Issues Faced By Homebuyers/Alottees Under The Real Estate (Regulation And Development) Act, 2016 And The Insolvency And Bankruptcy Code, 2016

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N. Adhil, Academician/Scholar, of LLM (Corporate and Commercial Law), CHRIST (Deemed to be University) Delhi NCR.

Vijaishree Dubey Pandey,  Academician/Professional, CHRIST (Deemed to be University) Delhi NCR.

ABSTRACT

The real estate sector in India plays a crucial role in the economic landscape, significantly impacting homebuyers and the broader market. Key reforms, such as the Real Estate (Regulation and Development) Act, 2016[1], (RERA), have emerged as crucial tools in safeguarding homebuyers' interests, enhancing accountability among developers, and fostering a more equitable housing market. The findings show that builders’ lobbying and regulatory capture exploit homebuyers/ allottees.

This paper discusses about the homebuyers/allottees , in a real-estate project to whom a plot, apartment or building has been allotted, for which the advance money for the booking of plot has been paid by the allottees, when the property is under construction stage. It may be categorized as a "booking amount," "earnest money," or "security deposit,".

No security/collateral is furnished for the said security deposit paid by the allottees, by the builder/developer in return which creates a question in security for the allottees, in cases where, if the builder/developer ends up in an insolvency state, under the Insolvency and Bankruptcy Code, 2016[2], pending the completion of the said construction project. This papers mainly concentrated on solutions to secure the homebuyers/allottees, security deposit paid to the allotment of building, and how to get back the advance money, in situation where the builder/developer is not able to complete the project due to ending up in an insolvent situation. The study has implications for research on the real estate market’s theory, policy, and socioeconomic practice.

ISSUES FACED BY HOMEBUYERS_ALOTTEES UNDER THE REAL ESTATE (REGULATION AND DEVELOPMENT) ACT.

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CHAPTER - 1

INTRODUCTION

1.1 REAL ESTATE IN INDIA

In India real estate sector is very significant sector, influencing the economy, employment and for individual well-being. It acts as both a financial investment and a source of livelihood for every citizen. In terms to the government, real estate contributes significantly to tax revenues and economic growth of the country while for the consumers, it is an important entity. For consumers it provides a fundamental need, provides shelter and also acts as an avenue for financial security.

1.2 REAL ESTATE’S ROLE FOR THE GOVERNMENT

The real estate sector is an important sector for India’s economic growth. The government benefits a lot from the real estate market directly through taxes, including all the stamp duties collected through all the registration governed under it, property taxes and goods and services tax on real estate transactions. And above this the government additionally supports the growth of allied industrial sectors like construction materials, steel and cement, which further boosts the economy of the country. Real estate projects helps the government to achieve its infrastructure goals by way of facilitating large-scale urban development. Governmental initiatives like Smart Cities and affordable housing projects under schemes such as Pradhan Mantri Awas Yojana (PMAY)[3] are achieved with the help of real estate developers. These initiatives mainly aim to enhance urban planning and provide citizens with better living conditions. Moreover, real estate sector is a labour-intensive sector and one of the largest employment generating sector in India, directly employing millions of workers, including engineers, architects and construction laborers. The government uses this aspect to tackle unemployment and stimulate income generation in both rural and urban areas.

1.3 REAL ESTATE’S IMPORTANCE FOR CONSUMERS

Housing is one of the fundamental human needs. Real estate is the only sector, offering consumers the opportunity to own or rent homes, ensuring shelter and stability for every citizen. For almost every citizen owning a property represents a significant life goal and a milestone in personal financial achievement. Real estate is an investment avenue for Indian consumers due to its potential for high returns and relative stability. For every individual, owning a property is often perceived as a status symbol and a way to accumulate generational wealth. Raising of property values, especially in metropolitan areas, make real estate a lucrative option for long-term financial planning. More than an investment a home often carries emotional significance, providing a sense of belonging, security and personal accomplishment. In the cultural sense, home ownership is considered an essential part of Indian family traditions, further underlining its importance.

While real estate sector is very crucial for both consumers and governments, the sector also faces challenges affordability, regulatory bottlenecks, and urban congestion. Government is also working hard to ensure transparency through measures like the Real Estate (Regulation and Development) Act, 2016, (RERA) has been set up as a step forward for the consumers, growing access to affordable housing and home loans offers opportunities to fulfil housing needs.

1.4 HISTORY AND EFFECT OF RERA ACT, 2016

In India, prior to RERA ACT, the real estate market was largely unregulated. As a result homebuyers faced various problems including delayed delivery of projects, lack of transparency and instance of misappropriation of funds by developers. There was no integrated framework for handling disputes between builders and buyers. Consumer gradiences increased to such an extent that the need for structured regulatory mechanism was demanded. In India, before the advent of RERA, 2016, consumers mostly used consumer courts as a first resort for grievances against real estate developers. While the real estate sector remained devoid of specific regulatory authorities, consumer protection laws enacted under the Consumer Protection Act, 1986[4] formed a platform for buyers to voice their complaints regarding such issues as project delays, substandard construction, deviation from approved plans, and unfair practices. Although consumer courts provided a vital recourse, several challenges limit their effectiveness. The process of filing complaints and obtaining resolution was often time-consuming sue to significant backlog of cases. Real estate disputes, being complex in nature, required specialised knowledge that consumer courts often lacked. In addition the lack of centralised regulatory authority for the real estate industry meant that there were no standardised rules governing project approvals, funding and developer obligations, which further added to the uncertainty of results in consumer court cases. These issue lead to the enactment of RERA ACT in India.

This essentially means that primary intent of RERA ACT is to achieve the goal of fair practices within the real estate sector and the protection of homebuyers against unscrupulous practices. Therefore it looks to standardise practices in the industry, reduce fraudulent practices, increase transparency between developers and buyers, thereby build investor confidence and create an equity playing field between both developers and buyers. Some of the major key provisions of RERA ACT is Mandatory registration, forming an escrow account, disclosure of project details, Imposing penalty for Non-Completion of projects and Fast-Track redressal of grievances. In conclusion, the RERA ACT has brought a revolutionary change in the real estate sector, creating more transparency for the stakeholders. Moreover, RERA ACT continues to evolve as an essential tool for consumer protection and industrial growth.

