The Consumer Protection Act was the primary piece of legislation aimed at addressing the needs of consumers who purchased certain goods, either movable or immovable, on the premise of a promise by the manufacturer/developer of the goods. Any issues stemming from real-estate development projects would be filed and accordingly addressed by the respective consumer forums. In 2016, the Real Estate (Regulation and Development) Act was passed in the Parliament to specifically address the issue of home-buyers as well as to regulate the tumulus real estate market.

With reference to the Insolvency and Bankruptcy Code, a recent legislation for securing creditors, an amendment was introduced in the Parliament by the Union Minister of Finance Mr Piyush Goel to include home-buyers within the definition of financial creditors which was subsequently passed. The specific amendment to Section 5(8) was made by expanding the definition of ‘financial debt’ and furthermore included an explanation after clause (f) of Section 5(8) as follows:

“any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing“

In context, the amendment would consider the commercial effect of borrowing as a ‘financial debt’ , thereby including any amount invested by a person in a real estate project for allotment of apartments as a “financial debt”. The effect of this will be that an apartment allottee will come within the sweep of “financial creditor” as defined in Section 5(7). Therefore, a home buyer, either by himself of with others, can initiate insolvency proceedings against a defaulting builder by filing application as a “financial creditor” under Section 7.


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Bill: Insolvency and Bankruptcy Code (Second Amendment) Bill, 2018