Assisted by Rishika Rathi (Intern)
The Insolvency and Bankruptcy Code, 2016 ("Code"), since its inception, has undergone significant reforms to address sector-specific issues and improve the efficiency of the resolution of insolvency. One of the key areas of concern has been the real estate insolvencies, having a direct bearing on the homebuyers, who have often faced prolonged delays in obtaining possession of their properties during the Corporate Insolvency Resolution Process ("CIRP"). This has not only caused financial distress and uncertainty but has also hindered their ability to participate effectively in the CIRP. Further, real estate projects require approvals from municipal authorities, regulatory authorities such as the Real Estate Regulatory Authority ("RERA"), and environmental authorities. The absence of such authorities from Committee of Creditors ("CoC") meetings has traditionally caused delays, forcing Resolution Professionals ("RPs") to seek approvals individually, thus disrupting the efficiency of resolution plans.
To address these pressing concerns, the Insolvency and Bankruptcy Board of India ("IBBI") has introduced the Insolvency Resolution Process for Corporate Persons (Amendment) Regulations, 2025,1 ("Amendments"), which seek to streamline the resolution process for real estate projects. The Amendments enhance the rights of homebuyers, enable quicker resolutions, and provide a formalized and transparent insolvency process.
One of the most significant changes is the insertion of Regulation 4E, which enables RPs, subject to the consent of at least sixty-six percent of the members of the CoC, to transfer possession of plots, apartments, or buildings to homebuyers during the ongoing CIRP. This directly addresses one of the most significant pain points of homebuyers who were previously left in limbo during the CIRP. This also enables the registration of properties where allottees have fulfilled their obligations under the agreement, ensuring that legitimate homebuyers do not face undue delays.
Another key amendment is the insertion of Regulation 16C, which now provides for the appointment of insolvency professionals as facilitators (up to 5), if the number of creditors in a class exceeds one thousand. Further, Regulation 16D defines the roles and responsibilities of facilitators, ensuring effective communication between authorized representatives and creditors, increasing the involvement of homebuyers and other stakeholders in the insolvency resolution process. The fees of facilitators, set at twenty percent of the fees for authorized representatives, shall now be considered as part of the CIRP costs under Regulation 31(ac). This amendment brings homebuyers into the spotlight, making real estate insolvencies more streamlined and homebuyer-friendly.
Further, the insertion of Regulation 18(4) allows the CoC to invite competent authorities, as specified in Section 2(p) of the Real Estate (Regulation and Development) Act, 2016, to join meetings as members and provide their insights on the development of real estate projects. While these authorities are not entitled to vote, inviting them to CoC meeting would ensure that regulatory and land-related issues are integrated into resolution plans at an early stage. This addresses a crucial problem where regulatory approvals resulted in delays in implementing the resolution plans.
The newly inserted Regulation 30C mandates that, in real estate projects, RPs shall file and furnish a detailed report on the status of development rights and permissions necessary to finish the project. The report shall be filed with the CoC within sixty days from the insolvency commencement date and thereafter with the Adjudicating Authority. This structured reporting shall facilitate transparency to allow stakeholders to take well-informed decisions on the viability of the project.
The Amendments also introduce changes to the expression of interest process under Regulation 36A(4)(e), which requires RPs to disclose as to whether the corporate debtor is registered as a Micro, Small, or Medium Enterprise ("MSME") under the MSME Act, 2006. This disclosure in Form-G will encourage more involvement of eligible prospective resolution applicants who may be eligible for special treatment under the Code. In addition, a new proviso under the said regulation allows the CoC to relax eligibility criteria for an association or group of allottees representing at least ten percent or more of the creditors in a class or 100 creditors, whichever is lower, to allow them to participate in the resolution process. Subsequent to this, a proviso to Regulation 36B(4A) also allows the CoC to waive the requirement of performance security for such association or group of allottees, thereby easing the financial hurdles for their maximum participation.
Another important amendment is the substitution of Regulation 38(4) and 38(5) with new Regulation 38(4) which stems from judicial observations, in State Bank of India & Ors. Vs. The Consortium of Mr. Murari Lal Jalan & Mr. Florian Fritsch & Anr.,2 wherein the courts emphasized the importance of statutory recognition of monitoring committees to monitor the implementation of resolution plans. Accordingly, the present amendment requires the CoC to consider constituting a committee with the RP, representatives of the creditors, and the successful resolution applicant. The committee will now also be required to submit a report to the Adjudicating Authority on a quarterly basis, ensuring greater accountability and enforcement of resolution plans.
The recent Amendments bolster real estate insolvency resolution and highlight the thoughtful initiative by the regulator to address sector-specific challenges leading to enhanced transparency, regulatory oversight, and prioritization of the stakeholders' rights under the Code. The aforesaid amendments also provide much-needed clarity on procedural matters that have long stalled effective resolution of real estate insolvencies.
By bringing regulatory authorities into the process, enhancing the role of facilitators, and ensuring timely project completion, the Amendments build a more balanced and effective system in keeping with the core objectives of the Code. The focus on balancing financial creditor rights and consumer protection is a major development in the development of insolvency law in India, promoting investor confidence and ensuring timely resolution of distressed real estate assets.
Footnotes
1 Notification No. IBBI/2016-17/GN/REG004 accessed vide link https://ibbi.gov.in//uploads/legalframwork/69518dbf0bcccfeafdae76b906fcdaab.pdf
2 Civil Appeal Nos 5023-5024 of 2024
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