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Revitalizing Real Estate: A Holistic Approach to Insolvency and Bankruptcy Reform in India

By - King Stubb & Kasiva on January 3, 2024


Even though the Indian real estate industry contributes significantly to the GDP of the nation, it faces numerous difficulties that have made a closer review of the current Insolvency and Bankruptcy Code (IBC) necessary. The difficulties involved are enormous, ranging from delays in project approval and cash problems to the industry's innate cyclicality. This is made even worse by the significant investments made by a variety of parties, including contractors, lenders, and homebuyers, making the industry especially vulnerable to insolvency and bankruptcy. Given the particular difficulties the real estate sector faces, the IBC desperately needs a special framework to deal with these problems in a thorough manner.

Observations by the National Company Law Appellate Tribunal (NCLAT):

The real estate industry's need for a specialised mechanism within the Corporate Insolvency Resolution Process (CIRP) has been wisely recognised by the National Company Law Appellate Tribunal (NCLAT). As demonstrated in the Flat Buyers Association Winter Hills v. Umang Realtech Pvt. Ltd.[1] case, the "reverse insolvency/project-wise insolvency" approach raises the possibility of insolvency proceedings on a project-by-project basis. But in order to formalise a particular process customised for real estate projects, legislative changes must be implemented.

Addressing Information Asymmetry and Procedural Innovations:

  • Information Asymmetry:

Homebuyers frequently struggle to comply with the specified deadlines for submitting claims because they are unaware and lack information on how the Code works. Changes to the law should not only encourage but also require the Insolvency Resolution Professional/Resolution Professional (IRP/RP) to contact prospective buyers ahead of time and notify them of the start of CIRP.

Creating a specific communication channel—possibly an internet portal—through which IRPs can provide buyers with important information is one way to make improvements. This would include general progress reports, deadlines for submitting claims, and updates on the start of CIRP. By providing timely information, this proactive approach would enable homebuyers to take a more active role in the insolvency resolution process.

  • Widening Public Announcements:

Public announcements regarding the launch of CIRP ought to go beyond print media and instead be distributed through more approachable channels like news channels and web portals. This action seeks to ensure greater awareness among stakeholders and a wider distribution of information.

A larger audience could be reached by using social media and digital platforms in addition to traditional media channels for public announcements. This could entail working together with well-known social media sites, official government websites, and online news outlets to make sure that important information reaches a wide range of people. Transparency can be greatly increased and public announcements that are more inclusive are in line with the changing nature of communication.

  • Specialized NCLT Benches and Homebuyers as Financial Creditors:

A progressive step towards accelerating the resolution process and guaranteeing more effective outcomes is the establishment of specialised National Company Law Tribunal (NCLT) benches devoted to real estate insolvencies. Furthermore, because of their large investments, homebuyers must be recognised as financial creditors in order to strengthen their position in the insolvency resolution process and provide them with more protection.

The formation of a Real Estate Insolvency Division within the tribunal, manned by experts knowledgeable in the nuances of the real estate industry, may be necessary to establish specialised NCLT benches. This specialised division might facilitate a better understanding of the particular difficulties presented by real estate insolvencies, streamline the legal process, and offer focused guidance.

Addressing Ambiguities in Rights of Secured and Unsecured Homebuyers:

The rights of secured and unsecured homebuyers are not clearly defined in the current IBC framework, which is a problem. Legislative changes ought to concentrate on clearing up this confusion by laying out precise rules for how both groups should be handled during the insolvency resolution procedure.

The introduction of a thorough set of rules defining the priorities and rights of secured and unsecured homebuyers in the case of insolvency is one way that clarification might be achieved. This could involve a thorough structure for valuing real estate assets, handling homeowner claims, and outlining the order of payments in the event of a liquidation.

Recent Proposals by the Insolvency and Bankruptcy Board of India (IBBI):

The IBBI has published a Discussion Paper on Real-Estate Related Proposals, recognising the need for focused reforms.[2] The paper includes proposed changes to the IBBI (Liquidation Process) Regulations, 2016 and the IBBI (Insolvency Resolution Process for Corporate Process) Regulations, 2016. The principal recommendations consist of:

  • Mandatory RERA Registration:

Making a proposal to require the Real Estate (Regulation and Development) Act (RERA) to be complied with by the Insolvency Resolution Professional (IRP) or Resolution Professional (RP), guaranteeing that all real estate projects are registered or have their registrations extended under RERA.

A strong framework for coordination between the insolvency authorities and RERA is required for the integration of RERA compliance into the insolvency resolution process. This may entail establishing a streamlined procedure for the two regulatory bodies to exchange project-related data, guaranteeing that the insolvency procedure complies with the continuing RERA obligations.

  • Separate Bank Account for Each Project:

In compliance with RERA regulations, the proposition recommends that the IRP/RP maintain a distinct bank account for every project going through the Corporate Insolvency Resolution Process (CIRP), consequently improving financial transaction transparency.

Implementing this plan calls for careful attention to financial management. To make sure that the money allotted to each project is precisely recorded and used only for that purpose, IRPs and RPs would need to set up explicit accounting protocols. Accountability could be further improved by transparent reporting procedures and routine audits.

