Home / CIRP Reforms: Homebuyers Can Now Get Possession of Flat
CIRP Reforms: Homebuyers Can Now Get Possession of Flat
- March 12, 2025
- Jayaprakash Padmanaban
- Darsha Prakash
The resolutions under the Insolvency and Bankruptcy Code, 2016 (IBC), span across all sectors, from large steel manufacturing companies and real estate projects to small FMCG companies. The sector-agnostic approach of resolution processes under the Code allows distressed entities of all types to gain access to feasible solutions to their financial distress.[1] The IBC is considered the most favoured remedy for the real estate sector, ahead of the two other options, the Consumer Protection Act, 2019, and the Real Estate (Regulation and Development) Act, 2016.[2] However, challenges persist in resolving stalled real estate projects under the Code.
Over the years, efforts in the form of government initiatives, recommendations, amendments and so on have been made to address the issues faced in the insolvency processes of real estate projects. An expert committee constituted in 2023 was tasked with suggesting ways to complete the legacy-stalled real estate projects. The committee’s report highlights that the primary reason for stress in real estate is the lack of financial viability of the projects, resulting in cost overruns, and project and time delays.[3] Its recommendations pertaining to reforms in IBC encompass project-wise corporate insolvency resolution process (CIRP), transfer of ownership or possession to allottees during the resolution process, etc.
The Insolvency and Bankruptcy Board of India (IBBI) has been implementing amendments based on various recommendations. One such amendment was notified on February 3, 2025, involving changes to the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. These changes aim to streamline the CIRP, with a particular emphasis on addressing issues related to real estate projects.
New amendment enables handing over possession of flats to homebuyers
Upon the homebuyer’s request, the resolution professional can hand over possession of plots, apartments, buildings, or instruments agreed to be transferred under the real estate project and also facilitate registration while the resolution process is still ongoing. This is as per the newly added provision, Regulation 4E, and is subject to obtaining approval of the committee of creditors with not less than 66% of total votes and the homebuyer performing his part under the agreement.
This amendment will certainly bring relief to distressed homebuyers who would no longer be left in the lurch in case of stalled real estate projects, after having performed all their obligations under the agreement. It is also expected to minimise disputes before the adjudicating authority. However, the financial institutions which have funded the project may have more than 34% voting rights in the committee; in such cases, the mandate of obtaining 66% of total votes will not be met, defeating the intent of the new Regulation. In view of this, our article on IBBI’s November 2023 discussion paper suggested that the voting percentage for passing a resolution for handover could be reduced from 66% to 51%.
In a notable deviation from the draft released in November 2023, the new amendment does not take into account the scenarios where allottees opt to take possession of units on an ‘as is where is’ basis and would get the remaining development or interiors of their home finished from balance funds not paid by them.
Other changes at a glance
Facilitators may be appointed for sub-classes within large creditor classes
The Amendment Regulations envisage the appointment of facilitators for sub-classes within large creditor classes (i.e., with more than 1,000 creditors). This is subject to conditions enumerated in Regulation 16C(1). As per Regulation 16D, the facilitator would be required to facilitate communication between the authorised representative and the creditors of the sub-class, providing clarifications to creditors about the insolvency resolution process, etc.
Competent authority under RERA may be invited to attend committee meetings
Regulation 18(4) specifies that the resolution professional may be directed to invite the competent authority as defined under the Real Estate (Regulation and Development) Act, 2016, related to the corporate debtor’s real estate project to attend committee meetings. Consequently, inputs would be obtained from land authorities such as NOIDA and HUDA on project development matters. However, these authorities would not have any voting rights.
RP to prepare report on real estate development rights and permissions
Regulation 30C requires resolution professionals to prepare a report detailing the status of development rights and permissions required for the development of the real estate project. This report is to be submitted to the committee for its comments. Thereafter, the report along with the committee’s comments has to be submitted to the adjudicating authority.
IRP costs to include facilitator’s fee
As per the Amendment Regulations, the fee payable to facilitators will form part of the insolvency resolution process costs. This change has been effected by adding Sub-regulation (ac) to Regulation 31.
Invitation for expression of interest to contain details of CD’s registration status as MSME
The invitation for expression of interest has to provide details of the corporate debtor’s registration status as a micro, small, or medium enterprise (MSME) in accordance with the Micro, Small and Medium Enterprises Development Act, 2006. This is as per Regulation 36A(4)(e). In line with this, a new row has been added in Form G under Schedule I to the 2016 Regulations.
Relaxations including criteria for prospective resolution applicants may be extended to an association of allottees
Certain relaxations may be extended to an association or group of allottees representing not less than 10% or 100 creditors out of the total number of creditors in a class, whichever is lower. These relaxations are with respect to a) eligibility criteria for submission of expression of interest, b) conditions regarding the refundable deposit, and c) performance security. This is as per provisos to Regulations 36A(4) and 36B(4A) respectively.
Implementation of resolution plan: monitoring committee to submit quarterly reports on status
Amendments to Regulation 38 now require committees to consider setting up a monitoring committee for the monitoring and supervising of the resolution plan’s implementation. The adjudicating authority has to be updated on the status of such implementation in the form of quarterly reports to be submitted by the monitoring committee.
Comments
Enabling the handover of possession of units to homebuyers during the resolution process is a welcome change. Moreover, following amendments introduced last year, properties that homebuyers have taken possession of are excluded from the purview of the corporate debtor’s liquidation estate. As a result, liquidators cannot sell these properties as part of the liquidation estate during the liquidation process. These measures clearly demonstrate a commitment to protecting homebuyers who invest their hard-earned savings in purchasing properties.
However, the appointment of facilitators for sub-classes within large creditor classes may raise concerns as it could complicate decision-making and lead to increased costs. Furthermore, including land authorities in committee meetings could introduce additional obstacles, potentially slowing down the resolution process.
Enabling the handover of possession of units to homebuyers during the resolution process is a welcome change. Moreover, following amendments introduced last year, properties that homebuyers have taken possession of are excluded from the purview of the corporate debtor’s liquidation estate. As a result, liquidators cannot sell these properties as part of the liquidation estate during the liquidation process. These measures clearly demonstrate a commitment to protecting homebuyers who invest their hard-earned savings in purchasing properties.