Ever since the inception of Insolvency and Bankruptcy Code in year 2016 (“IBC, 2016”), there has been a paragon shift in the objective of the Insolvency Laws in India which went from providing a process for easy closure of business and providing exit route to investors by sale of distressed assets to providing a streamlined and unified insolvency framework with ultimate objective of maximizing the wealth of the Company under the ambit of Corporate Insolvency Resolution Process (“CIRP”). Earlier, the Insolvency laws in the Country[1] were scattered throughout the Country, which post codification[2] is now undergoing substantial changes and also delving into multiple spheres of experimentation outside the provisions of the IBC, 2016 with the ultimate objective that the investors and other stakeholder’s interests are protected and they do not lose out on their valuable investments. IBC, 2016 also provides for provisions for taking necessary actions against the promotors and other key managerial personnel for any mismanagement & siphoning of the assets of the Company.
Ever since the commencement of IBC, 2016, it has been setting new legal precedents which are much likely to touch spheres of every legal entity viz. Government, Corporations, Citizens and other Stakeholders. One such major advancement under the Insolvency law, erupted post classification of the Real estate allottees as Financial Creditors as decided by Hon’ble Supreme of India[3] and post the Pioneer judgement, the said principles were immediately codified in the form of an amendment by adding an explanation to Section 5(8)(f) of the IBC, 2016[4]. The inclusion of real estate allottees as financial creditors triggered the initiation of the CIRPagainst numerous real estate companies. These companies were engaged in the development of multiple projects, both residential and commercial, across various regions of the country. Several Challenges cropped up with the inclusion of real estate allottees in the Committee of Creditor (“COC”) , before the authorities under the IBC, 2016 and also alignment of interest of different class of creditors posed several challenges. The ultimate objective of real estate allottees is to secure possession and ownership of their allotted units, which stood in contrast to the intentions of other financial creditors such as banks and financial institutions, who, through their representation in the CoC, primarily sought to recover their outstanding advances from the company, albeit with suitable haircuts. Alignment of interest of both, poses a major challenge under the IBC, 2016 regime before lawmakers, as well as authorities which can be easily perused from a tux of war between the real estate allottees and the financial institution in one pending case before Hon’ble National Company Law Tribunal, New Delhi[5] (“Hon’ble NCLT”), wherein several financial institutions objected to the Resolution Plan as the said plan is non-compliant and further raising objection on the MSME status of the company which was taken post commencement of CIRP in which the matter was referred back to COC for re-consideration. In that respect an appeal[6] was preferred before the Hon’ble National Company Law Appellate Tribunal (“Hon’ble NCLAT”), wherein the findings of the Hon’ble NCLT were set aside.
The Lawmakers as well as the Hon’ble NCLT and Hon’ble NCLAT under the IBC, 2016 endeavoured to broaden the Statute by introducing various new experimental concepts, notably ‘Project-wise Resolution[7]’ and ‘Reverse CIRP[8]’ even though these frameworks extend beyond the explicit provisions of the IBC, 2016. The Concept of Project wise resolution Plan has also been upheld by the Hon’ble Supreme Court of India[9] on principle “A fundamental principle is therefore that the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been “wrong”.
The issue of stalled real estate project(s) in the Indian Economy has persisted for a very long time, impacting not only the broader economy but also the key stakeholders including Government, Financial Institutions and most importantly the Real estate allottee(s) who have invested their life savings and have been waiting for years to take possession of their flat/units. In the light of the aforesaid circumstances, a committee was formed by the Ministry of Housing and Urban Affairs (MoHUA), Government of India under the Chairmanship of Shri Amitabh Kant titled “Rehabilitation of Legacy Stalled Real Estate Projects[10]” to address all the respective issues and suggest appropriate course of action towards framing of any additional laws and regulations in the concerned area. It was the findings of the Committee follow key recommendations were proposed for framing of respective laws:
- Mandatory Registrations of Projects with RERA
- Execution of Registration/Sub Lease Deeds for All Occupied Units.
