A Public Interest Litigation (PIL) has been filed in the Supreme Court by lawyer Vivek Narayan Sharma, claiming that in the new Insolvency and Bankruptcy (IB) Code, 2016, the home buyers are not included in the definition of ‘Financial Creditors or Operational Creditors’, but ranked the last in the list of creditors whose claims could be settled during the insolvency proceedings. Besides challenging the constitutionality of some provisions of the insolvency code, the plea has sought a direction that the home buyers, who have not received possession of their booked homes, are also empowered to initiate ‘corporate insolvency resolution process’ against the errant real estate firms. It also said that the operation of the provisions of the Real Estate (Regulation and Development) Act, 2016 (RERA), which favours home buyers, should not be restricted by the Code.
A bench headed by chief justice Dipak Misra, which is already seized of several petitions of home buyers against real estate firms such as Unitech, Supertech and Amrapali, will hear the PIL on October 6, 2017. Currently, the moment insolvency proceedings are initiated against a real estate firm, execution of enforceable decrees of courts and the consumer fora are rendered ineffective, as they cannot be executed. Moreover, no fresh cases can be pursued by hassled home buyers against such firms.
The plea has also sought ‘forensic auditing’ of real estate firms, to ascertain the contributions of the home buyers and safeguarding their invested money. The forensic audit would ascertain whether the real estate firms, which have taken money from the home buyers, have diverted these funds.
“The principle view in filing the instant petition, is that lakhs of home buyers in thousands of projects can lose their life-savings, hard-earned money and moneys obtained through bank/institutional loans, due to the operation of Insolvency and Bankruptcy Code,” the plea said. It raised the question as to how the liquidation value would be calculated for home buyers, where deliveries of flats have been delayed. The plea has also sought a direction to provide a mechanism under the IB Code to calculate ‘the liquidation value for home buyers, where deliveries of flats have been delayed and further declare that the liquidation value would also account for interest on payments made to developers, as envisaged in the RERA’.