According to the new Insolvency and Bankruptcy Code Amendment passed by the Lok Sabha, now Home Buyers will also be considered as the Financial Creditors. According to the Insolvency and Bankruptcy Code (Second Amendment Bill)2018, the homebuyers who have invested their money in real estate projects for the allotment of residential spaces will now be considered as Financial Creditors. This amendment will take effect by expanding the meaning and definition of ‘Financial Debt’ as provided under Section 5 (8) of the Code.
A new explanation of this section is sought to be included after clause (f), which is, “Any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing”. The explanation of Section 5 (8) (f) simply means, the amount which is having the commercial effect of borrowing now will be treated as ‘Financial debt’. As an effect of which the people investing in particular projects or homebuyers will now come within the purview of Section 5 (7) defining and considering them as 'Financial creditors'.
The amendment made by the bill empowers the homebuyer himself or by others, to initiate the proceedings against the builder who is in default simply by filing an application in the degree of 'Financial creditor' as defined under Section 7 of the Act. A special process for micro, small and medium enterprises (MSMEs), is likely to be introduced by the amendment, by the way of introducing Section 240A. In addition to this, the sections which are being newly proposed gives power to the Central Government to issue notification regarding a special process for these above-mentioned enterprises. It was also stated that the plan should get approval from the CCI (Competition Commission of India) if it contains a proposal for combination as the subsection (4) inserted in Section 31. Further, as per the amendment proposed to Section 12 of the Act, the number of votes for approval of resolution have lowered from 75% to 66% in the committee of creditors (CoC).
On 31st July 2018, Union Minister of Finance, Piyush Goel introduced the bill in Lok Sabha and stated the features of the bill that the amendment will help to resolve issues related to insolvency. However, the bill was somehow opposed by the opposition party. They raised the issue that the Government had taken the complete ordinance session in introducing new amendments without even referring the Bill to the Standing Committee on Finance.
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