1.5 HISTORY AND EFFECT OF IBC CODE, 2016

The Insolvency and bankruptcy code, 2016, was enacted to address the inefficient insolvency framework in India, which was spread across multiple laws, such as the companies Act, Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002[5], (SARFAESI) and Sick Industrial Companies (Special Provisions) Act, 1985[6], (SICA). Prolonged insolvency cases resulted in value erosion and low creditor recovery rates. In view of these challenges, the government proposed a unified insolvency framework in 2014[7]. The Bankruptcy Law Reforms Committee, chaired by T.K. Viswanathan had developed the IBC Code by emphasizing the principles of resolution within time and value maximization. The IBC was enacted  by parliament in May 2016 and came into force in phases, replacing obsolete laws, refining India’s insolvency regime to ensure speedy, efficient and transparency.

The Insolvency and Bankruptcy Code, 2016, has streamlined insolvency and bankruptcy process for companies, partnerships and individuals in a time-bound manner. It mandates resolution within 330 days, thereby being efficient and eliminating delay in the insolvency process. The IBC has created a unified framework by abolishing fragmented laws along with the creating of specialised adjudicating bodies such as the National Company Law Tribunal[8] (NCLT) and Debt Recovery Tribunal[9] (DRT). It provides a creditor-driven resolution process, prioritizing financial creditors while ensuring equitable treatment for all stakeholders. Additionally, the IBS emphasizes maximum asset value, enables continuation of business operation during insolvency and deters fraudulent practices through strict penalties and provisions for liquidation.

CHAPTER – 2

2.1 RECOGNITION OF HOMEBUYERS/ALLOTTEES AND BUILDER UNDER RERA ACT

This paper discusses about homebuyers/ allottees and builder and their relationship in a real estate project. Homebuyers become allottees when the person to whom a plot, apartment or building has been allotted, sold or otherwise transferred by the promoter. The definition of allottees is given under Section 2(d)[10] in RERA Act,2016. RERA act defines builder as promoter under Section 2(zk)[11] of the RERA Act, 2016, which means a person who constructs any building or apartment for sale to the general public. A real estate project means the development of a building or a building consisting of apartments, or converting an existing building or a part thereof into apartment, or the development of land into plots or apartment, for the purpose of selling all or some of the said properties. The definition of a real estate project is mentioned under Section 2(zn)[12] of RERA Act 2016. The term building is defined as any structure or erection or part of a structure or erection which is intended to be used for residential, commercial or for the purpose of any business, occupation, profession or trade or for any other related purposes, and it is defined under section 2(j)[13] of RERA Act, 2016.

2.2 USAGE OF ADVANCE AMOUNT BY PROMOTER IN THE PROJECT PAID BY ALLOTTEE.

Initially when a promoter commences a real estate project, the promoter has to make registration of that real estate project and its details to the respective authorities as required under RERA Act, 2016. Once the registration of details about the real estate project is done, the promoter will commence the development of the project, following which the promoter

can give out advertisement for inviting homebuyers for sale or to make advances or deposits for such purposes. Accepting an offer of advertisement, a homebuyer comes for purchasing an apartment or building from that project. The promoter and the homebuyer will enter into an agreement for sale (meaning of Agreement for sale as mentioned under Section 2(c)[14] of RERA Act, 2016) for that apartment or building allotted to homebuyer, where the promoter pays an advance amount, following which the agreement for sale entered has to be registered under any law for the time being in force as mentioned under section 13[15] of RERA Act, 2016. After this the homebuyer gets the status of allottee under the RERA Act.

The advance amount paid by the allotee for that real estate project from time to time shall be deposited in a separate account to be maintained in a scheduled bank to cover the cost of construction and shall be used only for that purpose by the promoter as per section 4(2)(l)(D)[16] of RERA Act. The promoter shall withdraw the amount from the separate account only to cover the cost of that project and it should be in proportionate to the percentage of completion of the project. The promoter can use the advance amount after it is certified by an engineer, an architect and a chartered accountant in practice that the amount used is in proportion to the percentage of completion of the project. The promoter shall get his accounts audited within six months after the end of every financial year by a chartered accountant in practice and has to produce a statement of accounts duly certified and signed by such chartered accountant and it shall be verified during the audit that the amounts collected for a particular project has been utilised for that project and the withdrawal has been in compliance with the proportion to the percentage of completion of that project. All these verified documents should be submitted to RERA and must be governed by RERA authorities as per the RERA Act. The rules and regulations for this RERA Act, for each state are made by the respective State Government or the Union territory Government and are to be followed by the promoters.

2.3 RECOGNITION OF ALLOTTEES UNDER IBC, 2016

Under the IBC 2016, an allotee who has paid an advance amount to the promoter for a real estate project and if the promoter is not able to complete that project as guaranties under the agreement for sale entered between them, then the allotee is given a status of financial creditor under section 5(7)[17] of IBC, and the advance amount paid to the promoter is considered as financial debt under section 5(8)(f)(i)[18] of IBC. In this case, where the  promoter is not able to complete the project and does not pay the advance amount of the allottee back, the promoter is considered as a corporate debtor under section 3(8)[19] of IBC.  Under the IBC a secured creditor is defined as a creditor in favour of whom security interest is created as mentioned under section 3(30)[20] of IBC. A security interest means a right, title or interest or a claim to a property created in favour of a secured creditor by a transaction which secures payment or performance of an obligation and it also includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or agreement securing payment or performance of any obligation.  Definition of security interest is mentioned under section 3(31)[21] of IBC.

