[Aparna Ravi is a Partner and Manan Sheth an Associate at S&R Associates, Advocates]
As of December 2024, insolvencies in the real estate sector accounted for approximately 22% of admitted cases under the Insolvency and Bankruptcy Code, 2016 (“IBC”), making it second only to the manufacturing sector that accounted for 37% of admitted cases, as noted in the Insolvency and Bankruptcy Board of India Newsletter, October to December 2024. The high volume of insolvencies in the real estate sector, the imperative to protect homebuyer interests and specific challenges faced by this sector have resulted in several amendments focused specifically on the insolvency process for real estate projects. Recently, the Insolvency and Bankruptcy Board of India (“IBBI”) notified the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2025 (“2025 Amendments”) amending certain provisions of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”), which once again have a special focus on the corporate insolvency resolution process (“CIRP”) of real estate developers. This post discusses the 2025 Amendments and their likely impact on streamlining the resolution process and protecting homebuyer interests.
Key Highlights of the 2025 Amendments
Handover of Possession During Resolution Process
The 2025 Amendments have introduced regulation 4E to the CIRP Regulations, which empowers resolution professionals (“RP”) to hand over possession of the plot, apartment or building to the allottees of a real estate project during the resolution process, subject to approval of the committee of creditors (“CoC”) with not less than 66% of the total votes.
Previously, various courts have held that the flats or houses constructed by a real estate developer are not assets of the real estate developer that are subject to protection of the moratorium under Section 14 of the IBC during the CIRP. Rather, the construction and sale of flats and houses have been viewed as a recurrent business activity of any real estate company that should continue during the CIRP in order to maintain the corporate debtor as a going concern. As a consequence, courts have permitted the registration of plots, houses or apartments in favor of allottees during the CIRP and have held that such actions do not constitute a violation of the moratorium under the IBC. Further, the IBBI also recognized that waiting for completion of the CIRP in order to handover allotments to homebuyers, despite homebuyers having fulfilled all of their obligations for possession of their homes, was detrimental to homebuyer interests. Recognizing these concerns, the 2025 Amendments now permit an RP to handover possession to allottees who have fulfilled all their obligations, subject to obtaining approval of the CoC.
Appointment of Facilitators
The 2025 Amendments permit the appointment of facilitators by the CoC for sub-classes within large creditor classes (i.e. where the number of creditors in a class exceeds one thousand). Such facilitators may be any person other than the interim resolution professional, resolution professional or an authorized representative appointed under the IBC, as long as the total number of facilitators so appointed does not exceed five. The 2025 Amendments further provide that the appointment of a facilitator will be considered only if requested by a sub-class comprising of at least 100 creditors of the total number of creditors in a class. The roles and responsibilities of the facilitator have been prescribed under regulation 16D of the CIRP Regulations and include facilitating communication between the authorized representative and creditors of the sub-class, attending meetings of the CoC as observers and any other tasks assigned by the CoC to improve representation and communication.
The amendments intend to address challenges in effective representation and communication with all creditors in an event where the CIRP involves a large number of creditors with disparate interests. Further, appointment of such facilitators is also intended to reduce the burden of responsibility imposed on the authorized representative.
Participation of Competent Authority in Real Estate Projects
Pursuant to regulation 18(4) of the CIRP Regulations, the CoC can now invite competent land development authorities related to the project (such as NOIDA, HUDA, etc.) to attend meetings of the CoC and provide their inputs on matters associated with the development of the real estate projects under insolvency. The competent authorities are however, not entitled to any voting rights at the meetings of the CoC.
Land authorities, generally being operational creditors, are not included in the CoC. The IBBI, in prior discussion papers, had noted that their absence on the CoC often led to insufficient consideration of their perspectives on land-related issues and regulatory requirements which ultimately hampered the implementation of resolution plans. Recognizing that inputs from land authorities can be valuable to enhance the viability and feasibility of resolution plans, especially from a regulatory perspective, the 2025 Amendments ensure that such land authorities have a formal channel to provide their inputs to the CoC, while decision making authority under the CoC continues to rest with financial creditors.
