The growth and progress of any nation are measured by its infrastructure development, which not only gives impetus to our economy but also gives us tangible and visible proof of the growth and progress of our nation. However, in the past years, real estate companies were infamous for their stalled projects, delivering incomplete projects, or for their delayed deliveries, which puts the homebuyers in dire straits, impacts the growth of the real estate sector in India, and also hinders the infrastructure development of the nation as a whole.

The year 2016 was a landmark year for the real estate sector in India with the introduction of the Real Estate (Regulation and Development) Act, 2016 ("RERA") and the Insolvency and Bankruptcy Code, 2016 ("IBC"). IBC has been hailed all over for its effective resolution of insolvency, protection of investors/creditors and has presented itself as a ray of hope in combating rising non-performing assets/debts. However, in the initial years, IBC has not been very successful for real estate companies, as the total realization from the real estate sector accounted for merely 1.8% of the total realization from all sectors, under IBC. Further, too much focus on the interests of creditors has been detrimental to the rights of the homebuyers/allottees, who get sandwiched between the commitment of the developer to complete the project and the creditors, who are more interested in recovering their investment or loans.

Homebuyers/Allottees as 'Financial Creditors'

During the proceedings before the Hon'ble Supreme Court of India in the matter of Chitra Sharma v. Union of India (2018), it came up that originally homebuyers/allottees were neither treated as financial creditors nor as operational creditors. However, the Central Government, on the recommendation of the Insolvency Law Committee (ILC), introduced an amendment to the IBC to acknowledge the funding by the homebuyers for the completion of the project, and such funding was inserted in the definition of 'Financial Debt' in Explanation to Section 5(8)(f) of the IBC. Accordingly, homebuyers got classified as 'financial creditors'. The rationale behind this was to safeguard the interests of bona fide home buyers who act in good faith when they enter into an agreement with the developer and invest their big chunk of savings in purchasing properties, ensuring that they are not left in the lurch if the developer faces insolvency.

Further, Second Amendment of IBC 2018 was challenged before the Hon'ble Supreme Court of India in the matter of Pioneer Urban Land and Infrastructure Limited Vs Union of India (2019), where the Hon'ble Supreme Court after going into the in depth interpretation of 'Financial Debt' under Section 5(8) (f), upheld the constitutional validity of the Second Amendment of the IBC which provided for inclusion of homebuyers/allottees within the meaning of 'Financial creditors' under Section 5(8)(f) of the Insolvency and Bankruptcy Code.

The classification of homebuyers/allottees as 'Financial Creditors' was perceived to be a watershed moment considering the protection of the interests of the homebuyers/allottees as they now can be part of the Committee of Creditors ("CoC") and can effectively take part in the Corporate Insolvency Resolution Process ("CIRP") under Section 7 of the IBC. However, the classification of homebuyers/allottees participation in CoC as the financial creditor is not as organic as the legislator has perceived it to be. At times, there are divergent interests of the homebuyers/allottees that do not align with those of other financial creditors while finalizing the scheme of the CIRP. Unlike other financial creditors, homebuyers/allottees would prefer to have ownership and possession of the apartment or building rather than repayment of their investment in suitable haircuts or the entire company going into liquidation. Thus, there is an inherent tension between homebuyers/allottees financial creditors and other financial creditors, as both groups of financial creditors desire to have different ends of the stick.

Concept of Reverse CIRP

A large number of real estate company cases have remained unresolved for a long period of time, as the current framework of CIRP is not conducive to addressing the issues specific to this sector. In real estate company cases, the developer has multiple projects that are at different stages of construction. There may exist situations where the default is related to one particular project while the other projects are on track, but the initiation of CIRP puts those on-track projects also under duress.

To overcome this difficulty, the Hon'ble NCLAT in the case of Flat Buyers Association Winter Hills-77 vs. Umang Realtech Pvt. Ltd. (2020) crafted a solution by giving genesis to the concept of 'Reverse CIRP'. The Hon'ble NCLAT said that "In the light of the aforesaid discussion, as we find it very difficult to follow the process as in a normal course is followed in a Corporate Insolvency Resolution Process, we are of the view that a 'Reverse Corporate Insolvency Resolution Process' can be followed in the cases of real estate infrastructure companies in the interest of the allottees and the survival of the real estate companies....". The Hon'ble NCLAT, by this concept, laid down that an opportunity should be granted in case the project is on the verge of completion, and wherein the promoters or developers can be allowed to bring in or arrange the finances to complete such projects without involving the third party. The concept of 'Reverse CIRP' was further affirmed by the Hon'ble Supreme Court in the cases Anand Murti v. Soni Infratech Private Limited and Another (2022).