2.4 PROCEEDINGS OF IBC IF THE PROMOTER BECOMES CORPORATE DEBTOR BEFORE COMPLETION OF THE REAL ESTATE PROJECT

If the promoter becomes corporate debtor before completion of the real estate project, then a financial creditor, by himself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the National Company Law Tribunal (NCLT) when a default has occurred as guaranteed under section 7[22] of IBC. Section 7 of IBC also gives power for a financial creditor who are allottees under a real estate project, who can also file an application for initiating corporate insolvency resolution process[23] (hereinafter referred to as ‘CIRP’) against the promoter for which a joint application has to be filed by not less than one hundred of such allottees under same real estate project or not less than ten percent of the total number of such allotees whichever is less. In CIRP process the committee of creditors is created and the resolution plan is submitted by members of committee of creditors. The resolution plan submitted by the creditors will undergo a voting process by the members of the committee of creditors in which, the vote share assigned to each of the creditors is based on the financial debts owed to such creditor. The committee of creditors can approve a resolution plan by a vote of not less than sixty six percentage of voting share of the financial creditors, after considering its feasibility and viability. If the insolvency resolution process is not completed before the time limit as mentioned under section 12[24] of IBC, the adjudicating authority will reject the resolution plan under section 13[25] of the IBC, for non-compliance of the requirements specified and passes an order requiring the corporate debtor to be liquidated in the manner as laid down in chapter three of the IBC. The liquidation process of corporate debtor is initiated, then the assets of the corporate debtor is distributed, following the order of priority as mentioned under section 53[26] of IBC.

CHAPTER – 3

3.1 RESEARCH GAP

Whether the homebuyers/allottees who have paid advance amount to the promoter for their allotted apartment and building, is secured under RERA Act, if the development of the project gets stalled and uncompleted due to promotor becoming corporate debtor under IBC.

3.2 HYPOTHESIS

Homebuyers/allottees, who enters into an agreement for sale with the promoter and invest money as advance amount for the home booking, who deposited the advance amount in regular intervals and if in case the promoter becomes corporate debtor, the homebuyers/allottees should be given a special status in Committee of Creditors formed under Corporate Insolvency Resolution Process initiated under IBC, 2016 where the advance amount paid by them should be kept secured in the escrow account created as per RERA, 2016  and should be recoverable if the stalled real estate project is not completed due to the promoter becoming corporate debtor under IBC, 2016.

3.3  RESEARCH QUESTION

1.          Whether the advance amount paid by the homebuyers/ allottees stored in a separate account should be used by the promoter only at the end of the project development, only

When the builder completes the project to a point where if he uses the advance amount paid by the allotees, he could complete the remaining building project fully?

2.          Whether the homebuyers/allottees should be given a special status in the CIRP process under IBC 2016, where the allotees should be able to recover their advance amount, if the stalled project is not completed, due to the absence of a resolution plan made in the CIRP process to complete the unconstructed project or if the corporate debtor ends up in liquidation process under IBC, 2016?

CHAPTER - 4

4.1 WHAT HAPPENS TO ALLOTTEES IN A CASE WHERE THE PROMOTER ENDS UP IN INSOLVENCY WHEN THE PROJECT IS NOT COMPLETED UNDER RERA, 2016 AND IBC, 2016.

During the development of the project, if the promoter ends up in an insolvency state by invocation of section 7[27], 9[28] or 10[29] of the IBC, 2016 and if the development works of the project stops without completion, the promoter becomes corporate debtor under IBC, 2016. In this state the allottees who have paid an advance amount and have a registered agreement for sale have no remedies under RERA act but to approach the National Company Law Tribunal (NCLT). Under IBC act the allotee who has paid an advance amount is given the status of financial creditor. The NCLT court appoints an Interim Resolution Professional who constitutes a Committee of Creditors where all the creditors of the Corporate Debtor are called to participate. Now the allotees can become a member of Committee of creditors[30] (COC) created under the Corporate Insolvency Resolution Process (CIRP). The Committee of Creditors Vote together and make the Interim Resolution Professional as Resolution Professional which depends on the majority number of votes in the Committee of Creditors. If the vote is not in majority then new resolution professional will be appointed. In committee of creditors, resolution plans will be submitted by all the creditors of the corporate debtor and the voting for the approval of each resolution plan will happen. The resolution plan submitted by the creditors will undergo a voting process by the members of the COC under the supervision of Resolution Professional, in which, the vote share assigned to each creditors is based on the financial debts owed to such creditor from the corporate debtor. In most of the cases the voting percentage allotted to allottees as unsecured financial creditor is less, because the fund contribution by the allotees in a construction project to the promoter is always less, compared to the number of secured financial creditors contribution and the voting percentage of the secured financial creditors are also more in CIRP. This imbalance in CIRP voting structure, favours the secured financial creditor’s resolution plan to get maximum approvals, whereas the  resolution plan of the allotees as ordinary unsecured financial creditors do not get approved due to minimum number of vote percentage share. Ordinary unsecured Financial Creditors like the homebuyers are ranked pretty low in the order of priority in Waterfall mechanism under section 53 of IBC, 2016. Corporate builders heavily count upon the advance amount paid by the home buyers, consider them to be stakeholder to sustain in the market. Section 53 of IBC is very irrational which violets the rights of the homebuyers guarantied under Article 21 of the Constitution of India[31] by subjecting the homebuyers to the great hardship of liquidation proceedings which is of discriminatory nature to the homebuyers.

The homebuyers are not given equal protection under the CIRP and liquidation process under section 53 of IBC. Above this once the CIRP process is initiates on the corporate debtor by the NCLT court, the court imposes Moratorium period under IBC 2016 which affects the home buyers from approaching any other forum for obtaining a relief, which has affected lakhs of homebuyers in various other projects all over India. Homebuyers cannot be deprived of their legal rights.

