Panel proposes project-centric, completion-driven approach to resolve real estate insolvency cases

In a sweeping attempt to overhaul the insolvency framework for the real estate sector, a committee set up by the Insolvency and Bankruptcy Board of India (IBBI) has proposed a fundamental shift from an entity-based resolution model to a project-centric, completion-driven approach, placing homebuyers at the heart of the process.

The committee, constituted following directions of the Supreme Court in the Mansi Brar Fernandes case, has submitted a comprehensive report recommending 155 measures across 55 issues to address persistent delays, legal uncertainties, and structural bottlenecks in resolving stressed housing projects.

At the core of the report is a recognition that real estate insolvency differs significantly from other sectors, as it directly impacts lakhs of homebuyers whose primary objective is not recovery of money but possession of homes.

Shift to project-wise insolvency

One of the most significant recommendations is the introduction of project-wise admission of insolvency proceedings, replacing the current entity-level approach. Under this, each real estate project would be treated as a separate unit, ensuring that viable or near-complete projects are not dragged into insolvency due to stress in unrelated developments.

The committee noted that multi-project insolvencies often trap otherwise solvent projects due to a blanket moratorium, worsening delays and eroding value. It suggested that entity-level insolvency should be allowed only in exceptional cases such as fund commingling or fraud.

Homebuyers at the centre

Highlighting the scale of impact, the report said that real estate insolvency cases affect nearly a quarter of a million homebuyers, translating into housing insecurity for close to a million individuals when family sizes are considered.

To address this, the panel has proposed stronger safeguards, including:

• Automatic inclusion of homebuyers in creditor lists based on records
• Greater accountability of authorised representatives
• Mandatory consultations with homebuyers before key decisions

It also emphasised that insolvency should be a last resort, with the Real Estate Regulatory Authority (RERA) acting as the primary mechanism for resolving stalled projects, in line with Supreme Court observations.

Fixing structural bottlenecks

The report identifies deep-rooted issues that have plagued real estate insolvency, including fragmented project structures, unreliable cost data, frozen escrow accounts, and inconsistent actions by development authorities.

To tackle these, it recommends:

• Mandatory independent technical audits to determine cost-to-complete and project status
• Continued operation of project-specific escrow accounts to ensure funds are used for construction
• Standard operating procedures (SOPs) for development authorities to prevent arbitrary actions such as lease cancellations

A key proposal is to ring-fence project cash flows and prohibit diversion of funds across projects, a recurring issue in stalled developments.

Faster approvals, fewer delays

Acknowledging delays caused by expiring regulatory approvals, the committee has suggested automatic extension of licences during insolvency and the creation of a fast-track “insolvency clearance window” for revalidation of approvals.

It also flagged prolonged delays at the National Company Law Tribunal (NCLT) stage and called for specialised real estate benches to speed up resolution plan approvals.

Boosting investor confidence

To attract more bidders, the report recommends improving the quality of information memoranda, integrating government-backed funding such as SWAMIH, and encouraging participation by public sector entities.

The panel also called for strict enforcement of the “clean slate” principle, ensuring that successful bidders are not burdened with past liabilities, a factor that has deterred investors.

Stronger post-resolution oversight

A major gap identified is weak monitoring after resolution plan approval. To address this, the committee has proposed:

• Creation of project monitoring committees
• Formal handover of oversight to RERA post-approval
• Linking plan implementation to physical construction milestones rather than just financial closure

Moving away from liquidation

The committee underscored that liquidation is often value-destructive in real estate and should be avoided. Instead, the insolvency framework should facilitate project completion and delivery of homes, aligning with broader public interest and constitutional principles such as the right to housing.

The report concludes that India’s insolvency regime for real estate must evolve beyond debt recovery to a “completion-first” framework, balancing creditor rights with the socio-economic realities of housing.

If implemented, the recommendations are expected to bring greater predictability, faster resolutions, and improved confidence among homebuyers and investors—while addressing one of the most complex segments within the insolvency ecosystem.

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