The bankruptcy regulator proposed several measures on Tuesday to streamline regulations and expedite insolvency processes in the real estate sector. This includes allowing the exclusion of completed or unaffected housing projects from the rescue procedure, pending agreement from financial creditors.
In its discussion paper, the Insolvency and Bankruptcy Board of India (IBBI) suggested safeguarding project-specific cash flows to prevent fund diversion. It aims to require resolution professionals to maintain project-specific financial records and ensure all transactions are conducted through designated bank accounts.
Additional proposals include simplifying the handover process for homebuyers, creating a standardized claim form for real estate allottees, clearly identifying and disclosing allottee preferences, mandating disclosures in the Information Memorandum, conducting independent technical appraisals for real estate projects, and enhancing the monitoring committee’s composition.
According to the regulator, “These proposed reforms aim to prioritize project completion over liquidation, enhance transparency for homebuyers, strengthen the accountability of insolvency professionals, and facilitate viable resolutions for troubled real estate projects.” Stakeholders have been invited to comment on the discussion paper by July 21.
In its first meeting, the Committee of Creditors (CoC) will evaluate all projects of a real estate firm based on insights from the resolution professional. The CoC can categorize these projects into occupied, completed, nearly completed, or ongoing. It can also determine which projects do not require insolvency resolution, allowing for exclusions from the bankruptcy process.
If at least 66% of the CoC votes to exclude a project, the resolution professional can petition the adjudicating authority for approval. This proposal aims to facilitate project-specific handling of real estate insolvencies, minimize disruptions to occupied and completed projects, and concentrate resolution efforts on projects genuinely needing intervention.
Earlier this year, an IBBI panel proposed limiting bankruptcy proceedings to distressed projects instead of affecting the entire company, allowing solvent projects to continue functioning. This approach would benefit many homebuyers associated with solvent projects while accelerating resolutions for distressed ones.
The Supreme Court, in the Mansi Brar case last year, stated that real estate insolvency should generally proceed on a project-specific basis unless exceptional circumstances arise. The court emphasized that the completion of projects should be prioritized, protecting the rights of genuine homebuyers.
