The Union Cabinet on Wednesday approved an ordinance for amendments in the Insolvency and Bankruptcy Code (IBC) – in simpler words, the Cabinet has tossed new life to homebuyers as they can now claim money if the builder goes bankrupt.
Granting major relief to homebuyers who made investments but are stuck in incomplete housing projects as their builder went bankrupt, the government approved an ordinance to bring about changes to the Insolvency and Bankruptcy code (IBC). The changes in IBC proposes to classify home buyers as “financial creditors” at par with lenders to help them swiftly get refunds from the defaulting real estate companies. This means, homebuyers will now be treated to be equivalent to banks and institutional creditors. Also, the homebuyers will be given priority while recovering dues from bankrupt or insolvent real estate companies by initiating a resolution process and start receiving refunds.
The ordinance also exempts the MSMEs from getting disqualified under Section 29 of the Act which was added into the bankruptcy code in November, introducing four layers of ineligibility for potential bidders. This ordinance relieving a number of homebuyers was mooted on the suggestions of a 14-member government appointed committee. Later, the Insolvency Law Committee that treating homebuyers as creditors will let the equitably participate in an insolvency resolution process. It has now become a legislation as it was approved by the Union Cabinet and will come into force once it is approved by the President and will come into effect after that.
Another change to be brought through the ordinance includes the reduction of the threshold for the committee of creditors to 51 per cent from earlier threshold of 75 per cent, which will help speed up the resolution process. The Cabinet committee has also rejected the proposal to raise minimum amount to Rs 10 lakh from Rs 1 lakh to trigger the resolution process. Banks may not welcome the development as their dominant position in the proceedings may be threatened, but it will certainly benefit millions of homebuyers.