This kind of mismanagement of funds leading to stalling of the building project can be observed in all of the stalled construction projects which have ended up in the CIRP process under NCLT tribunals. One of such case is the Amrapali case which ended un in the face of Supreme courtin W.P. 940 of 2017. The apex court held that interest of thousands of homebuyers is paramount. The real estate giant has been hammered by the Supreme Court by cancelling their RERA registration for all projects under them and has also directed to hand over all incomplete projects to NBCC for completion of the said projects. In this case the home buyers of Amrapali construction projects knocked the door of the Apex Court. The Apex court used its original Writ Jurisdiction to rescue thousands of home buyers from drowning in an ocean of debt and never ending misery. In this case the homebuyers filed writ petitions after the Bank of Baroda filed Company Petition No. (IB) – 121(PB)/2017 before the National Company Law Tribunal (NCLT) under section 7 of the IBC for initiating the Corporate Insolvency Resolution Process (CIRP). Moratorium was declared by the NCLT tribunal. The home buyers knocked the doors of Apec Court and argued that they cannot be categorised as ordinary financial creditor to be ranked so low in the order of priority under Section 53 of IBC, 2016. The Apex Court considering the large public interest and decide to hear all Writ Petitions along with hundreds of impleading/intervention applications to serve justice to all. The Apex court ordered a forensic audit of the entire group which shocked the court as the promoter has cheated thousands of homebuyers to generate personal wealth. The court observed that the promoter has purposefully delayed construction, cheated home buyers. The promoter used the public invested money, to infuse capital in their other companies/projects/entities. The home buyers were cheated by making false promises/claims by selling of the flats which were not even a part of the master plan of projects or unapproved in the master plan, double booking of the same flats by different customers etc.. the homebuyers funds were diverted to other companies/directors by payment of professional fees by way of forging of bogus bills amounting to Rs.837 crores, by selling flats as undervalued prices in the books and collecting differential market value in cash, by paying commission and brokerage on bogus booking of flats and by way of granting inter-corporate deposit to a tune of Rs. 3,000 crores to related entities and Rs. 500 crores to unrelated entities/trusted partners for personal benefit. The promoter was able to achieve this kind of fraud activities with the help of private charter accountants, engineers and architects, along with the help of government officials. The Apex Court was able to unfold the fraudulent activity by examine the case in strict angle and with the help of setting up a special committee for this case. The Apex court has warned all the RERA and other land related officials to strictly follow the rules and complete all other pending cases in Noida, Greater Noida and other region near Delhi for all such stalled construction projects to unfold the truth. This case is a very important example to understand the fraudulent activities done by the promoter to get ultimate benefit from the home buyers, by cheating RERA authorities and the authorities are in no stage to rectify these similar issues in other pending stalled projects with such complaint. There are many other promoters who are using the same strategy to earn money fraudulently from the homebuyers. Example of such stalled projects where thousands of home buyers are stranded for more than a decade in and around Noida region are Jaypee constructions, ACE group, Mahagun Group, Gaur Group, Tashee

Gateway, Earth Towne, Today Homes Ridge Residence, Red Apple Homz, Ajnara Ambrosis, Lotus Pannache projects, where the most of the construction are still pending as on date. Hence the RERA, 2016 has to be amended further in order to make the verification process strict and meet the promoter comply with those rules and regulations.

4.2 RESOLUTION PLAN UNDER COC OF CIRP,  WHERE THERE ARE NO SUFFICIENT FUNDS TO SETTLE ALLOTTEES.

In most of the situations, the corporate debtor is left with sufficient funds only to settle the secured financial creditors, but is not left with funds to settle the unsecured financial creditors. In this case the allottees will not receive their advance amount back, where the resolution plan will be in favour to the secured financial creditors only. Hence the allotees (unsecured financial creditors) neither receive their advance amount back, nor the completed apartment or building as per the agreement for sale.

In certain situation, the corporate debtor is left with sufficient funds to settle the secured financial creditors, and left with some amount to settle the unsecured financial creditors partially. In this case the allottees will only receive part of their advance amount and the resolution plan will still be in favour to the secured financial creditors only. Hence the allotees (unsecured financial creditors) will only receive part of their advance amount, but will not receive the completed apartment or building as per the agreement for sale.

4.3 LIQUIDATION PROCESS OF CORPORATE DEBTOR IF NO RESOLUTION PLAN IS APPROVED

In certain situation under liquidation process, the proceeds from the sale of the liquidation assets is only sufficient enough to distribute among workmen’s dues [section 53(1)(b)(i)][32] and secured creditors, but others members, including unsecured financial creditors [section 53(1)(d)][33] are not left with any funds to be settled with. In this case the allottees will not receive their advance amount back. Hence the allotees (unsecured financial creditors) neither receive their advance amount back, nor the completed apartment or building as per the agreement for sale.

In certain situation under liquidation process, the proceeds from the sale of the liquidation assets is only sufficient enough to distribute among workmen’s dues [section 53(1)(b)(i)] and secured creditors, but others members, including unsecured financial creditors [section 53(1)(d)] only receive part of their advance amount back. Hence the allotees (unsecured financial creditors) will only receive part of their advance amount, but will not receive the completed apartment or building as per the agreement for sale.

CHAPTER – 5

5.1    POLICY SUGGESTIONS TO BE MADE UNDER RERA ACT 2016.

5.1.1      Amendments To Be Made To The Advance Amount Storage And Usage Method Under RERA, 2016.

Under RERA Act, section 4(2)(l)(d) mentions about the advance amount's usage. To a real estate project, allottees have paid up. According to the existing RERA Act, the promoter is able to use seventy percent of advance payments by the allottees for the real estate project. The promoter has to deposit all of these amounts into a separate bank account and then use them to cover the cost of construction only for that project. The promoter shall withdraw certain amounts from individual accounts to cover the project's cost. The cost withdrawn should be proportional to that amount of the project that is complete.

In most cases, the promoter creates fake bills as well as forges documents of proportionate completion of the work in order to withdraw the advance amount the homebuyers deposited as well as divert that money for personal benefit or to start the initial work of the project with an intent to not invest their money in the project, which intern leads to the stalling of the project and various problems in the completion of the construction project due to mismanagement of project funds. The promoter withdraws all of stored advance money out from the separate escrow account, helped along by the private charter accountant, engineer, and architect; or forging of documents in order to get the audit accounted by the private charter accountant, engineer, and architect without their knowledge.

The promoter faked bills and audited accounts in the expenses so as to progressively complete the project to withdraw excessive amount from advance amount of the allottees to use that retrieved amount so as to further progress the project, so the promoter does not invest his own money to complete that particular project or transfers that money to his own account so as to invest that amount in his other pending projects completion which mismanages funds and to gain personal benefits from the business. The allottees are unable to get back their advance amount in the event that the project gets stalled before its completion, nor does the stalled construction project get to be completed because of the promoter's insufficient balance. Changes must be made within the RERA Act so as to overcome all of these issues for allotees as well as to secure their advance amount. The amount in advance should be stored in a separate type of account as has been mentioned under section 4(2)(l)(d) of RERA Act.

