Project-Wise Resolution: A New Hope for Home Buyers in Bankrupt Builder Scenarios

Real estate and construction together account for 44% of the over 8,800 companies so far admitted in tribunals under the bankruptcy code, making it the second-largest class of stressed businesses after manufacturing. A top committee's recommendations could change this scenario by introducing project-wise debt resolution, protecting homebuyers in financially healthy projects when the builder goes down.

The committee, set up by the Insolvency and Bankruptcy Board of India (IBBI), has suggested that the ministry of corporate affairs, department of financial services, and real estate regulatory bodies jointly lay down the framework for project-wise real estate debt resolution. Completed or substantially completed projects should be excluded from assets available for bankruptcy resolution, the committee recommended. The IBBI formed the eight-member panel led by wholetime director Jayanti Prasad following a direction issued by the Supreme Court in September 2025.

Project-wise resolution protects homebuyers in financially healthy projects when the builder goes down, and thus, from possible haircuts or delays in getting their homes. The recommendations aim to improve the confidence of home buyers, creditors, and investors. Real estate and construction together account for 44% of the over 8,800 companies so far admitted in tribunals under the bankruptcy code, the second largest class of stressed businesses after manufacturing, as per data available from IBBI.

The expert committee’s recommendations are timely and directionally significant for restoring confidence in real estate insolvency resolution, said Niranjan Hiranandani, chairman of the National Real Estate Development Council (Naredco), a self-regulatory body set up under the Ministry of Housing and Urban Affairs. Project-wise resolution, ring-fencing of project assets and cash flows, and exclusion of completed or substantially completed projects from the insolvency estate will help protect genuine homebuyers while ensuring that viable projects are not dragged into avoidable uncertainty, Hiranandani said.

For the real estate sector, liquidation must remain the last resort. The focus should be on the completion of projects, preservation of value, and time-bound delivery to homebuyers. A project-specific approach will bring greater clarity, reduce litigation, and enable resolution applicants, lenders, and allottees to evaluate each project on its own merits.

Separate project accounts, in line with the Real Estate Regulatory Authority's escrow principles, will also improve transparency, accountability, and predictability, Hiranandani said.

According to the people cited above, who spoke on the condition of anonymity, the panel said each project of a stressed builder must be resolved independently. Corporate-level bankruptcies covering all projects must be pursued only where the builder is found to have engaged in fraud, mixed funds between projects, or used one project as collateral to borrow for another. In such cases, tribunals must specify the reasons for not following the project-wise approach.

The existing Insolvency and Bankruptcy Code (IBC) has no provision for project-wise debt resolution for real estate; however, once a developer is admitted for bankruptcy resolution, project-wise bidding for fresh investment is allowed under IBBI regulations. This does not spare the healthy projects from becoming part of the bankruptcy estate, which the new recommendations seek to change.

Currently, a builder can be taken to insolvency court if he defaults on an amount of ₹1 crore. The panel suggested raising this to ₹5 crore, considering the scale of real estate projects, which often run into hundreds or even thousands of crores. Treating each project as an independent unit should help preserve value and prevent viable or completed projects from being impacted by stress elsewhere, said Amit Maheshwari, managing partner of AKM Global, a tax and consulting firm.

The panel’s recommendations are a clear step towards a more practical, project-centric insolvency framework for real estate, said Maheshwari. The committee also recommended that the resolution professional should be free to hand over to buyers those homes completed before insolvency proceedings are initiated.

The panel also suggested that the scheme for last-mile financing of distressed housing projects under ‘Special Window for Affordable and Mid-Income Housing (SWAMIH)’ could be explored for real estate insolvency resolution. It suggested that once a settlement with city development authorities is included in the resolution plan, it should be final and binding.

The committee also examined whether bankruptcy initiation should be allowed only by genuine home buyers, and not speculative investors who look for buyback or refunds from the developer with high interest rates. It, however, recommended that tribunals’ discretion should be preserved to prevent abuse of the ecosystem, without introducing rigid classifications in regulations. That is, tribunals need to rigorously scrutinize whether bankruptcy petitions are from genuine home buyers or speculators, before admitting those pleas, but all allottees recognized as financial creditors have to get uniform statutory treatment, the panel recommended.

The committee’s proposals, if accepted by the government, will be implemented through IBBI’s regulations, said one of the two persons quoted above. If implemented in a balanced manner, these can significantly improve the efficiency of real estate insolvency resolution, Hiranandani added.

Overall, the framework should be guided by one clear principle: resolution must protect homebuyers, preserve economic value, and enable the completion of viable projects rather than push assets into liquidation, he said. If implemented effectively, it should improve timelines, reduce uncertainty, and enhance confidence in the real estate insolvency framework, said Maheshwari of AKM Global.