Default by Jaypee-Infratech and Amrapali Group and their inclusion in the list of the 12 big corporate loan defaulters against which the Reserve Bank of India has ordered initiation of insolvency proceedings has resulted in cascading effect. It has not only shattered (even for time being) dreams of thousands of flat buyers for owning their houses despite spending their hard earned life savings but also subject them to the enormous anxiety, stress and legal proceedings which theyto protect their rights in the flats booked by them.
As per newspaper reports, more than 50,000 flat buyers (approximately ) who booked their flats and paid their hard earned savings have been left high and dry due to the default committed by the aforesaid two groups. Apart from it,the buyers who have taken loan from the bank are further subject to hardship as the banks have been insisting to these flat buyers to service the loan to avoid increase in their ever increasing NPA.
Moratorium provided in the section 14 of the Insolvency and Bankruptcy Code 2016, limits the legal option to the flat buyers against the aforesaid two real estate development company, the flat buyers can file their respective claims with the Insolvency Resolution Professional appointed by the National Company Law Tribunal. As per the gazette of India extraordinary notification dated 16thAugust 2017, issued by the Insolvency and Bankruptcy Board of India, the flat buyers have an option to file their claim in the ‘Form- F’ meant for submission of the proof of claim by the creditors (other than financial creditors and operational creditors) with the nominated Insolvency Resolution Professional along-with an affidavit and prescribed format besides the documents required to be submitted as specifically required to fill ‘Form-F’ and in the notification itself.
The above situation gives rise to a moot question that would be hinging in the minds of thousands of flat-buyers about the fate of their claims after filing of requisite ‘Form-F’ with the nominated Insolvency Resolution Professional. It may be idle to now speculate about the fate of claims of the flat buyers keeping in view of the settled legal position provided in the ‘Insolvency and Bankruptcy Code 2016’ unless the government has anything else to offer. Section 21 provides constitution of a Committee of Financial Creditors after determination of financial position of the company and receipt of all the claims, and this committee of creditors is entitled to take all the decisions including replacement or confirmation of interim Insolvency Resolution Professional. The flat buyers do not fall within the definition of financial creditors accordingly; they are unlikely to be a part of the creditors committee. All creditors committee can be formed only when there are no financial creditors and such a situation is highly unlikely.
During the likely contingency of liquidation, as per section 53 of the Code, the order of priority of the claims of the flat buyers stand stands on a lower footing. Therefore, the existing legal position gives sufficient grounds and reasons for causing anxiety and worries among the flat-buyers who are concerned for their hard earned monies paid for buying the flats to the aforesaid two companies.
Another issue that has been troubling the flat-buyers is how to deal with the bankers who are concerned only for servicing of their loans without having any concern upon the plights of the flat-buyers. This question assumes significance keeping in view of the fact that most of the buyers have taken loan for making payment and they are constrained to serve the loan without any firm assurance of getting their flats. Legally, the bankers may not be doing anything wrong but at the same timewhy should innocent flat-buyers suffer. What wrong they have done particularly when the projects were approved by the bankers for the purpose of loan, the state government had given the land and license to develop the land. These questions of the flat-buyers can only be answered by the state and local authority including the law-enforcement agencies if the flat-buyers wield their power in unison. While voice of a single and few hundred flat-buyers may not attract the attention of the authorities, it will definitely be difficult to ignore if approximately 50000 persons join their hands for a common cause of getting justice from failure in corporate governance by these two companies, manipulation of data and accounts, deliberate ignorance of the reality by the banks, state government and Greater-Noida Authority.
The flat-buyers may consider arming themselves with all the relevant data to check if there was siphoning of funds by the promoters and the management of these two companies, if there was misrepresentation to the banks and authorities in availing the credit facilities from the banks and the government authorities. If the flat buyers are able to have the evidence of siphoning of funds and misrepresentation then they may consider bringing an action to prosecute the promoters, top management of these two companies by filing appropriate police complaint or an appropriate motion in the competent court of law as there would be no moratorium against the possible criminal action against the promoters and management of these companies. The flat-buyers may also consider filing civil writ-petition against the bankers to protect themselves from the possible harassment by the bankers demanding servicing of their loans notwithstanding there is no guarantee of getting the flats.
The State Government having adopted the Real Estate Regulation Act, 2016 (An act of Parliament) should check whether the aforesaid companies have complied the provisions of RERA as these projects appear to have not received completion certificate thus making it mandatory for them to register under the provisions of RERA. There should be a real time check of the other builders and real estate development companies about their financial health, status of their projects and promises made to the flat-buyers to arrest the present problem which is likely to grow further if timely steps are not taken.
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