In a discussion paper, the Insolvency and Bankruptcy Board of India (IBBI) also sought to ring-fence project-wise cash flows to curb diversion or misuse of funds. It wants to mandate resolution professionals to keep project-wise books of accounts and ensure all receipts and payments relating to a project are routed through the designated bank account.
It has also proposed to streamline regulations relating to the handing over of possession to home buyers, simplified claim form for real estate allottees, identification and disclosure of allottee preferences, mandatory disclosures in the Information Memorandum, independent technical and cost-to-complete assessment for real estate projects, mandatory contents of resolution plans in real estate cases, enhancing composition of monitoring committee, among others.
“The proposed reforms are guided by the objectives of prioritizing project completion over liquidation, ensuring transparency for homebuyers, strengthening accountability of insolvency professionals, and enabling viable resolution of real estate projects,” the regulator said in the discussion paper.
The regulator has sought stakeholder comments on the discussion paper by July 21.
The regulator has proposed that in its first meeting, the Committee of Creditors (CoC) will undertake a project-wise assessment of all the projects of a realty firm, based on inputs provided by the resolution professional.
Exclusion of projectsThe CoC can then classify projects into occupied projects, completed projects, substantially completed projects or ongoing projects. It can use any other criteria for classification as well, and identify whether any project does not require insolvency resolution and should be excluded from the bankruptcy process.
If the CoC decides, with at least a 66% vote share, that a particular project should be excluded from the corporate insolvency resolution process, it can authorise the resolution professional to approach the adjudicating authority to seek the exclusion.
“This proposal seeks to facilitate project-wise treatment of real estate insolvencies, minimise disruption to occupied and completed projects, and promote resolution efforts focused on projects that genuinely require insolvency resolution intervention,” the IBBI said.
Earlier this year, a panel set up by the IBBI had suggested restricting bankruptcy proceedings to only the stressed projects of a property developer instead of extending it to the entire company as is the practice currently.
Such a move, the panel had said, would allow solvent or unrelated realty projects of the same developer to continue operating under existing arrangements. This would benefit a large number of homebuyers in the solvent projects while expediting resolutions of stressed ones.
The Supreme Court had, in the Mansi Brar case last year, observed that real estate insolvency should, as a rule, proceed on a project-specific basis rather than against the entire corporate debtor, barring exceptional circumstances.
The apex court also held that real estate insolvency must prioritise completion of projects and protection of genuine homebuyers and provide recognition to their right to shelter.