Home buyers are now financial creditors! Prez Ram Nath Kovind approves promulgation of IBC ordinance

New Delhi, June 6: In a new welcoming move, the President of India Ram Nath Kovind has given a nod to the ordinance making amendments in the Insolvency and Bankruptcy Code. This approval by the President will allow the home buyers a status that of financial creditors. It also gives them due representation in the Committee of Creditors and makes them an integral part of the decision-making process.

 

Being treated as financial creditors would bring home buyers at par with banks and other institutional creditors as they would now have a share in the proceeds earned by the sale of assets of bankrupt real estate companies.

The approval will also enable homebuyers to invoke Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016 against errant developers. An additional major beneficiary would be Micro, Small and Medium Sector Enterprises (MSME).

This section is the one which forms the backbone of the Indian economy as the biggest employer, next only to the agriculture sector. Recognizing the importance of MSME sector in terms of employment generation and economic growth, the Ordinance empowers the Government to provide them with a special allowance under the Code.

Under the code, financial creditor implies any person to whom a financial debt is owed. The financial debt can include money borrowed for interest. Homebuyers will be treated at par with banks and institutional creditors and will be given priority while recovering dues from bankrupt or insolvent real estate companies.

The move will help quickly recover investments in bankrupt real-estate companies and will benefit millions of homebuyers. The amendment comes months after a new Section 29A was added into the bankruptcy code in November, introducing four layers of ineligibility for potential bidders.

The Code prescribes for the insolvency resolution and bankruptcy for individuals and partnership firms, which are proposed to be implemented in a phased manner on account of the wider impact of the provisions.

It will also disallow the sale of the property to a person who is ineligible to be a resolution applicant in case of liquidation of the corporate debtor.