Homebuyers to be treated at par with banks, financial creditors as Cabinet approves changes to IBC

It’s good news for homebuyers as the Union Cabinet on Wednesday reportedly approved amendments to the Insolvency and Bankruptcy Code (IBC), presumably allowing homebuyers to be treated as financial creditors, putting them at par with banks and institutional creditors in priority for recovering of dues from bankrupt or insolvent realty firms.

The proposed amendments, as reportedly cleared by the Cabinet today, will accord homebuyers benefits similar to banks and institutional creditors if the realty firm undergoes insolvency proceedings. It may be noted here that some realty firms are facing insolvency proceedings, leaving the homebuyers who have put in their money, in the flux as the current rules do not give them priority in the recovery of dues.

The decision was taken by the Cabinet after a high-level panel recommended the government to treat homebuyers as financial creditors and allow them to equitably participate in the insolvency resolution process. Homebuyers of Jaypee WishTown had earlier opposed liquidation proposal of Jaypee Infratech. Under the IBC, home buyers were “unsecured creditors”, whose priority comes after those institutional or secured creditors.


Analysts said that not treating homebuyers as financial creditors has pitted the IBC and Real Estate (Regulation and Development) Act (RERA) against each other in case a real-estate firm goes bust. “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,” industry body Assocham said a report recently.

The proposed amendments also provide for exemptions to MSMEs (Micro Small and Medium Enterprises) under the Section 29A of the IBC law. The Section 29A bars wilful defaulters, defaulting promoters and related persons from the process.

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