In India, the real estate sector is lopsided in favour of the builders. Resultantly, the homebuyers, at times, encounter challenges despite conducting due diligence before booking their respective flats.
Homebuyers can take legal recourse and seek relief by approaching the appropriate forum under the Consumer Protection Act, 1986 (CPA), Real Estate (Regulation and Development) Act, 2016 (RERA) or the Insolvency and Bankruptcy Code, 2016 (IBC). All the remedies available under CPA, RERA and IBC are concurrent. It is only in the event of a conflict that IBC will prevail over RERA.
Prior to the enactment of RERA, the homebuyers, who were not investors, approached the consumer forums under CPA for relief. This was an efficacious remedy in an era when most of the builders did not get over-leverage, and the financial sector was not hit with the murkiness of the real estate market.
RERA was primarily brought in to provide a dedicated forum to alleviate the grievances of the allottees and save the project, which is being developed by a developer.
Important provisions under RERA
A homebuyer, under the provisions of RERA, would generally seek reliefs related to the possession of the flat, refund of the money paid on account of breaches by a builder, compensation for the delay, or unilateral changes in the configuration of a project. Claims of a homebuyer may depend on various factors, including the nature of the agreement.
For stalled projects in Maharashtra, homebuyers may collectively form an association and approach the authority for appropriate reliefs. However, for such an arrangement, the project is required to be viable.
How can IBC help?
IBC was primarily enacted for conducting the insolvency resolution process in a time-bound manner by maximising the value of company assets. After considering the plight of distressed homebuyers through various cases, a homebuyer was considered as a financial creditor under the Insolvency and Bankruptcy Code (Second Amendment) Act 2018 (2018 amendment).
Under the Insolvency and Bankruptcy Code (Amendment) Bill, 2019 dated December 28, 2019 (2019 Ordinance), there was a proposal to retrospectively increase the threshold requirement of the number of homebuyers for filing an insolvency application. The 2019 Ordinance was challenged before the Apex Court. By an interim order, the Apex Court directed that status quo pertaining to pending applications of homebuyers be maintained.
Under the Insolvency and Bankruptcy Code (Amendment) Bill, the homebuyers can approach the NCLT against a real estate company via a joint application made by either 100 homebuyers or 10 percent of the homebuyers, whichever is lower.
Prior to the 2020 Bill, the NCLAT did not follow the normal course as is prescribed to be followed for the Corporate Insolvency Resolution Process (CIRP). However, reverse CIRP was introduced in the case of a real estate company, particularly to protect the interest of allottees and completion of the project. This kind of a reverse CIRP against a corporate debtor is limited to a real estate project as per an approved plan by a competent authority.
The convergence of RERA and IBC
It is evident that RERA and IBC are adopting pragmatic approaches to balance the interests of all the stakeholders of a project. However, while seeking relief under IBC, the homebuyers need to be mindful of any default on the payments due to the developer. They must also ensure that they are not speculative investors, who are not interested in getting the possession of their flats. Lately, the developers have become conscious about their duties towards the buyers. They are working diligently to meet the timelines and parameters concerning the projects in their hands.