Recent Reforms in Real Estate CIRP: Empowering Homebuyers

The Insolvency and Bankruptcy Board of India (IBBI) has introduced key amendments to the Corporate Insolvency Resolution Process (CIRP) regulations, focusing on real estate (RE) projects. These changes formalize recommendations from the IBBI’s discussion paper dated November 7, 2024, aiming to enhance transparency, efficiency, and homebuyer inclusivity in RE insolvencies.

Key Amendments and Their Impact

Possession of Flats During CIRP

The moratorium imposed during CIRP restricts asset transfers, often leaving homebuyers in uncertainty regarding possession or registration of their homes. Given that homebuyers typically invest their life savings in RE projects, this creates significant distress.

To address this, the amendments now allow the Resolution Professional (RP) to hand over possession and facilitate registration if:

• The Committee of Creditors (CoC) approves it with at least 66% voting share.
• The homebuyer formally requests possession.
• The homebuyer has fulfilled contractual obligations.

Previously, courts had to intervene in similar cases, such as Noida v. Lotus 300 Apartment Owners Association and Alok Sharma v. I.P. Constructions, directing RPs to execute sale deeds despite moratorium restrictions. This reform eliminates such uncertainties, ensuring homebuyers can rightfully claim their properties during CIRP.

Participation of Statutory Authorities in CoC Meetings

Many RE projects are built on leased land, making state authorities operational creditors who lack voting rights in the CoC. However, unresolved dues and regulatory approvals often hinder project resolutions, as seen in the stalled NBCC-Supertech case due to Yamuna Expressway Industrial Development Authority objections.

To mitigate such delays, the amendments mandate RPs to invite these competent authorities to CoC meetings. This ensures early engagement, allowing resolution applicants (RAs) to incorporate regulatory considerations into their plans, expediting project completion.

Relaxed Eligibility for Homebuyers as RAs

CIRP for Real estate entities presents unique challenges, including legal disputes and funding gaps. Homebuyers often hesitate to accept third-party takeovers due to potential unfavorable changes. The amendments now enable homebuyer associations to submit resolution plans with relaxed eligibility criteria, such as:

• Waiver of performance security (upon CoC approval).
• Reduced earnest money deposit at the Expression of Interest (EoI) stage.

This ensures greater homebuyer participation, preventing liquidation due to a lack of resolution plans, as seen in past NCLT rulings favoring homebuyer-led resolutions.

Additional Reforms

• RPs must submit a report on project development rights and necessary approvals within 60 days of insolvency commencement, aiding informed decision-making.
• RPs can appoint a facilitator for sub-classes within a creditor group, ensuring better representation for large homebuyer groups (minimum 100 creditors within a class of 1,000 or more).

Scope for Improvement

While these reforms significantly strengthen homebuyer protections, further refinements could enhance their effectiveness:

• Lowering the CoC approval threshold for possession handover from 66% to 51%, as financial creditors’ interests remain unaffected.
• Addressing cases where homebuyer payments are linked to construction milestones, preventing ambiguity.
• Mandating land authorities’ inputs in the RP’s project reports for a clearer resolution framework.

Conclusion

With nearly 45% of Real Estate firms successfully resolved under the Insolvency and Bankruptcy Code (IBC), these amendments reinforce the government’s commitment to protecting homebuyers and expediting resolutions. A proactive judiciary further strengthens this framework, ensuring stalled projects reach completion while safeguarding homebuyer interests.