CREDAI Ghaziabad today raised its concern over the increasing number of insolvency cases against the developers as till date more than 1,000 cases have been filed under insolvency since June 2018 against real estate companies. The agency was of the view that the insolvency law is being implemented in a wrong way and steps should be taken to stop misuse of the law, which is being used to arm twist developers and causing delays in the delivery of projects. Highlighting the matter, the industry association has written to the Prime Minister’s office demanding that the consent of 2/3rd of allottees of a real estate project should be required to trigger IBC proceedings against a promoter.
In July 2019, the government had shown intent that it would amend the 2016 insolvency law, a signature reform of PM Narendra Modi’s first term. The legislation was getting mired in frustrating legal delays and bizarre judgments, threatening to scare off global investors.
Talking about the developed and delivered projects being dragged into insolvency proceedings, Gaurav Gupta, president, CREDAI Ghaziabad, said, “Housing sector is the biggest employer of unskilled and semi-skilled workforce in the country. Slowdown in housing over the last five years has majorly impacted the job scenario. In a project with 500 home buyers, one single home buyer can drag a company under insolvency. This jeopardizes the investment made by the rest of 499 homebuyers, loans given by the banks, credit given by suppliers and promoters equity. Problem arises when all genuine home buyers want delivery of their home and they are rightfully entitled to the delay-compensation under RERA.”
The organization unanimously was of the view that RERA should have sole jurisdiction on customer disputes to the exclusion of other fora like consumer forums, NCDRC and NCLT. “If RERA is satisfied that the company deserves to be dealt under IBC then RERA can refer the matter to NCLT. However, such matters must have favour of 2/3 homebuyers. Reference to NCLT by a homebuyer should go through RERA, whose primary concern is completion of project and ensuring the interest of larger body of customers and stakeholders. There should also be a change in NCLT Law and a single home buyer should not be allowed to initiate insolvency proceeding against a project,” said Vijay Jindal, Chairman, CREDAI Ghaziabad.
Housing sector supports 257 sectors and no other sector has such a large supply chain. Slowdown in housing sector impacts the entire ecosystem of 257 sectors, impacting jobs, revenue and ultimately the GDP. “Approving authorities should be brought under the ambit of RERA to minimize delays,” adds Gupta.
Alleging that not all homebuyers want their money back or to take the company under insolvency, Jindal said, “It is only the speculator who invests for financial gains only, and is interested in using this mechanism to coerce the developer to refund his investment along with hefty compensation. Parliament’s intention was to protect the investment of the homebuyer in case a company goes under insolvency. Hence homebuyer was given status of financial creditor (FC). However, in practice, a single home buyer is dragging a company under insolvency. This was never the intent.”
The organization said that RERA has been instituted to resolve all real estate issues and under RERA, if the developer wants to revise the building plan, he needs consent of 2/3 home buyers. However something as serious as insolvency can be initiated by one single home buyer.
The association also showed concern on the interest charged on dues by local bodies. It was of the view that this interest on dues should in sync with RERA interest charges between buyer and developer. Dues should be charged when the work of local body has reached a certain stage of construction and developers have not paid the dues timely. Local bodies should come under the purview of RERA and interest should not be charged if work has not been done. Other steps needed for faster real estate growth, the association felt is the last-mile funding though policy initiatives to attract foreign funding for new projects and banks should also come forward for funding. “Concentration only on stuck projects is not only the solution, newer construction is also needed and government’s help through policy initiatives that can ease in doing business are required. If attention in new construction is not given by the government then this part of real estate will also go in stress, thus banks should come forward to solve the liquidity issues in new projects,” says Vipul Giri, Secretary, CREDAI Ghaziabad. He was also of the view that all the authorities should adopt steps taken by the government to streamline the sector and any delay in adoption of measures affect the performance of the sector as a whole.