The promoter should not use any portion of the advance amount for the initial development works of the project. Toward the project's development work, the promoter should use the money acquired by him through loan or own funds. Typically, the project's expected cost is known by the promoter. Thus the promoter has to use the advance amount from that separate account of allottees for development works only when the promoter comes to a definite estimated calculation that the advance amount collected from the allotees, if he uses the advance amount, it will be adequately sufficient to meet the estimated cost of that remaining construction work, to completely complete the pending project. the builder should not be allowed to withdraws the advance amount until the builder is sure that if he withdraws that amount and invest in project he can complete the project fully. In this way the project will get completed fully if the builder uses the allottee’s advance amount.

The advance amount paid by the allotees will be kept secure in the separate escrow account created for collection of that advance amount, if the promoter becomes a corporate debtor and the project gets stalled during initial development stage of the project, at least the advance amount will be secured to be returned to the allottees in further course by due process of law.

5.1.2      Amendments To Be Made In Respect Of The Appointment Of Charter Accountant, Engineer And Architect To Verify The Statement of Accounts.

RERA authorities should appoint their own charter accountant, architect, as well as engineer in place of private practitioners to verifying the progressive completion of the project as well as verifying the statement of accounts. Orderly verifying each of the documents of that particular builder through using the government database provided to the such RERA appointed charter accountant, architect, as well as engineer makes in-depth inspection of the project status along with maintaining a track of the builder company’s health to predict future failures. RERA should appoint a chartered accountant, an engineer, and an architect specifically for verification, so that the process of verification gets even more stringent. Home buyers will gain confidence because of this appointment, and they will invest confidently in real estate.

5.2    POLICY SUGGESTIONS TO BE MADE UNDER IBC, 2016.

5.2.1    Amendments To Be Made To Give Special Status To The Allottees As “Allottees Financial Creditor” And Make Special Procedures In Regard To The Allotees In The CIRP Process Under IBC, 2016.

If the promoter becomes a corporate debtor, under IBC, 2016, creditors can initiate corporate insolvency resolution process against the corporate debtor. Allotees in IBC, 2016 are given unsecured financial creditors status because their advance amounts are not secured with any security interest. Therefore, amendments have to occur in situations where allottees are granted a special status as “Allottees Financial Creditors” under the Insolvency and Bankruptcy code, 2016, specifically, through the granting of a special status as “Allottees Financial Creditors” under IBC, 2016, thereby allowing allottees to recover that advance amount from a separate account if the COC gives acceptance to a CIRP resolution plan without the inclusion of a pending project completion plan or in the event that nobody makes a CIRP plan in order to complete that pending project. The advance amount deposited from the buyers/allottees cannot be recovered back, if in the COC meeting if the accepted resolution plan involves completion of the pending project with the help of another builder. A new project plan will be entered between the buyers/allottees and newly appointed builder in the COC meeting. Following which the buyers/allottees must deposit the remaining sale amount mentioned in the sale agreement into the separate account with the aim of completing the pending project.

As stated above, the advance amount of the allottees is secured in a separate account; hence, if the promoter goes into a CIRP process or liquidation, that project's separate account will still secure the advance money for the allottees to recover, even during the insolvency proceedings.

5.2.2    Amendments To Be Made In Liquidation Process If The Builder Becomes Corporate Debtor To Recover The Remaining 30% Of The Advance Amount Paid By The Allotees Under IBC, 2016.

The escrow account holds only 70% of the advance amount of the allottees as per the RERA, 2016, and the remaining advance amount invested by the allottees has to be recovered from the corporate debtor's assets under the liquidation process if the corporate debtor ends up in the liquidation process and has to be given back to the allottees by the resolution professional by following the waterfall mechanism under IBC, 2016.

The deployment of these policy suggestions permits simpler regulation of the real estate sector to prevent fraudulent activities. This ensures the completion of projects, avoiding abandoned sites and benefiting the environment, the economy of the country, and increased governmental revenue. It will likewise ensure preservation of the hard earned money for the homebuyers, justice will be served unto the homebuyers, and the belief of more people to invest again in the real estate sector without any fear will grow.

CHAPTER – 6

6.1 SOURCES TO SUPPORT THIS RESEARCH GAP

1.          Shweta Bharti & Jatin Chadda, Journey of Home Buyers Under IBC, Bar & Bench (2024)[34].

The article discusses the status of homebuyers from the beginning of the code in 2016 until now, under The Insolvency and Bankruptcy Code (IBC) 2016. This literature review provides an overview of a number of key scholarly and legal perspectives on the evolving status of homebuyers under the Insolvency and Bankruptcy Code (IBC) and related regulatory frameworks. The paper focuses in on the role as well as voice question of homebuyer for them to be considered as being secured creditors that are in the NCLT proceedings that are initiated under the CIRP process. The article is there to help with comprehension of the process for insolvency proceedings under IBC, 2016. It also fully explains the power as well as involvement of some parties.

2.          Mukesh Arora & Esa Panda, Treating Homebuyers Within the Ambit of ‘Financial Creditors’ Under Insolvency Bankruptcy Code, 2016 and Critical View on the Recent Amendments, SSRN Elec. J. (2022), https://dx.doi.org/10.2139/ssrn.3791345[35].

In this paper the author discusses how for the past two decades, builders/developers have been delaying possession to home buyers. These builders will often borrow money from those home buyers as advance amount, and also cannot commit to deliver the aforesaid flat/homes and other real estate projects. Life savings as well as hard-earned money were invested by several homebuyers in the builder's project and furthermore, homebuyers have taken loans from the bank in addition to paying EMI's for the flats. Homebuyers have been harassed both physically and also mentally through the builders. The harassment is something that has occurred over the course of the years from out of various judicial proceedings. This paper article discusses in detail how the government has taken the initiative in order to bring each homebuyer under the definition of the financial creditor by amending the Insolvency and Bankruptcy Code, 2016, as well as is still in the process to come with an effective ordinance so as to deal with and overcome the existing lacunas under the Code, considering each of the aforesaid factors.

