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By Vaibhav Gaggar
The recent ordinance dated June 6, 2018, has brought about some crucial amendments to the existing Insolvency and Bankruptcy Act, 2016 (hereinafter referred to as the ‘Insolvency Code’).
From a common man’s perspective, probably the most far-reaching and eagerly awaited amendment related to the provisions with respect to the rights of consumers in real estate projects. Being a hugely populist issue, by means of the amendment, the government has not only placed flat buyers in the bracket of ‘Financial Creditor’ as defined under the Insolvency Code, meaning thereby that they are to be treated as persons to whom a ‘debt’ is owed under the Insolvency Code in the nature of a loan, but has in fact taken it a couple of steps further.
In order to understand the impact of the ordinance, the author is dividing the same into two broad heads. The first part shall deal with the issue of who all are going to be impacted and therefore, entitled to take benefit of the amendment ordinance and the second part shall deal with the interplay between the rights of the consumers under RERA and the Insolvency Act. The present article shall deal with the first part of the issue and shall be followed up with interplay issue shortly.
WHO IS IMPACTED
While the general perception and stated objective of this particular amendment was to provide respite to flat buyers, thus seeming to signify that its consumers as understood under the Consumer Protection Act who can take benefit of the present ordinance, however, a closer scrutiny of the various provisions would show that all purchasers of real estate as envisaged under Real Estate (Regulation and Development) Act, 2016 (16 of 2016) (hereinafter referred to as ‘RERA’) as juxtaposed from merely purchasers of real estate who bought the property for non-commercial purposes (under the Consumer Act) would get the benefit of this amendment. Succinctly put –
By virtue of the present ordinance an explanation has been added to to the definition of “financial debt” given under Section 5(8)(f) of the Insolvency Act, whereby ‘financial debt’ has been redefined to include ‘allottee‘ as defined under section 2(d) of RERA and ‘real estate project’ as defined in section 2(zn) of RERA. When one sees the definition of ‘real estate project’, ‘allottee’, ‘apartment’ and ‘building’ under RERA it becomes clear that –
The fact that consumers can now approach the NCLT for insolvency proceedings or be treated as financial creditors’ in case an Insolvency Resolution Professional has been appointed is a huge step forward for safeguarding the interests of the consumers. Having said that, there is an interesting and complex relationship between the rights of the Allottees/ Consumers under Insolvency proceedings as compared to RERA and another issue that would need to be resolved is at what stage and under what circumstances would an Allottee be permitted to invoke the provisions of the Insolvency Code considering the definition of ‘default’ as provided under the Insolvency Code as compared to RERA. The author shall be tackling the said interplay between the two acts and their impact on consumers in the following chapter.