Govt to look at innovative ways to prevent IBC abuse: Corp affairs secy

The government will look at innovative ways, including having a threshold, to ensure that the insolvency resolution framework is not abused by homebuyers.

Corporate Affairs Secretary Injeti Srinivas on Tuesday said there have been large number of cases where "otherwise well-functioning real estate companies have been pulled into the insolvency proceedings by a single homebuyer who wants refund".

Noting that there might be speculative homebuyers also in such cases, he said that if a single person is able to dislocate when there is otherwise no issue, we have to look at some threshold.

Such checks and balances can be built in by way of regulations or amendments, Srinivas said here.

Homebuyers are treated as financial creditors under the Insolvency and Bankruptcy Code (IBC).

Unlike a normal financial creditor who is on the Committee of Creditors (CoC), a homebuyer is represented through an authorised representative.

According to him, innovative ways need to be looked at to ensure that homebuyers do not abuse the insolvency resolution framework.

In recent times, many realty firms have been dragged to insolvency proceedings by homebuyers on account of long delay in completion of projects and other issues.

Speaking at a function to mark the third anniversary of the Insolvency and Bankruptcy Board of India (IBBI), Srinivas also said the personal insolvency regime would be fully operational in one year.

The cross border insolvency resolution framework is ready and the same is expected to be approved during the winter session of Parliament, he added.