3.      Arjya B. Majumdar & Mehreen Garg, The Homebuyers Conundrum in Real Estate Insolvency, SSRN Elec. J. (2023)[36].

This paper mainly deals with its impact as well as the purpose of the Insolvency and Bankruptcy Code, 2016 in India. IBC is implemented in order to balance all of the interests of stakeholders and also to provide for a fast resolution of all issues arising out of the solvency of corporate debtors in a timely manner. This paper that concentrates on the IBC amendments of 2020 and 2022 pertains to the rights of homeowners. The author says that homeowners lack any treatment as secured creditors and lack security within the properties they possess an interest in. The homeowner's chief claim would be to receive the totality of the property for which it had paid, even in the event that the property has not yet been created or clearly earmarked as part of the builder buyer agreement. The homeowner as per the RERA and as a part of the builder buyer agreement has a dual remedy either to have their money returned back to them with interest accrued or rather to receive immoveable property instead. This paper argues that this dual remedy gives rise to such a charge. In favor of the homeowner, such a charge does exist. Relevant facts and case laws provide detailed suggestions within this paper to clear that research gap.

4.          Hariharan Venkateshwaran, Financial Creditor, Operational Creditor and an Overview on Home-Buyers Under Indian Bankruptcy Code, SSRN Elec. J. (2021), https://dx.doi.org/10.2139/ssrn.3847240[37].

This paper mainly deals with the Insolvency and Bankruptcy code of the year 2016, as well as with the insolvency proceedings within the same. Insolvency with bankruptcy refer to the financial position for a person and a corporation or a company. Bankruptcy represents the effect from the act, whereas Insolvency represents that term's state. In legal terms, insolvency is a state in which an individual's or an organization's liabilities exceeds assets, and the entity is unable to raise enough cash for obligations or debts as due. In instances when an individual has inability for payment of liabilities and debts, the author describes such a condition. Then he generally files for bankruptcy, as well as asks the government for it to help fully pay creditors. This paper uses relevant facts and case laws to fill the research gap analyzing basics of Financial Creditors, Operational Creditors, Jurisdiction, and Scope of Home-buyers under the Indian Bankruptcy Code.

5.          Janhavi Somvanshi & Samyuktha R, Reverse CIRP as an Emerging Solution to Real Estate Insolvency – Can It Be Accommodated in the Scheme of IBC?, SSRN Elec. J. (2023), https://dx.doi.org/10.2139/ssrn.4316565 [38].

This paper deals specifically with The Insolvency and Bankruptcy Code, 2016 (IBC) under the Corporate Insolvency Resolution Process (CIRP) provisions. The judiciary introduces this specific practice outward, and experimental procedures stretch a few practices that might override or perhaps dilute current parts of the IBC. Insolvency resolution for a few real estate entities is actually what the Reverse CIRP term is now addressing. Reverse CIRP substitutes the CIRP application as well as several IBC provisions. Them in places of CIRP substitutes reverse. Under the IBC, the Reverse CIRP is not recognized in any such statutory way or manner. In accordance with this, plentiful current discussions are being conducted in relation to legality from within the process as well as the fit within the entire overall IBC scheme. Those of the IBC objectives are complied with by the Reverse CIRP in a manner as scrutinized by this essay. The essay also examines just how it diverges from the existing IBC procedures in catering effectively for the real estate sector needs. CIRP reversal allows some integration from all procedures related to resolving insolvency issues. Also, the scheme from the IBC clears a number of research gaps using several case laws as well as various facts.

6.          Trisha Agarwala, The Plight of Homebuyers and the Real-Estate Industry in India Under the Insolvency and Bankruptcy Code, 2016, SSRN Elec. J. (2024), https://dx.doi.org/10.2139/ssrn.4787359[39].

This paper deals with the rights for homebuyers in India's insolvency proceedings context, a legal reform focal point especially with the Insolvency and Bankruptcy Code (IBC)'s 2016 advent. At first, the home buyers were treated as general creditors. They were recognized as no financial creditors and no operational creditors in the corporate insolvency resolution processes CIRP proceedings. Since this classification greatly limited their ability for initiating insolvency proceedings under the Insolvency and Bankruptcy code of 2016 against defaulting builders, it relegated them to a low priority within the statutory payment hierarchy during corporate insolvency resolution processes as well as liquidation scenarios (Sood, 2021). The Consumer Protection Act of 1986 (CPA) and also the Real Estate (Regulation and Development) Act of 2016 (RERA) allow for home buyers to pursue for remedies. Creditors who were recognized had protections that these avenues were not able to offer (Jha & Singh, 2019). The legal framework that is surrounding the home buyers’ rights in the insolvency proceedings, as well as its important evolution inside of the recent times, are the subjects within this paper. Several home buyers' positions have been strengthened through those IBC amendments while also prompting discussions necessary for several developers' implications. Further dialogue between homebuyers and stakeholders will be important as the legal landscape continues toward change to ensure a fair resolution framework that protects consumer interests while maintaining industry viability. Certain relevant facts as well as specific case laws can help to clarify the research gap. This paper here gives some detailed suggestions with regard to this.

7.          Harshit Gupta, Waterfall Mechanism: Basic Structure of the Insolvency and Bankruptcy Code, 2016, IBC Laws (2024)[40].

