Supreme Court Verdict Paves Way for RERA's Early Role in Real Estate Insolvency Cases

In a significant move to expedite the revival of stalled real estate projects, the Insolvency and Bankruptcy Board of India (IBBI) is contemplating a proposal to involve the Real Estate Regulatory Authority (RERA) at an early stage in the insolvency resolution processes for builders. According to sources familiar with the development, the regulator may amend the rules to allow RERA representatives to participate in the meetings of the Committee of Creditors (CoC), although without any voting rights.

The inclusion of RERA at the initial stages of the resolution process is aimed at identifying approval hurdles, compliance issues, and feasibility concerns upfront. This proactive approach is expected to ensure that the project moves forward without encountering new regulatory roadblocks. An official stated, “The presence of RERA officials in the CoC meetings bridges a practical gap in real estate insolvency. Resolution plans must not only be viable on paper but also at the regulatory and project-implementation levels.”

Currently, RERA enters the Corporate Insolvency Resolution Process (CIRP) indirectly and at a later stage, often after a resolution plan has been approved by the lenders. This timing leaves potential bidders unaware of legacy compliance issues, pending approvals, and past promoter violations. The proposal comes in the wake of the Supreme Court’s February verdict in the Supertech case, which ruled that in real estate insolvency cases, the claims of all creditors, including banks, would be considered only after the developer delivers the promised homes to the homebuyers. This decision underscores the importance of RERA’s direct involvement in the CIRP.

IBBI had previously considered including RERA in project monitoring committees formed after a resolution plan has been approved. However, some stakeholders believe that early RERA involvement can help identify regulatory concerns before the CoC votes on a plan. This would allow potential bidders to factor in compliance costs before submitting their bids and give stuck homebuyers confidence that they are being adequately represented.

Incoming developers or bidders often face challenges related to RERA’s domain after their plans have been approved. These issues include how to treat past RERA dues, obtain fresh approvals requiring RERA authorization, and address the violation of norms by previous promoters. An official explained, “When a new developer buys a stalled project via the IBC, they encounter numerous issues that could be mitigated if RERA is involved early on.”

Under the proposed changes, RERA would not have voting powers in the CoC. Instead, its role would be advisory and observational, ensuring that the CoC remains the decision-making body while benefiting from RERA’s insights during the plan evaluation process.

The latest quarterly report by IBBI shows that the real estate sector accounts for 22% of all 8,987 admitted CIRPs, making it the second-highest after manufacturing. Experts agree that the proposal aligns with the broader IBBI reform direction of integrating competent authorities into real estate CIRPs. Manish Gupta, lead (corporate legal and secretarial) at AKM Global, noted, “The objective of the proposal is to provide resolution applicants and homebuyers with greater certainty, reduce avoidable delays, and enhance the likelihood of project completion.”

A resolution plan may be commercially attractive, but unless regulatory feasibility, project approvals, and statutory compliance are addressed upfront, implementation can get delayed after approval, according to an insolvency professional. Some experts emphasize the need for regulatory certainty post-resolution, ensuring that incoming promoters are not exposed to legacy compliance disputes. Srinivasa Rao, senior partner & leader (risk advisory) at Nangia Global, stated, “The critical piece will be regulatory certainty post-resolution, so that new applicants are bound by future compliance while past defaults are dealt with strictly under the approved plan.”