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Working Papers

 
 Title

‘Allottees’ as financial creditors: pushing the conceptual limits of the Indian insolvency regime

 Authors

Ram Mohan, M.P.; Raj, Vishakha

 Publication Date

13-Nov-2019

 Year

2019

  Publication Code

WP 2019-11-01

 Abstract

The Insolvency and Bankruptcy Code, 2016 (IBC) was amended in June 2018 to include amounts raised from an allottee (any person to whom an apartment or plot in a real estate project has been allotted or sold) in a real estate project within the definition of ‘financial debt’ thereby recognising allottees as financial creditors. Though the Supreme Court of India has upheld the constitutional validity of the amendment, its rationale raises concerns about the purpose of the Indian insolvency regime. Through the amendment, Parliament appears to have operationalised the insolvency regime to solve a sectoral problem, namely, mismanagement in the real estate sector. This paper posits that the amendment was enacted at the cost of stretching the definition of ‘financial creditor’ beyond its conceptual limit and interfering with the IBC’s insolvency resolution mechanism. It also examines the basis of the inclusion of allottees within the IBC and uses past decisions of the IBC’s adjudicating authorities as a reference for its analysis. The paper concludes that the reasons supporting the inclusion of allottees within the definition of a ‘financial creditor’ are less persuasive than those which favour its exclusion.

 

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