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  • Writer's pictureRFMLR RGNUL


The RFMLR Editorial Board recently interviewed Mr. Bishwajit Dubey, Advocate and Former Partner, Cyril Amarchand Mangaldas (CAM) on the topic, "Real Estate Insolvency: Legal Insights and Challenges."

Mr. Bishwajit Dubey is an advocate and former partner at Cyril Amarchand Mangaldas. He brings with him more than 19 years of experience with a focus on Insolvency, debt recovery product liability, infrastructure, corporate commercial, contractual, intellectual property and white collar crime practice.
Mr. Dubey has been ranked among the Forbes Top 100 Individual Lawyers and has also won the award for Dispute Resolution Lawyer of the Year at ASSOCHAM BHARAT Legal Conclave and National Legal Excellence Awards 2023.

1. What do you think about the concept of Reverse Corporate Insolvency Resolution Process (CIRP) as a transformative strategy for the revitalization of India's real estate sector?

The introduction of the Insolvency and Bankruptcy Code (IBC) in 2016 brought about a significant shift in corporate insolvency resolution in India. In 2019, Indian courts recognized the concept of "Reverse Corporate Insolvency Resolution Process" (Reverse CIRP), particularly applicable to real estate projects. This innovative approach allows project promoters, facing insolvency proceedings, to act as financial lenders and inject funds into the project for completion. Several judgments, including those in Flat Buyers Association Winter Hills vs Umang Real tech and Anand Murti vs. Soni Infratech Private Limited, upheld Reverse CIRP as a viable option for timely project completion, ensuring homebuyers' interests are safeguarded without compromising on financial losses. The process mandates that promoters possess adequate financial backing, garner support from homebuyers for possession over refunds, adhere to project completion timelines, and cooperate with the Insolvency Resolution Professional (IRP). Despite lacking legislative backing within the IBC, Reverse CIRP has emerged as a pragmatic solution for resolving distressed real estate projects, unclogging stalled developments, and mitigating litigation risks. However, its implementation requires stringent adherence to timelines, fund infusion, collaborative efforts with IRPs, and continual monitoring to uphold homebuyers' interests and ensure project completion, thereby contributing significantly to the revival of the real estate sector.

2. What according to you are the key factors/reasons that have led to the high number of real estate companies/ contractors going into the corporate insolvency resolution process in India?

The high number of real estate companies and contractors entering the corporate insolvency resolution process in India can be attributed to various factors. Firstly, the sector was largely unregulated from an investor's point of view previously, allowing for practices such as the diversion of funds from one project to another, leading to financial instability and project delays. Secondly, financial mismanagement within real estate companies, including cost overruns and misuse of funds, has contributed to their financial distress. Moreover, instances of diversion of funds raised for specific projects to purchase land parcels or other unauthorized uses, coupled with insufficient monitoring by financial institutions during project implementation, have added to the sector's woes. External factors such as liquidity crunches and delays in obtaining necessary clearances from authorities, have further strained real estate companies. Furthermore, fraudulent practices by builders and inadequate due diligence by homebuyers have also played a role in the sector's downturn. Lastly, the practice of operating multiple housing projects under a single company name instead of establishing separate entities for each project has led to operational inefficiencies and increased financial risks, contributing to the sector's overall instability. Collectively, these factors highlight the multifaceted challenges facing the real estate industry in India and underscore the need for comprehensive reforms to address systemic issues and restore investor confidence.

3. How can the role of authorized representatives (ARs) under section 21(6A) in the CIRP of real estate companies be improved to ensure effective communication between ARs and homebuyers?

The Insolvency and Bankruptcy Board of India (IBBI) introduced the provision of Authorized Representatives (AR) under the IBBI Regulations, facilitating effective participation of various creditor classes in the Corporate Insolvency Resolution Process (CIRP). Notably, this provision doesn't define AR under the IBC. ARs are appointed to represent the mandate of creditors in the Committee of Creditors (CoC), particularly crucial in real estate matters where homebuyers constitute a significant creditor class. Despite its importance, the IBC lacks clarity on the process of changing ARs during CIRP, unlike provisions for changing Resolution Professionals (RPs). There's a need to define the role of ARs comprehensively, including their selection process, fees, and responsibilities, to ensure effective representation of creditors' interests throughout the insolvency process.


Additionally, challenges in determining the period, process, and timelines for concluding the role of ARs persist. While the AR's role traditionally concludes with the submission of a Resolution Plan to the National Company Law Tribunal (NCLT) or the initiation of liquidation proceedings, ongoing queries and meetings from creditors may extend beyond these milestones. The IBC and related regulations should outline guidelines for the orderly conclusion of the AR's involvement in the assignment, addressing concerns regarding ongoing communication and responsibilities even after significant CIRP milestones.


