New Delhi: Both the Insolvency and Bankruptcy Code (Code) and the Real Estate (Regulation and Development) Act, enacted in 2016, appear to be pitted against each other as far as protecting the interests of bankers and home buyers area concerned, Assocham said on Sunday.
This is the finding of an Associated Chambers of Commerce and Industry (Assocham) – Thought Arbitrage paper, the industry body said in a statement here.
“The conflict between IBC and RERA came to the fore in quite a few bankruptcy proceeding in the recent times. IBC and RERA have areas where there are possibilities of conflict in operation.
“While IBC allows companies to file for bankruptcy to provide relief to debtors or creditors, RERA looks at providing relief to home buyers and seeks to hold developers or builders responsible if the project is delayed,” the paper said.
Under the IBC, home buyers are “unsecured creditors” and, consequently, their priority to be compensated comes after those institutional or other creditors who have given loans to the developer.
Assocham cited the latest case related to an Amrapali project where the Supreme Court held that financial creditors cannot take over homes belonging to the home buyers, upholding, thus, the rights of home buyers ahead of the creditors.
“This amply demonstrates the fundamental contradiction between IBC and RERA – while one tries to give primacy to the creditors the other tries to put consumers before creditors,” the statement said.
“Since IBC was legislated in May 2016, after RERA was passed in March 2016, legal experts opine that the Insolvency Act will override RERA, in case of a conflict.”
“In some cases, that might undermine the actual objective of consumer security, with which RERA was enacted,” it added.
According to the report “the fundamental contradiction between these two may drag cases to judicial and legal forums.”
“Synchronising Bankruptcy Act with RERA may be a better way to tackle this problem,” Assocham Secretary General D.S Rawat said in a statement.
Effective implementation of RERA has the potential to drastically change the composition, operation and financing of the sector, particularly the residential real estate sector, the report said.