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India: Homebuyers get financial creditors status

August 15, 2019

By Rupin Chopra and Reetika Wadhwa

The Supreme Court recently in the case of Pioneer Urban Land and Infrastructure Limited vs. Union of India[1] upheld an amendment made to the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘IBC’). This provides the homebuyers with the right to take legal action against the developers.

The said amendment led to the IBC treating the homebuyers as financial creditors. While hearing a batch of 140 petitions filed by several real estate agencies, the Supreme Court said that the Real Estate (Regulation and Development) Act, 2016 (hereinafter referred to as ‘RERA’) shall be read harmoniously with the Consumer Protection Act and IBC and, in case of any dispute or ambiguity, the provisions of IBC shall prevail. Therefore, the home buyers can now seek relief under three different laws, namely – the Consumer Protection Act, IBC and RERA.

The validity of Section 5(8)(f) of the IBC which includes home buyers as financial creditors under IBC was challenged by the real estate agencies.

The Hon’ble Supreme Court in respect of the above stated that “In any case, it has been found by us that the explanation was added by the 183 Amendment Act only to clarify doubts that had arisen as to whether home buyers/allottees were subsumed within Section 5(8)(f). The explanation added to Section 5(8)(f) of the IBC by the Amendment Act does not in fact enlarge the scope of the original Section as home buyers/allottees would be subsumed within Section 5(8)(f) as it originally stood as has been held by us hereinabove. As a matter of statutory interpretation, that interpretation, which accords with the objects of the statute in question, particularly when we are dealing with a beneficial legislation, is always the better interpretation or the “creative interpretation” which is the modern trend of authority, and which is reflected in the concurring judgment of Eera v. State (NCT of Delhi) and Anr.[2] at paragraphs 122 and 127.”

The Supreme Court made the following major conclusions:

  1. The amendment to IBC is not violative of Articles 14, 19(1)(g) read with Article 19(6), or 300A of the Constitution of India.
  2. RERA is to be read harmoniously with the IBC (as amended). Only in case there’s a conflict, the provisions of IBC will prevail over RERA. The Court also added that the remedies given to allottees of flats are concurrent remedies, such allottees of flats/ apartments are in a position to avail the remedies under the Consumer Protection Act, RERA as well as the IBC.

[1] Writ Petition(s)(Civil) No. 43/2019 dated August 09, 2019

[2] (2017) 15 SCC 133

 

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