Realtors unlikely to get greater shelter under insolvency, ET RealEstate
The government is having a rethink of its plan to put in place a special framework for real estate under which insolvency proceedings would be restricted to only individual stressed housing projects and won’t extend to their developers, a person aware of the details told ET.
This means promoters of realty firms are unlikely to get greater protection from insolvency under fresh amendments to the bankruptcy law that are being worked out, he said.
The rethink was warranted by fears that unscrupulous promoters may use any such relief to dump certain housing projects midway after grabbing profits and focus on those that, they think, will fetch greater returns, the person said. Worse, the developers can potentially siphon off funds from certain projects in some way or the other, he added.
These could eventually compound the woes of home buyers instead of ameliorating them, the government fears.
“Greater deliberations are needed on any such proposal (project-wise insolvency). We shouldn’t have a mechanism where promoters can forsake their responsibility easily. The interests of both the home buyers and the real estate sector have to be balanced. The government is in no hurry to approve this,” said the person, adding that the government has received stakeholder comments against this plan as well.
The extant Insolvency and Bankruptcy Code (IBC) doesn’t stipulate any special dispensation for real estate. Homebuyers and other creditors are empowered to drag the entire realty firm to the National Company Law Tribunal (NCLT) even for insolvency in one of its projects, subject to certain riders.
Also, defaulting promoters run the risk of losing control of companies once insolvency cases are admitted by the NCLT.
As per the deliberations by the ministry of corporate affairs (MCA) for finalising amendments to the IBC, insolvency proceedings could continue to be invoked against the entire real estate firm, the person said.
However, after the case is admitted, the committee of creditors-comprising home buyers and other financial creditors-could be empowered to suggest to the NCLT to limit the proceedings to certain projects, only if it finds that doing so would lead to a resolution, he added.