In most foreign Countries — a Flat is sold after completion. There is no booking amount and there is no payment linked to various stages of construction. In India, it is other way round. A promoter raises money not only from the prospective Home Buyers but also from the Banks. The Banks make money during the heyday of a Project and once the Project is declared Insolvent, the Banks become the Secured Creditors entitled to receive their stake from the insolvency proceedings.
According to Col T. P. Tyagi, Chief Convenor, CONRWA (Confederation of NCR Resident Welfare Associations) and CoRWA President of the Flat Owners Federation Ghaziabad — a project becomes insolvent owing to either the active connivance or passive silence of the Banks. Every Developer submits its monthly progress report containing the stages of construction before receiving loan from the Bank and hence the Bank is well aware of the HEALTH of the Project. If a Project has fallen sick it is primarily due to the lack of foresight of the Bank Officials but in spite of that, the BANK is considered as the secured creditor. It is for this reason that projects about ten lakh crore have become NPA. On the other hand the Home Buyer is on the receiving end both ways. He has to pay the EMIs and also the installments to the Developer and in spite of that he is considered as the unsecured creditor entitled to get the share of the insolvency proceedings, if at all, left behind after meeting the claims of the Banks, Government and the Workers.
Recently the Principal Secretary of the Ministry of Urban Development Durga Prasad Mishra wrote to the Ministry of corporate affairs to include the Home Buyers as secured creditor. But this will not suffice.
The Insolvency rules were framed in India when the Real Estate Projects were almost nil and hence they should be changed at the earliest. More than 17000 ongoing projects are still in currency for which the Completion certificate has not been taken in about 28 Major Cities of the Country.
Real Estate accounts for about 3.5 Lakh crore per year and about 10 Lakh new Home Buyers join the fray every year. It is therefore necessary to take in to account the sufferings of the Home Buyers on priority, particularly in the case of On Going Projects. Why a Developer should be allowed to raise funds from the Home Buyers since he is already getting funds from the Bank.
It is good to note that the Government has opted to change the law enacted a year before an Insolvency and Bankruptcy code. The corporate debtor who are found to have contributed to the default need to be prevented from regaining control through back door entry in the garb of a resolution applicant. The Corporate Debtor may come in his defence by saying that Businesses succeed but also fail and a bonafide failure should not be punished. But we have to be wary of this argument and the best way to ensure the protection of Home Buyers is to abolish the practice of raising money before possession of a Project. This practice can be adopted from now onwards. However, for the On Going Projects, we have to implement the RERA Act in letter and spirit. The act in section 84 provides 32 items on which the States can make rules and COMPLETION CERTIFICATE is not included in these 32 items. Than how come the UP Govt say that Completion Certificate is not required if the occupancy is more than 60% and how can the Maharashtra Govt say that completion certificate can be given floor wise in the same building. This is brazen violation of the RERA Act and this point was raised in the 5th National Conference of RWAs at Mumbai on 18th-19th Nov 2017.