Incomplete real estate projects are not only a nightmare for the concerned home buyers, but are also turning out to be a challenge for the government, judicial system and administration too. With mounting defaults, creditors are no longer in a mood to give enough time to promoters who include financial institutions, home buyers, contractors, partners and other investors.

IBC (Insolvency and Bankruptcy Code) 2016 had objectives to sort matters related to company law and relieve its stakeholders, but the real estate sector is one of the categories where insolvency is not a choice for home buyers, the biggest stakeholders in the category, who invest most of their savings in a home.

A home buyer, who takes a home loan for a term of 20-30 years and stays in a rented accommodation in the wait of final possession, always prefers to get the home as a creditor. Due to the beginning of NCLT proceedings in a real estate project, home buyers of the entire group get stuck and find themselves empty handed after several years. Although IBBI (Insolvency and Bankruptcy Board of India) has changed rules and clarified status of home buyers as Financial Creditors as part of CoC (Committee of Creditors) in IBC but this is not actually protecting home buyers in many cases.

On the other hand, some real estate companies have used the provisions of IBC as a shield to protect themselves and wash their hands of all responsibilities. For some it has become a practice to either proceed for insolvency or force an Operation Creditor to approach NCLT (National Company Law Tribunal). But the resolution process was never an easy task because the objectives of creditors were not always the same. To protect the interest of home buyers of the project in trouble and other projects of the group, lawmakers had to find a suitable way to begin a phase of trial and error like the apex court did in the matter of Amrapali Group, Unitech and the Jaypee Group.

But it seems NCLT and NCLAT courts have recognized that home buyers are no longer in favour of insolvency and found a hybrid model for the real estate sector where they are offering a timeline to promoters to complete the construction and clear dues. In another model, the courts are granting moratorium to the affected project only rather than the entire company which affects all real estate projects under it. Hence, according to industry experts, the NCLT and NCLAT courts have adopted two hybrid models to protect the interest of homebuyers:

1. Reverse Insolvency

Reverse insolvency is becoming a buzzword for home buyers of unfinished real estate projects which are dragged to NCLT due to a financial default. In this model, NCLT and NCLAT courts are allowing or authorizing the lead promoter to complete the remaining construction work without initiating the process of insolvency. The reason could be default of nominal amount, confidence of home buyers in the promoter, intention of promoter, etc. But somehow this model has emerged as a quick model of revitalizing a stuck project from all negativity to re-construction and push them towards completion. In Uttar Pradesh, Greater Noida-based project RG Luxury Homes is the latest example of this kind of order where the main promoter commenced the construction work under Resolution Professional.

Himanshu Garg, Director, RG Group, says, “Even today the main promoter is the most competent party to complete the project. Favourable government policies and support from the Judiciary system and homebuyers enabled lots of developers to complete their projects in the last 7 to 8 years. Norms are open for all parties and sometimes it becomes easy to have the supervision of one of the higher authorities to move forward. If the promoter is ready to complete the project in the next 1 to 2 years, no doubt, he should get a chance because in many cases proceedings of NCLT are still going on after 2-3 years without any concrete resolution and the home buyer gets stuck. Our matter was one of them in which NCLT appointed a ‘Resolution Professional’ but never ordered to form CoC. Now, under the supervision of RP, the project has a better pace than expected.”

Saurabh Jain, an NCR-based advocate, says, “Just before the order of Reverse-CIRP in RG Luxury Homes in 2020, Hon’ble NCLAT had pronounced the order of Reverse-CIRP in the matter of Umang Realtech during the insolvency process of Winter Hills, a Gurugram-based project. Although Ld. NCLT had admitted company into CIRP i.e. the process of resolution, home buyers approached Hon’ble NCLAT whereby Umang Realtech was permitted to close the proceeding if the company manages to complete the work in a certain time-frame. It was also stated that the insolvency of real estate firms is limited to a project, not across the group.”

“Authorizing the same promoter to complete the construction work of the project by Hon’ble NCLAT under supervision of IRP has resemblance with the orders of U.P. RERA in which the Authority uses powers conferred under section-8 of the RERA Act and authorizes the main promoter to complete the remaining construction work of project with the consent of 51% allottees, under supervision of a committee and monitoring of a third party construction consultant. Jaypee Green’s Kalypso Court Phase-2 is the first project which received OC from the Noida Authority in this model of RERA Act and almost 14 other projects are under redevelopment,” he adds.

2. Moratorium on Affected Project

In another model, NCLT and NCLAT courts are imposing moratorium only on the concerned project without affecting the entire group. CoC (Committee of Creditors) is being formed for the affected projects so that the process of IRP is limited only to the project in question and other projects of the promoter group remain unaffected.

It has emerged as such a model that the process of NCLT and NCLAT goes on as per the law only in the affected project or projects and the construction work in the rest of the projects of the promoter group also goes on under the supervision of the RP appointed by the hon’ble court. This system benefits the home buyers in a direct manner where the promoter continues to work on all his projects with the objective of handing over the completed construction work to the home buyers.

Jain says, “On this model alone, orders have been issued by NCLAT on the projects of Gautam Buddha Nagar’s Ajnara India and Supertech Limited to continue construction works under supervision of IRP, which is different from earlier orders. Now CoC will be formed only for Ajnara Ambrosia and Supertech Eco Village 2 project for which defaults had been accepted. Now, Ansal API has also got a similar kind of order in which CoC will be formed only for the Fernhill project, based in Gurugram, and the rest of projects will be treated like any other healthy project.”

Reconstruction or allowing construction under the supervision of RP somehow gels with the model of hon’ble Supreme Court adopted in the matter of the Amrapali Group in which a Court Receiver was appointed to monitor the construction and flow of funds and ensure possession to the allottees.

Overall promoters are happy that lawmakers are finding out a positive way to reach up to the completion of stuck projects. Beyond NCLT & NCLAT proceedings, RERA is also authorizing promoters of stuck real estate projects to either complete them or introduce a third party as promoter to finish them.

Sandeep Sahni, Chariman, I-thum World, says, “We got immense support from U.P. RERA when we were planning to take over BizLife, a stuck commercial project in Noida. Based on provisions of Section-15 of the RERA Act, we fulfilled all formalities to get majority rights and liabilities of the project. Nnow it is IThums 62, and U.P. RERA backed our initiative because the objective was to revive a stuck project for the sake of real estate sector.”

“Not only this, U.P. RERA has authorized promoters of almost 14 stuck housing projects to complete the remaining construction and development work of the projects in a given time period under provisions of section-8 of the RERA Act. This has got a big breakthrough after completion of Jaypee Kalypso Court Phase-2. The project was stuck since a decade and after rehabilitation and close monitoring of U.P. RERA, the project is now ready with OC to offer possession to its 300 plus allottees. As per the official release, this was the first ever project in India which achieved completion under provisions of section-8 of the RERA Act,” he adds.