The changes corresponding to the proposals are suggested in the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, and the IBBI (Liquidation Process) Regulations, 2016. The draft regulations have been annexed to the proposals.

Comments on the proposals and the draft regulations have been sought by November 28, 2023.

The Board’s proposals are as follows: –

• Registration of corporate debtor’s real estate projects under RERA

During the corporate insolvency resolution process, the interim resolution professional (IRP) or resolution professional (RP) would be required to get the real estate projects of the corporate debtor registered under the Real Estate (Regulation and Development) Act, 2016. If the registration has expired or is about to expire, the IRP or RP should ensure that the registration is extended. The said Act mandates that projects with a land area exceeding 500 m² or with more than 8 apartments have to be registered with the State’s Real Estate Regulatory Authority.

This change would be effected through the incorporation of Regulation 4D in the CIRP regulations and is in accordance with Section 17(2)(e) of the Insolvency and Bankruptcy Code, 2016, which deals with the management of affairs of the corporate debtor by the IRP. As per this Section, the IRP, on behalf of the corporate debtor, is responsible for ensuring compliance with requirements under any law for the time being in force.

No comments.

• Separate bank account for each real estate project

Regulation 4E under the draft CIRP regulations envisages the maintenance of a separate bank account for each real estate project that is undergoing CIRP, to be operated by the IRP or RP. This is consistent with the 2016 Act which mandates that a separate account has to be maintained with a scheduled bank, in which 70% of the amounts realised for the project from the allottees has to be deposited.

Such a provision is expected to enable consolidation of information pertaining to specific projects which in turn will be beneficial during project-wise insolvency.

Comment: This provision may result in ambiguity considering that a separate account needs to be maintained under the provisions of RERA. To avoid any conflict between the RERA and CIRP regulations, the construct of Regulation 4E should clarify that the separate account as mandated by RERA shall be operated by the IRP.

• Handover of unit’s possession to homebuyers under Regulation 4F

If the homebuyer has discharged his obligations as per the agreement for sale, the RP has to hand over the possession of the unit and facilitate its registration in favour of such homebuyer, during the resolution process. Before doing so, the approval of the Committee of Creditors (CoC) has to be obtained, by not less than 66% of the total votes.

This provision, which is aimed at safeguarding the homebuyers’ interests, is sought to be introduced vide insertion of Regulation 4F in the CIRP regulations.

Comment: Though this is a welcome move, the mandate of obtaining 66% votes of the Committee’s members as a pre-condition for such a handover will defeat the intent of the Regulation, since in most cases the financial institutions which have funded the project may have more than 34% voting rights in the Committee. Hence, it would be appropriate to reduce the voting percentage for passing a resolution for handover under Regulation 4F from 66% to 51%.

• Invitation of separate resolution plans for each real estate project

As per the discussion paper, the CoC can direct the RP to invite separate resolution plans for each of the corporate debtor’s real estate projects. The same will be in the form of a clarification added to Regulation 36A(4) of the CIRP regulations. This regulation provides the specifications to be contained in the detailed invitation for expression of interest, including the criteria and ineligibility norms for prospective resolution applicants, and basic information about the corporate debtor, and also states that no fee or non-refundable deposit would be applicable for submission of expression of interest.

Inviting separate plans for each real estate project is expected to widen the pool of prospective resolution applicants considering that it would not be feasible for them to invest in all projects.

Comment: Such a clarification would definitely enhance the participation of resolution applicants. Under RERA, each “phase” of a masterplan can be treated as an independent “real estate project” and adding an explanation in this regard would remove any uncertainty with respect to the invitation of resolution plans for projects with multiple phases.

• Units under possession of allottees to be excluded from liquidation estate

By insertion of Regulation 46A in the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, it is proposed to exclude units under the possession of allottees as defined under RERA from the liquidation estate of the corporate debtor.

Under Section 36(4) of the IBC, certain assets are excluded from the liquidation estate. Consequently, such assets will not be used for recovery in liquidation. Sub-section (e) to the said Section empowers the Board to specify any other assets for such exclusion and in the exercise of this power, the proposed regulation is sought to be introduced.

The IBBI adjudged it to be necessary to exclude units under the possession of allottees from liquidation estate in light of the conflicting judicial pronouncements in this regard and to ensure that bona fide homebuyers do not end up suffering on account of the insolvency proceedings.

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