RERA: ET View: Amend IBC to bring it in sync with RERA

A paper by industry lobby Assocham surmises that the Insolvency and Bankruptcy Code and the Real Estate (Regulation and Development) Act are pitted against each other, with the former offering relief to lenders and the RERA protecting home buyers. The surmise is not incorrect, but this contradiction can be easily resolved. All that is required is to bring the two laws in sync with each other. For this, the government must amend the IBC to recognise the legitimate claim of home buyers. After all, they use their lifetime savings to invest in a house.

Today, the IBC allows the proceeds from the sale of assets to be distributed to banks and secured lenders, to pay off workmen’s dues for 24 months before the liquidation commencement date, to pay wages and any unpaid dues owed to employees other than workmen, and to clear financial debts owed to unsecured creditors (in this order). The insolvency regulator had amended rules to let home buyers to stake a claim on the money they had paid to realtors. But they also need to have a legal right.

A blue print is ready. An expert panel chaired by corporate affairs secretary Injeti Srinivas is said to have recommended an amendment in the IBC to treat damages for a breach of contract as financial debt. This will ensure that (legal rights) are created in favour of home buyers, in sync with RERA. The point is the IBC is still evolving, and the aim is to minimise the haircut for lenders, reduce the tab of recapitalisation on the government and deploy the asset to those who can create maximum value. A tweak in the rules to achieve these goals make sense.

To amend IBC, we also need Parliament to run.

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