Parliamentary panel says details of every customer in a real estate project should be made
available to a buyer who chooses to commence NCLT proceedings against a builder.
The Insolvency and Bankruptcy Code (IBC) Parliamentary Standing Committee has
recommended that even if only one buyer decides to file a case against a builder
before the NCLT, the government make it mandatory for developers to provide details
of every customer in a real estate project to that buyer.
Calling for the introduction of a provision in the IBC to this effect, the panel, chaired by
Jayant Sinha, said in its recent report: “…even if a single homebuyer decides to initiate
insolvency proceedings in the NCLT, the real estate owner should be obligated in the
rules/guidelines to provide details of other homebuyers of the project to the concerned
homebuyer so that the required 10% or 100 homebuyers can be mobilised, which will thus
ensure that the interests of the distressed homebuyers is duly safeguarded while enabling
effective operationalization of the amended provision.”
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In February last year, The Forum for People’s Collective Efforts (FPCE), which had
campaigned for the enactment of the real estate law (RERA) had made a submission to the
Parliamentary Standing Committee on Finance that the 2018 amendment to the IBC, which
requires a minimum of 100 homebuyers or 10 percent of total purchasers, whichever is less,
for the initiation of the insolvency process, is impractical.
The panel found that homebuyers were facing practical difficulties in collating data to
achieve the 10 percent requirement to initiate an insolvency case against builders.
Abhay Upadhyay, President of FPCE and member of the Central Advisory Council, RERA,
told that this is a welcome move to the extent that at least the buyer who has initiated
insolvency proceedings would be given the names of other buyers invested in a project. But
much more needs to be done, he said.
The FPCE had highlighted this problem in its letter last year to the Committee. The forum
had pointed out the difficulties a buyer would face in getting the contact details of others
invested in a project, assuming that 100 buyers would be needed to meet the threshold to
initiate proceedings under the IBC.
How will a home buyer know how many units have been sold to determine the 10 percent of
total number of units sold in a real estate project, “especially in a situation when 10 percent
is less than 100,” the forum had asked.
“A homebuyer will take at least six months to collate details of 10% or 100 homebuyers
before he files a case before NCLT. Besides, by the time he files the case, the coordinates
of those buyers may change and the court may decide to dismiss the case. The government
should, therefore, consider reducing the 100 buyers’ threshold to 10 buyers and the 10%
limit to 1%, which is still doable. The coordinates should also be considered valid for a period
of six months,” it said.
In a letter to the committee last year, homebuyers had pointed out that “by the time he (the
buyer) gets in touch with the rest of the buyers, which will surely be time-consuming, the
units sold will increase… It will simply be impossible for home buyers to keep track of
everyday sale. Thus, it is practically impossible to initiate proceedings under the code till the
figure needed to meet the threshold in order to initiate proceedings becomes fixed at 100.”
“Also, assuming that home buyers have established contact with either 10% of the total
buyers or 100 buyers in a project whichever is less and they have approached the National
Company Law Tribunal (NCLT), since there will always be a gap between case filed before
NCLT and its admission, the builder will surely make an attempt to break away some of the
homebuyers to ensure that before the application is admitted by NCLT the threshold is not
met and the case is dismissed,” they had said.
“Once a filed case is dismissed due to lack of meeting the absurd requirements proposed,
home buyers will lose the huge fees already paid to the lawyer and will be literally pre-
empted from re-approaching the NCLT. Thus, real estate developers have cleverly
suggested this clause of minimum threshold as they know that the key to frustrate any
attempt to drag them before NCLT by home buyers would be in their hands,” the letter had
said.
Legal experts say that the recommendation by the Insolvency and Bankruptcy Code (IBC)
Standing Parliamentary Committee would ensure that there is some semblance of a class
action.
“It’s a very good recommendation as it is incredibly difficult to get all consumers together due
to lack of publicly available information regarding allotments. This would ensure that there’s
some semblance of a class action at least. Often, even the publication procedure cannot
ensure all the consumers become aware of pending litigation,” said Vaibhav Gaggar,
partner, Gaggar & Associates.
“The panel’s recommendation is indeed a positive step towards safeguarding the interests of
consumers, especially when the majority of cases filed by consumers are because of
incorrect / incomplete information being provided by real estate developers,” said Nitish
Sharma, counsel, Anant Law.
