Hardeep Sachdeva. Gaurav Priyadarshi
The Insolvency and Bankruptcy Code (Amendment) Act, (“Amendment Act”) received Presidential assent, and by notification dated 22 May, the Ministry of Corporate Affairs brought most of its provisions, including the one discussed here, into force with effect in May.
Among the amendments to the Insolvency and Bankruptcy Code, 2016 (“IBC” or “Code”), newly inserted Section 28A is likely to have a significant impact on secured lending and insolvency resolution. It permits a creditor that has taken possession of an asset belonging to a personal or corporate guarantor of the corporate debtor to have that asset transferred as part of the corporate insolvency resolution process (“CIRP”) of the corporate debtor, subject to approval of the committee of creditors (“CoC”).
Although seemingly procedural, the provision addresses a recurring obstacle under the existing framework—the disconnect between the insolvent borrower and the asset securing the debt. This is particularly relevant in the real estate sector, where valuable project assets frequently lie outside the corporate debtor. More broadly, Section 28A reflects the principle that insolvency resolution should be capable of reaching enterprise value even when it is held outside the borrowing entity.
How Section 28A Works
Section 28A does not merge the guarantor’s assets with those of the corporate debtor. Instead, it creates a statutory mechanism for transferring a guarantor-owned secured asset through the corporate debtor’s resolution process, subject to defined safeguards.
The creditor must hold a security interest over the guarantor’s asset and must already have taken possession of it under an applicable enforcement law, such as the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI”) or the Transfer of Property Act, 1882 (“TPA”). The transfer must occur during the corporate debtor’s CIRP and receive approval of the corporate debtor’s CoC.
Where the guarantor is itself undergoing CIRP or liquidation, approval of its CoC by not less than sixty-six per cent is additionally required, with the sale proceeds becoming part of the guarantor’s insolvency estate. Similarly, where a personal guarantor is undergoing insolvency resolution or bankruptcy and the secured creditor has surrendered its rights in the asset, approval of more than three-fourths in value of the guarantor’s creditors is necessary.
After deducting preservation costs, the sale proceeds are first adjusted against the guarantor’s liability, while any surplus is returned to the guarantor.
A key feature of the provision is that the purchaser acquires the asset with the same legal effect as if the transfer had been made by its owner, thereby facilitating clean and marketable title. The Insolvency and Bankruptcy Board of India (“IBBI”) has operationalised the provision through amendments requiring disclosure of the proposed transfer in the information memorandum, supported by an independent valuation and the consent of the enforcing creditor.
Why it Matters in Real Estate
Real estate projects are commonly developed through special purpose vehicles (“SPVs”) that borrow and execute the project, while ownership of the underlying land remains with promoters, land-owning entities or landowners under joint development arrangements. When such a project enters insolvency, the corporate debtor may retain little beyond development rights and liabilities, while the land—the project’s principal source of value—remains outside the insolvency estate.
This separation has often resulted in fragmented enforcement, parallel proceedings and diminished recoveries. Section 28A addresses this problem by allowing a lender that has already taken possession of a guarantor’s mortgaged asset to have it transferred through the project company’s resolution process, subject to the necessary approvals. The resolution applicant can therefore acquire both the project and the underlying asset through a single resolution plan, improving value realisation, recoveries and the prospects of project completion, while benefiting lenders and homebuyers alike.
The Principle Beyond Real Estate
Although real estate presents the clearest illustration, Section 28A reflects a broader principle: insolvency resolution should follow enterprise value rather than stop at the corporate form in which that value is held. Wherever the borrowing company is asset-light but significant value resides with a guarantor or related entity, the provision enables a more meaningful resolution.
This issue arises beyond real estate. Manufacturing businesses often operate from land and plants owned by promoters or group entities. Infrastructure projects may separate concession rights and underlying assets between different entities. Similar structures exist in holding-company arrangements, group financings secured by promoter guarantees or cross-collateralised assets, and lending backed by promoter share pledges. In each case, Section 28A offers a mechanism to realise enterprise value through the principal insolvency process instead of fragmented enforcement.
Equally important is what Section 28A does not do. It does not introduce substantive consolidation or merge the estates of the corporate debtor and its guarantor. It remains confined to a guarantor-owned secured asset over which the creditor has already lawfully taken possession and merely provides a statutory route for its transfer through the corporate debtor’s resolution process.
Limits and Implementation
The effectiveness of Section 28A depends upon the creditor first obtaining possession of the guarantor’s asset through enforcement of its security. The amendment therefore facilitates the transfer of an asset after possession has been secured; it does not simplify or accelerate the process of obtaining possession itself, which often remains the most contested stage of enforcement.
Its practical operation will also depend on how guarantor-owned assets are valued when transferred alongside the corporate debtor’s business, how competing interests of the guarantor’s creditors are balanced, and how adjudicating authorities interpret the provision in future cases.
Practical implications
For lenders, the amendment reinforces the importance of ensuring that security over guarantor assets is properly created, perfected and enforceable. Without effective security and lawful possession, Section 28A cannot be invoked.
Financing and security documentation should also anticipate the possibility of a Section 28A transaction by providing for cooperation in enforcement, transfer of title documents, sharing of information and the treatment of sale proceeds.
For resolution applicants, the provision expands the range of viable transactions. Projects that were previously difficult to resolve because critical assets remained outside the corporate debtor may now be acquired as integrated businesses, improving commercial viability and recoveries.
Conclusion
Section 28A is a targeted amendment with potentially significant consequences. By permitting certain guarantor-owned secured assets to be transferred through the corporate debtor’s resolution process, it seeks to preserve enterprise value and reduce the fragmentation that has often undermined insolvency resolutions, particularly in real estate.
Its ultimate success, however, will depend on implementation. Creditors must still secure possession before the provision becomes available, and the emerging jurisprudence will determine how effectively it balances the interests of corporate debtors, guarantors and their respective creditors. If applied as intended, Section 28A has the potential to strengthen recoveries, facilitate more effective resolutions and better align insolvency outcomes with the commercial realities of modern financing structures.
The authors are senior partner and partner at AZB & Partners.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.
