Overview and Applicability of Insolvency and Bankruptcy Code, 2016 to Real Estate Projects
The amendment to the Insolvency
and Bankruptcy Code, 2016, (“IBC”) dated March 13, 2020, deemed to
be in effect from December 28, 2019 (“IBC Amendment”), provides relief to
homebuyers by considering homebuyers as ‘financial creditors’ and allowing them
to initiate the corporate insolvency resolution process (“CIRP”) under the IBC
against the developer. This article analyses the remedies available to
homebuyers against the developers of a real estate project in context of the
aforesaid IBC Amendment and vis-à-vis the Real Estate (Regulation and
Development Act), 2016.
Precedence of proceedings under RERA and the IBC
While the homebuyers may initiate CIRP against the
developers, in view of the IBC Amendment, however, CIRP may be initiated only
if the application is filed jointly by not less than: (a) 100 (one hundred); or
(b) 10% (ten percent) of the total number, of such allottees under the same
real estate project, whichever is less.
Further, when any proceedings are initiated and
subsequently admitted under the IBC, then the adjudication process envisaged
under Real Estate (Regulation and Development Act), 2016 (“RERA”) may be done
away with. However, the application as filed by the allottee before the
National Company Law Tribunal (“Tribunal”) under the IBC (“Application”) should
meet the eligibility criteria as laid down under the IBC and the allottee must
be able to prove that the developer has defaulted[1]. The allottees should
initially make out an application demonstrating a “default” which shall include
amounts due and payable to the allottee.
Tatva Legal, Hyderabad has an experienced team of
lawyers who, amongst other services, advise on transactions covering multiple
practice areas such as insolvency and bankruptcy[TL1] ,
real
estate transactions including RERA compliance and title due diligence[TL2] , and legal advisory for financing
related activities specific to real estate projects.
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