The government is reportedly reconsidering its plan to introduce a specialized framework for the real estate sector, which would limit insolvency proceedings to individual stressed housing projects and exclude their developers, according to a reliable source. This potential revision aims to prevent unscrupulous promoters from exploiting relief measures to abandon projects for higher profits, potentially diverting funds and worsening challenges for homebuyers. The proposed project-wise insolvency is under scrutiny for its potential to allow promoters to evade responsibilities. The government is seeking stakeholder feedback to strike a balance between homebuyers and real estate sector interests.
In a significant development, the government is reconsidering its strategy to implement a specialized framework for the real estate sector, limiting insolvency proceedings exclusively to individual stressed housing projects and excluding their developers, according to a reliable source.
This revision implies that realty firm promoters may not receive enhanced protection from insolvency through the anticipated amendments to the bankruptcy law, the source stated. The rethink has been prompted by concerns that unscrupulous promoters could exploit such relief to abandon specific housing projects midway after securing profits, redirecting their focus to those anticipated to yield greater returns. Additionally, there is apprehension that developers could potentially divert funds from certain projects, exacerbating the challenges faced by homebuyers rather than alleviating them.
The proposal for project-wise insolvency requires careful consideration as it could create a mechanism that allows promoters to evade their responsibilities. A good outcome is one that balances the interests of both homebuyers and stakeholders of the real estate sector. Therefore, the government is said to be requesting for stakeholder feedback to make improvements, if needed, to the proposed plan.
The existing Insolvency and Bankruptcy Code (IBC) does not provide any special dispensation for the real estate sector. Under the current framework, homebuyers and other creditors have the authority to take the entire realty firm to the National Company Law Tribunal (NCLT) for insolvency in one of its projects, subject to certain conditions. Promoters facing defaults risk losing control of their companies once insolvency cases are admitted by the NCLT.
Several real estate developers, including Jaypee, Unitech, Amrapali, Today Homes, Supertech, Logix, and Ainara, are already undergoing insolvency proceedings. As part of the Ministry of Corporate Affairs' (MCA) deliberations to finalize amendments to the IBC, the source indicated that insolvency proceedings could persist against the entire real estate firm. However, after the case is admitted, the committee of creditors, comprising homebuyers and other financial creditors, might be empowered to propose to the NCLT to limit the proceedings to specific projects if it deems such a restriction conducive to a resolution.
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