A new change that could benefit homebuyers has been made to the IBC, or Insolvency and Bankruptcy Code. This change allows homebuyers to be treated as financial creditors.

The central govt has been pretty keen on the Insolvency and Bankruptcy Code. Many experts and analysts have termed it a game changer. This is one law that has instilled a new fear of the long arm of the law in real estate promoters. They now fear of losing their company. As a consequence of the IBC, banks have recovered monies of around Rs 83,000 crore from defaulting promoters. That’s over 12 billion dollars! Pretty tidy sum to recover, eh?

The same fear is now palpable in the eyes of real estate developers. Ok, that was a bit dramatic but it does summarise the situation with some accuracy. 

When we say the IBC allows financial institutions to treat homebuyers as financial creditors, what we mean is this: Until now, a home buyer was considered an unsecured creditor. This mean his payments to the builder were graded as a lower level than that of banks. In case of insolvency, the lending bank and other institutional creditors would first recover their money via sale of assets of the builder. If anything remained, the buyer would have got his money back.

This scenario is playing out currently in the case filed against JayPee Infratech by home buyers which is now being heard by the Supreme Court.

On August 09 2017, the Allahabad bench of the National Company Law Tribunal, or NCLT, admitted a plea by IDBI Bank to begin insolvency proceedings against Jaypee Infratech for defaulting on a Rs 526.11 crore loan.