REAL-ESTATE RELATED PROPOSALS- CIRP & LIQUIDATION
6th November, 2023.
1. The discussion paper deals with the following issues being faced in insolvency processes of real-estate projects:
A. Mandatory registration and extension of projects under Real Estate Regulatory Authority (RERA);
B. Operating a separate bank account for each real estate project;
C. Execution of registration/sublease deeds with approval of committee of the creditors (CoC) during corporate insolvency resolution process (CIRP);
D. CoC to examine and invite separate plans for each project; and
E. Exclusion of property in possession of homebuyers from the liquidation estate.
2. Implementation of Amitabh Kant’s Committee Report on Real-Estate projects
A Committee formed under the Chairmanship of Sh. Amitabh Kant on issues related to Legacy Stalled Real Estate Projects recommended that “the IBC needs to be reformed to better accommodate the complexities of the real estate sector.” Some of the recommendations with respect to reforms in the Insolvency and Bankruptcy Code, 2016 (Code/ IBC) are:
i. Project wise CIRP – All projects need to be pre-registered with RERA. Since RERA registration is project-wise, this can be adopted under IBC.
ii. Transfer of ownership/possession to allotees: 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. An option may also be given to allotees to acquire such units on ‘as is where is’ basis or on payment of balance required to complete the unit during the process. Houses which are under possession of allotees should not be included in the IBC process.
iii. Registration/ Transfer of ownership where possession transferred: Where possession of a plot, apartment, or building to the allottees have already been transferred, these transactions must be formalised through registration during a CIRP or a project- specific resolution process under the IBC.
3. The Colloquium on Functioning and Strengthening of the IBC Ecosystem, in November 2022 recommended as under:
“Improving outcomes in real estate cases
4.8 Recommendation 3: The Code may provide that a resolution mechanism tailormade to address the needs of the real estate sector be specified with necessary variations from the CIRP, including project wise admission and resolution, delivery of completed house to homebuyers during CIRP, allowing homebuyers to become Resolution Applicants etc…
Rationale: A large number of real estate cases have remained unresolved for long period of time as the current framework of CIRP is not conducive to address the issues specific to this sector. In real estate cases, CDs have multiple projects that are at different stages of construction. The prospective resolution applicants (PRAs) are more inclined to take over the projects closer to completion than those at early stages of construction. There exist situations where the default is related to one particular project, while the other projects are on track but the initiation of CIRP puts the other projects also under duress. Several experiments have been attempted by courts to address these issues through reverse CIRP and project-wise resolution. Thus, there exists a pressing need to have a separate resolution mechanism for real estate sector.”
4. In view of the forgoing discussion, it is considered the above recommendations may be dealt through regulations to address the issues in insolvency processes of the real estate projects.
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