Industry Odisha Bureau, Oct 02: Healthy realty projects may escape pain when their developer enters bankruptcy. Creditors would need a 66% vote, then NCLT approval, to exclude them. Homebuyers could gain, but separating projects legally is hard.
A developer’s default on one site can freeze homes on another. India’s insolvency regulator wants to change that. The Insolvency and Bankruptcy Board of India (IBBI) plans new real estate insolvency rules. Two people aware of the plan said rules will be notified shortly. Healthy realty projects could stay outside bankruptcy even if the developer enters insolvency. The IBBI board discussed the proposal in late August.
When One Default Spreads
Today, admitting a developer into the Corporate Insolvency Resolution Process (CIRP) pulls in every project. That includes finished and solvent ones. The Section 14 moratorium then applies, without exceptions. It restricts specified actions involving the company to protect the insolvency estate. In real estate, that protection can spill over onto viable sites.
Construction can stall, and labour and contractors may leave, said lawyer Anoop Rawat. Home-loan disbursements, registrations and possession can all be held up. Buyers in completed projects face maintenance and registration uncertainty.
A 66% Gateway
The new route starts after the Committee of Creditors (CoC) is formed. The CoC would study each project separately. It could then recommend excluding those needing no insolvency intervention. That recommendation needs a 66% CoC vote. The National Company Law Tribunal (NCLT) must then approve it. Neither step is automatic. Creditor approval matters because exclusion can affect collateral, repayment claims and cash flows.
Separating the Balance Sheet
The harder problem is financial, not procedural. A housing project may run as a separate site. But the developer remains a single corporate debtor. Lawyer Yogendra Aldak noted that credit to a developer is not automatically project finance. Loans, collateral and cash flows may span several projects.
The IBBI’s June discussion paper suggested project-wise disclosures and ring-fencing of funds. It also proposed project-specific books and ways to reflect homebuyer preferences. Ring-fencing keeps each project’s money identifiable. Separate books help show what each project owns and owes.
The Scale Behind the Reform
Real estate makes up 22% of insolvency cases under resolution. Only manufacturing, at 36%, accounts for more. A separate, older estimate shows the wider housing strain. An Indian Banks’ Association figure counted 412,000 stalled units worth ₹4.08 trillion. A 2023 expert panel led by Amitabh Kant cited it. More than half were in the National Capital Region. Not all stalled homes sit inside insolvency cases.
The Supreme Court’s Push
The Supreme Court has nudged policy this way. In the Mansi Brar case, it said real estate insolvency should generally be project-specific. It directed the IBBI to frame guidelines in consultation with RERA. The amended Insolvency and Bankruptcy Code, since April, also backs project-wise insolvency.
Existing Cases in Limbo
Raheja Developers, Supertech, Today Homes and Ajnara, or their arms, face bankruptcy proceedings. Whether the new rules cover ongoing cases is still undecided.
Execution Will Decide
Open questions remain. Lawyer Vishal Gehrana said rules must clarify who manages an excluded project. They must also settle how creditors and homebuyers are protected. The fate of the moratorium for excluded projects needs answering. So does the handling of shared assets, liabilities and funds.
Healthy projects may yet escape pain from a developer’s bankruptcy. But splitting liabilities on paper may prove harder than splitting sites on the ground.