This paper deals with all of the provisions that are under The Insolvency and Bankruptcy Code, 2016 (IBC) for the Corporate Insolvency Resolution Process (CIRP). In a time-bound manner, the Corporate Debtor revival is the primary objective. The Insolvency and Bankruptcy Code, 2016 was introduced to meet each aspect of this objective. Creditors are able to use The Code's remedy so as to commence insolvency proceedings against the corporate debtor as well as recover their complete debt by means of either the Resolution Plan process or liquidation, when applicable. This paper prescribes the procedure in the code that evidences that the Corporate Insolvency Resolution Process (CIRP) drives creditors as the Committee of Creditors (CoC) takes all the decisions by resolving those decisions in CoC meetings. In various landmark judgements under the Insolvency regime, the author speaks about how the Commercial Wisdom of the CoC is reiterated from time to time. Section 53 of the IBC defines the priority in which someone has to make a payment under liquidation as how the water fall mechanism under the IBC distributes, which is with priority. Specifically, this paper deals with how asset distribution has to be made under the IBC's basic structure, and it talks of the IBC objective which is unachievable should smooth CIRP and liquidation become unsteady. Relevant facts along with applicable case laws assist this paper in order to give detailed suggestions so as to clear the research gap.

8.          Gaurav Mitra & Lavanya Pathak, Landowners' Plight Under the IBC, IndiaCorpLaw (Dec. 28, 2022)[41].

In this paper the author concludes that upon considering the overall scheme of the law, it will not be amiss for us to say that all of the doors seemingly close for the landowners once the CIRP initiates against the CD. Even in instances when parties submit certain claims, regarding parties as operational or as financial creditors still remains uncertain. It may also foreclose the possibility that landowners initiate a reverse CIRP as well as allow the interested members of erstwhile management of the corporate debtors to infuse funds so they complete the project. The current insolvency law, for this specific time, does not absolutely seem to favor any of the rights of each landowner under that JDA while such Supreme Court position over these issues remains to be seen. It is in the best interest of third-party allottees to remain unaffected by disputes between the landowner and developer. However, the

Future JDA projects could very well be disincentivized by such an interpretation, as the court must bear in mind too.

9.          Shaktikanta Das, Insolvency and Bankruptcy Code – Towards Achieving Full Potential, Bank for Int’l Settlements (Jan. 23, 2024)[42]. 

From an institutional perspective, a Self-Regulatory Body has been set up by the Reserve Bank through bringing together of a core group of major banks i.e. Secondary Loan Market Association (SLMA). The self-regulatory body is expected to play quite an important role as it standardises documentation as well as market practices, sets up the market infrastructure, promotes liquidity, efficiency along with growth of the secondary market in alignment with broad regulatory objectives. These measures are expected for easing the transfer of credit risk originating within the banking sector. For most diversified sets of investors, such measures do ensure market-based credit products. The IBC mechanism will have consequential benefits from germination of an active secondary market ecosystem.

10.       Amrita Sachidanandan, Time Limit for Completion of Insolvency Resolution Process Under IBC, Jotwani Assocs. (Oct. 28, 2023)[43].

The creditors believe that the company's survival as well as a late-stage recovery are still believed to be feasible. Due to the moratorium period, a corporate debtor's operations are able to be restructured. The appropriate steps need enough time for contemplation by someone. Hence, the CoC may adopt one resolution at their meeting, and this authorises the RP to request from a relevant authority one time extension. The relevant authority gives some extension of time when the authority determines that it is appropriate. In determining of whether to grant the extension, the tribunal can see how the dispute resolves. The tribunal's role is important for the removal of all ambiguities. Amendment 2019 was added into Section 12(3) of the Code. It happened by way of two provisos that were there. The CIRP required completion within approximately 330 days after the start of the insolvency procedure. These nearly 330 days do include time that is spent in some legal processes relating to that CIRP of the corporate debtor. This generally takes 180 days, with one extension of up to 90 days if the adjudicating authority grants the extension.

11.       Vritti Bang et al., Study of the Insolvency and Bankruptcy Code 2016, IIBM S J. Mgmt. (Dec. 2019), https://doi.org/10.33771/iibm.v4il-2.1082[44].

This paper highlights the structures and processes under the IBC, including the role of insolvency professionals and how early detection of financial distress can help in preventing defaults. This study can give you a detailed understanding of how the IBC framework operates in India, which is essential when considering specific processes like Pre-Packaged Insolvency.

CONCLUSION

One of the important objective of insolvency proceedings is the pari passu[45] principle which recommends that similarly placed creditors in insolvency proceedings be treated equally. However, in an insolvency proceeding, all the assets of the corporate debtor is sold to recover the claims. In such cases the residual funds of the company may not be adequate enough to meet the claims of the unsecured financial creditors like home buyers/ allottees.

The purpose of the law in enacting the 2020 amendment to the IBC was to make the homebuyers on par with other financial creditors so that the homebuyers can have a voice in the approval of the resolution plan. Still after the 2020 amendment, homebuyers are not placed at the COC table at where their money can be recovered or given a greater vote percentage where they can opt for the completion of the stalled projects due to insufficiency of funds recovered from the corporate debtor. Given that the very apartments that are built for the usage and purpose of the homebuyers, it remains a legal absurdity to say that the homebuyers have no security in those very properties.

Hence if the policy suggestion recommended in this paper is implemented, the home buyers/allotees advance interest will be secured even if the building promoter becomes corporate debtor while the building project is still in the construction stage and has not acquired a completion certificate under RERA, 2016.

[1] The Real Estate (Regulation and Development) Act, No. 16 of 2016, INDIA CODE (2016).

[2] The Insolvency and Bankruptcy Code, 2016, No. 31 of 2016, INDIA CODE (2016).

[3] Ministry of Hous. & Urban Affs., Gov’t of India, Pradhan Mantri Awas Yojana, https://pmaymis.gov.in/.

[4] The Consumer Protection Act, 1986, No. 68 of 1986, INDIA CODE (1986).

[5] The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, No. 54 of 2002, INDIA CODE (2002).

[6] The Sick Industrial Companies (Special Provisions) Act, 1986, No. 1 of 1986, INDIA CODE (1986).

[7] T.S. Vijayan, Consumer Protection in Real Estate: A Post-RERA Analysis, 4 J. Real Est. & Prop. L. 234, 235 (2017).

[8] The Insolvency and Bankruptcy Code, 2016, No. 31 of 2016, INDIA CODE (2016).

[9]The Recovery of Debts Due to Banks and Financial Institutions Act, 1993, No. 51 of 1993, INDIA CODE (1993).

[10] The Real Estate (Regulation and Development) Act, 2016, No. 16 of 2016, § 2(d), INDIA CODE (2016).

