New Delhi : Home buyers should be treated as financial creditors which will allow them to equitably participate in an insolvency resolution process, a high-level panel has recommended to the government.
The 14-member panel, headed by Corporate Affairs Ministry, has also suggested relaxations for Micro, Small and Medium Enterprises (MSMEs) under the Insolvency and Bankruptcy Code.
A slew of other changes to the Code, which came into force in December 2016, has also been suggested by the panel. Constituted by the Corporate Affairs Ministry, the committee had the mandate to identify and suggest ways to address issues faced in the implementation of the Code.
In a detailed report, the panel has recommended that home buyers should be treated as financial creditors owing to the unique nature of financing in real estate projects and the treatment of home buyers by the Supreme Court in ongoing cases. “Notably, classification as financial creditors would enable home buyers to participate equitably in the insolvency resolution process under the Code,” it added. The recommendation would provide relief for home buyers facing hardships due to incomplete real estate projects. Some realty firms are facing insolvency proceedings.
According to the report made public by the ministry, the government should exempt MSMEs from application of certain provisions of the Code. “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,” it noted. Section 29A of the Code pertains to ineligibility criteria for bidders.
Besides, the panel has suggested that only those who contributed to defaults of the company or are otherwise undesirable should be ineligible from bidding for stressed assets under the Code. “Moreover, being mindful of the dud loan crisis in the country, the need to encourage the market for NPAs was felt and accordingly several carve-outs from section 29A have been recommended for pure play financial entities.
“In order to prevent retrospective application of any proposed change, it has been recommended to add a provision that the amendments shall be applicable to applicants that have not submitted resolution plans as on date of coming into force of the said amendment,” it said.
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