A panel formed by the insolvency regulator has recommended that bankruptcy proceedings focus solely on distressed projects of a real estate developer, rather than encompassing the entire company. This approach aims to allow solvent or unrelated ventures within the same developer to continue operating, benefiting many homebuyers involved in stable projects while hastening the resolution process for stressed ones.
The panel stated that proceedings under the Insolvency and Bankruptcy Code (IBC) should typically be initiated on a project-by-project basis, treating each as an independent economic unit. This recommendation comes from the panel established by the Insolvency and Bankruptcy Board of India (IBBI).
Last year, the Supreme Court noted in the Mansi Brar case that insolvency issues in real estate should generally follow a project-specific guideline rather than target the entire corporate structure, apart from exceptional cases.
The apex court also emphasized the necessity of ensuring timely project completion and safeguarding the rights of genuine homebuyers, recognizing their entitlement to shelter.
The seven-member panel, led by IBBI’s whole-time member Jayanti Prasad, was tasked with exploring insolvency resolution challenges related to real estate projects. It has submitted 155 recommendations, suggesting procedural consolidation of land and development rights and enforcing project-wise escrow account operations. These changes aim to ensure timely project completion and improve operational efficiency.
The panel also proposed that the corporate affairs ministry consider increasing the minimum threshold for initiating insolvency proceedings in real estate from Rs 1 crore to Rs 5 crore, aligning better with the financial architecture and scale of real estate development. This adjustment aims to minimize premature or strategic admissions and encourage completion-oriented alternatives outside insolvency.
The suggestions arrive during a time when several real estate developers—such as Jaypee, Unitech, Amrapali, Today Homes, Supertech, Logix, and Ajnara—are already undergoing insolvency proceedings.
The panel further advised the corporate affairs ministry to facilitate project-wise insolvency within the present corporate insolvency resolution framework. However, group-level resolutions involving multiple projects should be permissible only under exceptional circumstances characterized by significant interdependencies, commingling of funds, cross-collateralization, or clear evidence of fraud or mismanagement impacting multiple projects.
Additionally, it has urged the department of financial services and the Real Estate Regulatory Authority to consider establishing project-specific frameworks for lending, managing distressed real estate accounts, and conducting oversight.
