The union cabinet on Wednesday approved the promulgation of an ordinance to amend the Insolvency and Bankruptcy Code (IBC) in order to classify homebuyers as financial creditors at par with banks which will enable them to get quick refunds from defaulting builders.
The amendment is based on recommendations of a 14-member government appointed committee that had last month suggested a slew of measures, including addressing problems of homebuyers and making recoveries easier for lenders.
Briefing journalists after the Cabinet meeting, Minister for Law and Justice Ravi Shankar Prasad said, "it's a new legislation... the Cabinet has approved it." He, however, refused to divulge further details citing constitutional provisions. "Till the ordinance is approved by the President, I cannot speak about the details," he added.
With real estate companies, such as Jaypee Infratech, facing insolvency proceedings, the ordinance, once approved by President Ramnath Kovind, will provide relief to homebuyers who have paid the money to builders, but are still not being handed over their homes as the projects are not completed.
The Insolvency Law Committee had last month recommended to the Ministry of Corporate Affairs, that homebuyers should be treated as financial creditors, which will allow them to equitably participate in an insolvency resolution process.
The committee has also suggested relaxations for micro, small and medium enterprises (MSMEs) under the bankruptcy code. Under the code, financial creditor implies any person to whom a financial debt is owed. The financial debt can include money borrowed for interest.
The panel had also suggested that the government should exempt MSMEs from application of certain provisions of the code. Illustratively, since usually only promoters of an MSME are likely to be interested in acquiring it, applicability of section 29A has been restricted only to disqualify wilful defaulters from bidding for MSMEs, it had noted.
The amendment comes months after a new Section 29A was added into the bankruptcy code in November, introducing four layers of ineligibility for potential bidders.