IBC laws set for amendments to check abuse by home buyers

Last Updated: Thu, Oct 03, 2019 13:10 hrs
Real Estate Savings (Image Courtesy: ANAROCK Property Consultants)

New Delhi: The government may be looking at further amendments in the Insolvency and Bankruptcy Code (IBC) to check abuse by home buyers where a threshold would be fixed for them to trigger IBC process for real estate developers in an effort to ensure that no single home buyer can misuse the provisions.

This was indicated by Secretary, Ministry of Corporate Affairs, I. Srinivas at an event here

On home buyers, Srinivas hinted at steps to check abuse by them, if any, saying that a threshold would be introduced for home buyers to trigger the IBC process fora real estate developer. This will ensure that no single home buyer can misuse the provisions for taking the real estate developer to the National Company Law Tribunal.



"Half of the cause list for insolvency cases filled with real estate cases... there is a need to check abuse and maximise value of assets," he said.

The government will look at innovative ways, including having a threshold, to ensure that the insolvency resolution framework is not abused by home buyers. There have been large number of cases where "otherwise well-functioning real estate companies have been pulled into the insolvency proceedings by a single home buyer who wants a refund", he said.

Srinivas pointed out that there might be speculative home buyers also in such cases and if a single person is able to dislocate when there is otherwise no issue, they have to look at some threshold. Such checks and balances can be built in by way of regulations or amendments, he said here.


Homebuyers are treated as financial creditors under the IBC.

Unlike a normal financial creditor who is on the Committee of Creditors, a home buyer is represented by a legal representative mostly.

In recent times, many realty firms have been dragged to insolvency proceedings by home buyers on account of long delay in completion of projects and other issues.

In August this year, the Supreme Court upheld the constitutional validity of amendments made to the IBC which conferred the 'financial creditors' status to home buyers and entitled them to be a part of the Committee of Creditors to safeguard their interests.

The Secretary said the personal insolvency regime would be fully operational in India in one year from now, adding the ministry is ready with the Cross Border Insolvency Framework and the law will be passed in the winter session of Parliament.

"Debt recovery tribunals (DRTs) in the country would be the institutional set up that would look at personal insolvency," he said at an event to mark the third birth anniversary of Insolvency and Bankruptcy Board of India (IBBI) here.

He was hopeful the cross border insolvency regime - based on the UNCITRAL model - would be enacted in the upcoming winter session of Parliament.

Finance Minister Nirmala Sitharaman said that the IBC gives a promoter an option to gracefully exit a company and many cases are getting resolved even before being admitted under IBC. She lauded IBC's three year journey, stating that this legislation has been an efficient, market-driven one, enabling easier exits for those looking for a seamless mechanism to get out of their businesses.