CONFLICT BETWEEN THE PROVISIONS OF INSOLVENCY AND BANKRUPTCY CODE, 2016 AND REAL ESTATE (REGULATION AND DEVELOPMENT) ACT, 2016

CONFLICT BETWEEN THE PROVISIONS OF INSOLVENCY AND BANKRUPTCY CODE, 2016 AND REAL ESTATE (REGULATION AND DEVELOPMENT) ACT, 2016

In recent years, multiple laws have been enacted to consolidate the various sectors and functioning of the country’s economy. Examples include Insolvency and Bankruptcy Code, 2016, Real Estate (Regulation and Development) Act, 2016 (RERA), and Goods and Services Tax Act, 2017. Quite inevitably, some provisions of the different laws are not in sync and may create a situation of conflict.

Consider Insolvency and Bankruptcy Code (IBC) and Real Estate (Regulation and Development) Act, or RERA. Both enacted in 2016, these appear to be overlapping when it comes to resolving the interests of homebuyers. Both IBC and RERA have provisions where the probability for conflict in their operations is very high. IBC allows companies to file insolvency proceedings so that they can provide relief to the debtors or creditors. On the other hand, RERA was implemented with the sole motive of getting justice for aggrieved homebuyers and penalizing builders or developers if the project is delayed. Undoubtedly, some questions remain unanswered, such as whether these two laws contradict each other and in case of the developer defaulting, whether the homebuyer should approach RERA or IBC.

The two laws enacted in 2016 appear to be overlapping against each other when it comes to resolving interest of home-buyers. Both the IBC and RERA have provisions which are conflicting. IBC allows companies to file their insolvency proceedings and on the other hand RERA was implemented with the sole motive to bring the justice to the aggrieved home-buyers and penalize the builders or developers if the project is delayed. Seeing this from home-buyers perspective, still some questions remain unanswered like are these two laws contradicting each other and in case of default from developers side, the homebuyer should approach RERA or IBC.

If we compare the provisions of these two Acts simultaneously, scope for confusion prevails as for both RERA and IBC, the law states that it will prevail over other laws. Section 238 of IBC provides that in case of inconsistencies between any law and IBC, IBC would prevail. Similarly, Section 89 of RERA provides that in case of inconsistencies between any law and RERA, RERA would prevail.

Lately, in the Amrapali case, the Supreme Court held that financial creditors/secured creditors cannot take over homes belonging to the homebuyers. In other words, the Supreme Court upheld the rights of homebuyers ahead of the creditors. This amply shows the fundamental contradiction between IBC and RERA, while IBC is trying to give primacy to the creditors and RERA is trying to protect the interest of consumers.

The fundamental contradiction between these two may drag cases to judicial and legal forums. In light of the recent legislation of Bankruptcy Act, RERA may not create separate provisions to deal with bankruptcy. The best way to stay true to the purpose of RERA is to align with the provisions of the Insolvency Act.

While there is potential conflict between the IBC and RERA provisions, it cannot be denied that the implementation of RERA is the need of the hour as it will restore the faith of homebuyers and in the long run it will help the real estate market become organised and stable. At the same time, the IBC provisions are equally important to secure the interests of creditors. The central government should address the matter in such a way that the interests of creditors as well as homebuyers are protected.

Suggestion from Consumer VOICE:

It is recommended that builders should maintain Fixed Deposit account for the money collected from homebuyers so it can be used for that particular project. By doing so, the company will not go insolvent and this will also lessen the scope of conflict between IBC and RERA.

Arbitration agreements cannot oust the jurisdiction of consumer forums

Arbitration agreements cannot oust the jurisdiction of consumer forums

In a recent judgement, the Supreme Court affirmed that arbitration agreements cannot oust the jurisdiction of consumer forums. The order will benefit homebuyers who usually have an arbitration clause in their agreements with the real estate companies. Such clauses lay down that in cases of disputes, aggrieved consumers will have to resort to arbitration before moving to civil courts.Emphasising upon consumers’ rights, a bench of justices Adarsh K Goel and Uday U Lalit has upheld the National Consumer Commission’s judegment that had maintained that despite an arbitration clause in the agreements, consumers could still knock on the doors of consumer forums to seek quick redressal. The apex court passed this order while dismissing several appeals that were filed by Emaar MGF Land Ltd. “In terms of the signed order, the appeals are dismissed. Pending applications, if any, shall also stand
disposed of,” stated the order.

Emaar MGF had challenged the National Commission’s full-bench verdict of July 2017 wherein the apex consumer forum ruled that authority and jurisdiction of consumer forum could not be circumscribed by any arbitration clause. According to the Commission, consumer disputes are not capable of being settled by arbitration and that the jurisdiction of the consumer fora to adjudicate upon consumer disputes is not affected by Section 8 (as amended) of the Arbitration and Conciliation Act, 1996, that mandates reference to arbitration.