Furthermore, the evolving role of ARs necessitates a clear definition within the IBC framework to align with their responsibilities as representatives of creditor classes. Additionally, provisions for changing ARs during CIRP should be introduced, allowing creditor classes to replace representatives if dissatisfied with their performance. This could involve a voting mechanism among creditors to ensure a fair and transparent process. Moreover, clarifying the selection process for ARs during transition periods, along with establishing reasonable remuneration structures, can incentivize Insolvency Professionals (IPs) to undertake AR assignments more seriously, recognizing the pivotal role they play in safeguarding creditors' interests during insolvency proceedings.


4. Given the challenges faced by home buyers in achieving timely and effective resolution of their claims such as issues relating to claims submitted with delay, treatment of orders passed by the RERA, claims of landowners etc., what are the key recommendations to improve the process?


Improving the resolution process for home buyers and addressing challenges in the real estate sector demands a multifaceted strategy. Firstly, strict timelines should be set for claim adjudication, coupled with measures to expedite the process and discourage unnecessary delays. Secondly, leveraging digital platforms for claim submissions and enhancing transparency is essential. Thirdly, officials must receive comprehensive training on real estate laws and dispute resolution mechanisms to bolster their capacity. Standardizing processes for claim handling and collaborating effectively with RERA authorities are vital steps. Encouraging alternative dispute resolution mechanisms can help expedite resolutions and alleviate the burden on formal adjudication. Fair treatment of landowner claims and consumer education initiatives are imperative. Establishing regular review mechanisms, coupled with periodic legal reforms, will ensure continuous improvement of the resolution framework. Collaboration among government bodies, regulatory authorities, and industry stakeholders is crucial for the successful implementation of these recommendations, fostering a more efficient and effective resolution process for home buyers within the real estate sector.


5. The Supreme Court in the recent case of Vishal Chelani and others v. Debashis Nanda, 2023 held that homebuyers cannot be treated differently from other ‘financial creditors’ under IBC merely on the ground of securing a favourable order from the authority under RERA. What are your views about this current development?


The recent Supreme Court ruling in Vishal Chelani and others v. Debashis Nanda, 2023, which stated that homebuyers cannot be treated differently from other 'financial creditors' under the Insolvency and Bankruptcy Code (IBC) solely based on securing a favorable order from the Real Estate Regulatory Authority (RERA), raises important considerations. This ruling underscores the need for consistency in treating homebuyers as financial creditors within the IBC framework, regardless of their actions or orders obtained through other regulatory bodies such as RERA. From my perspective, this development aligns with the fundamental principles of equality and fairness enshrined in the IBC. Treating homebuyers differently based on their interactions with RERA could potentially create inconsistencies and undermine the uniformity of the insolvency resolution process. By emphasizing that homebuyers should not be granted special treatment solely due to RERA interventions, the Supreme Court reaffirms the importance of upholding the integrity and coherence of the IBC.


Moreover, this ruling emphasizes the need for a harmonized approach between different regulatory authorities involved in real estate matters. While RERA plays a crucial role in protecting homebuyers' interests and resolving disputes within the real estate sector, it should operate in tandem with the insolvency framework established by the IBC. Clear delineation of roles and responsibilities between RERA and the IBC can help avoid conflicts and ensure efficient resolution of real estate insolvency cases. Overall, the Supreme Court's decision in Vishal Chelani and others v. Debashis Nanda, 2023, reinforces the principle of uniform treatment of homebuyers as financial creditors under the IBC, irrespective of their engagements with other regulatory bodies. This promotes transparency, consistency, and fairness in the insolvency resolution process, ultimately enhancing investor confidence and contributing to the stability of the real estate sector.


6. What are the consequences for allottees of a real estate project if the corporate debtor (CD) goes into liquidation? How are those home buyers who have taken possession of the house treated in such a case?

If a corporate debtor enters liquidation, several consequences arise for allottees of a real estate project. Firstly, there is substantial erosion in value during liquidation proceedings. In such cases, those who have already taken possession of their properties should promptly register their houses in their names. Secondly, there's a pressing need to reconsider the status of homebuyers, currently classified as unsecured creditors, and treat them as secured creditors instead, aligning with the concept of reverse insolvency to enable smoother resolutions in the market. This reclassification would provide them with greater protection in the event of liquidation.


Moreover, clarity is essential regarding when allottees should be considered secured creditors, as this ambiguity complicates their position in liquidation scenarios. It's proposed that homes purchased by allottees be excluded from the liquidation estate, allowing the liquidator to complete the project and distribute any surplus among stakeholders, potentially mitigating losses for homebuyers. Additionally, alternative offers with discounts to buyers could be explored to alleviate the challenges posed by liquidation for homebuyers.


Legally, the physical possession of properties is of lesser importance compared to financial obligations. Allottees who have fully paid should secure their ownership through execution of sale deeds, ensuring their safety and security. For those who have partially paid, their intentions to fulfill their obligations should be assessed during the Committee of Creditors (COC) proceedings. The Transfer of Property Act should be considered, particularly Section 53A, which suggests that once substantial obligations are met, allottees should be treated as secured financial creditors. However, allottees who engaged with fraudulent entities before thorough verification may bear some responsibility for any damages incurred. Thus, a comprehensive framework addressing these aspects is crucial to safeguard the interests of real estate project allottees in the event of liquidation.





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