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Supreme Court ruling on homebuyers

  May 15, 2020

Supreme Court ruling on homebuyers

What was the verdict?

The Supreme Court upheld the validity of an amendment to the Insolvency and Bankruptcy Code (IBC), giving homebuyers the right to take legal recourse against developers under three key laws. Recent IBC amendment treats homebuyers as financial creditors.

The bench said the Real Estate (Regulation and Development) Act, or Rera, has to be read “harmoniously with the Consumer Protection Act and IBC” and, in case of any conflict, IBC will prevail.

This means that an aggrieved homebuyer has the option to seek relief under three laws

1. RERA,

2. Consumer Protection Act and

3. IBC.

What does it imply?

The ruling implies that a homebuyer can now start corporate insolvency resolution proceedings before the National Company Law Tribunal (NCLT) treating them on a par with banks and institutional creditors, besides protecting their rights.

What are the objections and the answers to the objections?

Objections

1. Developers had contended that homebuyers were already given enough protection under Rera and consumer forums, and making them a part of the IBC proceedings was not required. 

2. The delay in completion of the project could be due to delays in payments by the homebuyer and

3. Definition of default is vague.

Response:

There are adequate mechanisms to check misuse and only a genuine homebuyer will be able to invoke insolvency proceedings against a builder. 

Works as a deterrent to default and duping.

Benefits of the ruling?

Apart from empowering the consumer, this is also expected to limit loan delinquencies of banks and housing finance companies who have exposure to retail borrowers. While being a confidence booster for end-use home buyers, the ruling will further the consolidation process in the sector, weeding out nonserious developers.