Last Updated on June 20, 2024 by Satish Mishra
The insolvency code came into effect on December 1, 2016 and sought to re-organize stressed assets and in worst case do liquidation of assets so that financial creditors are paid off.
Insolvency and Bankruptcy Board of India is the body which regulates insolvency proceedings in India.
For companies and LLP’s one can move to NCLT tribunal whereas for Individuals and partnerships before Debt Recovery Tribunal.
The builder first has to default in Delay compensation and penalty then only home buyer can approach the NCLT else he can’t approach the tribunal at the first instance. In case of liquidation, secured creditors are first paid and then the unsecured.
Also Read- DEBT RECOVERY UNDER IBC: A SPEEDY REMEDY FOR CREDITORS
Process in Nutshell:
1 The applicant has to move an application before NCLT after sending a demand notice to debtor.
2 Once the debtor fails, the NCLT has to either accept or reject an application within 14 days of submission.
3 Once the plea is accepted Insolvency Resoultion Professional (IRP) is required to draft a resolution plan within 180 days (extended to 90 days). For start ups it can be 90 days (extended to 45 days).
4 After this period, Corporate Insolvency Resolution Process (CIRP) is initiated by the court. During this period, the management of the company remain suspended if CIRP fails then the liquidation process is initiated.
Also Read- RECOVER YOUR SALARY THROUGH NCLT CHANDIGARH
The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2018 has made home buyers as the financial creditors so that they get due representation in Committee of Creditors (CoC) but their fate yet has to be tested before secured creditor.
Sec 5 (8) (f) added to IBC, 2016 includes any amount raised from an allottee under a reality project as debt. The law is settled now and homebuyer falls under the definition of Financial Creditor under Sec 5 (7) of the insolvency code.
Proceedings before COC is controlled by the creditor who has more debt to be repaid. If secured creditors have more amount to be repaid than homebuyers, then first preference would be given to them.
Also Read- Bankruptcy Law in India Decoded
Conflict between RERA and NCLT?
Both the act supersedes each other. Both mentions that proceedings before other courts will be halted once company goes insolvency and RERA is an additional remedy just like consumer courts.
But yet the conflict has to come before the court and we lawyers are hopeful consensus of new developer or Asset Reconstruction Company with homebuyers will lead to successful completion of the projects.
The homebuyers association can appoint authorized representatives (AR) to appear before the Committee of Creditors (CoC) meeting though the fees has to be borne by them.
Also Read- HOMBUYERS AND INSOLVENCY
The discussion of AR with IRP/RP would be of :
1 Fate of homebuyers before secured creditor.
2 How should homebuyers increase the voting share.
3 What if homebuyers don’t vote.
4 What would happen to people who have already been offered possession or given possession and not registered? What would happen to their voting share.
These are some of the real burning issues before the courts today which needs to be answered quickly.
Also Read- A MUST KNOW ABOUT INSOLVENCY AND BANKRUPTCY CODE, 2016
The Bill prohibits certain persons from submitting a resolution plan in case of defaults. These include:
(i) wilful defaulters, (ii) promoters or management of the company if it has an outstanding non-performing debt for over a year, and (iii) disqualified directors, among others. Further, it bars the sale of property of a defaulter to such persons during liquidation
High value cases referred to NCLT are Essar Steel, Bhushan steel, Electrosteel steels, Amtek Auto, Bhushan Power & Steel, Alok Industries, Monnet Ispat, Lanco Infra.
Read more about Insolvency and Banking Code, 2016.
1 AMR infrastructure is facing insolvency proceedings at NCLT , New Delhi where the tribunal has appointed Resolution Professional with half of the voting instead of 66% as mandatory held by law. The tribunal resorted to harmonious construction of law. Read it here.
2 Amrapali Group where supreme court is thinking of invoking of Article 142 of the Constitution of India to direct registration of flats. The government owned NBCC is now trying to finish off the projects. Read here.
3 Jaypee Infratech also undergoing insolvency proceedings with outstanding debt of Rs 9,800 crore where Rs 4,334 crore pertains to IDBI. Read the post here.
Also Read- MOVE TO NCLT CHANDIGARH FOR INSOLVENCY
For more info on the subject of Insolvency and RERA, please dial 99888-17966.