Report on Real Estate Development Rights and Permission
RPs are now required to make a detailed report on the status of development rights and permissions required for completion of the real estate projects under insolvency. The report is first required to be submitted to the CoC and then to the adjudicating authority (along with comments from the CoC) within 60 days from the insolvency commencement date. Such a report is intended to provide clarity to the CoC on the viability of the project at an early stage in the resolution process and assist the creditors in making informed decisions in a timely manner.
Relaxation for Real Estate Allottees to Submit Resolution Plans
The 2025 Amendments empower the CoC to relax certain conditions for associations or groups of homebuyers to participate as resolution applicants in the CIRP, subject to such associations representing not less than 10% of the total number of creditors in a class or 100 creditors, whichever is lower. These relaxations include relaxation in eligibility criteria, conditions with respect to performance security and refundable deposit.
These amendments aim to enable greater participation from homebuyer associations as resolution applicants by removing potential roadblocks to their participation.
Monitoring Committee for implementation of Resolution Plan
Pursuant to the introduction of regulations 38(4) and 38(5) under the CIRP Regulations, the CoC must now consider forming a monitoring committee to monitor and supervise the implementation of the resolution plan. Such a committee may comprise of the resolution professional, representatives of the creditors and the successful resolution applicant. Further, such committee shall be required to submit quarterly reports to the adjudicating authority regarding the status of implementation of the resolution plan.
The Supreme Court of India had previously emphasized the need for statutory recognition of monitoring committees and made several key recommendations for constitution and functioning of such committees. While regulation 38 of the CIRP Regulations had already been amended to provide basic recognition to monitoring committees, the current set of amendments provides further clarity on the constitution and responsibilities of such monitoring committees thereby enforcing accountability and ensuring timely execution of resolution plans. While not limited to insolvencies of real estate companies, greater clarity on the role and accountability of the monitoring committee is expected to allow for smoother implementation of resolution plans in the real estate sector which, by their nature, involve multiple stakeholders and regulatory authorities.
Analysis
The IBC and the rules and regulations framed thereunder have, undergone significant modifications and amendments to address the challenges faced by the real estate sector during CIRP. While the early modifications (such as inclusion of real estate allottees under the definition of financial creditors and prescribing a threshold for the number of real estate allottees required to initiate insolvency against a real estate developer) were made to the IBC itself, more recent changes have been made through amendments to the CIRP Regulations. On February 15, 2024, the CIRP Regulations were amended to enable CIRPs to be conducted on a project wise basis, to deal with situations where not all projects of the real estate developer might be in financial distress and to accordingly allow the RP to invite separate resolution plans for different projects of the developer, subject to approval of the CoC. These amendments also required real estate developers to open project specific banks accounts for each of their projects.
The 2025 Amendments are another step in similar direction to address the various challenges hampering real estate CIRPs. Measures such as handover of possession during the resolution process and relaxations for allottees to submit resolution plans ensure protection of interests of the allottees and enable effective participation of such allottees towards expedited completion of real estate projects. Further, inclusion of land authorities as a part of CIRP process will only assist in reducing regulatory roadblocks that have previously plagued real estate CIRPs. Similarly, the requirement for RPs to submit reports on the development rights and permissions for the real estate projects under insolvency is a particularly welcome move as it would enable the CoC to have greater visibility on the impediments to implementation of a resolution plan.
However, the practical application of the 2025 Amendments may have its own set of challenges. The procedure for handover of possession during the resolution process will need to be operationalized to ensure smooth implementation for all stakeholders. It is also currently unclear if such handover would be entirely at the discretion of the CoC, particularly in an event where the majority of creditors on the CoC are financial institutions. Similarly, appointment of multiple facilitators may give rise to co-ordination issues and lead to greater confusion over the role of the authorized representatives and facilitators. It remains to be seen if resolution professionals, CoCs, land authorities and other stakeholders will work together in achieving an efficient resolution process that protects the interests of homebuyers as well as the other stakeholders involved.
– Aparna Ravi & Manan Sheth