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Real estate firms move top court against ‘financial creditor’ tag for homebuyers
Business Standard  |  March 6, 2019

Aashish Aryan & Karan Choudhury New Delhi

Real estate companies such as Wave Group’s Wave Megacity Centre, among others, have approached the Supreme Court challenging the government’s decision to grant homebuyers the status of financial creditors.


In their petition before the top court, these real estate companies have claimed that granting financial creditor status to all homebuyers and real estate allottees will complicate the situation as they will now have to accommodate all such people to the committee of creditors.


“These companies have been fighting battles on many fronts. Adding homebuyers to the mix has only added confusion. In fact, if they are not part of the legal process, the chances of them getting at least their money back is much more,” said a source close to a company against which insolvency proceedings are on.


The Parliament had, on August 11 last year, passed a Bill to amend the Insolvency and Bankruptcy Code 2016, allowing homebuyers to be treated as financial creditors.


The petition by real estate companies comes nearly a month after the top court had stayed further proceedings against Ansal Housing in a similar case. Hearing the petition moved by Ansal Housing challenging the government’s decision, a two-judge Bench of Justices Rohinton Fali Nariman and Vineet Saran had issued notice to the central government and stayed further proceedings against the company. The case is likely to be heard next on March 25.


In its petition, Wave Megacity Centre has alleged that such insolvency applications moved by the real estate allottees against the company were “solely an arm-twisting and coercive tactic”.


“Even in the case of justifiable delay, the petitioner will be faced with no alternative but to refund amounts as demanded by such allottees that approach the National Company Law Tribunal (NCLT). This, in turn, would have a cascading effect and significantly hamper construction work of all ongoing projects being developed,” Wave Megacity Centre has said in its petition.


Real estate companies have also contended that such applications would drive solvent and financially healthy real estate companies that do not have any defaults from other financial creditors such as banks to insolvency.


More on “The amendment is also in conflict with the provisions of Real Estate (Regulation and Development) Act (RERA) and directly interferes with the functioning of RERA authorities who are vested with the jurisdiction to issue binding directions,” the petitioners said in their application.


Despite Ansal Housing having obtained a stay on proceedings against itself from the apex court, National Real Estate Development Council (NAREDCO) said it would wait for the top court to hear each such petition moved by other developers before commenting on the possible implications.


“It is not the case that a generic order impacting all such cases has been applied for or passed we will have to wait for the court to hear each such petition,” Niranjan Hiranandani, national president of NAREDCO, said. Some other beleaguered developers, however, said the stay has given a confidence that they might be able to lower the financial burden on them.


The petition by real estate companies comes nearly a month after the top court had stayed further proceedings against Ansal Housing in a similar case.