Government Explores Customised IBC Resolutions for Real Estate Sector

According to a report by the Economic Times (ET), the government is considering making changes to the insolvency law in order to facilitate customised resolutions for insolvent residential real estate projects. Instead of applying a rigid framework to the entire real estate sector, the proposed revisions to the Insolvency and Bankruptcy Code (IBC) would enable resolutions that are customised to the specific nature of individual projects.

The objective is to prevent further erosion of value in distressed housing projects. The government aims to strengthen the corporate insolvency resolution process under the IBC and is discussing the possibility of enabling innovative and customised resolutions for the real estate sector, in addition to other provisions. However, these resolutions would still need to adhere to the fundamental structure of the IBC and may require approval from the National Company Law Tribunal (NCLT). Analysts suggest that the unique nature of the real estate sector, where homebuyers are also financial creditors, warrants a special resolution process. While the government has been considering various approaches to address stress in housing projects, a creative IBC housing mechanism could prove beneficial, along with utilising other measures like the Real Estate Regulatory Authority and the Swamih Fund for last-mile financing. It is important to establish clear procedures to address issues such as the role of resolution professionals, calculation of resolution costs, and management of funds across projects. The aim is to tailor the resolution process based on the status of each real estate project and the objectives of the stakeholders involved, while also preventing misuse of the specialised framework.