RERA vs IBC: two laws that now ring fence homebuyers

The Real Estate (Regulation and Development) Act,2016 (RERA) and the Insolvency and Bankruptcy Code (IBC) offer protection to homebuyers from errant builders. Anant Merathia, a Chennai-based corporate lawyer focussing on IBC, decodes the provisions under both the laws:

How does RERA protect homebuyers?

RERA offers protection to homebuyers by imposing duties on promoters and consists of preventive and penal provisions. Every promoter shall register his project with RERA and 75% of the amount realised shall be deposited in a separate account; withdrawal from the account shall be in proportion to the degree of project completion, among others. Failure to comply entails penalty. On failure to give possession of the apartment, the homebuyer is given the choice to withdraw from the project and the promoter shall be liable to repay the amount received. In case of non-withdrawal, promoter shall pay interest for every month of delay till the date of handing over the possession.

Protection that IBC offers

Post the recent ordinance promulgated in June 2018, homebuyers are included in the category of financial creditors under the IBC, thereby climbing up the ladder of precedence in recovery proceedings. Money given to real estate companies by homebuyers gets the commercial effect of a borrowing. Homebuyers can now form part of the committee of creditors that has the power to appoint the interim resolution professional and approve resolution plans, ensuring that their interests are not backtracked by other creditors. Being financial creditors, their voting share will be in proportion to the financial debts owed to them. An insolvency professional can be appointed to represent the interests of homebuyers when they exceed a certain number in the CoC. However, the threshold for such appointment is still unclear.

Which is the best forum to approach: RERA or IBC?

RERA, which caters to the real estate sector, contains stringent norms and penalties against errant builders. The IBC recognised homebuyers as financial creditors to protect their rights even when a creditor, other than a homebuyer, invokes insolvency proceedings against the builder. It may be in the interests of homebuyers to approach the National Company Law Tribunal only when the promoter fails to remedy default under RERA or where RERA is not active.

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Printable version | Nov 26, 2020 4:49:35 PM |

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