Real Estate Insolvencies and the Status of Home Buyers

Abstract

AbstractIt is not an uncommon practice for businesses to collect advances or prepayments from their customers against a promise of delivery of goods or services in the future. The question of what happens to these advances when the business becomes insolvent is one which requires policy thinking. This question becomes more complicated when the customers involved are ‘consumers’ who enter into a purchase for final consumption and without profit motive. This issue came into the limelight with the insolvency proceedings against Jaypee Infratech Limited, a real estate firm. Not only did it bring to the fore a lacuna in the law as regards consumer advances, but also highlighted the public policy dimension in protecting the interests of a large number of consumers who had put up a large proportion of their lifetime income or savings towards such advances. In this chapter, the authors evaluate the various issues brought forth by real estate developer insolvency while also assessing the current and future impact of the judicial and policy response to these issues on the various stakeholders, as well on the Insolvency and Bankruptcy Code itself.