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Treat home buyers as financial creditors for easy resolution process: IBC

The recommendation, once implemented, would provide relief for home buyers facing hardships due to incomplete real estate projects

Press Trust of India  |  New Delhi 

Insolvency Code ordinance, IBC

Home buyers should be treated as which will allow them to equitably participate in an 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 and 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 owing to the unique nature of financing in and the treatment of home buyers by the in ongoing cases.

"Notably, classification as would enable home buyers to participate equitably in the under the Code," it added.

The recommendation, once implemented, would provide relief for home buyers facing hardships due to incomplete

Some realty firms are facing insolvency proceedings.

Under the Code, financial creditor implies any person to whom a financial is owed. The financial can include money borrowed for interest.

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 Non-Performing Assets (NPA) 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 resolution applicants that have not submitted resolution plans as on date of coming into force of the said amendment," the report said.

Against the backdrop of rising number of cases coming up under the Code, the committee has recommended certain measures to prevent possible misuse.

In this regard, the provision to provide for special resolution passed by the corporate debtor's shareholders or resolution cleared by at least three-fourth of the total number of partners of the corporate debtor has been recommended.

To provide for withdrawal of resolution application in exception circumstances, the panel has suggested that in such cases, there should be approval from the (CoC) with ninety per cent of voting share.

"In order to facilitate successful implementation of the resolution plan by the successful bidder, it has been proposed to allow one year time to obtain necessary statutory clearances from central, state and other authorities or such time as specified in the relevant law, whichever is later," the committee said.

In January, the Code was amended to prevent unscrupulous persons from misusing the Wilful defaulters and those whose accounts have been classified as non-performing assets, among others, are barred from bidding for stressed assets.

The Code provides for market-determined and time-bound insolvency

First Published: Tue, April 03 2018. 19:59 IST