Insolvency and Bankruptcy Code (IBC) may include the reviewing of the status of homebuyers in the dissolution process of developers' insolvency. Under the consideration of the central government, the review committee announced what is likely to be amended in near future. If put in place timely, this step is certainly going to calm the losses of those who invested their hard-earnings to house their families.
The idea came ahead when the financial impoverishment of Jaypee Infratech, Unitech and Amrapali Group got busted by the lending banks like the Bank of Baroda and IDBI when the realtors failed to comply with the due repayments. The banks approached National Company Law Tribunal, Ministry of Corporate Affairs and Bankruptcy Court to advance the plea of close to one lac homebuyers. The fourteen-member legal review committee was designed to revamp the companies' law and the dissolution distribution process and make further recommendations addressing the plight of the victims.
The IBC follows a pattern known as the waterfall mechanism, where the distribution of funds is justified by the category of the type of stakeholders and their liability-partnership. The professionals, arbitrators, and administrators take the first chunk, financial creditors like the debenture holders, and freelancers & workmen's dues have second priority, followed by unpaid dues of employees other than workmen. Next are the unsecured monetary creditors, followed by the government dues like taxes and duties, and equity shareholders are the last in that order. Homebuyers are presently at the completion of the line when it comes to developers, along with the equity shareholders.
The recent proposal would escalate the status of homebuyers next to the unsecured creditors since there is no justification for them sitting in sync with equity shareholders. The homebuyers invest in the project as in an advance purchase, rather than buying a profit-sharing stake from the developers. The Supreme Court has taken such a considerate thought when the level of this financial carnage affected 31,000 of Jaypee customers, 19,000 of Unitech and 41,000 of Amrapali Group. "A proposal is actively considered to give homebuyers a status of unsecured financial creditors — a move which is aimed to take care of the interests of all the stakeholders," said one of the members in the committee.
Although this plan is still not in the commencement, Team Dwello welcomes such a thoughtful approach of the SC and all the participating policy-makers. We believe such an action would have a direct and obvious impact on the key realties across the country. It would ensure an added financial confidence and secured feeling amongst the real-estate investors and the genuine homebuyers.