Real Estate

Home-buyers cannot invoke insolvency process to recover RERA awards: NCLAT

Our Bureau Mumbai | Updated on August 17, 2020

‘Must take recourse under civil law’

The National Company Law Appellate Tribunal (NCLAT) has ruled that home-buyers cannot drag realty companies through the insolvency process for recovering monies awarded to them by a real estate regulator.

The NCLAT ruled that a home-buyer cannot be treated as a financial creditor when the real estate company is unable to honour a decree awarded by the State-level Real Estate Regulatory Authority (RERA). Home-buyers need to take recourse to the civil law to recover the money.

Prashant Thakur, Director & Head – Research, ANAROCK Property Consultants, said the NCLAT’s observation is in line with the 2019 amendment that only a minimum of 100 buyers or 10 per cent of all home-buyers in a project (whichever is lower) can file for bankruptcy.

“While the pros and cons of its impact on home-buyers and developers are debatable, the caveat of a minimum 100 home-buyers may prevent developers from being unfairly dragged into insolvency by just one or two individuals. In some cases, vested interests may lead to work getting stopped in a project, thus affecting other home-buyers negatively. In some cases, there has also been misuse by some home-buyers of the sanctioned rights,” Thakur told BusinessLine.

On the flipside, it may affect genuine home-buyers in projects where the builder is delaying work. These home-buyers will have to form a group to file a case against the builder. This process may be long drawn and tedious.

The NCLAT gave the ruling in a case related to Ansal Properties wherein two house allottees were given a decree for ₹73 lakh by the Uttar Pradesh RERA. The home-buyers then took recourse to the IBC rules to recover the money. In March, the National Company Law Tribunal upheld the home-buyers’ stand and even appointed a resolution professional for Ansal Properties. Now, with the NCLAT’s ruling, the company will be handed back to its earlier management.

Published on August 17, 2020

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