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What should a buyer do if builder declares insolvency?

Homebuyers associated with insolvent projects should explore protection granted by the law and compel the state authority to ensure that either the delivery of the project is seen through, or the money invested is returned.

So, you decided to purchase a property, and were waiting for the construction to complete. The work started in full swing, but one day, you find out that the builder is no longer “there”. Worse, they have gone bankrupt, and declared insolvency.

Among many other things, the recently executed RERA (Real Estate Regulation and Development) Act has tightened the noose around builders, thus, prompting many of them to escape the ambit of the state regulator.

For buyers, on the other hand, it’s not exactly a smooth ride ahead. Of course, in some cases, the government will intervene and monitor the cash flows of your builder. This also includes the administration ensuring that the project is completed by a third party, notwithstanding the developer.

As a buyer, here’s what you can do: you can start by raising claims via The National Company Law Tribunal (NCLT), which will appoint an insolvency professional to carry out the proceedings under the Insolvency and Bankruptcy Code, 2016. The NCLT professional will help revive the company within a stipulated period of time, as monitored by court if the company is fairly huge. However, if the revival doesn’t happen as planned, the builder’s company will be liquidated through sale of its assets.

The money acquired from the liquidation is then distributed among primary creditors such as banking institutions, with the remaining given to the homebuyers. This may not fare well for a buyer, as in many cases, not enough money may be left to pay back every party.

Meanwhile, if the buyer has availed of loan facilities from a financial institution, it is advised that they continue to pay their loans as per the agreement, irrespective of any proceedings under the Insolvency and Bankruptcy Code, 2016. As paying their EMIs on time can help their credit rating during the time of compensation, it is highly recommended that their participation in the insolvency proceedings be as smooth as possible.

While it’s not lucrative for individual homebuyers to file cases in a court for recovery of their money in such a case, this doesn’t waiver their right to get their allotted property. Therefore, homebuyers should work collectively as a team to compel the state development authority to ensure that either the delivery of the project is seen through, or the money invested is returned. 

www.keyofdream.com

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