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Government can amend it bankruptcy Legislation to enable “customised resolution” of insolvent residential real estate projects to ensure speedy delivery of flats to home buyers in stressed housing projects.
planned changes in Insolvency and Bankruptcy Code The (IBC) will allow solutions based on the nature of projects rather than prescribing a rigid framework for the entire real estate sector, said people familiar with the matter.
He said the move would also help arrest the fall in value of stressed housing projects. This is part of several changes that the government is planning to further strengthen the corporate insolvency resolution process under the IBC.
“After extensive discussions with stakeholders, it was felt that we cannot have a standard way of resolving tensions in real estate, where the issues are very complex and sensitive,” a person told ET. “Therefore, there could be enabling provisions for innovative, customized proposals (in addition to other provisions) for this sector,” the person said.
However, such proposals may need to conform to the original IBC structure. Besides, such resolution formats may require approval from the National Company Law Tribunal (NCLT), sources said.
Some analysts said the real estate sector, being unique in nature where homebuyers are also financial creditors under the IBC, warrants a “unique resolution process”.
Anoop Rawat, Partner, Insolvency & bankruptcyAt law firm Shardul Amarchand Mangaldas & Co., pointed out that the issues of financing, construction and completion of each real estate project are different. “Therefore, project-specific insolvency procedures for realty are appropriate, except where the entire company is under stress and all or most of the projects have defaulted,” he added.
However, procedural issues, such as the role of resolution professional and management, calculation of resolution cost, and interplay of funds and operations across projects, need to be clearly defined, Rawat said.
Officials had earlier said that the government was considering a multi-pronged approach – including last-mile financing apart from IBC through the Real Estate Regulatory Authority, and SWAMIH (special window for affordable and middle-income housing) fund. Has – Housing projects to ensure speedy delivery of homes to buyers to resolve tensions. So an innovative IBC mechanism for housing will come in handy.
In January, the corporate affairs ministry had invited suggestions on a special dispensation for the real estate sector, proposing that the process be limited to insolvent projects and not extend to entire companies including other solvent projects.
Manmekaur of law firm Karanjawala & Co. said, “A suitably tailored solution can be arrived at depending on the situation of the real estate project and the objectives of the stakeholders concerned.” Bankruptcy on the way.”
However, some safeguards are needed to ensure that the special framework is not misused by stakeholders, he said.
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