These unprecedented times have highlighted upon the unfortunate situation that people are faced with. Covid-19 outbreak has brought the entire world to a stand – still.

However, the virus-induced nationwide lockdown has not only led to large-scale ramifications for businesses across the globe but has also adversely affected the real estate and especially the homebuyers. The Lawmakers have considered the apprehension of the homebuyers and have introduced several laws which adjudicate upon the concerns of the homebuyers and preserve the consumer’s interests as the keystone in various court decisions, and the adjudicators are also willing to go the extra mile to secure justice.

Moreover, with regards to the relationship between IBC, RERA, and CPA, the IBC law permits for an exclusive and overriding nature of code in relation to any other legal provisions. In the event of a conflict between any legislation and the IBC, Section 238 of the IBC takes precedence. Similarly, section 89 of RERA states that if any law conflicts with RERA, RERA will take precedence.

As a result, it demonstrates that there are no ‘inconsistencies’ between RERA and IBC, and that they both operate in separate spaces and for different objectives. Though the Supreme Court’s decision in Pioneer Urban Land and Infrastructure Ltd. & Anr. Versus Union of India & Ors W.P.(C) 43 of 2019 held that allottees of flats/apartments have concurrent remedies under the CPA and the RERA, in addition to triggering the provisions of the Insolvency and Bankruptcy Code, 2016, held that allottees of flats/apartments have concurrent remedies under the CPA and the RERA, such allottee.

Furthermore, the fact that RERA applies in addition to and not in lieu of other laws (Section 88) indicates that RERA’s remedies for allottees were meant to be complementary rather than exclusive. The courts clearly stressed the precedence of the IBC above other relevant statutes, such as RERA or CPA, in all of the foregoing judgements.

The Insolvency and Bankruptcy Code, 2016, was originally designed to address huge NPA difficulties in banks, as well as to maximise asset value, increase credit availability, balance the interests of all stakeholders, and foster entrepreneurship, among other things. 

As per IBC regulations 2016, three categories of applicant could trigger Corporate Insolvency Resolution Process (CIRP) which are 1) Financial Creditors, 2) Operational creditors and 3) Corporate debtors. However, homebuyers who face issues pertaining to delayed possessions, project termination, non-refund of agreed-upon amounts, and subvention schemes were specifically excluded under financial creditors.

As a result, many of house buyers were left high and dry, unable to seek redress or file a lawsuit against constructors, real estate developers, and others. Unfortunately, rather than bringing relief to homebuyers, the inclusion of financial creditor under the purview of IBC, had added to existing pile of problems and ambiguity in the law’s administration. 

Notwithstanding the above-mentioned, the introduction of the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019, ensued a fundamental change in the rights of homebuyers.

Presently,. homebuyers have been recognised as a separate class of financial creditors who can enforce their right to seek exit/payment/expeditious resolution/liquidation or force change of developers under the provisions of the IBC following this amendment (which was later upheld by the SC in the Pioneer Urban Infra Judgment). They have been given a powerful tool in the form of the right to file an IBC complaint against a rogue builder and vote for a positive resolution in the COC.

Notably, the Supreme Court upheld the legality of the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 in Pioneer Urban Land and Infrastructure Limited vs. Union of India (Pioneer Judgement dated August 09, 2019) and included the Allottees/home buyers in the primary provision, Section 5(8)(f), with effect from the beginning of the Code. 

Thereby, homebuyers now have three options for seeking redress for real estate project halts, delays, or fraud/ criminal misappropriation, as well as deficiency of service related to real estate builders, developers, and agents. These options being 1) The Consumer Protection Act of 1986 2) The Real Estate Regulatory Authority ( RERA) 3) The 2016 Insolvency and Bankruptcy Act.

Moreover, it is pertinent to note that though a disgruntled house buyer has a right to file a complaint against the project’s promoter with the Real Estate Regulatory Authority or the Adjudicating Officer and the concerned authority also is responsible for imposing penalties on the developer if he fails to comply with any other RERA responsibilities, but the same is flawed to the extend that the RERA does not have uniform laws across the country and with each state having its own set of  the effectiveness and benefits to homebuyers vary as well.

Similarly, under the IBC, the management of the corporate debtor vests in the hands of the IRP or Resolution Professional which assures that arbitrariness, fraud, or any other case of wilful misadventure by builders/developers is checked/controlled through management transfer and resolution. However, filing of an application by a homebuyer carries a significant risk because the ball is now in the court of the new management that has taken over the corporate debtor. As a result, it would be entirely dependent on the type of resolution plan authorised throughout the insolvency process. 

As RERA was introduced for protecting the interests of the homebuyers, it would be more viable if a provision is introduced to the extent that resolutions concerning homebuyers could be tried and tested under RERA before other remedies under CPA and IBC are opted. Also, for the same purpose it is quintessential that RERA is given some teeth to direct the execution of effective orders for the distressed homebuyers. Further, there requires some amends pertaining to the harmonisation of laws to enable a quick and effective resolution for homebuyers.

Including homebuyers as financial creditors has certainly led to more expeditious resolution and delivery of justice to homebuyers, on the flipside, providing effective remedies to homebuyers under RERA should be the focus of the legislators as the purpose of the said legislation was inclusive of but not limited to protecting the interest of the homebuyers and regulating the real estate industry. Thereby, providing alternative routes for resolution could do more harm than good as it would shift the focus from RERA and inflict more burden upon IBC.

Further, it goes without saying that RERA and CPA requirements are far more consumer friendly, and if followed rigorously, might lead to a better and desirable outcome for homebuyers. Simultaneously, the government must make amendments to RERA and CPA provisions to make them more effective and time-bound. To make RERA more successful and result-oriented, it requires increased functional autonomy as well as extra adjudicatory capabilities.

Finally, homebuyers should be more cautious while employing various legal procedures; otherwise, instead of resolving a case quickly, one may wind up prolonging it significantly. In the case of homebuyers, either the government or the courts must settle and provide for the harmonious coexistence of each law through unambiguous demarcation, boundaries, and application of RERA, CPA, and IBC. #KhabarLive #hydnews 

(About the Author: Sonam Chandwani, the Managing Partner at KS Legal & Associates.)

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