Project-Level Insolvency in Real Estate: A New Hope for Homebuyers
The Insolvency and Bankruptcy Board of India (IBBI) is exploring reforms to protect homebuyers by allowing insolvency resolution at the project level, rather than the company level, for real estate developers.
Real EstateInsolvencyIbbiHomebuyersProjectlevelReal Estate MumbaiNov 03, 2025
The regulator has set up an internal committee to examine a framework that will enable insolvency resolution at the level of individual projects, leaving other well-operating projects of the same builder unaffected by the bankruptcy proceeding. This special arrangement is designed specifically for the real estate sector, which has widespread public interest implications. The sector accounts for more than a third of the approximately 8,500 insolvency cases admitted to tribunals under the bankruptcy code so far.
The committee is likely to propose that real estate developers maintain separate books of accounts for each project. This will enable bankruptcy resolution with surgical precision, ensuring that the interests of homebuyers in other projects are not adversely affected. “Specific IBBI regulation mandating project-specific accounts is required for implementing project-wise debt resolution,” said one of the sources.
At present, insolvency resolution is carried out by calling bids from investors for reviving the distressed company using its entire estate. This includes all incomplete houses on the books of the company, not just those in the project that has run into financial trouble. This means that houses or apartments in other projects of the same builder that are yet to be completed become part of the pool of assets available for restructuring the company under a turnaround plan. This can adversely affect the interests of buyers in those viable projects, who would be keen to get possession at the earliest without any uncertainty.
An expert said the plan for project-specific ring-fencing is sound. “It will certainly be helpful for project-wise insolvency resolution if more comprehensive accounts are maintained for each project, identifying and allocating various common costs and receipts, including identifying project-specific liability arising from common loans taken at the corporate entity level,” said Surendra Raj Gang, partner, deals – debt & special situations at consultancy firm Grant Thornton Bharat.
Most real estate developers already maintain project-specific details such as construction costs, inventory of flats sold and unsold, and expected milestones. “Though the requirement under the Companies Act is to maintain books of accounts at the level of the corporate legal entity, for every project, they need to also submit project-specific financial details to RERA authorities periodically,” Gang pointed out. However, other costs such as general corporate loans, employee costs, travel expenses, and common overheads may be available only at the corporate level. It may also be possible that land holdings and construction work may be with different entities in the same group, but this is usually backed up by proper agreements.
IBBI’s move revives the possibility of having a special debt resolution regime for the real estate sector, after the IBC Amendment Bill, 2025, tabled in Parliament in the monsoon session, chose not to propose the same. The latest regulatory move comes on the direction of the Supreme Court in a recent case—Mansi Brar Fernandes vs Shubha Sharma and Anr., clubbed with a few other related cases—on September 12, after the IBC (Amendment) Bill was tabled in Lok Sabha a month before.
The apex court stated in its order that resolution of real estate insolvency should, as a rule, proceed on a project-specific basis rather than the entire corporate debtor, unless circumstances justify otherwise. This would protect solvent projects and genuine homebuyers from collateral prejudice, the court said then. Queries emailed to the ministry of corporate affairs and to IBBI seeking comments for the story remained unanswered at the time of publishing.
Frequently Asked Questions
What is the current issue with real estate insolvency in India?
Currently, insolvency resolution for real estate companies is carried out at the company level, which means all projects, including those that are financially sound, can be affected by the bankruptcy proceedings of a single distressed project.
What is the proposed solution by the IBBI?
The IBBI is exploring reforms to allow insolvency resolution at the project level, which would ring-fence stalled projects and protect other financially sound projects from being adversely affected.
Why is project-specific insolvency resolution important for homebuyers?
Project-specific insolvency resolution ensures that homebuyers in financially sound projects are not affected by the bankruptcy proceedings of a single distressed project, allowing them to get possession of their homes without uncertainty.
What steps are being taken to implement this reform?
The IBBI has set up an internal committee to examine a framework for project-specific insolvency resolution and is likely to propose that real estate developers maintain separate books of accounts for each project.
What is the role of the Supreme Court in this reform?
The Supreme Court has directed that resolution of real estate insolvency should proceed on a project-specific basis to protect solvent projects and genuine homebuyers from collateral prejudice.
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