- Occupancy/ Possession of all substantially completed projects
- Proposal for State Government’s Rehabilitation Package for a promoter led resolution.
- Framework for RERA and Administrator Led Revival of Projects
- Financing of Stalled Project
- Use of IBC for resolving projects as a measure of last resort
Additionally, another issue which emerged concerned the CIRP in respect of Companies who execute multiple real estate projects. Objections were raised contending that CIRP should be confined solely to the project where default had occurred and should not extend to any other ongoing projects of the Company. Thise issue came up for consideration before the Hon’ble NCLAT as to whether projects that had been successfully completed should be excluded from the purview of the IBC, 2016. Various contentions raised were rejected by Hon’ble NCLAT[11]. Hon’ble NCLAT while delivering Judgements had failed to adequately address this issue which resulted in dragging even the financially viable projects which are ready for possession to unwanted CIRP which ultimately leads to delays in handing over possession of units to the allottees. Additionally, the issues, pertaining to the rights of the landowners of the project lands have not been properly addressed, under the IBC, 2016 or through any judicial pronouncements, who have merely been classified as Creditors other than Financial or Operational Creditors. Other challenges posed before the authorities are classification and distribution/bifurcation of assets & liabilities in the case of invitation for project wise resolution plan and its effective implementation.
However, despite all the aforementioned challenges, the IBC, 2016has also facilitated successful resolution plan(s)[12] by harmonising the interests of both real estate allottees as well the financial institutions. In such cases, both categories of creditors have collectively voted on making the resolution plan viable and successful. The Respective plan as approved by Hon’ble NCLT, have incorporated innovative provisions such as “Exit Clause” and “self-construction clause” thereby safeguarding the interests of bank, financial institutions, dissenting creditors and other class of creditors.
Based on the recommendations report, a discussion paper[13]was formulated by Insolvency and Bankruptcy Board of India (“IBBI”) on issues related to the real estate projects for discussion and public comments with following key points: Mandatory registration of projects under RERA, Operation of Separate bank account for each real estate project, Execution of registration/sublease deeds with approval of committee of the creditors (CoC) during corporate insolvency resolution process (CIRP), CoC to examine and invite separate plans for each project; and Exclusion of property in possession of homebuyers from the liquidation estate.
IBBI and lawmakers are gradually advancing towards the same agenda that can be easily perused from the recent amendment in IBC regulations, 2024[14] wherein Regulation 4D was added stipulating the provisions viz. “operating separate bank accounts for each real estate projects”. Furthermore, the respective regulations for the first time made way for project wise resolution plan by adding a clarification to Regulation 36A (1) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 wherein following provisions were added “the resolution professional after the approval of the committee may invite a resolution plan for each real estate project or group of projects of the corporate debtor.” It was through this clarification only that the IBC, 2016 had recognised the “Project wise resolution Plan”.
Likewise, IBC, 2016 does not provide comprehensive regulations pertaining manner of inviting multiple Resolution Plans w.r.t to multiple real estate projects of the same company. Critical issues such as the bifurcation and classification of the assets under each plan separately, treatment of unsold inventory, and concerns related to project specific financing etc remained unaddressed and require regulatory clarity under the IBC, 2016. In this context, a matter which is currently pending before Hon’ble NCLT, wherein the Resolution Applicant has filed an application[15] seeking permission to publish multiple Form-G (Invitation of Expression of Interest) for different real estate projects of the same corporate debtor. As the IBC, 2016 does not explicitly provide for such a mechanism, the application is now listed for consideration on 08.05.2025.
Though the advancement of IBC regulations, 2025[16], wherein recently Regulation 4E “Handing over the possession of the Unit” and Regulation 30C viz. “Report on the status of development rights and permissions of real estate projects” has been added in furtherance of the objective to protect the interest of the stakeholders.
