Property Buyers under Insolvency and Bankruptcy Code (IBC) rejoiced when they were expressly considered as financial creditors following the prevailing confusion. Hohfield’s jural matrix correlates power with duty. Property buyers [I prefer using this term than ‘homebuyers’ because of newly inserted Explanation to section 5(8)] were empowered to have a say in the committee of creditors (CoC). Having attained the position of power, they, however, must not forget their duty to ensure that corporate insolvency resolution process goes on smoothly. On the contrary, few cases that are in progress shows that they are acting as bullies like a mob swayed by varied opinions without weighing the options that are in their interest. The side-stepped promoters are enjoying the split between home owners associations of different projects and even sometimes energizing the rift, and happily watching the hassled insolvency professionals.
The task of insolvency professionals in real-estate cases under IBC is more of a public relation exercise, in which they are unfortunately not trained, with property owners eating away the precious time at hand by engaging them through constant phone calls, emails, personal visits with all sorts of threats – veiled and open. The insolvency professionals who were used to their cosy offices are suddenly feeling the heat and pressure of a different kind. The complaints against insolvency professional are flowing thick and fast and the Regulators and Adjudicators are having a hard time.
Not only that, even property buyers are being harassed at the hands of IRP/RP and Authorised Representatives. The process has become cumbersome and unfortunately the Regulator has left it to be sorted out on its own without any deep thinking and research on the subject. Writing english by way of Regulations is easy but when it comes to implementation, the avoidable issues that crop up could have been easily taken care of. We see formation of numerous committees on these subjects with some members using their association on social media platforms for enhancing their own image and reputation. The resultant work is not showing results; rather it has compounded the confusion. Serious change in planning and strategy is called for. Regulator cannot get away by saying that ‘everyone is learning by the day’ at public forums. Regulating is a serious business.
Let us look at some of the challenges being faced by interim resolution professionals or resolution professionals (IRP/RP) while dealing with property buyers and vice versa and here’s my opinion on resolving some of them:
Challenge # 1 : Replacing IRP
Replacing IRP is a time consuming process in cases involving property buyers. IRP constitutes CoC and convenes its first meeting with usual agenda items of remuneration and expense approval, and an item for his appointment as RP. Perceptively unhappy with the IRP’s functioning so far, the trend in few cases reveals that property buyers have voted out the appointment of IRP as RP. The democratic vote process is the winner but here begins the difficult part. Who will now be in the saddle as RP? Assuming there are 5 projects in different state of progress, there is a deep split amongst the property buyers. Each project has an association leading its way. Consensus to one name is the most arduous process. Once that is done, begins the task of requesting the RP to convene a meeting. As per regulations, financial creditors holding a minimum of 33% voting share must make a request for convening the meeting of CoC for considering agenda for appointment of another RP. Here begins the ‘free for all’.
In many cases, RP has refused to entertain e-mails from property buyers directly advising them to bring it through the Authorized Representative. This is patently wrong as Authorized Representative is not a ‘be-all’ for property buyers as financial creditors; he is merely a link for taking their ‘will’ on agenda items to CoC meetings by representing them. This does not mean that property owners cannot communicate directly with IRP/RP or entertain their request for calling a CoC meeting. IRP/RP should soften their stand as it is not legally tenable. Law permits property buyers to file claims directly to IRP and sort out problems in verification stage. Hence, communicating directly with IRP/RP is not prohibited.
This begins at the door of Authorized Representative. The property buyers are informed that any requisition has to come via an e-mail. No physical request with signatures of property buyers will be entertained. Property buyers have to pull all their socks and arrange e-mails from one and all to muster 33%. Once that is done, Authorized Representative claims having not received e-mails. Precious days are wasted in locating e-mails in spam, junk and trash folders. Authorised Representatives need to understand that they are there to serve the interest of property buyers and should make it easy for them by not insisting on communicating only through e-mails. The propogators of ‘ease of doing business’ would do well to look into this aspect or else India’s rank for ‘insolvency matters’ is likely to go down.
Once 33% voting share is mustered, Authorised Representative throws a spanner by not showing any urgency in forwarding the request to IRP. If by chance, he receives some emails (not aggregating to 33%) from some property buyers suggesting another name, other than the one recommended by 33% voting share, he insists on sending this agenda item to IRP/RP to be included in CoC requisitioned by 33%. This effectively means there will now be a contest between two insolvency professionals for being appointed as RP. The Authorised Representatives easily forgets that initially he insisted for 33% voting share for any agenda to be sent to IRP.
The IRP who receives the forwarded request for CoC meeting springs a surprise by insisting that the resolution forwarded for appointment of an IP as RP must contain the remuneration part also. Another round of discussion takes place over few days ignoring the basic intent behind IBC for making the process as ‘time-bound’. Zero knowledge is understandable but half knowledge is a dangerous phenomenon. It is the prerogative of the financial creditors to propose any agenda item in a requisitioned CoC meeting. IBC does not require that resolution for appointment of RP should contain the remuneration also. It can be decided later on as RP may also not be aware of the volume of work involved at this stage. It is a matter of decision by CoC at any stage not necessarily along with the resolution for appointment of RP. Despite being convinced, IRP takes his own time sulking by the fact that his name was rejected by same group of creditors. Calling a meeting in companies in real estate is a painful process with lack of trained IPs and their misconstrued interpretations. IPs should take legal advise from experts on these issues and proceed on the basis of a legal opinion because everything cannot be written in a law or regulations or rules. The focus should be on being logical, reasonable and fair.
(This is part I of continued series of challenges facing resolution of corporate in real estate sector)
@Ashish Makhija: firstname.lastname@example.org
Disclaimer: The views expressed here are views based on my personal interpretation for academic purposes alone and should not be deemed as legal or professional advise on the subject. If relied upon, the author does not take any responsibility for any liability or non-compliance.