Jaypee Infratech it is the first real estate company that has entered insolvency proceedings though there are a lot which are facing liquidation/ARC proceedings like Kohinoor Group, Orbit Corporation, Mumbai . This is one of first case in NCLT and the insolvency proceeding can remove lot of ambiguities in law like :
1) Claim preference when a so called Real Estate Developer raise money from bankers and customers in the pretext of constructing a building, than diverting money and later claim insolvency.
2) Can secured creditor (who are just part owner of property) use their powers arbitrary and without consent of customers?
3) Are customers are also secured creditors to the extent of their ownership in the under construction unit? ( RERA recognises this and require 70% consent of all customers in case of lenders step-in). If yes, than why only interest of secured creditors be taken into account while disposing property of a borrower / Developer.
Bankruptcy law has made it simpler to go bankrupt without realizing fate of customers. In such a helpless situation what should home buyers do when real estate developer take short cut and declare himself insolvent?
Don’t give easy turf to Bank or Developers
Buyers can give tough fight to all stake holders to protect their interest. If litigation is not in the interest of home buyers than it is also not in the interest of other stake holders. They need to do detailed SWOT and realize following :
a) in an ongoing project, where construction of complete more than 30-40% complete than bankers security on remaining unsold unit is almost zero unless the project is completed. Here buyers and bankers are on same risk zone and hence there is quite advantage to buyers and they can stop any arbitrary decisions by lenders.
b) File breach of trust cases against developer where money was paid for construction but utilized for repayment of his loans/interest or personal profiteering. Remember, profits are not accrued to developer till completion of project.
c) Raise your claim in The National Company Law Tribunal ( NCLT).
(i) Claim that the money that was paid by them (Buyer) was never meant for repayment of secured creditor. The secured creditor was paid by developer through diversion of money and breach of trust. The secured creditor is making undue profits in all cases (sale of assets as well as customer’s receipts).
(ii) Claim that no order of NCLT should be passed without detailed investigation in accounts of the developers. Buyers should claim first right on all assets purchased by Developer with the help of diverted money, since the diversion itself was breach of trust. Diversion theory is well understood these days.
d) Form larger groups : 30000 buyers of Jaypee must be paying atleast Rs 150 cr monthy EMI to various bankers. They can collectively negotiate with bankers on EMI and revival. Always take into account how much money secured creditor has already received back (Interest and repayment of capital) rather than just their outstanding.
e) Don’t Wait and watch : Patience is the biggest problem with home buyers in India. Nothing will change unless thousands of home buyers come together and make sure that there is constant pressure on government, administration, developer, secured creditor and judiciary.
f) Find out if other customers have initiated actions under Indian Penal Code, Negotiable Instrument Act etc against the Developer and how you can strengthen their case.
Finally, customers need to make sure that developers just don’t abuse process of law and get away to London or Dubai !
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