Thursday, November 16, 2023

IBBI's Proposal for Real Estate Sector Reforms: A Step Towards Transparency and Efficiency

I. RERA Registration and the Road to Resolution Success

Legal Provisions as per RERA: According to Section 3 of the Real Estate (Regulation and Development) Act, 2016 (RERA Act), all real estate projects must be registered with the respective state's RERA if the proposed construction area exceeds 500 square meters or the number of apartments exceeds 8.

IBBI's Proposal: IBBI proposes that the Insolvency Resolution Professional (IRP) or Resolution Professional (RP) must register all real estate projects under RERA. This includes renewing the registration for projects nearing expiration.

Impact: Registering projects under RERA is crucial for transparency and accountability, fostering efficiency in the resolution process. The sector-specific legislation enhances the likelihood of a successful resolution.

II. Dedicated Bank Accounts for Real Estate Projects in CIRP

Legal Provisions as per RERA: RERA mandates separate accounts for each project to maintain detailed records related to approvals, filings, and financial transactions.

IBBI's Proposal: In alignment with RERA, IBBI proposes that IRP/RP should operate a separate bank account for each real estate project undergoing Corporate Insolvency Resolution Process (CIRP).

Impact: Creating dedicated bank accounts for each project ensures comprehensive documentation of financial transactions. This facilitates project-specific insolvency proceedings and distinct resolution plans.

III. Streamlining Real Estate Handovers During CIRP

Current Scenario: The handover of occupied units during Corporate Insolvency Resolution Process (CIRP) faces challenges, with ownership transfer delays even after contractual obligations are met.

IBBI's Proposal: IBBI suggests allowing RP to transfer ownership with Committee of Creditors' (CoC) approval. Additionally, to avoid unnecessary delays, RP may hand over possession on an 'as is where is' basis or on payment of the balance amount, subject to CoC approval.

Impact: This proposal aims to reduce disputes and formalize transactions during the resolution process, improving efficiency and facilitating smoother handovers.

IV. CoC to Examine and Invite Separate Plans for Each Project

Current Scenario: Real estate entities often have multiple projects at different stages of construction, making it challenging for a single resolution applicant to invest in all.

IBBI's Proposal: IBBI suggests that CoC may direct the RP to invite a separate resolution plan for each project after examination.

Impact: Encouraging separate plans for each project allows for more resolution applicants, potentially yielding better value. It also involves allottees in bringing their resolution plans, addressing specific project issues.

V. Exclusion of Property in Possession of Homebuyers from the Liquidation Estate

Background: Homebuyers were granted financial creditor status in 2018. However, confusion exists regarding properties in possession of allottees pending registration.

IBBI's Proposal: IBBI proposes excluding units in possession of allottees from the liquidation estate, safeguarding their interests.

Impact: This amendment aims to address conflicting judicial pronouncements, providing clarity and protecting homebuyers' rights.

Conclusion: IBBI's proposals signify a positive stride towards enhancing transparency and efficiency in the real estate sector's insolvency processes. These measures, if implemented, could contribute to a more streamlined and effective resolution framework, benefiting all stakeholders involved.