Homebuyers challenge ‘flawed’ insolvency law

Hundreds of homebuyers yesterday petitioned the Supreme Court to challenge the country’s insolvency law, their lawyer said, amid fears that bad loan problems are spilling over to hurt ordinary people.The group included more than 500 people who invested in a massive housing project outside Delhi, which has since collapsed.None of the investors have received their homes at the Silicon Valley township project – more than four years after the original delivery date.But a bank that lent the developer Amrapali Rs510mn ($7.7mn), has moved to initiate bankruptcy proceedings against it after the company defaulted on its loan repayments.The petitioners claim the bankruptcy law introduced last year gives banks that lend to property developers unfair priority, and fails to safeguard homebuyers, their lawyer Ashwarya Sinha said.Once a company declares itself bankrupt, buyers are unlikely to get either their promised apartments or have investments returned.“The law is flawed and it should treat homebuyers at par with secured creditors,” Sinha said.“Under the bankruptcy law consumers are not recognised as creditors.“At most they will be granted the status of an unsecured creditor, but in that case not even the principal amount is secured, forget the interest payments the buyers have made.” Unsecured creditors are among the lowest on the totem pole of claims.The petitioners are among millions of middle-class people eager to own their own homes, and who, from the mid-2000s onwards, poured cash into new building projects on the outskirts of major cities as a property boom took hold.But many major residential property projects in India have been held up as real estate companies put the cash invested by homebuyers to uses other than completing existing projects, leaving consumers who poured in their money stranded.Meanwhile, with India’s real estate sector now riddled with debt and delays, the nation’s banks - which have some of the highest levels of bad debts in emerging markets - have stepped up efforts to clean up soured loans.Amrapali is the second real estate company to face bankruptcy proceedings after Jaypee Infratech, where more than 30,000 people are still waiting for the homes they paid for.Last month consumers groups petitioned Prime Minister Narendra Modi for protecting the interest of the homebuyers after insolvency proceedings were launched against Jaypee Infratech.Fight for RERA, an umbrella group of some 100 homebuyers’ association and consumer groups, demanded amendments to the insolvency law.“This case is a ticking time bomb, which if not resolved by protecting the interest of thousands of homebuyers, would become a potent tool in the hands of builders who have gobbled up the life savings of millions of homebuyers across the country and are looking for an exit without any corresponding liability,” Abhay Upadhyay, national convener of Fight for RERA wrote in the letter to Modi.“We have demanded that the code be amended to give first priority to homebuyers in settling their dues by completion of project or refund with interest, ie; without any haircut since their stakes are very high as their life savings are stuck,” said Upadhyay.Fight for RERA has also demanded that the government should collect data of all incomplete projects across India and track the number of homebuyers stuck in those projects.“The project should be categorised as normal and high-risk categories and accordingly steps should be taken by your government in high-risk projects so as to safeguard the interest of homebuyers in those projects either by invoking amended provisions of Insolvency and Bankruptcy Code, 2016 or Real Estate Regulatory Authority Act, 2016,” the letter said.Experts worry as Indian banks step up much-needed efforts to clean up their balance sheets, there could be more such cases.