Background:
- Before the Amendment Act of 2018 came into existence, the assets of the bankrupt builder were divided among his employees, creditor banks and other operational creditors.
- Home buyers had hardly figured, though their hard-earned savings may have provided a major chunk of the housing project.
IBC (Second Amendment) act, 2018:
- The Act gives buyers the status of ‘Financial Creditors’ with power to vote in committee of creditors (CoC). The Act had brought the home buyers on par with the creditor banks of the property builder.
- The CoC, by voting, makes important decisions on the future of the bankrupt builder. These calls include what to do with his assets and who should finish the pending housing projects.
- The judgment gains significance as many real estate builders have been under fire for incomplete projects leaving home buyers in dire straits.
Opposition to the Amendment Act:
- The builders had challenged making home buyers a financial creditors.
- The builders argued that home buyers were already armed with the Real Estate (Regulation and Development) Act (RERA), another piece of legislation which protected the interests of the individual investor in real estate projects.
Recent Supreme Court Judgement:
- The Supreme Court Bench confirmed the constitutional validity of the Insolvency and Bankruptcy Code (Second Amendment) act as the IBC and the RERA operate in different spheres and can be used harmoniously for the interest of home buyers.
- The court further directed the Centre to fill up the vacancies in the National Company Law Tribunal (NCLT) and its appellate tribunals so as to deal with the rising number of bankruptcy litigation in the real estate sector.
- The court also ordered those States and UTs who have still not set up a Real Estate Regulatory Authority and Appellate Tribunal to do so in 3 months.
