Homebuyers Can Now Claim Possession During Insolvency Under New IBBI Amendments

The Insolvency and Bankruptcy Board of India (IBBI) has introduced amendments that allow homebuyers to take possession of plots, apartments, or buildings even while insolvency proceedings are ongoing. This development addresses a longstanding issue where homebuyers, despite making payments, faced uncertainty due to stalled projects caught in insolvency cases. The change ensures that insolvency proceedings do not indefinitely delay the completion of projects, reducing financial stress for affected buyers.

Strengthening Homebuyer Rights

Previously, insolvency cases primarily favored financial creditors, leaving homebuyers with limited influence over stalled projects. With this amendment, homebuyers—recognized as financial creditors in India—have a more defined role in the resolution process. The provision does not interfere with insolvency proceedings but enables parallel project completion while resolution plans are being formulated. This approach prevents prolonged delays and provides homebuyers with assurance regarding project timelines.

Role of Facilitators in the Resolution Process

The amendment introduces facilitators to improve communication between homebuyers, authorized representatives, and insolvency professionals. These individuals ensure that homebuyers receive timely updates and can participate more effectively in decision-making.

For large groups of homebuyers, engaging in resolution proceedings can be challenging due to a lack of technical expertise or representation. Facilitators streamline communication and clarify procedural aspects, leading to more informed participation.

Involvement of Regulatory Authorities

The Committee of Creditors (CoC) now has the authority to invite regulatory bodies such as local development authorities to participate in insolvency discussions. This step is expected to improve compliance with land-use regulations and ensure that resolution plans align with urban planning and real estate laws.

Engagement with regulatory authorities is particularly relevant for stalled projects, as issues related to land approvals and permits often cause additional delays. By integrating these bodies into the resolution process, potential legal and regulatory roadblocks can be addressed early, facilitating smoother project completion.

Assessment of Project Viability

Resolution professionals must now submit a detailed report within 60 days of insolvency commencement. This report must cover the status of development rights, approvals, and permissions. The measure helps creditors assess whether a project is viable and prevents uninformed decision-making that could lead to unsuccessful resolutions.

A clear understanding of a project’s legal and regulatory status helps in identifying practical solutions for completion. It also assists in attracting serious investors who may be interested in reviving the project under a structured plan.

Homebuyers as Resolution Applicants

The amendments introduce relaxed eligibility criteria for homebuyers or their associations to act as resolution applicants. This change allows them to take control of stalled projects instead of depending solely on external bidders or developers.

By participating directly in the resolution process, homebuyers can explore options such as forming cooperatives or seeking financial support to complete the construction of their homes. This provides an alternative pathway for project completion while reducing dependency on third-party intervention.

Disclosure of MSME Status

To enhance transparency, resolution professionals must now disclose whether the corporate debtor is classified as a micro, small, or medium enterprise (MSME). This disclosure enables potential bidders to evaluate the available regulatory benefits before participating in the resolution process.

For MSMEs, recent budgetary changes have expanded financial relief measures. The updated insolvency provisions make it easier for promoters of MSMEs to consider pre-packaged insolvency resolutions, an option that has seen limited adoption so far.

Challenges and Implementation Concerns

While the amendments address several concerns, their practical implementation will determine their effectiveness. Ensuring smooth possession transfers during insolvency requires coordination between resolution professionals, homebuyers, and regulatory authorities. There is also a need for clear guidelines on handling disputes that may arise between creditors and homebuyers.

The role of facilitators will be crucial in bridging gaps between stakeholders, but their efficiency will depend on how well they are integrated into the insolvency framework. Ensuring that homebuyers understand their rights and responsibilities will be essential in maximizing the benefits of these amendments.

Impact on the Real Estate Sector

The amendments introduced by the IBBI are expected to improve trust in the insolvency process and encourage homebuyers to consider projects that were previously deemed risky due to insolvency-related uncertainties. With the ability to take possession during proceedings, homebuyers can avoid prolonged delays that often lead to financial distress.

Additionally, by allowing homebuyers a more active role in resolutions and improving regulatory oversight, these changes could lead to better execution of insolvency cases in the real estate sector. More structured and transparent resolutions may attract investors willing to revive stalled projects, ultimately benefiting the broader market.

Image source- ibbi.gov.in//en