali Nariman upheld the amendments introduced in the bankruptcy code that raised the status of homebuyers on a par with lenders.This means homebuyers will remain vested with powers such as filing insolvency applications against errant builders and will have a say in the resolution process. The top court said that everyone who gives money to the financial debtor will be a financial creditor and it will be “manifestly arbitrary to omit allottees from the Committee of Creditors when they are vitally interested in the future of the corporate debtor as they have funded anywhere from 50 percent to 100 percent of the project in most cases”.

The petitions were filed by around 140 builders who had argued that homebuyers have been provided other avenues such as approaching the National Consumer Dispute Redressal Commission as well as seek relief under the Real Estate (Regulation and Development) Act. The top court held that homebuyers are entitled to seek remedy by any of the available avenues and that doesn’t affect their rights provided under the IBC. In case there is a conflict between RERA and IBC, the latter will prevail, the top court said.

The government argued in favour of homebuyers during the hearing. It argued the amendments were added to protect homebuyers from being duped of their investments by real-estate developers.

The top court also asked the government to take steps to ensure that vacancies in the National Company Law Tribunal and the National Company Law Appellate Tribunal are filled. The government will have to file a report to the top court detailing the progress under this direction.

‘’It is absolutely necessary that the NCLT and the NCLAT are manned with sufficient members to deal with litigation that may arise under the code generally, and from the real estate sector in particular. For this purpose, an affidavit be filed by the union of India within three months from today as to the steps taken in this behalf,’’ the top court’s judgment said.

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