RERA vs IBC: two laws that now ring fence homebuyers

The news

The Real Estate (Regulation and Development) Act,2016(RERA) and the Insolvency and Bankruptcy Code (IBC) offer protection to homebuyers from errant builders.

News summary

How does RERA protect homebuyers?

RERA offers protection to homebuyers by imposing duties on promoters and consists of preventive and penal provisions.
Every promoter shall register his project with RERA and 75% of the amount realised shall be deposited in a separate account; withdrawal from the account shall be in proportion to the degree of project completion, among others.
On failure to give possession of the apartment, the homebuyer is given the choice to withdraw from the project and the promoter shall be liable to repay the amount received.
In case of non-withdrawal, promoter shall pay interest for every month of delay till the date of handing over the possession.

Protection that IBC offers

After recent changes, homebuyers are included in the category of financial creditors under the IBC, thereby climbing up the ladder of precedence in recovery proceedings.
Money given to real estate companies by homebuyers gets the commercial effect of a borrowing. Being financial creditors, their voting share will be in proportion to the financial debts owed to them.
Homebuyers can now form part of the committee of creditors that has the power to appoint the interim resolution professional and approve resolution plans, ensuring that their interests are not backtracked by other creditors.
An insolvency professional can be appointed to represent the interests of homebuyers when they exceed a certain number in the CoC. However, the threshold for such appointment is still unclear.

Which is the best forum to approach: RERA or IBC?

RERA, which caters to the real estate sector, contains stringent norms and penalties against errant builders.
The IBC recognised homebuyers as financial creditors to protect their rights even when a creditor, other than a homebuyer, invokes insolvency proceedings against the builder.
It may be in the interests of homebuyers to approach the National Company Law Tribunal only (under IBC) when the promoter fails to remedy default under RERA or where RERA is not active.

Additional information:

Key provision of RERA Act:

RERA came into effect from 01-May-2017. The Act regulates transactions between buyers and promoters of residential real estate projects. 
Model law:
o It is a model law, which means it is up to the states to draft and pass their own laws according to the guidelines, as land is a state subject.
o According to RERA, each state and Union territory will have its own regulator and set of rules to govern the functioning of the regulator. 
o It establishes state level regulatory authorities called Real Estate Regulatory Authorities (RERAs).
o The Act establishes state level tribunals called Real Estate Appellate Tribunals.  Decisions of RERAs can be appealed in these tribunals.
Registration with RERA:
o Residential real estate projects, with some exceptions, need to be registered with RERAs.  Promoters cannot book or offer these projects for sale without registering them. Real estate agents dealing in these projects also need to register with RERAs.
o On registration, the promoter must upload details of the project on the website of the RERA.  These include the site and layout plan, and schedule for completion of the real estate project.
Mandate to developer:
o 70% of the amount collected from buyers for a project must be maintained in a separate bank account and must only be used for construction of that project.  The state government can alter this amount to less than 70%.
o The Act prohibits a developer from changing the plan in a project unless two-thirds of the allottees have agreed for such a change. Builders would be responsible for fixing structural defects for five years after transferring the property to a buyer.
o In case builders still cause delays in transferring properties to buyers, the appellate tribunals would intervene and slap fines on them within 60 days.

Key provision of IBC:

The Insolvency and Bankruptcy Code (IBC) was enacted to find a time-bound resolution for ailing and sick firms, either through closure or revival, while protecting the interests of creditors. 

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s