The Insolvency and Bankruptcy Code (IBC) has emerged as a crucial instrument in the rejuvenation of the Indian real estate sector, fostering confidence among stakeholders and paving the way for the timely resolution of distressed assets, Ravi Mital, Chairman, IBBI has said.

By providing  structural framework for insolvency resolution, empowering homebuyers and ensuring time bound process, IBC has instilled a sense of hope and confidence among stakeholders, Mital wrote in the latest IBBI newsletter for April-June 2024.

The resolution framework for real estate sector sends a signal to distressed homebuyers that they can seek recourse through the IBC, Mital said. 

Despite ongoing challenges, IBC’s success in resolving high profile real estate cases highlights its potential to bring positive change in the sector, he added. 

As of June 2024, around 1,400 real estate/ construction companies were admitted into Insolvency resolution process. Out of this, 645 companies were successfully rescued and 261 were liquidated. Rescued companies were 2.5 times of liquidated, he added. 

Mital also highlighted that the recent Economic Survey 2023-24 had noted that IBC has been the most favoured among the three available remedies for real estate sector, the other two being Consumer Protection Act 2019 and the Real Estate (Regulation and Development) Act 2016 (RERA Act).

He also said that the large size real estate cases such as Jaypee Infratech Limited, Kohinoor CTNL Infrastructure Company Pvt Ltd, SARE Gurugram Pvt Ltd, among several others, have yielded recovery of more than 60 per cent of the claims admitted. 

The successful resolution of Jaypee Infratech Ltd has provided relief to more than 20,000 home buyers by way of continuing construction of ongoing projects and handing over possession of completed projects. 

Outlining the series of reforms undertaken in the real estate sector under IBC, Mital said that IBC was amended in August 2018 to designate home buyers as distinct class of creditors. The said amendment included the homebuyers in the committee of creditors (CoC) and enabled their direct participation in the decision making process.

The empowerment of homebuyers as financial creditors under the IBC has been a game-changer. This legal recognition has given homebuyers a significant voice in the resolution process, ensuring their interests are protected and that they have a seat at the table during insolvency proceedings. This inclusion has not only expedited the resolution process but has also helped in restoring faith among homebuyers, many of whom had been languishing due to stalled projects.

The other reforms include keeping possessed units out of liquidation estate; allowing submission of project-wise resolution plans; allowing home buyers to be eligible to submit resolution plans for distressed real estate projects and amending regulations to expand the role of authorised representative to ensure he assists the homebuyers in understanding the CoC decisions and evaluating resolution plans among others. 

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