The Real Estate Buyer means a person or an individual who purchases or buys a flat or apartment or house from a Real Estate Developer by paying him a reasonable price for the flat or apartment or house. The Real Estate Buyer is the one who files insolvency proceedings against the Real Estate Developer for not handing over the flat or apartment or house on time or files insolvency proceedings when the Real Estate Developer is unable to repay the loan or amount which he has raised from the Real Estate Buyers or allottees for some project works or for bringing up the building for the necessary purpose of the Real Estate Buyers or allottees. Insolvency proceeding arises when there is a default in handing over the possession of the flat or apartment or making default in repaying the loan or money which the Real Estate Developer has raised from the allottees. In simple words, insolvency means the state of being insolvent and similar terms for insolvency is liquidation or collapse or bankruptcy and so on. It is also necessary to explain the terms Real Estate Developer. The Real Estate Developer is the one who raises loan or money from the Real Estate Buyer or allottees for some project works or to bring up flats or apartments for the allottees as mentioned in the agreement made between them. There are other terms which are not necessary to explain but it is important to describe the terms NCLT. The full form of NCLT is National Company Law Tribunal. If any Real Estate Buyer’s right or interest is violated by the Real Estate Developer which may lead to insolvency proceeding against the developer then he or she can approach to the NCLT to claim his or her right or interest by filing insolvency proceedings against the Real Estate Developer. In this type of cases, the NCLT makes an inquiry or investigation and looks into all the facts of the case and then the NCLT delivers its judgement. The Real Estate Buyer or allottee is considered as a financial creditor under section 5 of the Insolvency and Bankruptcy Code so that Real Estate Buyer can bring legal action against the Real Estate Developer. A financial creditor is someone to whom a financial debt is owed as per section 5(7) of the Insolvency and Bankruptcy Code. In simple words, we can say that the financial creditor is one who lends money to another for their utilization and after utilization the person or borrower is required to return the amount of money to the lender as specified under section 5(8) of the Insolvency and Bankruptcy Code.
IBC (Insolvency and Bankruptcy Code of 2016) of 2016:
IBC of 2016 that is the Insolvency and Bankruptcy Code of 2016 came into force to give strength to the laws relating to reorganization and insolvency resolution of corporate persons and other companies or firms or institutions or an individual in a time-bound manner for the huge value of assets of those persons to availability of credit and balance of interest and so on.
It is observed by the Supreme Court of India that delay in possession of the flat or apartment is a common matter of fact and the Real Estate Developer raise money from the allottees or homebuyers to bring up these flats or apartments. So, the allottees or home buyer or Real Estate Buyer should be considered as financial creditors.
Amendment of IBC of 2016:
The Insolvency Law Committee recommended the Central Government to bring an ordinance for the home buyers or allottees and then the Central Government introduced an ordinance on 06/06/2018 which declares that the home buyers or allottees are brought under the category of financial creditor and the explanation is given under section 5 (8)(f) of the Insolvency and Bankruptcy Code (Amendment) Ordinance of 2018.
It is also mentioned that at least 100 or at least 10% of the home buyers or Real Estate Buyers should file a case together before the NCLT for targeting the IBC but it is specified that prior to the ordinance, an individual financial creditor that is allottee or home buyer can also file a case against the Real Estate Developer before the NCLT if the claim is at least Rs. 1 lakh.
Steps to follow to file a case against the Real Estate Developer:
- Verification of the documents: Here, it says that you have to provide the necessary documents to the lawyer which are relevant to the case to verify it.
- Drafting of the complaint: Now, the application will be drafted and then it will be served to you for its review.
- Filing of the complaint: Now this application is filed before the NCLT within 3 working days after its approval.
- Admission Hearing: Now, the lawyer will make the preliminary arguments before the NCLT and will try to get the application admitted.
- Appointment of Resolution Professional: Now, NCLT will appoint a Resolution Professional to look into the matter.
- Corporate insolvency resolution process: This process has different stages such as –
- Publication of notice
- Processing of claim
- Information memorandum
- Meeting of Committee of Creditors
- Call for resolution plan
- Rejection or Acceptance of resolution plan: When the resolution plan is received then Resolution Professional will conduct a meeting of the Committee of Creditors for voting and if the voting is a majority in favour of the resolution plan then it is adopted by the Committee of Creditors.
- Liquidation: Where the resolution is not accepted then Committee of Creditors will opt for liquidation of the Real Estate Company or such other body.
So, one should follow the above-mentioned steps to file an insolvency case against the developer. All the steps are clearly mentioned so that you can gather much knowledge on the related topic.
“Pioneer Urban Land And … vs Union Of India on 9 August 2019 Supreme Court of India”
In this case, many writ petitions were filed in the above-mentioned court which challenges the constitutional validity of the amendments which are made to the Insolvency and Bankruptcy Code of 2016. The amendments say that the allottees of the Real Estate projects should be considered as financial creditors and they should be represented in the Committee of Creditors (COC). The court also said that it is necessary that the NCLT and NCLAT should be manned with sufficient members to deal with such cases which come under the purview of the Code and from the Real Estate Sectors and the court mentioned that the home buyers or allottees should be treated as financial creditors.
“Nikhil Mehta & Sons (Huf) & Ors vs Amr Infrastructure Ltd on 9 August 2017 National Company Law Appellate Tribunal”
In this case, it is held that the developer has collected amount from the allottees under the assured return scheme which had the effect of the commercial effect of borrowing and it is also mentioned that the amount raised by the developer comes under the financial cost in annual return which was shown as commitment charges and these points made it clear for the NCLAT to consider the allottees or home buyers as financial creditors under section 5(7) of the Code.
So, we can conclude that the Real Estate Buyer can file Insolvency Proceedings against the Real Estate Developer. This article describes all the necessary steps to file an insolvency case against the developer along with case laws and relevant topics. We can also say that the allottees or Real Estate Buyers are considered as financial creditors under the above-mentioned Code. Hence, anyone (home buyers or allottees or real estate buyer) is aggrieved by the developer in real estate sectors can approach to the NCLT in matters of insolvency.