New IBBI Rules to Now Speed Up Resolution of Real Estate Projects

The Insolvency and Bankruptcy Board of India (IBBI) has made important amendments to the rules to expedite the resolution process of stressed projects in the real estate sector. The main objective of these new amendments is to obtain more realistic bids through project-wise arrangement, greater transparency, stronger participation of homebuyers, and detailed cost estimation. These changes will protect projects that are financially healthy, so that consumers do not face difficulties due to the developer's other insolvent projects.

IBBI stated in a release on Saturday that the purpose of these amendments is to facilitate a more informed and practical resolution of real estate projects, increase transparency and accountability, and strengthen the interests of homebuyers and other stakeholders in the insolvency resolution process. Currently, the real estate sector accounts for 22% of the total cases under the insolvency resolution process, making it the second-largest sector after the manufacturing sector at 36%. Currently, several developers such as Raheja Developers, Supertech, Today Homes, and Ajnara are facing insolvency proceedings.

Under the new rules, even if a developer goes fully into insolvency proceedings, the Committee of Creditors (CoC) can recommend excluding projects that are financially strong from the Corporate Insolvency Resolution Process (CIRP). The approval of creditors holding at least 66% voting share and the approval of the National Company Law Tribunal (NCLT) are mandatory for this type of exclusion decision. According to the notification dated 30 October, these amendments come into force with immediate effect, although whether previously filed cases will automatically fall under this new framework will depend on court rulings, according to legal experts.

Under the previous framework, when a developer was admitted into CIRP, all their projects automatically came under insolvency proceedings. Due to this, even projects that were completed or financially healthy faced obstacles in maintenance, registration, and other operations. Anoop Rawat, partner at Shardul Amarchand Mangaldas & Co., stated that due to the moratorium, payments get stuck, which can halt construction, laborers and contractors may leave work, home loan disbursements can stall, and registrations can be delayed. The new rules will limit this moratorium only to insolvent projects.

To maintain financial discipline, a separate bank account must now be maintained for every real estate project of the corporate debtor under insolvency. The Resolution Professional (RP) must present financial information regarding each project before the CoC and comply with the fund utilization requirements under the RERA Act. This will ensure that funds collected for one project are used only for that same project, increasing the confidence of homebuyers and creditors.

To increase project details and transparency, the RP must present all project-wise information before the CoC in its very first meeting. This information will include project completion stages, possession and occupancy status, as well as details of registration with RERA. Based on this information, the CoC will be able to decide which project should be excluded from the insolvency process. If a decision is made to exclude a project, a recommendation along with the reasons for it must be sent to the NCLT.

To obtain more realistic bids, with the prior approval of the CoC, the RP must appoint independent professionals before inviting interested parties for the project. These professionals will conduct a technical evaluation of each project and estimate the costs required to complete the project. This assessment will be made part of the Information Memorandum and made available to potential bidders. According to IBBI, this will reduce information asymmetry among stakeholders and yield quality bids.

To strengthen the interests of homebuyers, the authorized representatives of homebuyers must submit the minutes of their meeting with creditors to the RP, which will subsequently be presented before the CoC. It will be mandatory to keep a record of the views, concerns, and opinions expressed by the representatives of homebuyers in the minutes of the CoC meeting. This will increase transparency and bring the problems of homebuyers before the CoC.

To enhance monitoring and implementation, the monitoring committee for implementing the resolution plan must have representation from the authorized representative of homebuyers and the representative of the concerned RERA (if the authority agrees). IBBI has stated that the participation of homebuyers and regulatory authorities will timely resolve issues related to approvals, compliances, and construction milestones, thereby reducing delays and disputes. Every resolution plan must contain detailed information on the timeline for completing construction and handing over possession, project-wise, phase-wise, or tower-wise, and progress reports must be submitted to the monitoring committee periodically. This will provide certainty to homebuyers and reduce disputes regarding the implementation of the approved resolution.