Home/Flat buyers are now financial creditors as supreme court upheld their validity to participate in insolvency. This is a huge relief for the home buyers and is a welcome judgement.
What does that mean?
As per section 7 of the IBC (Insolvency and Bankruptcy code), a home buyer, who is now a “financial creditor”, may trigger the insolvency proceedings against the real estate developer. The bench said that since home buyers give advances to the real estate developer and finance the project, they are really the “financial creditors”.
A three judge bench headed by Justice Rohinton F Nariman said that once a homebuyer establishes default before a bankruptcy court, the onus is on the builders to prove that the consumer does not wish to take possession of their house to avoid proceedings.
How does it affect the real estate builder/developer?
That means, in a scenario when a builder declares bankruptcy and the construction is incomplete, previously, he was first accountable to the banks and financial institutions which approved loans through the home buyers. He had to liquidate his assets and repay them, first.
The financial recovery for the home buyer was so unclear, previously even when they had funded the construction! But because of this verdict, now the home buyer is legally equal to the bank and the builder must repay with interest to both the home buyer and the bank in case of insolvency!
This empowers the genuine home buyer!
Who are Financial Creditors:
The banks and other financial institutions that provide the loans based on the home buyer’s credit history and other factors are the financial creditors. They provide the funds for the builder to complete construction.
What if the home buyer is a defaulter?
The bench also dealt with the arguments advanced by the real estate developers that any allottee, who may himself being a defaulter, could initiate the insolvency proceedings before the National Company Law Tribunal (NCLT).
The bench noted that in such cases, the home buyer would have to make out a prima facie case of default relating to amounts due and payable to him in his or her application under section 7 of the IBC.
Once this prima facie case is made out, the burden shifts on the promoter/real estate developer to point out in their reply and in the hearing before the NCLT, that the allottee is himself a defaulter and would, therefore, on a reading of the agreement and the applicable RERA Rules and Regulations, not be entitled to any relief including payment of compensation and/or refund, entailing a dismissal of the said application,” it said.
What about Investor home buyers?
This may not be good news for those, ‘investor home buyers’ who initiate insolvency against the real estate developer to come out of his investment, the home, taking the current real estate market into his defense.
Therefore, the real estate developer’s track record is important! GP Homes, with 15+ years of experience, have 950+ satisfied and happy customers.
GP Homes strive to give only the best to all their customers and all their projects are RERA approved! They are known for their hassle-free payments!
The home buyer can be rest assured that his dream home is in great hands as GP Homes is also known for their on-time handing over and their customers stand as a testimony!
