In a relief to homebuyers, assets in a real estate project that have been handed over to the allottee would be kept out of the liquidation process of the company, the latest amendment to the rules by the Insolvency and Bankruptcy Board of India (IBBI) has said.
The notification dated February 12 said: “For the purposes of clause (e) of sub-section (4) of section 36, wherever the corporate debtor has given possession to an allottee in a real estate project, such asset shall not form a part of the liquidation estate of the corporate debtor.”
Real estate experts call it a “pragmatic approach” by the regulator. “However, there are many cases where possession has not been given because the property is stuck in insolvency.
"The IBBI should look into that as well,” said Rajive Kumar, former chairman, Real Estate Regulatory Authority (RERA), Uttar Pradesh.
In a discussion paper it released on November 7, 2023, the insolvency regulator had mooted the same idea along with project-based insolvency to get multiple bidders for different projects in real estate insolvencies.
The IBBI had also batted for an increased role of RERA by proposing compulsory registration of all real estate projects undergoing corporate insolvency resolution with the regulator by the insolvency professionals.
Real estate consultant Anarock Capital said the new amendment would act as a significant relief when the homebuyers would have a say in the CoC (committee of creditors).
“This is particularly relevant when the homebuyers have a small say in the CoC.
"As a matter of process, this provision will also serve to reduce the litigation in the insolvency process,” said Aashiesh Agarwaal, senior vice-president (research & investment advisory), Anarock Capital.
Dhananjaya Padmanabhachar, convenor of the Karnataka Home Buyers Forum, said the allottees of a real estate project would have first charges on the property.
“If the promoters undergo insolvency and liquidation, homebuyers’ property should be kept out of the process.
"Property in this case means the carpet area of the allottees along with undivided proportionate share in the common area.
"RERA 2016 Section 17 protects allottees’ land rights.”
The Amitabh Kant committee report on real estate projects had also recommended that “the IBC needs to be reformed to better accommodate the complexities of the real estate sector”.
Transfer of ownership and possession of a plot, apartment, or building to the allottees during the resolution process is one of the suggestions made in the report.
Through its February 12 notification, the IBBI has introduced 12 key amendments to the overall liquidation regulations to streamline the process, bringing more transparency and giving more power to the consultative committee.
It has put the onus on the liquidator to consult the committee on various aspects of the liquidation process before coming to a decision.
