Everywhere in India where new developments are going, real estate investors or home buyers have faced lots of problems of for getting possession of the property or either the refund of their hard earn money ,but unfortunately neither of option has really worked.
Past two decades when everyone felt heavy construction around the prominent cities, but suddenly from last 5years, people felt like cheated up to no extent. And no proper legal safeguards are there to protect their interests. Even the commencement of RERA law in year 2017 and Insolvency Code in year 2016 had yet not able to make significant impact interms of recovering home buyers money.

Recently post the massive failure of Noida based real estate giant- Jaypee Infrastructure Ltd., law itself evolving its way to make proper path line of granting relief to innocent home Buyers.

Important question often asked by home buyers from me-

What sense it makes for home buyers to become financial creditors under insolvency and bankruptcy code?
Here is the answer:-

  1. Home buyers comes under the category of the financial category by the virtue of Sec3(8):-definition of financial debt. An explanation added in the afore-mentioned section says that: –any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing” .Therefore the one who owes financial debt towards financial debtor shall be called as financial debtor.
  1. Financial creditors in one sense is more powerful than operational creditors, in terms of having more powers relatively than operational creditors. Under Insolvency and bankruptcy code only financial creditors are allowed to constitute the committee of creditors.
  1. The committee of creditors is empowered body to pass the major decisions undertake during the corporate insolvency resolution process of corporate debtor like: – appointment of resolution professional, resolution to buy or dispose new assets by the corporate debtor.
  1. Financial creditors can nominate their representative jointly or severally to represent their rights in the meeting of committee of creditors.
  1. Once the committee of creditor is formed, it’s the committee who shall pass the resolution for making appointment of Insolvency Professional.
  1. Every financial creditor has the right to become resolution applicant, i.e, right to submit their own resolution plan for corporate debtor to the resolution Professional.
  1. Every financial creditor has the right to propose the name of insolvency professional.

Do really home buyers will get relief by just becoming financial creditors?

Answer is really NO, but yes it makes lots of difference in recovery process for home buyers by becoming financial creditor. Even financial creditors are of two types – Secured creditors and unsecured creditor, the major catch is generally home buyers falls into list of UNSECURED FINANCIAL CREDITOR, Therefore even after becoming financial creditor, home buyers will get money only if first the secured financial creditors are discharged.

To develop more understanding on the subject you may read our other blogs on Insolvency and bankruptcy code. https://www.easylegaltax.com/?s=ibc

Disclaimer –This article is for the general information and awareness of its readers, in-case of any legal matter in relation with readers, they are expected to have legal opinion before placing reliance on it. Further it contains completely author’s views on the subject and completely unbiased based on authors own experience, study and understanding.

About Author:-Rajul Jain (CA, MCOM, LLB, MBA, CNPO, CPFA, NCFM) is Chartered Accountant and Legal Consultant, academically he is highly qualified and have gone through various certifications. He extensively speaks and writes on finance, taxation and legal matters. The author can be reached at info@easylegaltax.com

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