Deliver the homes first

SUPREME COURT HAS BRIDGED A GAP WHERE IBC FELL SHORT; LEGISLATURE MUST CLOSE IT IN LAW

- MS SAHOO RAGHAV PANDEY Respectively Emeritus Fellow, Insolvency Law Academy, and Assistant Professor, NLU Delhi

THE SUPREME COURT'S (SC) February 5 order in the Supertech matter answers a question that has vexed the insolvency ecosystem since the Insolvency and Bankruptcy Code (IBC) first confronted real estate stress: whose claim deserves primacy when a developer collapses, the bank or the homebuyer? Hopefully, the 7th amendment to the IBC, slated for the ongoing Budget session of Parliament, will provide an authoritative answer.

Invoking Article 142 to uphold the National Company Law Appellate Tribunal’s December 2024 direction appointing NBCC to complete Supertech’s 16 stalled housing projects, the court held that other claims will be considered only after homes, as promised by the developer, are delivered to the buyers. Any surplus, it added, may thereafter be distributed among other claimants in a manner the tribunals consider just and equitable.

The IBC rests on a distinction between financial creditors and operational creditors. Financial creditors—banks, financial institutions, and bondholders—sit on the committee of creditors and exercise commercial wisdom over the fate of the corporate debtor. Operational creditors—suppliers, service providers, and employees—have claims but no governance rights. The 2018 amendment deemed homebuyers to be financial creditors and gave them representation at the decisionmaking table through authorised representatives. However, resemblance to banks is only formal. A bank can absorb haircuts, write off losses against capital, and move on to the next transaction. A family that has paid instalments for 15 years towards a flat in Noida cannot do the same.