Real Estate Insolvency: Key Recommendations by Committee

The Insolvency and Bankruptcy Board of India released the Report of the Committee on Framing Guidelines for Insolvency Proceedings in the Real Estate Sector, pursuant to directions of the Supreme Court of India in the case of Mansi Brar Fernandes v. Shubha Sharma & Ors., (December 12, 2025). The Court emphasized the need to prioritise project completion and protect homebuyer interests, consistent with broader constitutional principles, including the right to shelter under Article 21.

The report reviews challenges under the Insolvency and Bankruptcy Code, 2016, including delays, multiplicity of claims, and stakeholder conflicts. The aim of the report is not to change the foundational principles of the Code, but to strengthen the functioning of real estate insolvency through legislative, regulatory, and procedural measures. The Committee has given 155 specific recommendations on 55 issues, with a primary focus on the residential segment due to its direct impact on homebuyers.

Core issues under the Existing Insolvency Framework:

The current insolvency regime largely operates at the level of the corporate debtor, often treating real estate companies as single economic units despite their multiple independent projects which leads to value erosion, affects project completion and timely resolution under Section 12 of the Code. It also identified structural gaps such as lack of reliable project-level data, inadequate fund segregation, weak coordination with sectoral regulators including the Real Estate Regulatory Authority, and prolonged litigation.

Key Changes Proposed:

• Project-Wise Resolution Mechanism

The Committee recommends treating each real estate insolvency project as a distinct economic unit for insolvency admission and resolution. Entity-level insolvency often results in viable projects being dragged into resolution due to defaults in unrelated projects, disrupting construction and creating uncertainty for homebuyers. A project-wise approach enables ring-fencing of assets and liabilities through segregation of project-level cash flows and accounts. However, entity level insolvency may still be invoked in cases of cross-collateralisation, fraud or fund-commingling, subject to recorded reasons by the adjudicating authority.

However, projects that are already completed or substantially completed and occupied should ordinarily be excluded from CIRP i.e. regulatory and administrative issues such as pending Occupancy Certificates or conveyance deeds in such projects are more appropriately addressed through RERA authorities or municipal bodies rather than insolvency proceedings.

• Prioritisation of Project Completion over Liquidation

The report emphasises a ‘resolution-first’ approach, aligned with the objective of maintaining the corporate debtor as a going concern under Section 20 of the Code, with liquidation as a last resort.  Revival options including induction of new developers, allottee-led plans, or structured funding support must be explored. In Elegna Co-operative Housing and Commercial Society Ltd. v. Edelweiss Asset Reconstruction Company Ltd. & Anr (2026), the Supreme Court held that liquidation must be a reasoned decision, supported by written justification from the CoC.

• Strengthening Coordination between RERA and IBC

The Committee recommends that a formal consultation mechanism must be established by IBBI with the Central and State RERA authorities for solving real estate insolvency matters, including periodic consultations, nodal officers, and standardized information-sharing protocols for project data, allottee records, and approvals. Resolution professionals must ensure compliance with the Real Estate (Regulation and Development) Act, 2016 during CIRP. The report also proposes a more active role for RERA in resolution and monitoring, along with clear regulatory guidance to ensure certainty and to avoid reopening settled issues.

• Financial Discipline: Escrow and Fund Segregation Measures

Recognising that each project has distinct approvals, financing, and cash flows, the Committee recommends strict segregation of funds through escrow mechanisms and prohibition of cross-utilisation between projects. These accounts must be operated by the RP as per Section 4(2)(1)(D) of RERA, which mandates that promoters must deposit 70% of funds collected from allottees into a dedicated, separate bank account to cover construction and land costs. This ensures financial discipline, preventing diversion of funds to other projects, and requires withdrawals to be certified by professionals. 

• Distinguishing Genuine Homebuyers from Speculative Participants

The Committee has recommended that for differentiation between a “genuine” or “speculative” applicant, the Adjudicating Authority (AA) must examine the nature of the transaction at the stage of admission. Indicators of speculative intent include buyback or refund-heavy agreements, insistence on high-interest refunds instead of possession, multiple unit purchases, preferential rights, deviations from the RERA Model Agreement, and promises of unrealistic returns. 

• Delivery of Possession and Allottee Rights

To address the challenge of delivering possessions to homebuyers of projects that are complete but technically stalled due to pending statutory approvals, such as Occupancy Certificate (OC) or Completion Certificate (CC). The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2025, Regulation 4E was introduced in the CIRP Regulations, 2016 which empowers the Resolution Professional to handover possession to allottees who have fulfilled the contractual requirements on a condition that it should not violate moratorium under Section 14 of the Code.

• Admission Criteria and Initiation of CIRP

Section 4 of the Code prescribes a minimum default of Rs.1 crore for initiation of CIRP. The Committee recommended that enhancing the minimum threshold from Rs.1 crore to Rs.5 crore must be considered by MCA as in the real estate sector the constructions costs, land prices vary and a default of Rs.1 crore may not always indicate that the enterprise or project is insolvent.

