SC upholds amendments to Insolvency Code

In a major judgement, giving relief to home buyers, the Supreme Court on Friday upheld the validity of provisions of the Insolvency and Bankruptcy Code, giving the status of financial creditors to them with power to initiate action against defaulting real estate companies.

A bench presided over by Justice R F Nariman rejected the plea of real estate companies challenging the validity of the provisions of the Insolvency and Bankruptcy Code.

The court said home buyers enjoyed equal rights as those of financial creditors and can start the corporate insolvency resolution process before the National Company Law Tribunal.

Pronouncing the judgement, Justice Nariman jettisoned the contention of real estate companies that the IBC allowed "one sided hearing" before the NCLT by "trigger happy homebuyers".

The court said the NCLT can decide if the homebuyers were aggrieved genuinely or were trigger happy or speculative buyers looking for opportunities to coerce the companies.

In its directions, the court told the Union government to do the needful for making appointments in statutory bodies of Rera, NCLT, NCLAT, within three months.

About 180 real estate companies challenged the status of financial creditors for homebuyers under the IBC amendments.

They contended that in the face of remedies already availible to buyers under RERA, and the Consumer Protection Act, the IBC amendments only allowed duplication.

Besides, they claimed the definition of 'default' was not clear, which would lead to abuse of the IBC process by homebuyers.

Terming the provisions as "draconian", they said those will crush the real estate sector, and would prove to be "deadly weapon in the hands of homebuyers", with huge scope for abuse.

It would result in "arm twisting" of the companies.

The court, however, said the provisions of the RERA, Consumer Protection Act and IBC have to be read harmoniously to recognise the rights of home buyers.