[11] The Real Estate (Regulation and Development) Act, 2016, No. 16 of 2016, § 2(zk), INDIA CODE (2016).

[12] The Real Estate (Regulation and Development) Act, 2016, No. 16 of 2016, § 2(zn), INDIA CODE (2016).

[13] The Real Estate (Regulation and Development) Act, 2016, No. 16 of 2016, § 2(j), INDIA CODE (2016).

[14] The Real Estate (Regulation and Development) Act, 2016, No. 16 of 2016, § 2(c), INDIA CODE (2016).

[15] The Real Estate (Regulation and Development) Act, 2016, No. 16 of 2016, § 13, INDIA CODE (2016).

[16] The Real Estate (Regulation and Development) Act, 2016, No. 16 of 2016, § 4(2)(i)(D), INDIA CODE (2016).

[17] The Insolvency and Bankruptcy Code, 2016, No. 31 of 2016, § 5(7), INDIA CODE (2016).

[18] The Insolvency and Bankruptcy Code, 2016, No. 31 of 2016, § 5(8)(f)(i), INDIA CODE (2016).

[19] The Insolvency and Bankruptcy Code, 2016, No. 31 of 2016, § 3(8), INDIA CODE (2016).

[20] The Insolvency and Bankruptcy Code, 2016, No. 31 of 2016, § 3(30), INDIA CODE (2016).

[21] The Insolvency and Bankruptcy Code, 2016, No. 31 of 2016, § 3(31), INDIA CODE (2016).

[22] The Insolvency and Bankruptcy Code, 2016, No. 31 of 2016, § 7, INDIA CODE (2016).

[23] The Insolvency and Bankruptcy Code, 2016, No. 31 of 2016, §§ 7–9, INDIA CODE (2016).

[24] The Insolvency and Bankruptcy Code, 2016, No. 31 of 2016, § 12, INDIA CODE (2016).

[25] The Insolvency and Bankruptcy Code, 2016, No. 31 of 2016, § 13, INDIA CODE (2016).

[26] The Insolvency and Bankruptcy Code, 2016, No. 31 of 2016, § 53, INDIA CODE (2016).

[27]Insolvency and Bankruptcy Code, 2016, No. 31 of 2016, § 7, Gazette of India, Ministry of Law and Justice.

[28]Insolvency and Bankruptcy Code, 2016, No. 31 of 2016, § 9, Gazette of India, Ministry of Law and Justice.

[29]Insolvency and Bankruptcy Code, 2016, No. 31 of 2016, § 10, Gazette of India, Ministry of Law & Justice (2016).

[30]Insolvency and Bankruptcy Code, 2016, No. 31 of 2016, Gazette of India, Ministry of Law and Justice.

[31]Constitution of India (India, 1950) art. 21.

[32]Insolvency and Bankruptcy Code, 2016, No. 31 of 2016, § 53(1)(b)(i), Gazette of India, Ministry of Law and Justice.

[33]Insolvency and Bankruptcy Code, 2016, No. 31 of 2016, § 53(1)(d), Gazette of India, Ministry of Law and Justice.

[34]Shweta Bharti & Jatin Chadda, Journey of Home Buyers Under IBC, Bar & Bench (May 7, 2024), https://www.barandbench.com/law-firms/view-point/journey-of-home-buyers-under-ibc.

[35] Mukesh Arora & Esa Panda, Treating Homebuyers Within the Ambit of ‘Financial Creditors’ Under Insolvency Bankruptcy Code, 2016 and Critical View on the Recent Amendments, SSRN Electronic Journal (Aug. 1, 2020), https://doi.org/10.2139/ssrn.3791345.

[36] Arjya B. Majumdar & Mehreen Garg, The Homebuyers Conundrum in Real Estate Insolvency, in Emerging Ideas on IBC, Insolvency and Bankruptcy Board of India, 2023, at 351, https://ssrn.com/abstract=4628009.

[37] Hariharan Venkateshwaran, Financial Creditor, Operational Creditor and an Overview on Home-Buyers Under Indian Bankruptcy Code, SSRN Elec. J. (2021), https://dx.doi.org/10.2139/ssrn.3847240.

[38]Janhavi Somvanshi & Samyuktha R, Reverse CIRP as an Emerging Solution to Real Estate Insolvency – Can It Be Accommodated in the Scheme of IBC?, SSRN Electronic Journal (Jan. 5, 2023), https://doi.org/10.2139/ssrn.4316565.

[39] Trisha Agarwala, The Plight of Homebuyers and the Real-Estate Industry in India Under the Insolvency and Bankruptcy Code, 2016, SSRN Electronic Journal (Apr. 16, 2024), https://doi.org/10.2139/ssrn.4787359.

[40] Harshit Gupta, Waterfall Mechanism: Basic Structure of the Insolvency and Bankruptcy Code, 2016, IBC Laws (May 13, 2024), https://ibclaw.in/waterfall-mechanism-basic-structure-of-the-insolvency-and-bankruptcy-code-2016-by-harshit-gupta/.

[41] Gaurav Mitra & Lavanya Pathak, Landowners’ Plight Under the IBC, IndiaCorpLaw (Dec. 28, 2022), https://indiacorplaw.in/2022/12/landowners-plight-under-the-ibc.html.

[42] Shaktikanta Das, Insolvency and Bankruptcy Code – Towards Achieving Full Potential, Bank for Int’l Settlements (Jan. 23, 2024), https://www.bis.org/review/r240117f.htm.

[43] Amrita Sachidanandan, Time Limit for Completion of Insolvency Resolution Process Under IBC, Jotwani Assocs. (Oct. 28, 2023), https://jotwani.com/time-limit-for-completion-of-insolvency-resolution-process-under-ibc/.

[44] Vritti Bang et al., Study of the Insolvency and Bankruptcy Code 2016, IIBM S. J. Mgmt., Dec. 2019, https://doi.org/10.33771/iibm.v4il-2.1082.

[45] Insolvency and Bankruptcy Code, 2016 (India) No. 31 of 2016, Gazette of India, Ministry of Law & Justice.