IBBI Panel Advocates Project-Wise Insolvency Resolution for Real Estate Sector
A panel set up by the Insolvency and Bankruptcy Board of India (IBBI) has suggested that bankruptcy proceedings be restricted to only stressed projects of a real estate developer, rather than extending to the entire real estate company. This move, according to the panel, would allow solvent or unrelated realty projects of the same developer to continue operating under existing arrangements. This would benefit a large number of homebuyers in solvent projects while expediting the resolution of stressed ones.
The proceedings under the Insolvency and Bankruptcy Code (IBC) in real estate should ‘ordinarily be admitted on a project-wise basis, treating each project as an independent economic unit,’ said the panel, established by the IBBI. The Supreme Court had, in the Mansi Brar case last year, observed that real estate insolvency should, as a rule, proceed on a project-specific basis rather than against the entire corporate debtor, except in exceptional circumstances.
The apex court also held that real estate insolvency must prioritize the completion of projects and the protection of genuine homebuyers, recognizing their right to shelter. Subsequently, the IBBI set up a seven-member panel under its whole-time member, Jayanti Prasad, to examine issues related to insolvency resolution in real estate projects.
The panel has submitted 155 recommendations, including procedural consolidation of land and development rights and mandatory operation of project-wise escrow accounts. These suggestions are aimed at ensuring the timely completion of projects and enhancing efficiency. The corporate affairs ministry, the panel also recommended, may consider raising the minimum default threshold for initiating insolvency proceedings in real estate to Rs 5 crore from Rs 1 crore.
Such recalibration would more accurately reflect the capital structure and economic magnitude of real estate development, reduce premature or tactical admissions, and promote the exploration of completion-oriented solutions outside insolvency. The panel’s suggestions come at a time when several real estate developers, including Jaypee, Unitech, Amrapali, Today Homes, Supertech, Logix, and Ajnara, are already facing insolvency proceedings.
The panel has now suggested necessary interventions by the corporate affairs ministry to allow project-wise insolvency under the existing corporate insolvency resolution process. Entity-level resolution processes involving multiple projects may be allowed only in exceptional circumstances, the panel said. These include cases with ‘substantial inter-linkages or commingling of funds across projects; cross-collateralisation of assets or guarantees; or demonstrable fraud or mismanagement affecting multiple projects.’
The panel has also recommended that the department of financial services and the Real Estate Regulatory Authority consider laying down project-wise frameworks for lending, maintenance of stressed real estate accounts, and monitoring.