Recently, IBBI through its discussion paper (November 2024)[17] with the sole objective of “Improving Real Estate Resolution under IBC and effective coordination with RERA” had made following proposals with the sole objective of maintaining a dynamic and responsive regulatory framework that aligns with the changing market dynamics and accordingly addresses the requirements of the stakeholders in the insolvency regime. The proposed agenda includes:
- Proposed Inclusion of Land Authorities in Committee of Creditors (CoC) Meetings.
- Handling Cancelled Land Allotments in Real Estate Insolvency Cases
- Empower CoC to Facilitate Participation of Associations of Allottees as Resolution Applicants.
- Clarification about inclusion of Interest in Homebuyers’ Claims in CIRP.
- Representation of large numbers of creditors through facilitators.
- Proposal to disseminate Committee of Creditors (CoC) minutes of the meeting to all creditors in class of real estate projects.
- Streamlining Possession Handover in Real Estate Projects
The IBBI is yet to formulate regulationsaddressing the aforementioned proposals, which are fundamentally intended to safeguard the interest of real estate allottees under the ambit of the IBC, 2016. However, with each passing day, the IBBI is steadily progressing towards the outlined agenda by introducing necessary amendments to the law and in coming year, these amendments are likely to be reflected within the framework of IBC, 2016..
From the aforementioned recommendations and amendments, it is evient that the IBBI and lawmakers are diligently examining the actual issues faced by the stakeholders while implementing the mandates of IBC,2016. Based on these insights and recommendations, key policy changes are periodically introduced through amendments to the IBC, 2016.
Despite these developments, the complex nature of real estate resolution process continuous to necessitate a dedicated framework, distinct from the existing CIRP framework. Such a framework should be envisaged to effectively address the issues pertaining to project wise resolution plans and comprehensively resolve the issues outlined above. IBC, 2016 still has a long way to go in its quest to maximise the interests of the stakeholders by providing a streamlined and unified framework for resolving the insolvency of corporate entities, individuals, and partnership firms in a time-bound manner, while ensuring fair and equitable distribution of assets.
[1] the Indian Insolvency Act, 1848, and the Presidency-towns Insolvency Act, 1909 and 1920 Provincial Insolvency Act
[2] The Insolvency and Bankruptcy Code, 2016
[3] Pioneer Urban Land and Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416
[4] IBC (Second Amendment) Act, 2018 vide notification No. 26 of 2018 dated 17.08.2018.
[5] IA-5385(PB) of 2021, IA-4827(PB) of 2021 and IA-6135(PB) of 2022 vide Judgement dated 21.11.2023
[6] Vinay Jain vs AVJ Developers (India) Private Limited Company Appeal (AT) (Ins.) No. 1546 of 2023 dated 14.02.2024
[7] Ram Kishor Arora Suspended Director of M/s. Supertech Ltd Vs. Union of India by Hon’ble NCLAT in Company Appeal (AT) (Insolvency) No. 406
[8] Flat Buyers Association Winter … vs Umang Realtech Pvt. Ltd by Hon’ble NCLAT 04.02.2020
[9] India bulls Asset Reconstruction Company Limited Versus Ram Kishore Arora and Others 2023, SCC On-line SC 612
[10] Report on Rehabilitation of Legacy Stalled Real Estate Projects, July 2023
[11] Harpal Singh Chawla Versus Vivek Khanna & Ors. Company Appeal (AT) (Insolvency) No. 2002 of 2024
[12] Shailesh Verma RP for Lavassa Corporation Limited, Dasve Convention Centre Limited, Warasgaon Asset Maintenance Limited, Dasve Retail Limited, Warasgaon Power Supply Limited Vs Raj Infrastructure Development Infrastructure Limited
[13] Discussion Paper of IBBI relating to real estate projects, November 2023
[14] Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2024 on 15.02.2024
[15] Rajesh Kumar Parekh Vs Golf Avenue Welfares (IA 711 of 2025) in IB-1081 of 2020.
[16] IBBI (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2025 on 03.02.2025
[17] Discussion Paper of IBBI relating to real estate projects, dated 07.11.2024
