It may also enable the National Company Law Tribunal (NCLT) to seek inputs from the relevant Real Estate Regulatory Authority (RERA), given the complexities of bankruptcy resolution in the housing sector, where homebuyers are also financial creditors under the Insolvency and Bankruptcy Code (IBC), people aware of the details told ET.
The suggestion is included in proposed amendments to the insolvency code.
Bringing Deals to Fruition
The proposed move is expected to provide relief to thousands of homebuyers threatened with the prospect of seeing their money going up in smoke when builders fail.
Additionally, this may encourage homebuyers to make final payments and take possession. Buyers are typically reluctant to complete payments once a developer has gone under.”There is a thought that once the homebuyers have paid money for their flats and possession takes place, the moratorium will be lifted and flats will be treated like stocks/goods of a company (instead of assets),” said one of the persons cited, adding that the proposal is being discussed. According to some estimates, more than 100 housing projects in Noida and Greater Noida areas of the National Capital Region alone are either stuck or delayed.
Some experts said that while the current IBC rules do not stop a resolution professional from handing over flats to buyers during the resolution process after seeking approval from the committee of creditors, they tend to play it safe. An explicit IBC provision allowing flat transfer and registration could reduce the discretion of resolution professionals in this matter, they added.
“Where full payment is already received, there should be no reason to stop registering the flats in favour of homeowners merely because the company is in the CIRP (Corporate Insolvency Resolution Process),” said Manoj Kumar, partner and head for M&A and insolvency resolution services at consultancy firm Corporate Professionals Capital.
In January, the corporate affairs ministry had invited suggestions on a special regime for the real estate sector, proposing that the process be restricted to insolvent projects and not extended to the entire company, including other solvent projects.
According to a study by Grant Thornton Bharat, while real estate comprises almost 23% of the total (518 of 2,298) insolvency cases filed, they account for only about 13% (78 out of 611) of the resolved cases.
Yogendra Aldak, partner at Lakshmikumaran and Sridharan Attorneys, said the proposed move to transfer ownership or initiate registration of a flat would not just provide relief to homebuyers but also to creditors, as it would help improve the cash flow of the insolvent real estate company and prevent sharp erosion in value.
Anoop Rawat, partner for insolvency & bankruptcy at Shardul Amarchand Mangaldas & Co, said the resolution of stressed realty firms is a bit more complex than for other insolvent companies. “Given that homebuyers aren’t best placed to determine the feasibility and viability of resolution plans, RERA as the regulatory authority or any competent representative body may perform this role on behalf of the home buyers.”