Options For Buyers When Builder Goes Bankrupt

Ravi Kumar, a senior official with a public sector company, is among the many who have booked flats in Jaypee’s Wish Town, Noida. He had done so in 2010. Over the next three years the developer built the superstructure and took 90 per cent of the cost. The completion period was three years from the time of booking, but deliveries did not happen. “We thought the financial issues would get resolved. The news that the company is in insolvency proceedings has come as a shock,” says Kumar.

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Recently, the National Company Law Tribunal (NCLT) admitted bankers’ plea to initiate insolvency proceedings against Noida-based Jaypee Infratech. Thousands of buyers who had invested in its projects are wondering what they should do next.

Homebuyers’ rights under IBC: According to insolvency resolution professionals, there are no specific provisions under the Insolvency and Bankruptcy Code (IBC), 2016, regarding homebuyers’ rights when a builder goes through insolvency proceedings. “Homebuyers are neither financial nor operational creditors under IBC,” says Mamta Binani, an insolvency professional and former president of the Institute of Company Secretaries of India (ICSI).

Legal experts say a homebuyer can be treated as a creditor only when he opts to seek refund of his money by terminating the purchase agreement. “If he doesn’t opt to do so, he is entitled to get his agreement implemented,” says Nilesh Sharma, director, IRR Insolvency Professionals.

Another view is that when the home buyer does not want possession, the money paid by him may fall under the definition of ‘deposit’, according to the Companies Act, 2013. “As there has been a default in payment of the deposit by the company, the home buyer may be treated as a financial creditor,” says Binani. Not all insolvency professionals agree.