GR Exclusive: IBBI Announces Amendments To Homebuyers Shielded In Insolvency; What Experts Say?

The Insolvency and Bankruptcy Board of India (IBBI) has introduced amendments that shield homebuyers in case of promoter insolvency and liquidation. The latest tweak to the rules ensures that properties of homebuyers will be kept out of the liquidation process, providing a respite from potential legal battles.

The key amendment, as stated in an IBBI notification, specifies, "For the purposes of clause (e) of sub-section (4) of section 36, wherever the corporate debtor has given possession to an allottee in a real estate project, such asset shall not form a part of the liquidation estate of the corporate debtor." This crucial change not only protects the possession rights of homebuyers but also grants them a significant say in the liquidation proceedings.

Pramod Kathuria, Founder & CEO of Easiloan explained that one of the primary concerns for homebuyers in insolvent real estate projects has been the potential loss of possession of their properties. The recent amendments provide a crucial safeguard by excluding properties already handed over from the liquidation estate. This means that these properties will not be sold to recover debts, offering protection to the possession rights of homebuyers.

Furthermore, the amendments grant homebuyers representation in the Committee of Creditors (CoC), a pivotal decision-making body in the liquidation process. This increased voice allows homebuyers to actively participate in crucial decisions, influencing the outcome of the liquidation proceedings, added Kathuria.

Recognizing the complexities of the real estate sector, the IBBI had earlier advocated for an increased role of the Real Estate Regulatory Authority (RERA) by proposing compulsory registration of all real estate projects undergoing corporate insolvency resolution with the regulator. This move, supported by the Amitabh Kant committee report on real estate projects, emphasized the need to reform the Insolvency and Bankruptcy Code (IBC) to better accommodate the intricacies of the real estate industry.

In a Discussion Paper released in November 2023, the IBBI proposed mandatory registration with the Real Estate Regulatory Authority (RERA) for insolvent real estate projects. This move is aimed at strengthening the protection afforded to homebuyers. The proposed amendments suggest granting RERA enhanced powers to oversee and manage distressed projects, further reinforcing the regulatory framework for the real estate sector, explained Pramod Kathuria.

Kathuria went ahead to stated that the mandatory RERA registration for insolvent real estate projects is a crucial step toward ensuring homebuyer protection. RERA's regulatory framework provides a robust mechanism to safeguard the interests of homebuyers in case of project insolvency. Additionally, enhanced oversight by RERA facilitates streamlined project management and effective dispute resolution.

Insolvency professionals play a crucial role in facilitating the integration of RERA registration into the existing framework. Their expertise in the insolvency process can guide RERA in effectively managing distressed projects, ensuring compliance and a smooth transition, Kathuria added.

The IBBI's latest amendment aligns with these recommendations, reinforcing the role of RERA and ensuring that allottees of a real estate project have the first charges on the property in case of insolvency. This move is a significant step toward enhancing the protection afforded to homebuyers in distressed real estate projects.

In a comprehensive effort to streamline the liquidation process and introduce more transparency, the IBBI, through its February 12 notification, has introduced 12 key amendments to the overall liquidation regulations. These amendments aim to bring about efficiency, accountability, and clarity to the entire liquidation procedure.

The 12 key amendments focus on stricter timelines, standardized reporting formats, and improved creditor control, aiming to streamline the liquidation process. Homebuyers, now included in the Committee of Creditors (CoC), gain representation, allowing them to actively participate in crucial decisions during the liquidation proceedings. The establishment of a Consultation Committee ensures that the liquidator must consult the CoC, including homebuyers, on various aspects such as asset sales, litigation, and valuation.

Samudragupta Talukdar, Founder and CEO of Relata.io, underscores the importance of this amendment, stating, "The latest amendment by the Insolvency and Bankruptcy Board of India (IBBI) ensures that real estate assets, where possession has been given to homebuyers by the corporate debtor, will not be part of the liquidation estate. This means homebuyers are less likely to lose their investments in case of insolvency, offering them more protection and assurance. Overall, this move aims to enhance transparency, accountability, and confidence in the liquidation process, benefiting homebuyers facing distress situations."

"Compulsory registration of real estate projects with RERA makes sure that the required project details are available for everyone to consume and also makes it easier for insolvency processes as the IBBI can directly map details and bring in more transparency to the liquidation process," added Talukdar.

Samudragupta Talukdar explained how the mandatory enrollment of real estate projects with RERA ensures that essential project information is accessible to the public, fostering transparency. Additionally, it streamlines insolvency procedures by allowing the IBBI to directly integrate and elucidate project details, thereby enhancing transparency in the liquidation process.

Talukdar further stated, "The Insolvency Resolution Professional (IRP) or Resolution Professional (RP) is responsible for ensuring that all real estate projects undergoing Corporate Insolvency Resolution Process (CIRP) are registered with the Real Estate Regulatory Authority (RERA) as per Section 17(2)(e) of the Insolvency and Bankruptcy Code."

Transparency is a cornerstone of the IBBI's approach, with standardized reporting formats facilitating clear communication of decisions made during the liquidation process. This commitment to openness extends to the active involvement of stakeholders, fostering open communication and informed decision-making within the CoC.

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The opinions and suggestions provided above represent the views of individual analysts and do not reflect those of GoodReturns or the author. We recommend investors consult with certified experts before making any investment decisions.