Such a move, the panel reckoned, 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 proceedings under the Insolvency and Bankruptcy Code (IBC) in real estate should “ordinarily be admitted on a project-wise basis, treating each project as an independent economic unit”, said the panel, set up by the Insolvency and Bankruptcy Board of India (IBBI).
The Supreme Court had, in the Mansi Brar case last year, had 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 had also held that real estate insolvency must prioritise completion of projects and protection of genuine homebuyers and provide recognition to their right to shelter.
The seven-member panel was subsequently set up by the regulator under its whole-time member Jayanti Prasad to examine issues pertaining to the insolvency resolution in real estate projects.
The panel has submitted 155 recommendations, including procedural consolidation of land and development rights and mandatory operation of project-wise escrow accounts. The suggestions are aimed at ensuring timely completion of projects and enhancing efficiency.The corporate affairs ministry, the panel also recommended, may consider raising the minimum default threshold for initiating insolvency proceedings in real estate to Rs 5 crore from Rs 1 crore.
Such recalibration would more accurately reflect the capital structure and economic magnitude of real estate development, reduce premature or tactical admissions and promote exploration of completion-oriented solutions outside insolvency, the panel reckoned.
The panel’s suggestions also come at a time when several real estate developers–including Jaypee, Unitech, Amrapali, Today Homes, Supertech, Logix and Ajnara—are already facing insolvency proceedings.
The panel has now suggested necessary interventions by the corporate affairs ministry to allow project-wise insolvency under the extant corporate insolvency resolution process.
The entity-level resolution process involving multiple projects, however, may be allowed only in exceptional circumstances, the panel said.
These include cases with “substantial inter-linkages or commingling of funds across projects; cross-collateralisation of assets or guarantees; or demonstrable fraud or mismanagement affecting multiple projects’.
It has also suggested that the department of financial services and the Real Estate Regulatory Authority consider laying down project-wise frameworks for lending, maintenance of the stressed real estate accounts and monitoring.