  • Execution of Registration/Sublease Deeds:

The proposal permits the RP to transfer ownership of a plot, flat or building to allottees during the resolution process, subject to approval by the Committee of Creditors (CoC), in order to facilitate a more seamless handover of occupied or possession-transferred units.

This proposal emphasises the necessity of having a clear ownership transfer procedure during the resolution process. Working together, legal specialists, real estate agents, and financial institutions can create a uniform set of protocols and paperwork that will allow for smooth ownership transfers under the CoC's supervision.

  • Separate Plans for Each Project:

The proposal gives the CoC the authority to instruct the RP to invite distinct resolution plans for every real estate project, taking into account the diversity of these projects. This method promotes resolution techniques that are specific to a project and involve assigning allottees.

A detailed grasp of the particular opportunities and challenges associated with each project is necessary for the implementation of this proposal. Industry associations could organise collaborative forums for stakeholders to create resolution plans that are customised to the unique requirements of each project. Promoting the participation of allottee associations guarantees a resolution process that is more inclusive and representative.

  • Exclusion of Homebuyer-Occupied Property from Liquidation Estate:

In order to provide relief to homebuyers, the proposal suggests removing assets that are in the possession of allottees from the liquidation estate. This is in accordance with IBC Section 36(4)(e), which gives the Board the authority to designate assets that are not to be included in the liquidation estate.

The importance of protecting end users' rights and interests is highlighted by the exclusion of homeowner-occupied property from the liquidation estate. To guarantee a fair and open procedure, comprehensive guidelines on the identification, valuation, and handling of such assets must be created. In addition, the overall framework needs to include dispute resolution mechanisms related to the exclusion.

Public Comments Invited:

The IBBI had extended its invitation for comments on the suggested amendments and discussion paper until November 28, 2023, in recognition of the importance of public input. A strong and adaptable legal framework for the real estate sector could be shaped by the valuable insights that stakeholders—including the general public, legal professionals, and industry participants—had to offer.

A crucial part of the democratic and consultative approach to policy formulation is the public commenting process. In order to foster a more comprehensive and knowledgeable feedback process, the IBBI may arrange webinars, online town hall meetings, or industry-specific forums to interact directly with stakeholders. By taking this proactive approach, the real estate industry's insolvency landscape will be shaped in a way that takes into account the various viewpoints of stakeholders.


Together with the NCLAT's observations, the IBBI's proposed amendments represent a step in the right direction towards recognising and resolving the unique difficulties the real estate industry faces under the bankruptcy and insolvency laws. A streamlined and efficient insolvency resolution process requires a specific and all-encompassing framework that includes project-specific insolvency, broader public announcements, specialised NCLT benches, and the acknowledgement of homebuyers as financial creditors.

Stakeholders have a significant influence on how the real estate industry's bankruptcy landscape develops as they participate in the public commenting process. The potential for a more robust and just real estate market in India lies in the way the laws have changed in response to these suggestions. Policymakers, legal professionals, business leaders, and the general public must work together to refine and execute these recommendations in order to guarantee that the updated framework fully takes into account the complex issues facing the real estate industry. India can create a model framework that protects the interests of stakeholders and, over time, advances the stability and expansion of the real estate sector by working together and adopting an iterative approach.


Why is a dedicated framework for the real estate industry necessary within the Insolvency and Bankruptcy Code (IBC)?

The real estate sector in India faces unique challenges such as project approval delays, liquidity issues, and the cyclical nature of the industry. The vulnerability of the sector is heightened by substantial investments from various stakeholders, including homebuyers, lenders, and contractors. A dedicated framework within the IBC is essential to address the sector's distinct challenges comprehensively, providing tailored solutions for project-wise insolvency, protecting the interests of homebuyers, and streamlining the resolution process.

How do the proposed amendments by the Insolvency and Bankruptcy Board of India (IBBI) address the specific needs of the real estate industry?

The IBBI's proposed amendments, outlined in a Discussion Paper on Real-Estate related proposals, aim to enhance the insolvency resolution process for the real estate sector. The amendments include mandatory registration and extension of projects under the Real Estate (Regulation and Development) Act (RERA), the operation of separate bank accounts for each project, and the execution of registration/sublease deeds during the Corporate Insolvency Resolution Process (CIRP). These proposals are designed to bring transparency, accountability, and efficiency to the resolution process, recognizing the intricate nature of real estate projects.

How can stakeholders contribute to shaping the proposed amendments and the future of the real estate insolvency framework?

Stakeholders, including legal experts, industry participants, and the public, are invited to provide their comments on the proposed amendments by the IBBI. The public commenting process, open until November 28, 2023, offers an opportunity for diverse perspectives to be considered in refining the amendments. Interested parties can submit their comments electronically on the official website of IBBI at Additionally, stakeholders can participate in virtual town hall meetings, webinars, or sector-specific forums organized by the IBBI to ensure a more inclusive and informed feedback process, contributing to the development of a robust and responsive legal framework for the real estate industry.

[1] Company Appeal (AT) (Insolvency) No. 926 of 2019 (“Umang Realtech”)


King Stubb & Kasiva,
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