Aastha Pareek
The Insolvency and Bankruptcy Board of India (IBBI) recently made innovative changes to the insolvency proceedings aimed specifically at improving the protection and participation of home buyers in insolvency proceedings. These changes, which entered into force on September 24, 2024, mark a crucial step in safeguarding the interests of this vulnerable group within the framework of corporate insolvency.
One of the main amendments concerns the appointment of interim representatives for major groups of creditors, such as home buyers, until a permanent authorized representative is selected by the competent authority. This reform allows home buyers to participate actively in the meetings of the Creditors Committee from the early stages of insolvency proceedings. This measure addresses a long-standing gap in which house buyers often found themselves without a voice during key decision-making phases. The interim representative shall enjoy the same rights and obligations as a permanent representative, ensuring that their concerns are fairly represented.
Another fundamental provision protects the rights of home buyers by ensuring that property already handed over to them is not included in the debtor’s liquidation estate. This change directly addresses one of the greatest concerns of home buyers in real estate insolvency – the potential loss of possession of their property. By excluding these assets from liquidation, home buyers retain possession of their homes, which cannot be sold to recover the corporate debtor’s dues. This safeguard ensures that homebuyers, who often represent a large portion of the creditor base in real estate bankruptcies, are given priority in liquidation proceedings. This change is particularly important given the delays and financial difficulties faced by home buyers when developers register for bankruptcy, leaving residential projects unfinished.
The amendments also reinforce the influence of home buyers within the Committee of Creditors (CoC). Previously, house buyers struggled to exert influence in CoC meetings, where major financial creditors, such as banks, typically dominated. The new rules allow home buyers to be represented in this crucial decision-making body, giving them a stronger voice to determine the outcome of the insolvency proceedings. With their inclusion, home buyers now have the power to vote on important decisions, including asset sales, litigation and other critical decisions regarding the insolvent company.
In conclusion, the changes introduced by the IBBI represent a significant step forward in protecting house buyers during insolvency proceedings. By addressing key issues such as representation in the CoC and excluding property transferred from the liquidation estate, the reforms offer a more balanced, fairer and transparent insolvency process. These changes not only protect the interests of home buyers, but also pave the way for a fairer insolvency resolution mechanism in India.