Insolvency regulator moves to protect homebuyers, boosts transparency in bankruptcy process

In a significant move aimed at protecting homebuyers, the Insolvency and Bankruptcy Board of India (IBBI) has proposed a major change that would automatically include all allottees in a real estate project in the resolution process, even if they fail to file their claims formally.

This proposal is part of a broader discussion paper titled “Strengthening safeguards and transparency in the CIRP,” released today, which outlines four key reforms to plug procedural gaps in the Corporate Insolvency Resolution Process (CIRP).

Homebuyers to get automatic recognition

Under the current framework, only homebuyers who formally submit their claims to the resolution professional are considered in the Information Memorandum (IM) and the resolution plan. This has often led to the exclusion of allottees who, despite their details being in the company’s books, miss the claim-filing deadline.

The IBBI’s proposed solution mandates that the IM must include details of all allottees—names, amounts due, and units allotted—as reflected in the corporate debtor’s records. Furthermore, any resolution plan must explicitly state how these allottees will be treated.

This change is prompted by judicial observations, including from the Hon’ble NCLAT, which noted that excluding such allottees leads to “inequitable and unfair resolution.” The move is expected to prevent last-minute hurdles and litigation during the plan implementation stage, providing clarity and fairness to all genuine homebuyers.

Other Key Transparency and Safeguard Measures

The discussion paper includes three other major proposals to enhance the integrity of the insolvency process:

1. Enhanced Disclosure in Information Memorandum: To ensure a “true and fair” view of a company’s assets, the IBBI has proposed that the IM must explicitly include details of:
   • Receivables (trade, inter-corporate, and contractual).
   • Rights under Joint Development Agreements (JDAs), recognizing them as valuable property.
   • Assets under attachment by enforcement agencies like the ED or Income Tax Department, along with the status of proceedings.
2. Safeguard for CoCs Dominated by a Single Unregulated Creditor: In cases where no financial institution is part of the Committee of Creditors (CoC) and a single unregulated financial creditor holds more than 66% of the vote, a new safeguard is proposed. The five largest operational creditors will be invited as observers to CoC meetings. They will have access to information and can participate in discussions (without a vote), bringing additional scrutiny to the decision-making process.
3. Mandatory Reasons for Liquidation: To curb the practice of opting for liquidation even when a viable resolution plan is available, the IBBI has proposed making it mandatory for the CoC to record detailed reasons for recommending liquidation. These reasons must be submitted to the adjudicating authority, ensuring greater accountability for a decision that typically results in lower recoveries for stakeholders.

The IBBI has invited comments from the public on these proposals until December 8, 2025. The reforms, if implemented, are expected to significantly strengthen the transparency, fairness, and robustness of India’s corporate insolvency framework, bringing relief to homebuyers and boosting confidence among all stakeholders.

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