The government’s decision to take over Unitech, which has failed to deliver homes to thousands who booked apartments, shows it means business. While it is not clear whether the takeover will finally be permitted—it is now up to the Supreme Court after Unitech appealed against the NCLT’s order—this is a sign the government is serious about taking errant real estate firms to task. The government has filed a petition, in the NCLT, under section 241 of the Companies Act, 2013, which says that if the central government “is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest, it may itself apply to the Tribunal for an order”.
While the courts have been looking to address the grievances of home-buyers, no concrete solutions have emerged so far. The situation is grim, with lakhs of home-buyers stranded without homes and builders going bust. Given the magnitude of the problem, especially the fact that banks are unable to recover loans worth thousands of crores of rupees from builders, it is important the government steps in. In Unitech’s case, the promoter is in jail; so, it could be a long while before home-buyers get possession of their property, if at all they do. Even in the case of Jaypee Infra, where the courts have attempted to address the problem by appointing resolution professionals and asking the promoters to pay up, little has happened. The court has been unable to get the promoters to pay the original amount of `2,000 crore, and the promoters may just get away by paying a fraction of that. As for home-owners, they are no closer to getting their homes. Under the circumstances, it is not surprising home-buyers are clamouring for a status on a par with that of financial lenders. They have found support in the ministry of housing and urban affairs which has suggested—to the ministry of corporate affairs—that home-buyers be recognised not merely as financial creditors, but as primary secured creditors. The housing ministry wants the IBC (Insolvency and Bankruptcy Code) amended such that, in the event of the assets of a company being liquidated, home-buyers would have the first right, “above all other secured creditors”.
As this newspaper has argued, this is not desirable, and will set a bad precedent since it will encourage other creditors to demand a similar status. In the process, the rights of banks would be diluted while the IBC would be undermined. It is better the government takes charge of the assets and comes up with a solution, one that takes care of the interests of both banks and home-buyers. While there is no doubt that home-buyers have suffered and may have also lost money, banks must get their fair share of the proceeds. It will not be easy for the government, which may choose to placate home-buyers rather than lenders, but it must find a way out. Of course, to the extent, banks have lent money to homebuyers, their EMIs may also be jeopardised if the latter don’t get possession of their homes. Meanwhile, while the Supreme Court is justifiably miffed at the manner in which the NCLT passed an order—allowing the government to take over Unitech and appoint 10 nominee directors—despite orders that there should be no coercion, it will hopefully take a lenient stance. The government must be empowered to come down heavily on errant builders, in quite the same manner it has on other corporate defaulters. Then alone would justice have been done.