The Real Estate saga within the journey of the Insolvency and Bankruptcy Code (IBC) has been nothing short of a roller coaster ride, marked by unexpected twists and turns that signal a need for a fresh perspective on all cases in India.

Several deviations from the norm have ideated a fusion of broader legal framework and creative business solutions.

The initial surprise unfolded in the Chitra Sharma vs Union of India case, where the Supreme Court’s decision to include allottees in the Committee of Creditors (CoC) marked a departure from the written law.

This empowered allottees, prompting the government to swiftly bring them under the definition of financial creditors through an ordinance. This move granted allottees a powerful tool to initiate insolvency proceedings against defaulting real estate companies, acting as a reminder for developers to uphold their commitments.

The second surprise came with the acceptance of the Reverse Corporate Insolvency Resolution process. Unlike traditional insolvency petitions that target an entire company, this approach restricted the Corporate Insolvency Resolution Process (CIRP) to a project.

The rationale behind this innovation was to safeguard the interests of allottees, ensure the survival of Real Estate Infrastructure Companies, and facilitate the completion of projects.

The amendment

Recent IBBI Amendment Insolvency and Bankruptcy Board of India (IBBI) on February 15 amended the CIRP regulations to allow the resolution professionals to have separate bank accounts for each real estate project of the corporate debtor.

The amendment also now allows the resolution professional to invite separate plans for each of those projects.

According to IBBI’s December 2023 Quarterly Report, Real Estate holds its position as the second-largest segment in IBC, with over 1,300 cases admitted into CIRP from the inception of the code until December 2023.

The sheer volume and complexity of these cases, coupled with the significant impact on common buyers and labour dynamics, make this segment particularly challenging. Restricting insolvency only to projects is a pathbreaking move in India’s insolvency landscape.

IBC requires novel and creative manoeuvres and tying them up with procedural hurdles would be detrimental to larger interests of resolution.

Experimentation vital

Experimentation is the first principle in an economic law like IBC, which has even received the Supreme Court’s affirmation in CoC of Essar Steel India Limited v. Satish Kumar Gupta & Ors., “The experiment contained in the Code, judged by the generality of its provisions and not by so-called crudities and inequities that have been pointed out by the petitioners, passes constitutional muster. To stay experimentation in things economic is a grave responsibility, and denial of the right to experiment is fraught with serious consequences to the nation.”.

The recent amendment allowing multiple resolution plans for each project opens the door to broader discussions about implementing multiple resolution plans for a single CIRP.

Applying a similar analogy of real estate, could there be convincing circumstances where insolvency is confined to just one segment/unit/factory instead of the whole company? In the evolving landscape of IBC, embracing innovative solutions and allowing for experimentation is crucial for achieving the primary objective of resolving the stress of companies as a going concern during the insolvency process.

The solution in an innovative approach must not be buried under procedural complexity. It is a necessity for navigating a dynamic and ever-changing economic environment. Hopefully, the real estate industry’s approach could show the way to other industries.

The writer is a chartered accountant and insolvency professional

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