Home troubled home legislation and judicial verdicts have helped home buyers but there’s a long way to go

Home troubled home legislation and judicial verdicts have helped home buyers but there’s a long way to go

A home is the single largest investment in the lives of most people the world over. In India, the process of buying a home is fraught with risk. It also has some unique features. Often, a home-buyer is a financial creditor of real estate projects as payments are made well before delivery of the house. However, there was little protection from delays in delivery or outright cheating on the part of developers. Two laws passed in 2016, the Insolvency and Bankruptcy Code and Real Estate (Regulation and Development) Act, have begun to tilt the scales.

The passage of these laws and their subsequent amendments have often triggered legal challenges. Many of the consequent Supreme Court judgments have reinforced their underlying spirit by providing home-buyers with a degree of protection. In the same vein, on Monday an apex court judgment held that if there is a conflict between RERA and SARFAESI, a 20-year-old legislation to protect financial creditors, the former will prevail. Yet, the story of the last six years has been one of half-hearted protection for home-buyers. Three key events explain that – and all are centred around the new law on financial default, IBC.

In August 2018, the Parliament cleared an amendment to IBC to treat home-buyers as financial creditors. It was a big step but an important aspect was untouched. IBC prioritises payments to secured creditors such as banks. Where do home-buyers stand in the priority list? GoI’s position is that it depends on the nature of buyer-builder agreement. However, there’s an asymmetry of power between buyers and builders. An agreement that confers secured creditor status on buyers is unlikely. Later, in August 2019, an SC verdict held that IBC shall take precedence over RERA in case of a conflict, putting secured creditors in pole position.

In March 2020, another IBC amendment made it necessary for home-buyers to get a quorum to trigger the Code. It was meant to prevent frivolous cases but once again overlooked the asymmetry. Only the builder has complete information on the identity of all buyers. Therefore, while developments in both legislature and judiciary do try to help home-buyers, there’s still a long way to go. Of the three stakeholders, buyers, builders and banks, it’s the individual buyer who continues to bear most of the risk. Going forward, the balance of risks needs to be fair. Simultaneously, the mess of unfulfilled contracts by builders needs to be sorted.