Since the introduction of concept of 'Reverse CIRP' it has been evolved by various judicial precedents to address the needs of the real estate sector with necessary variation from the CIRP. Like in the case of Whispering Tower Flat Owner Welfare Association Vs. Abhay Narayan Manudhane (2022), Hon'ble NCLAT agreed for the project-wise resolution as by the Committee of Creditors. Further, in the case of Ram Kishor Arora Suspended Director of M/s. Supertech Ltd. v. Union Bank of India & Anr (2022) Hon'ble NCLAT held that separate bank account as per 'RERA Guidelines' need to be maintained for each project and details of inflow and outflow shall be maintained by the IRP.

Formalizing the concept of Reverse CIRP

The concept of Reverse CIRP may provide a resolution mechanism tailor-made to address the needs of the real estate sector. However, various precedents since the introduction of the concept of Reverse CIRP on various issues have created confusion, and there felt urgent need to formalize the concept of 'Reverse CIRP' in order to make it more uniform and conducive for the real estate sector.

To address the same, a committee was formed under the chairmanship of Mr. Amitabh Kant on issues related to Legacy Stalled Real Estate Projects. The committee submitted its report in July 2023 highlighting that the IBC needs to be reformed to better accommodate the complexities of the real estate sector. Some of the recommendations as proposed by the committee for reforms in IBC with respect to Real Estate are as follows:

  1. All projects need to be pre-registered with RERA.
  2. The Committee proposes that the IBC may enable Resolution Professionals ("RPs") to transfer the ownership and possession of a plot, apartment, or building to the allottees during the resolution process.
  3. Further an option may also be given to Homebuyers/Allotees to acquire such units on 'as is where is' basis or on payment of balance required to complete the unit during the process.
  4. The projects which are complete and under possession of home buyers should not be included in the IBC process.
  5. There must be formal transfer of units to the homebuyers through registration during a CIRP or a project- specific resolution process under the IBC.

Based upon the recommendation of the Committee in its Report and considering the various issued which came up during the insolvency process of real-estate projects, the Central Government released discussion paper 'Real Estate related proposals-CIRP & Liquidation' dated 06 November, 2023 where it discussed the proposed amendments, which are likely to be introduced under IBC specific to Real Estate. As per this discussion paper the set of proposed amendments are as follows:

  1. Mandatory registration and extension of projects under RERA
    That the IRP/ RP must comply with the provision of the RERA and regulations framed thereunder, and are mandated to register all real estate projects under RERA or seek suitable extension, if required.
  2. Operating a separate bank account for each real estate project
    In line with provisions under RERA, for maintaining separate accounts, it is proposed that IRP/ RP should operate a separate bank account for each project undergoing CIRP in order to ensure transparency in the process.
  3. Execution of registration/sublease deeds with approval of CoC during CIRP
    It is proposed that RP should facilitate for smooth handover of the ownership of units through their proper registration in the name of homebuyers/allottees during the resolution process, with the approval of CoC. Further, to avoid delays due to unnecessary holds-ups, it is also proposed that with the approval of the CoC, RP may also be permitted to hand over the possession of units to the allottees on 'as is where is' basis after taking in to account the funds due and funds required for completing the unit.
  4. CoC to examine and invite separate plans for each project
    In view of the foregoing discussion that each project needs to be dealt with separately in terms of resolution, whereby it is proposed that RP to invite separate plan for each project. It would also encourage the association of homebuyers/allottees of a real state project to bring their own resolution plan and resolve issues in a specific project.
  5. Exclusion of property in possession of homebuyers from the liquidation estate
    Section 36 of the IBC defines 'Liquidation estate' which states that for the purposes of liquidation, the liquidator shall form an estate of the assets which will be called the liquidation estate in relation to the corporate debtor. Clause 4 of section 36 of the IBC provides exemption from inclusion in the definition of liquidation estate and shall not be used for recovery in the liquidation. It is proposed that units which are in possession of the homebuyers/allottees should be exempted from the definition of 'Liquidation estate' under Section 36(4) (e) and shall be considered property of the homebuyers/allottees.


The Insolvency and Bankruptcy Board of India ("Board"), through these proposed amendments, has finally taken into consideration the plight of homebuyers, who are the most affected stakeholders in the entire CIRP proceedings and most often than not get the short end of the stick. Further, through these proposed amendments, leverage might be given to the real estate companies by not dragging it entirely in case of the failure of any one project and providing them extended timeline to complete the project, depending upon the facts and circumstances of the case.

The proposed measures will provide relief to homebuyers and along with them try to strike a balance among the rights of various stakeholders. They will also provide a major impetus to India's growth and progress through the revival of construction activities and the completion of stalled projects.

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