New Delhi [India], Apr. 22 (ANI): The two laws enacted in 2016 may have the best of intentions, but the Insolvency and Bankruptcy Code (Code) and the Real Estate (Regulation and Development) Act appear to be pitted against each other when it comes to resolving interest of bankers and home-buyers, said an ASSOCHAM - Thought Arbitrage paper.
"The conflict between IBC and RERA came to the fore in quite a few bankruptcy proceeding in the recent times.... In a way, IBC and RERA have areas where there are possibilities of conflict in operation. While IBC allows companies to file for bankruptcy to provide relief to debtors or creditors, RERA looks at providing relief to home buyers and seeks to hold developers or builders responsible if the project is delayed," the paper said.
As per provisions of the IBC, home buyers are "unsecured creditors" and as a result, their priority to be compensated comes after those institutional or other creditors who have provided loans to the developer.
In the latest case related to an Amrapali project, the Supreme Court held that financial creditors cannot take over homes belonging to the home buyers.
In other words, Supreme Court upheld the rights of home buyers ahead of the creditors.
In some cases, that might undermine the actual objective of consumer security, with which RERA was enacted.
"The fundamental contradiction between these two may drag cases to judicial and legal forums," the paper noted with concern.
In the light of the recent legislation of Bankruptcy Act, RERA may not create separate provisions to deal with bankruptcy.
Regulation of the real estate sector remains an important driver for its growth.
A well organised and regulated real estate sector is more likely to grow rapidly in the long run than an unorganised one.
Effective implementation of RERA has the potential to drastically change the composition, operation and financing of the sector, particularly the residential real estate sector, the paper noted. (ANI)