The Insolvency and Bankruptcy Board of India’s (IBBI) proposal to allow the Committee of Creditors (CoC) to invite separate resolution plans for each real-estate project would lead to faster resolution through heightened interest in the assets among potential bidders and help arrest value erosion, experts said. Also, home-buyers will benefit from the move because under the proposed norms, even after the start of the resolution process, units will continue to be allotted to them on an ‘as is where is’ basis or on making the balance payment required to complete the construction.
The board’s recommendations are generally seen as pragmatic, given the peculiar nature of the sector, where a large pool of home-buyers with limited options too are major stakeholders and hold the status of financial creditors.
In a discussion paper floated on Monday, the IBBI said that CoC may direct the Resolution Professional (RP) to invite separate plans for each real estate project, rather than the whole firm. This would also encourage the association of allottees of a real estate project to bring their own resolution plan and resolve issues in a specific project.
On the proposal, Sunil Pareek, executive director, Assetz Property Group said, “Many developers house multiple projects under the same company instead of a SPV-based approach…hence, a straight jacket approach for resolution of the overall company is bound to have some challenges. The proposal to have a customised and tailor-made approach to resolve each project is a welcome move and will facilitate relatively faster targeted resolution.”
Since the regulatory framework under Real Estate Regulatory Authority (RERA) Act allows registration and monitoring of each project as a separate unit at pre-insolvency stage, it is only logical that the same differentiation is maintained at the stage of insolvency resolution, say analysts.
“This will help separate good projects from stressed projects and empower homebuyers in stressed projects to take timely remedial measures along with other key stakeholders in the project without being tied to constraints of dealing with all stakeholders of the company whose objectives may not always be aligned to asset level resolution,” said Kumar Saurabh Singh, Partner, Khaitan & Co.
The discussion paper – which has based its proposals on recommendations made by Amitabh Kant’s committee report on real-estate projects – proposes that the RP must comply with the provision of the RERA Act, and mandate the RP to register all real estate projects under RERA or to extend the registration of the real estate project under RERA.
Although this would facilitate faster resolution under IBC, it may also require amendments in other laws for smooth execution. “The extension of timelines under RERA beyond the initial 1 year window has not been a smooth process as there are no clear guidelines around it and also generating consensus among all home buyers has been challenging at times. Such welcome changes being proposed in IBC laws may also require corresponding amendments in state laws and other applicable authorities for a smooth implementation,” Assetz Property Group’s Pareek said.
Further in a bid to provide to relief to homebuyers, the IBBI has proposed to exclude the properties in possession of the allotees from the resolution process and liquidation estate during the corporate insolvency resolution process.
“…There is some confusion in the market as to whether properties where, the allottees have taken possession but a registration with any authority of the transfer is pending, are to be included in the liquidation estate or not…inclusion of properties of homebuyers when they have fulfilled their part of the obligation would create several difficulties,” said the IBBI paper.
While homebuyers are considered ‘financial creditors’, IBC was falling short of effectively addressing their real woes. A consequence of the statutory moratorium of IBC and the design of the CIRP was the prejudice it was causing the homebuyers –adding to disputes – worsening the judicial backlogs, say experts.
“The proposed- amendments are crucial for homebuyers as they enhance transparency, protect their properties from liquidation, and provide an efficient resolution process. The emphasis on project-wise resolutions and excluding homebuyers’ properties ensures their interests are secured,” said Ashoo Gupta, Partner, Shardul Amarchand Mangaldas & Co.
Soumitra Majumdar, Partner, JSA, said, “units which are in possession of buyers, but pending registration of the sale deed, cannot be made part of the insolvency/ liquidation estate – duly acknowledging their ownership rights. The ability of the buyers to even accept partly finished units on as-is-where-is basis can ameliorate the financial woes and uncertainty of a large section. Giving statutory recognition to project- wise resolution certainly will expedite the whole process and foster over-all improvement.”