19 July 2019: The Supreme Court of India on Thursday heard the constitutional challenge filed by over 100 builders against the right provided to the homebuyers as ‘financial creditor’ under the section 7 of Insolvency and Bankruptcy Code.
The bench of justices Rohinton Fali Nariman, Sanjiv Khanna and Surya Kant took suo moto congizance and has directed the Additional Solicitor General (ASG) appearing for the government to provide a list of states where RERA authority, Appellate Tribunal and Adjudicating officer are not present.
The order comes after the advocates Aditya Parolia and Piyush Singh, representing over 300 home buyers, pointed out that the RERA act has still not been adopted or proper implementation has not taken place in most of the states.
“Many states have appointed government officers as temporary authorty,” said Parolia. The SC demanded a list of such states as well. The ASG will have to present this list to the court by Tuesday.
Pioneer Urban Land and Infrastructure filed a plea in the Supreme Court in January 2019, challenging the validity of section 5(8)(f) of the IBC2016, where homebuyers were given the right to be considered as financial creditors.
As many as 136 similar writs were filed by builders like Supertech, Parsvnath, BPTP, Ansal Hi-Tech Townships, Today Homes Noida, Ireo, SARE Shelters Projects, Wave MegaCity Centre, CHD Developers, Spaze Towers, Orris Infrastructure, AVP Buildtech, Three C Shelters, Emaar Hills Township, TDI Infrastructure, ATS Realty, among others.
All these writs were attached to the original plea of Pioneer Urban Land and Infrastructure and are being heard together.
According to the builders, home buyers must make their claim through RERA and consumer forums, and the amendment in IBC has only resulted in additional encumbrance upon them. They also say that the definition of ‘default’ occurring in such cases is not clear. The financial creditors can initiate the insolvency proceedings against a corporate debtor when it commits a ‘default’. In case of delay of a project the definition of ‘default’ becomes vague.
Also, according to builders, there have been cases where the delay has happened on the buyer’s end paying the instalments. They also dispute the ambiguity about treating home buyers as secured or unsecured creditors.
Hence, such cases when referred to insolvency forum turns into abuse of process of law and also sometimes lead to delay in project delivery.
In the previous hearing held on July 10, the ASG had said that there was no illegality in amendment brought by it in IBC. The centre had said that the law was amended to protect the interest of home buyers who had invested their money to purchase flats. The amendment helped in their representation in the Committee of Creditors under IBC.
The affidavit filed by the centre in the SC further said that the explanation was inserted under Section 5(8)(f), providing that the allottees under the real estate project are considered as financial creditors, was only for the purpose of abundant clarity.
The case will next be heard on July 23.