In a major relief for home buyers, President Ram Nath Kovind on Wednesday gave approval to the ordinance amending the Insolvency and Bankruptcy Code (IBC) to recognise their status as financial creditors.
Being treated as financial creditors would bring home buyers at par with banks and other institutional creditors as they would now have a share in the proceeds earned by sale of assets of bankrupt real estate companies.
Ordinance barring loan defaulters from bidding for stressed assets promulgated after President’s nod
"The President today (Wednesday) gave assent to promulgate the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018," an official statement said.
The government said the ordinance would give home buyers due representation in the Committee of Creditors and make them an integral part of the decision making process.
The Union Cabinet last month approved the ordinance and Finance Minister Piyush Goyal had said the decision will bring relief to lakhs of home buyers in the country.
"Good news for home buyers: Now in situation of real estate companies going bankrupt, home buyers will have a share along with banks in the auction of assets of such companies," he had tweeted.
The Finance Ministry said the ordinance would also benefit Micro, Small and Medium Sector Enterprises (MSME) by empowering the government to provide them with a special dispensation under the Code.
"The immediate benefit it provides is that it does not disqualify the promoter to bid for his enterprise undergoing Corporate Insolvency Resolution Process (CIRP) provided he is not a willful defaulter and does not attract other disqualifications not related to default," the Finance Ministry statement said.
"It also empowers the Central government to allow further exemptions or modifications with respect to the MSME sector, if required, in public interest," it added.
Under the new ordinance, with a view to encourage resolution as opposed to liquidation, the voting threshold has been brought down to 66 per cent from 75 per cent for all major decisions.
"Further, in order to facilitate the corporate debtor to continue as a going concern during the CIRP, the voting threshold for routine decisions has been reduced to 51 per cent," the Ministry said.
The ordinance also provides for a mechanism to allow participation of security holders, deposit holders and all other classes of financial creditors that exceed a certain number, in meetings of the Committee of Creditors, through the authorized representation.
The existing IBC has also been fine-tuned to exempt pure play financial entities from being disqualified on account of non-performing assets (NPA), the statement said.
"Similarly, a resolution application holding an NPA by virtue of acquiring it in the past under the IBC, 2016, has been provided with a three-year cooling-off period from the date of such acquisition.
"In other words, such NPA shall not disqualify the resolution application during the currency of the three-year grace period," it added.
The Insolvency and Bankruptcy Code provides for a robust legal framework to resolve insolvency cases and release non-performing assets quickly.
A report released by the 14-member Insolvency Law Committee in April had recommended that home buyers be treated as financial creditors owing to the unique nature of financing in real estate projects.