Buyers in possession of plot, flat or building must be given ownership: IBBI

Thousands of buyers who have been waiting for registration of their real estate units are likely to be benefited if the IBBI proposals are adopted, say experts

The Insolvency and Bankruptcy Board of India (IBBI) has proposed reforms to streamline the insolvency process for real estate companies and enhance protection for homebuyers. For thousands of buyers awaiting registration of housing units in projects undergoing the Bankruptcy resolution process, the IBBI has proposed that ownership of the plot, apartment or building should be transferred to buyers who are in possession of the property during the bankruptcy resolution of the real estate company if they do not owe dues and subject to committee of creditors' approval.

The Insolvency and Bankruptcy Board of India (IBBI) has proposed reforms to streamline the insolvency process for real estate companies and enhance protection for homebuyers. (Representational photo)

“To facilitate the smooth handover of occupied units or where possession has been transferred to home buyers, it is proposed to allow RP to handover the ownership of a plot, apartment, or building to the allottees through transfer during the resolution process, with the approval of CoC. Further, to avoid delays due to unnecessary holds-ups, it is also proposed that with the approval of the CoC, RP may also be permitted to hand over the possession of units to the allottees on ‘as is where is’ basis or on payment of balance amount, if any, after taking into account the funds due and funds required for completing the unit,” the IBBI said in a discussion paper issued on November 7.

Several real estate firms such as Jaypee, Today Homes, Logix among others are facing insolvency proceedings.

These amendments have been proposed to enhance the efficiency and effectiveness of real estate insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) rules. Comments may be submitted electronically by 27th November, 2024, IBBI said.

The IBBI has proposed as many as seven changes to the regulations that govern the insolvency resolution in the real estate sector.

The regulator has also proposed to empower the CoC to facilitate the participation of association of allottees as resolution applicants.

“...it is proposed to clarify by way of explanation that the Committee of Creditors (CoC) is empowered with the discretion to relax certain conditions for qualified associations or group of allottees to participate as resolution applicants in the CIRP. The proposal aims to amend the CIRP regulations to expressly provide that the CoC may approve relaxations to the eligibility criteria, earnest money deposit, and performance security requirements for allottee associations or groups that represent at least 10% of allottees or 100 allottees, whichever is higher,” the regulator has proposed.

Provisions of interest at 8% per annum must be considered

IBBI has also said that provisions of interest at 8% per annum must be considered as part of the claim for distribution of resolution proceeds.

“It is proposed to clarify that the provision of interest at 8% per annum should also be considered as part of the claim for the purpose of resolution plans and distributions under Section 53 of the Code. 4.4 This proposed amendment would create consistency by aligning the calculation of voting rights with the valuation of claims, resulting in a more coherent framework within the insolvency process. It could potentially reduce litigation by providing for interest within the insolvency framework, thereby reducing the need for homebuyers to seek orders from other forums,” the regulator said.

IBBI has also proposed to permit the appointment of facilitators for large classes of creditors.”...we propose allowing the appointment of facilitators for large classes of creditors, primarily to improve communication and representation.”

Include land authorities in Committee of Creditors meetings as invitees without voting rights

Another major proposal in the discussion paper issued on November 7 is the inclusion of land authorities in Committee of Creditors (CoC) meetings as invitees without voting rights. In corporate insolvency resolution processes (CIRP) involving real estate companies, land authorities play a crucial role but currently lack mandatory representation in the CoC, IBBI said.

Currently, only financial creditors have representation in the CoC, leaving out land authorities despite their critical role in real estate projects. Their inclusion is expected to enhance and bring clarity on regulatory compliance, and ultimately improve the feasibility of resolution plans, it added.

The discussion paper also highlighted issues related to cancelled land allotments in insolvency cases, wherein the IBBI proposed that resolution professionals report such cancellations to the CoC, allowing stakeholders to make informed decisions on whether to pursue liquidation or continue with the resolution process.

It has also suggested facilitating creditor representation by allowing for multiple facilitators in cases with large numbers of creditors primarily to improve communication and representation.

IBBI has recommended that the meeting minutes of CoC for real estate projects will be accessible to all creditors through a secure online system. This will in turn enhance transparency and counter rumours and misinformation.