{"id":3021,"date":"2023-01-20T11:27:00","date_gmt":"2023-01-20T11:27:00","guid":{"rendered":"https:\/\/zeus.firm.in\/expert-speaks-our-senior-partner-mr-sandeep-bhuraria-has-expressed-his-views-in-an-article-titled-mc-explains-will-tweaks-in-insolvency-law-help-homebuyers\/"},"modified":"2023-04-24T13:39:00","modified_gmt":"2023-04-24T13:39:00","slug":"expert-speaks-our-senior-partner-mr-sandeep-bhuraria-has-expressed-his-views-in-an-article-titled-mc-explains-will-tweaks-in-insolvency-law-help-homebuyers","status":"publish","type":"post","link":"https:\/\/zeus.firm.in\/expert-speaks-our-senior-partner-mr-sandeep-bhuraria-has-expressed-his-views-in-an-article-titled-mc-explains-will-tweaks-in-insolvency-law-help-homebuyers\/","title":{"rendered":"Expert Speaks: Our Senior Partner, Mr. Sandeep Bhuraria has expressed his views in an article titled “MC Explains: Will tweaks in insolvency law help homebuyers?”"},"content":{"rendered":"
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\n \n MC Explains: Will tweaks in insolvency law help homebuyers?<\/strong><\/p>\n<\/td>\n<\/tr>\n
\n \n The government\u00a0has proposed changes in the Insolvency and Bankruptcy Code\u00a0aimed at reducing the hardships of homebuyers caught in time-consuming legal battles with real estate developers, which delays possession of their homes.<\/p>\n
A key change proposed is project-wise resolution \u2013 if an application is filed against a builder that has multiple projects, proceedings will be initiated only against the specific project on which there is a default.<\/p>\n
The proposed amendments are intended to ensure expeditious resolution of stalled projects and provide legislative backing to the concept of \u2018reverse corporate insolvency resolution process\u2019 and \u2018project-wise CIRP,\u2019 legal experts said. They will help increase the chances of successful resolution because the focus will be on specific distressed assets rather than the broader company.<\/p>\n
Real estate accounts for the second-highest number of insolvency resolution cases, according to the Insolvency and Bankruptcy Board of India (IBBI). The manufacturing sector has the highest share at 40 percent, real estate accounts for 21 percent, construction 11 percent, and trading sectors 10 percent.<\/p>\n
The resolution rate of real estate cases is among the lowest, according to a joint report by property consultants Anarock and law firm Khaitan & Co.<\/p>\n
What are the proposals?<\/strong><\/p>\n
The proposed changes announced on January 18 include fast-tracking the process, expanding the scope of the pre-packaged framework, and developing an electronic platform with minimal human interface. Changes with respect to the resolution process for real estate projects have also been proposed.<\/p>\n
The resolution of corporate debtors that promote real estate projects has posed a major challenge due to the peculiarities of the sector. Though allottees in a real estate project are considered financial creditors and a core part of the committee of creditors, at times their interests do not align with the scheme of the CIRP, according to the discussion paper.<\/p>\n
Unlike other financial creditors, allottees prefer ownership and possession of the plot, apartment, or building rather than a reduced repayment of the advance they paid or commencement of the liquidation process. There is an inherent tension between the interests of other financial creditors like banks that would accept repayments, even with a reduction, or agree to liquidate the corporate debtor, and the interests of allottees, noted the discussion paper, which will form the basis for amendments to the IBC.<\/p>\n
It said that to protect the interests of allottees, several judicial experiments have been conducted to adapt CIRPs to the nature of the real estate sector, such as \u2018reverse CIRP\u2019 and \u2018project-wise resolution.\u2019 In practice, it was observed that because of a default in one project, CIRP was initiated against the entire company.<\/p>\n
\u201cThis is counterproductive as other solvent projects are also stalled post-commencement. It is also noted that in real estate cases, the default often pertains to specific projects (while other projects continue to do well). Thus, it is felt that the Code should provide a specialised framework to deal with cases involving CDs that are promoters of real estate projects,\u201d the discussion paper said.<\/p>\n
Therefore, it is being considered that\u00a0when an application is filed to initiate the CIRP in respect of a corporate debtor who is the promoter of a real estate project, and the default pertains to one or more of its real estate projects, the adjudicating authority, at its discretion, shall admit the case but apply the CIRP provisions only to projects that have defaulted. Such projects shall be distinct from the larger entity for the purpose of resolution, the discussion paper said.<\/p>\n
This will serve two purposes. Firstly, the stressed projects can be resolved separately and the debtor can continue to focus on other projects where it has not defaulted. Secondly, a suitably tailored resolution can be achieved based on the status of\u00a0 the real estate project and the objectives of the relevant stakeholders, which will primarily include the allottees, it said.<\/p>\n
Another proposal is to enable the resolution professional to transfer the ownership and possession of a plot, apartment or building to the allottees with the consent of the committee of creditors.<\/p>\n
\u201cIt is observed that allottees may, during a CIRP or a project-specific resolution process as being considered herein, request ownership and possession of a completed unit of the real estate project, which cannot be permitted during the moratorium under the Code,\u201d the notice said.<\/p>\n
The IBC, which came into force in 2016, provides for a market-linked and time-bound resolution of stressed assets. The code has already undergone various amendments.<\/p>\n