IBC should be used as last option for stressed real estate projects: Panel

Judicial interventions such as Insolvency and Bankruptcy Code (IBC) should be used only as a last resort in case of stalled real estate projects, recommends a report drafted by the committee headed of former Niti Aayog CEO Amitabh Kant.

The committee concluded that the primary reason for stress in real estate projects is lack of financial viability of these projects, resulting in cost overruns, project and time delays.

The Committee observed that the steps to improve the Internal Rate of Return (IRR) of these projects would attract more funding. “The Project resolution should be a win-win situation for all stakeholders,” noted the committee in its report that was submitted to the Ministry of Housing and Urban Development.

The committee was formed to look into all the issues related to legacy stalled real estate projects and suggest various ways to complete these projects.

The Committee made seven key recommendations:

1. Mandatory registrations of projects with RERA
2. Execution of registration/sub-lease deeds for all occupied units
3. Occupancy/possession of all substantially completed projects
4. Proposal for state government’s rehabilitation package for a promoter led resolution.
5. Framework for RERA and administrator led revival of projects
6. Financing of stalled project
7. Use of IBC for resolving projects as a measure of last resort

The Committee noted that more than 30 projects have been resolved under IBC. However, due to huge backlog of cases with NCLT, this mode of realisation is prone to severe delays. The committee, therefore, suggests that projects which cannot be resolved using recommendations (V) or (VI) alone should be referred under IBC by homebuyers or creditors.

The committee further notes that all stakeholders including Authorities should understand that IBC is a legal process and resolution would be strictly as per IBC rules. Unnecessary litigation should be avoided by all parties (land authorities/buyers/bankers/builders) and all should abide by the Judgements of Supreme Court.

The committee recommends and advises all State Governments to avoid further litigation where judgements of Supreme Court have been received. It also directs all builders, bankers and buyers to adopt similar approach so that issues are settled amicably after judgements of Supreme Court.

“IBC provides project to successful bidder with a ‘clean slate’. This will be respected by each and every stakeholder, and unnecessary litigation will be avoided,” it said.

The Committee recommends allowing plan approvals and extensions for developers and co-developers without requiring clearance of dues. It also says that a three-year extension may be given to all projects at no payment to Authority. This would ensure continuous project development while addressing the financial constraints of the developers.

Reforms suggested in IBC

1. Project wise CIRP: All projects need to be pre-registered with RERA. Since RERA registration is project-wise, this can be adopted under IBC.
2. Transfer of ownership/possession to allotees: The Committee proposes that the IBC may enable Resolution Professionals (RPs) to transfer the ownership and possession of a plot, apartment, or building to the allottees during the resolution process. An option may also be given to allotees to acquire such units on ‘as is where is’ basis or on payment of balance required to complete the unit during the process. Houses which are under possession of allotees should not be included in the IBC process.
3. Registration/Transfer of ownership where possession transferred: Where possession of a plot, apartment, or building to the allottees have already been transferred, these transactions must be formalised through registration during a Corporate Insolvency Resolution Process (CIRP) or a project- specific resolution process under IBC.
4. Five additional Fast-track NCLT Benches: To increase the efficiency and effectiveness of the insolvency resolution process, the Committee suggests the creation of five additional fast-track benches at the National Company Law Tribunal (NCLT), to expedite the cases including real estate cases. These benches should be created for a period of three years and should dispose of all pending IBC Real Estate cases on a priority basis.
5. Projects which are being revived under Framework IV and V above will be admitted under IBC only after the comments of RERA are taken

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