NEW DELHI: The insolvency regulator has proposed easing regulations to ensure that all homebuyers affected by bankrupt real estate developers can benefit from resolution gains, including those who have not submitted claims. This initiative could potentially aid thousands of allottees nationwide.
In a discussion paper, the Insolvency and Bankruptcy Board of India (IBBI) has recommended enhanced disclosures regarding stressed firms’ assets, stricter safeguards for committees of creditors lacking financial institution representation, and proper documentation for liquidation orders.
“The Information Memorandum related to the stressed firm should include all allottees’ details—names, amounts owed, and allotted units—as per the corporate debtor’s records, regardless of whether claims were filed. The resolution plan must address such allottees,” the regulator noted.
The proposal aims to “ensure fairness, transparency, and equal treatment among all legitimate homebuyers.” Numerous real estate developers, such as Jaypee, Unitech, Amrapali, Today Homes, Supertech, Logix, and Ajnara, are currently undergoing bankruptcy proceedings.
Currently, only formally submitted claims by creditors are considered in the resolution plans. “Real estate buyers often lack institutional power, and the corporate insolvency resolution process has historically sidelined them. These proposed amendments could significantly rectify that power disparity,” remarked Yogendra Aldak, executive partner at Lakshmikumaran & Sridharan attorneys.
Transparency Initiative
The IBBI has proposed enhanced disclosure on receivables, joint development agreements, and assets seized by the ED in the information memorandum.
In cases where no financial institution is part of the committee of creditors (CoC), and an unregulated financial creditor holds over 66% of the voting share, the resolution professional will invite the five largest operational creditors (by admitted claim) to act as observers during CoC meetings. While these observers can participate in discussions, they will not have voting rights.
Should the CoC recommend liquidation for a distressed firm despite having a viable resolution plan that promises better returns than the liquidation value, specific reasons must be documented in the meeting minutes and submitted with the liquidation application.
Stricter Evaluation of Unqualified Bidders
To safeguard the integrity of the resolution process, the insolvency regulator has instructed resolution professionals to prepare a detailed note for financial creditors regarding compliance with unqualified bidder criteria under Section 29A of the Insolvency and Bankruptcy Code (IBC). This note should be presented when evaluating resolution plans, ensuring all discussions are accurately recorded in the meeting minutes.
Equity Rules for IPE Directors
In a separate discussion paper, the regulator proposed implementing shareholding regulations for directors or partners of insolvency professional entities (IPE) to prevent ownership concentration and promote professional integrity. Each director or partner should hold at least 5% of the paid-up equity if the IPE is structured as a company, or the total capital contribution if it’s a limited liability partnership.