• Landowner and Development Authority Rights during CIRP

The Committee recommends that termination of Joint Development Agreements or leasehold rights should not be allowed solely based on pre-CIRP defaults without AA approval. The report further recommends unified SOPs for development authorities (NOIDA, GNIDA) covering dues restructuring (waiving penal interest), moratorium compliance, and binding nature of approved resolution plans to prevent post-approval litigation.

• Treatment of Slum Dwellers

Rights of the Slum Dwellers do not arise from monetary claims against the CD but from rehabilitation entitlements that arise from statutory schemes, under the state slum rehabilitation law and policies. The Committee recommends that resolution plans must provide for rehabilitation of slum dwellers in projects involving redevelopment, clearly outlining timelines, responsibilities, and compliance with approved plans. It also emphasizes that resolution professionals should identify and disclose such statutory obligations in the information memorandum and treat them as non-negotiable, ensuring that insolvency does not undermine rehabilitation commitments or broader public welfare objectives.

• Confidence of Homebuyer in the representation framework

The Committee recommends strengthening the framework governing authorised representatives (ARs) to improve transparency and accountability in representing creditors in a class. It suggests enabling informed selection of ARs through disclosure of their profiles and roles, alongside imposing independence standards requiring disclosure of any conflicts of interest. ARs should follow minimum communication and reporting obligations, including regular updates and reasoned explanations for voting decisions. 

• Facilitating Interim Finance and Last-Mile Funding

It has been emphasized that stalled construction, unpaid contractors, lapsed statutory approvals along with deteriorating site conditions often require immediate funds for asset preservation and project revival. The Committee recommends that interim finance be actively used as a value-preserving tool in real estate CIRPs, particularly to restart or continue construction and improve resolution outcomes. It suggests that such funding be structured on a project-wise basis, with linkage to project cash flows, milestones, and use of escrow or segregated accounts to enhance transparency. Early technical and cost assessments should guide funding decisions, with clear and standardized disclosure of terms to the CoC.  It encourages consideration of policy measures, including priority sector recognition and utilisation of Government schemes such as SWAMIH and similar initiatives that can be used for revival of stalled real estate projects.

The report recommends unified Standard Operating Procedures for development authorities (NOIDA, GNIDA and similar bodies) covering dues restructuring (waiving penal interest and time extension charges), moratorium compliance (prohibiting lease cancellation during CIRP), and binding nature of approved resolution plans to prevent post-approval litigation.

The Committee recommends specialized real estate benches within NCLT in high-volume jurisdictions and fast-track treatment of appeals before NCLAT.

• Resolution Plans Led by Homebuyers

The Committee issued clarificatory guidance recognizing homebuyers and allottee associations as eligible resolution applicants under Section 25(2)(h). It highlights under Regulations 31 A (1) (representation of creditors in a class), 36A(4) (flexibility in inviting expressions of interest), and 36B(4A) (relaxations in plan submission) to facilitate participation of homebuyer groups. It also encourages such groups to engage professional and technical support for plan preparation and execution. Further, the Committee emphasizes that the CoC should evaluate these plans on standard parameters of feasibility and viability, while ensuring compliance with Section 29A and preventing indirect promoter control.

Resolution plans must mandatorily provide for a Project Monitoring Committee (PMC) comprising homebuyers, lenders, RERA, and sector specialists. Implementation must be assessed against physical construction milestones, not merely financial settlement.

The Committee explicitly rejected “Reverse CIRP” as inconsistent with Section 29A—promoters may participate only as eligible resolution applicants. It further recommends policy guidance enabling PSUs (NBCC, HUDCO) to participate as resolution applicants in projects of significant public interest.

• Strengthening Data Frameworks and Information Utilities

The Committee recommends expanding Information Utilities (IUs) to capture standardized homebuyer–developer data (payments, possession timelines, defaults) integrated with RERA through unique project identifiers. Time-stamped IU data can support faster claim verification and reduce disputes.

• The Clean State Principle

The Committee reiterates the clean slate principle, emphasizing that an approved resolution plan under Section 31(1), read with the immunity framework under Section 32A, is binding on all stakeholders and extinguishes past claims not provided for in the plan. It recommends that resolution professionals ensure proper notification and treatment of statutory dues in accordance with Regulation 38 to minimize post-approval disputes. The report also clarifies the distinction between past liabilities and ongoing obligations, noting that while pre-resolution dues are settled through the plan, regulatory authorities retain full powers over future compliance. To support this, it calls for improved coordination and communication between insolvency authorities and relevant regulators, including tax, municipal, development, and RERA authorities.

Conclusion

The Committee’s recommendations reflect a shift towards a more nuanced, sector-responsive insolvency framework that prioritises project completion and stakeholder outcomes, particularly for homebuyers. While operating within the existing architecture of the IBC, the proposed measures aim to enhance efficiency, improve investor confidence, and ensure more predictable and effective resolution outcomes in the real estate sector.