The Supreme Court on Tuesday has issued a notice to government on the petitions filed by over 20 builders challenging the status of homebuyers as financial creditors under the Insolvency and Bankruptcy Code (IBC).
The apex court also stayed IBC proceedings initiated by homebuyers against the builders, which include Pioneer Urban Land and Infra, Ansal Homes, Future World Green Homes, Today Homes and Parsavnath Developers.
The petition challenged Section 5(8) and Section 7 of the IBC, which allows homebuyers the same status as financial creditors. As per 2016 amendment, homebuyers as financial creditors can initiate insolvency proceedings u/s 7 against the builder.
According to petitioners, homebuyers can’t enjoy the same status as banks as money paid by homebuyers is not in the nature of credit extended by financial lenders. Also, homebuyers are seeking parallel reliefs and cancellation of flats under RERA, refund of money under IBC, the petition said.
Now, the apex court will decide on the constitutionality of Section 5(8), Section 7, which grants homebuyers the status of financial creditors.
Last August, Parliament had passed an amendment to the IBC allowing home-buyers to be treated as financial creditors. In recent months, there have been various instances of aggrieved homebuyers initiating insolvency proceedings against developers who have delayed project execution.
First Published: IST