Delay in property possession and remedy under NCLT

Date : 18 Dec, 2019

Post By Shivangi Bajpai

Buying a home can prove to be an extremely grilling process considering that it is never a small investment. Additionally, with so many legal requirements accompanying the process of buying a house or an accommodation, a consumer who has limited awareness of legal essentials can feel lost. And, this doesn’t stop here. When buying from a real estate company in the business of building or developing, this process can turn out to be even more grueling if the possession is delayed. If faced with such a situation, a home buyer can take three courses in India, which are as follows:

1) Real Estate Regulator Authority (RERA): The fact that the real estate sector in India has been blotched with problems and that the redressal of cases for home buyers who get caught up in legal battles at Courts sometimes would be in definitive, it became necessary that a sector specific legislation is brought in place. With the same idea, the government introduced RERA as a sector specific reform to address the problems of homebuyers in India. Introduced in 2016, RERA’s jurisdiction lies in all the matters concerning real estate disputes in India. There is no limit on the claim amount for filing a complaint in RERA. However, where an occupancy certificate has been granted, a complaint under RERA cannot be filed.

2) Consumer Forum: Consumer Protection Act (CPA) was passed in 1986 and with respect to RERA estate, a complaint for ‘deficiency in service’ can be filed under CPA. At the district level, consumers can file a complaint for claims up to Rs. 20 Lakhs. At the state level consumers can file a complaint at State Consumer Dispute Resolution Commission (SCDRC) for Rs. 20 Lakh to 1 Crore. And, at the national level, any complaint for claim beyond Rs. 1 crore can be filed at National Consumer Dispute Resolution Commission (NCDRC).

3) National Company Law Tribunal (NCLT): If the delay in possession is caused because the developer has been unable to finish the development project, a consumer or a home-buyer can file a complaint at NCLT under the provision of Insolvency and Bankruptcy Code, 2016. The important aspects of this Act and the rights associated with the home buyer are being detailed below.

Rights of home-buyers under IBC:

After a three judge bench upheld the constitutionality of the amendment introduced to IBC under section 5(8)(f), the status of home-buyers as financial creditors was formally concertized. At present, rights of home-buyers under IBC are as follows:

1. Introduction of an additional platform for grievance redressal: With the amendment, the home-buyers can now seek legal action under any of the three laws i.e. Real Estate (Regulation and Development) Act (RERA), Consumer Protection Act and IBC.

2. Seat in the Committee of Creditors: With inclusion among financial creditors, the home-buyers get to be a part of COC. By being a part of COC, the home-buyers can ensure that their interests are treated at par with the other financial creditors like banks and institutional creditors.

3. Legal Action under S.7 of IBC: The amendment has widened the scope of IBC and the home-buyers can now invoke S.7 and initiate insolvency proceedings against the builder/ real estate companies.

NCLT and home-buyers:

With the introduction of amendment in IBC, even a single home-buyer can approach NCLT and invoke S.7 under IBC, if the claim of home-buyers exceeds Rs. 1 Lakh. Additionally, in the event of pendency of any case before NCDRC or under RERA, homebuyers can still approach NCLT under IBC. This is substantiated by section 238 of IBC which has an overriding effect over other laws. Once an application for insolvency is admitted by NCLT, all other proceedings in all other courts are stayed. Thus a home-buyer can approach either of the three forums i.e. Consumer Protection forum, Real Estate Regulatory Authority or NCLT. However, approaching NCLT is more helpful when the delay in possession is a result of developers going bankrupt.

Procedure of application under NCLT

At present, IBC can be triggered only when the minimum default amount is Rs. 1 lakh. If the home-buyer's claim falls beyond Rs. 1 lakh, an application can be filed before NCLT. Once the application is admitted by NCLT, an Interim Resolution Professional (IRP) is appointed who takes over the management of the defaulting Real Estate Company. IRP role is to try and revive the real estate company and present a revival plan to the COC. If the revival plan is not approved by the COC, the defaulter's company/ real estate body is liquidated. After liquidation, the homebuyer who now is a secured financial creditor can claim the default amount from the proceeds.