The government is reportedly planning to introduce a special carve-out within the Insolvency and Bankruptcy Code (IBC) to exempt homebuyers who occupy a house without completing the necessary paperwork from being considered part of a builder's inventory. This would prevent a situation where a homeowner who has taken possession of the property and has been living there for years, faces questions about their eligibility for the full value of the house, while other creditors take a significant cut as part of debt resolution of the builder. The proposed change would benefit consumers, but the process may get complex.
The Indian government is said to be considering a new carve-out within the Insolvency and Bankruptcy Code (IBC) that would offer relief to homebuyers who occupy a house without completing the necessary paperwork. Currently, such properties are considered part of the builder's inventory and are therefore subject to resolution under the IBC. However, a government official with knowledge of the matter has revealed that the proposed carve-out would exempt such homes from being subject to the IBC, thereby sparing homebuyers the agony of insolvency proceedings.
For some homebuyers, the issue arises when developers fail to pay local authorities for the land, meaning that buyers may get possession of the property, but not occupation certificates. In such cases, the proposed carve-out would prevent situations where a homebuyer who has taken possession of the house and has been living there for years facing questions about their eligibility for the full value of the property. This would be beneficial for consumers, as it would offer tailored debt resolution for the real estate sector, which is currently struggling due to a range of factors, including delays in payment, approvals, and clashes with creditors.
The proposed change is expected to have a positive impact on the real estate sector, which is the source of nearly a fifth of all firms ending up in bankruptcy tribunals, according to data from the Insolvency and Bankruptcy Board of India. However, experts warn that the process may be complex, as it would require rules to be put in place to avoid confusion or ambiguity in executing the process, given the complexities and often-clashing interests of creditors involved.
The government's proposed amendments to the IBC include a new regime for handling the insolvency of business groups, for which a new chapter will be introduced in the IBC. At present, the IBC only deals with the debt resolution of individual legal entities, not of a group, which is far more complex. By introducing a new chapter in the IBC, the government aims to offer tailored debt resolution for business groups, which will benefit creditors, consumers, and the economy as a whole.
In conclusion, the government's proposed carve-out within the IBC to exclude homes occupied by homebuyers without completing the necessary paperwork is expected to benefit consumers and offer tailored debt resolution for the struggling real estate sector. However, the process may get complex, requiring clear rules and guidelines to be put in place to avoid confusion and ambiguity in executing the process. The proposed amendments to the IBC also include a new regime for handling the insolvency of business groups, which aims to offer tailored debt resolution for this segment, which will benefit the economy as a whole.
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