Say you’re a homebuyer. You’ve been waiting for the keys to your flat for more than a decade, dutifully paying your home-loan equated monthly instalments or EMIs. But the real-estate developer evades you at every turn. So, you start looking for a legal recourse to bring the builder to account, but it voluntarily files for insolvency. And worse, it makes an attempt to jump the queue to be paid first.
If only this were hypothetical. The Delhi-based builder Wave Megacity Centre—incorporated in 2011 as a special-purpose vehicle of Rs 500 crore (~$61 million) Wave Group—tried to absolve itself of all the responsibilities towards homebuyers by pulling off an endeavour exactly like that.
It’s a development that may snowball into a dangerous insolvency trend that could demolish the dreams of thousands of homebuyers.
In one of its residential projects in Noida, bordering India’s national capital, the builder in 2012 had promised possession to 2,300 homebuyers within four years of booking a flat. The buyers have paid a total of more than Rs 1,400 crore (~$171 million), but the project is still incomplete. And to everyone’s surprise, in March 2021, the developer moved the National Company Law Tribunal (NCLT)—a special court set up to deal with corporate defaults.
Wave Megacity’s manoeuvre rang the alarm bell as this was the first time in India that a prominent real-estate company used Section 10 of the bankruptcy law—the Insolvency and Bankruptcy Code (IBC), 2016. The section allows an entity to initiate insolvency proceedings against itself in case of debt and default. All other major real-estate developers, such as Supertech, Jaypee Infratech, and Amrapali Group, were dragged to the bankruptcy court under either Section 7 or Section 9 of the code.
Section 7 provides for an insolvency plea against corporate debtors by financial creditors like banks and homebuyers. Section 9 gives this power to operational creditors—primarily the Noida Authority in Wave Megacity’s case.
If the NCLT admits an application under Section 10, the appealing company gains immunity from all other recovery proceedings and charges against it. For real-estate developers, it means a reprieve from cases filed by homebuyers who keep paying EMIs without getting to live in their dream homes. The section even allows the company to propose an insolvency professional, raising doubts over the fairness of the process.
In a relief to Wave Megacity’s homebuyers, the NCLT dismissed dismissed The Economic Times NCLT dismisses insolvency petition of Wave group, imposes Rs 1 crore penalty Read more the builder’s move on the grounds of malicious intent in 2022.