In what may bring relief to lakhs of homebuyers, the government is planning to bring in a proposal to allow the registration of flats in real estate projects that are completed but undergoing insolvency proceedings. The proposed amendments to the Insolvency and Bankruptcy Code (IBC) aim to address the concerns of homebuyers affected by the moratorium period during insolvency proceedings.
Under the current system, homebuyers are treated as financial creditors and form part of the Committee of Creditors (CoC), similar to banks. The proposed amendment suggests that if full payment for a completed housing unit has been received, registration of the flat should be permitted in favor of the homebuyers. This would require the consent of the CoC and would provide much-needed relief to homebuyers while ensuring cash flows to the insolvent real estate firms.
The consultation paper released by the corporate affairs ministry earlier this year highlighted the need to enable the transfer of ownership and possession of completed units to allottees during the moratorium phase. This proposed change would benefit homebuyers who have paid the entire amount for their units and are currently awaiting possession.
Legal experts support the proposed amendment, emphasizing that it would allow homebuyers to obtain ownership and possession of their properties without having to wait for the entire insolvency process to be completed. They argue that homebuyers often prioritize having a roof over their heads rather than getting their money back. Additionally, the proposed transfer of ownership would generate revenue through the collection of stamp duty for the authorities.
While the proposal is seen as a positive step, some experts anticipate challenges in obtaining the required consent from the CoC. Financial creditors such as banks and other institutions might hesitate to grant consent unless their dues are fully paid or the matter is resolved satisfactorily.
Despite the challenges, addressing the concerns of homebuyers in the real estate sector is crucial. Real estate cases currently comprise a significant portion of the total insolvency cases filed, and the success rate of resolution plans in the sector has been relatively low. The proposed amendments to the IBC aim to improve the efficiency and effectiveness of insolvency proceedings in the real estate industry.
The Insolvency and Bankruptcy Code, enacted in 2016, has evolved over the years to address the specific challenges faced in distressed cases, particularly in the real estate sector. The proposed amendment reflects the government’s commitment to resolving the issues faced by homebuyers and ensuring the smooth functioning of insolvency proceedings in the real estate industry.
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