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Home buyers should be treated as ‘financial creditors’ for the Insolvency process, the MCA-appointed Insolvency Law Committee (ILC) has suggested.
They should be treated as ‘financial creditors’ owing to the unique nature of financing in real estate projects and the treatment of home buyers by Supreme Court in ongoing cases, said the ILC report made public on Tuesday.
Needs amendments
The insolvency law should be amended to clarify that amounts raised under a real estate project will qualify as a financial debt, according to the report.
The report, prepared by a 14-member panel headed by Corporate Affairs Secretary Injeti Srinivas, said that any move to classify home buyers as financial creditors would enable them to participate equitably in the Insolvency resolution process under the code.
Currently, home buyers are neither treated as “financial creditors” nor as “operational creditors”, thereby making them ineligible to trigger insolvency process or be part of the committee of creditors. They can’t even receive the liquidation value under the resolution plan.
The panel also recommended that Central government be allowed to exempt MSMEs from application of certain provisions of the IBC.
Illustratively, since usually only promoters of an MSME are likely to be interested in acquiring it, applicability of section 29A has been restricted only to disqualify wilful defaulters from bidding for MSMEs, the report said. Currently, there is no provision under the IBC for a corporate insolvency application to be withdrawn once it has been admitted.
The ILC has now recommended that a withdrawal application for Corporate Insolvency Resolution Process (CIRP) post admission could be permitted if the Committee of Creditors were to allow this action with a vote share of 90 percent. To promote resolution, the panel has recommended that the voting share for approval of a resolution plan and other critical decisions of CoC be reduced from 75 per cent to 66 per cent or more of the financial creditors.
Currently, all approval decisions of CoC should have vote share of not less than 75 per cent.
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