PMLA changes sought for relief to homebuyers

The IBBI’s proposed amendments are in line with the Real Estate Regulatory Authority (RERA) Act. (Image/Reuters)

At a time when the government is considering to provide relief to homebuyers by making amendments in the Insolvency and Bankruptcy Code (IBC), experts say that the extant provisions of the Prevention of Money Laundering Act (PMLA) should be tweaked on the similar lines as well.

The Insolvency and Bankruptcy Board of India (IBBI) has proposed that the Committee of Creditors (CoC) should invite separate resolution plans for each real-estate project, instead of dragging the entire firm under resolution process even if one project fails.

This is expected to benefit the homebuyers as under the proposed norms, even after the start of the resolution process, units will continue to be allotted to them on an ‘as is where is’ basis or on making the balance payment required to complete the construction.

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The IBBI’s proposed amendments are in line with the Real Estate Regulatory Authority (RERA) Act, which allows registration and monitoring of each project as a separate unit at pre-insolvency stage; and thus, making it only logical that the same differentiation is maintained at the stage of insolvency resolution.

For the same reason, PMLA should also be amended on similar lines as the extant RERA provisions are not adequate in providing any relief to home-buyers if the property is subject to attachment under the former statute, say experts.

“This can be achieved by exclusion of property which has already been sold to homebuyers from the order of attachment,” says Amit Jajoo, partner, INDUSLAW.

Currently, when the Enforcement Directorate (ED) attaches real estate projects under the PMLA, homebuyers receive eviction notices, even if the developer has already handed over possession of their flats. Under Section 8 of the statute, the properties attached can only get released once the trial against the developer is concluded in courts.

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In the recent case of SRS Group, which is currently undergoing litigation under PMLA, over 800 homebuyers have been sent eviction notices by ED. These notices have been sent even after being given possession.

The case dates to December 2018, when the enforcement agency began its probe against the developer. At present the homebuyers are fighting their case in the Haryana Real Estate Appellate Tribunal seeking to get the conveyance deed registered and get relief from the attachment proceedings under PMLA.

Hundreds of homebuyers of Pushpanjali Orchid Park in Uttrakhand and Hyde Park in Rajasthan are also stuck in a similar situation. Their flats too have been attached by the ED.

To avoid such a scenario, Anirudh Sood from Lex Ajia Advisors – who was formerly a legal consultant for ED – suggests that PMLA should be amended to make it mandatory for ED to make all homebuyers necessary parties to confirmation proceedings before Adjudicating Authority, where they may get the opportunity of declaring their sources of income.

“PMLA needs to be reconciled with Section 53A of Transfer of Property Act, 1882 which deals with part performance on the part of the home-buyer who may have paid the entire consideration but the conveyance deed remains to be executed,” he says.

INDUSLAW’s Jajoo says that “separate and expeditious proceedings” for detachment of properties belonging to homebuyers from the ED must be considered, where homebuyers get a fair opportunity to defend their case.