As per the recommendations of Bankruptcy Law Reforms Committee, the Parliament of India enacted the Insolvency and Bankruptcy (IBC) 2016, for addressing the alarming levels of non-performing loans in the Indian banking system. IBC allows failed firms to exit either through quick liquidation or business restoration when viable. It also protects the interests of various stakeholders of a distressed company, including its workmen and employees.

A home buyer is one such stakeholder who has been allotted a unit in a real estate project under the scheme of IBC. In this article, under the scheme of IBC the legislative and judicial developments has been tracked which have been introduced for the benefit of home buyers. Government has made several amendments to IBC so as to address the practical difficulties faced during implementation. The amendments are mentioned in this article as the article proceeds.

Case laws

Rajesh Goyal v/s. Babita Gupta & Others (2021)

It was held that if in the course of CIRP of a real estate company, if the promoters give a resolution to infuse funds into real estate project and resolve the stress, in such a case NCLT by using its powers may direct the promoters to cooperate with the resolution professional and infuse funds into the real estate project without inviting prospective resolution applicants to submit their resolution plans.

Mr. Rohit Tole v/s. Mantri Developers Pvt. Ltd (2021)

In this case it was held that as the concurrent remedies are available to home buyers and so the home buyer cannot file an application under Section 7 of the IBC to enforce money decree obtained from RERA, if the home buyer receives money decree from RERA in his favour, then such decree will have to be enforced through RERA only.

Puneet Kaur & Others v/s. K V Developers & Others (2022)

In this case it was held that even if the home buyer does not submit claims to the resolution professional before a designated date, his or her rights will not be extinguished.

Legislative developments in IBC in Indian real estate

When the IBC was implemented, home buyers were termed as 'other creditors' of the CD and even in the case of successful resolution of CD, they received nominal liquidation value. This led to the hardships for the homebuyers. To address this issue, the government made amendment to the IBC in 2018, Section 5(8)(f) introduced, which included recognition of home buyers as financial creditors.

However, after this amendment, a question arose, what if the individual disgruntled buyers jeopardise an entire project. To solve this issue, an amendment was made in 2019 wherein, the consent of lesser of 10% or 100 home buyers would be required for a real estate company to be admitted into CIRP. However, in the case of Parvesh Magoo v/s. Ireo Grace Realtech Pvt. Ltd, it was held by NCLAT that due to force majeur event if there is any failure or delay in the delivery of the flat by the real estate developers, in such a case the real estate developers will not be subjected to CIRP.

Challenges

Home loans for flat buyers
Resistance by housing finance companies where the inordinate delay would lead the borrower's profile to undergo a major change like some of them will be at the stage of verge of retirement or retired. In such cases, the lender is not sure about capability of such buyers.

Importance of one lender majority
Resolution plan under IBC requires approval of 66% by majority of the Committee of Creditors (CoC). And so, it is important for one lender to have majority otherwise the resolution plan does not work. If there is conflict of interest resolution plan are not easily accepted. This situation could be seen in the case where homebuyers as a class form a substantial, but non-controlling interest in the CoC. In such a situation a home buyer, who is not satisfied with the decision of the remaining home buyers is likely to litigate such decision, thereby leading to delays.

Conclusion
IBC could be said to be a landmark piece of financial resolution legislation in India. Initially IBC has not included home buyers in its ambit and so this class of people had to face some problems impacting directly real estate sector. And so, it could be seen that IBC has been the most significant reform concerning NPA resolution. However, after the amendment to the IBC, homebuyers got their right to trigger the insolvency process.