Insolvency and Bankruptcy

The main objective of the Insolvency Bankruptcy Code is to provide effective solutions to bankruptcy and insolvency problems

The main objective of the Insolvency Bankruptcy Code is to provide effective solutions to bankruptcy and insolvency problems. The code has been in effect for various sectors such as telecom, infrastructure, energy, corporates, real estate, etc.

As per parliament, a total of 344 corporate debtors who are involved in construction and real estate have been admitted to the Corporate Insolvency Resolution Process (CIRP) by the end of September 2022. This has given the need to have a separate insolvency process for the real estate sector. It is because of the common fact that creditors in this sector are homebuyers who are not among any lending financial institution. The court has to look into the fact that most homebuyers don’t buy or have homes in a particular area, rather they are spread across different states. The two reasons mentioned above delay the process prescribed under the insolvency bankruptcy code and make it hard for legal consultants to consult anyone due to a lack of clarity in the code.

Challenges & Judicial steps:

The court faced the issue for the first time in the case of Flat Buyers Association Winter Hills v. Umang Realtech Pvt. Ltd., where the court observed that the majority of the financial creditors were the allottees themselves who did not know about the “viability” or “feasibility” of a corporate debtor. And they were given the voting right to vote on the resolution plan. The court saw a lack of financial knowledge as compared to the established financial institutes such as banks, etc.

The court introduced the concept of “reverse CIRP” or “Project-wise CIRP”. The initial applicants who received allocations wanted CIRP but did not wish to accept any plan submitted by a third party, i.e., a resolution applicant. To guarantee that the CIRP is successful and the allottees receive their flats or apartments, one of the promoters agreed to inject money into the corporate debtor and act as a lender. The Hon’ble NCLAT approved reverse CIRP and set a deadline for the promoter to complete the project, observing that it will be finished in 4-5 months. According to this reverse CIRP procedure, the allottees would only be able to pursue CIRP against the corporate debtor concerning a specific project.

Following this case, the NCLAT passed orders allowing the projects to use Project-wise CIRP for corporate debtors. It is important to highlight that there is currently no mechanism under the Insolvency Bankruptcy Code that permits the insolvency of a Corporate Debtor on a project-by-project basis. The aforementioned idea is a result of NCLAT’s judicial innovation, which lacks legislative support.

The Hon’ble NCLAT permitted project-wise insolvency in Whispering Tower Flat Owner Welfare Association vs. Abhay Narayan Manudhane, RP of Corporate Debtor, while noting that the CoC, in its commercial wisdom, had approved the division of the corporate debtor’s assets into eight projects to examine the possibility of project-wise resolution. Most recently, Ram Kishor Arora Suspended Director of M/s. Supertech Ltd. v. Union Bank of India & Anr., it was decided to enable project-specific CIRP rather than company-wide CIRP and to instruct that the other projects’ construction continue while being under the overall control of the IRP.

In the latest case of Indiabulls Asset Reconstruction Co. Ltd. v. Ram Kishore Arora, The Court ruled that the CoC was to be established for the corporate debtor in defiance of the NCLAT’s directives, which was likely to have an impact on those current projects and put every project in a state of uncertainty and cause great hardship for the homebuyers. The Court further stated that, on the other hand, the IRP maintained its other programs and made efforts to inject money with the active support of the former management, but without giving the former management any new rights. Therefore, the Court believed that any temporary decision establishing the CoC would be more likely to cause trouble for the corporate debtor as a whole and might harm homebuyers irreparably.

Another challenge faced by the court is addressing “the issue of filing delayed claims”. It was highlighted in the case of Puneet Kaur v. K V Developers Private Ltd., where the Hon’ble NCLAT said that no claims can be filed by the approval of a resolution plan by the CoC. However, the court later took into consideration that the majority of the creditors were homebuyers who owned different homes at different locations across India. The court allowed later claims for the homebuyers only. Regulation 36 of the CIRP Regulations, which deals with the creation of information memoranda by the Resolution Professional (RP), was given a broad interpretation by the NCLAT. The NCLAT ruled that giving residential units to allottees or purchasers constituted a liability in the Corporate Debtor’s financial records, and as a result, the RP was required to mention this in the information memorandum. These directions led to a delay in the CIRP process by 3 months. The judgment helped the homebuyers but the challenge remained the same. “It didn’t resort to procedural invention”.



As we have observed the courts have tried to solve the problems but every time there is something that is lacking or certain problems are left unresolved. The legal consultants of the best law firms in India have faced the same challenges while consulting with their real estate clients. The following are the recommendations for solving the challenges in bankruptcy and insolvency areas:

  1. Specific procedure to be legislated for the bankruptcy and insolvency of real-estate sectors.
  2. Introduction of substantive and procedural rules for project-wise insolvency. To enable NCLTs to separate projects of the Corporate Debtor and admit only those projects that necessitate bankruptcy, while leaving other projects outside the scope of the Code, specific provisions/regulations should be inserted.
  3. Provisions should be added for informing homebuyers about their claims so that the delay in the process of bankruptcy and insolvency can be sorted. It will enable the objective of the insolvency bankruptcy code i.e. time effective solutions.
  4. Section 15 of the Code should be amended, read in conjunction with Regulation 6 of the CIRP Regulations, to ensure that the public announcement is not limited to certain sources. Sources to be expanded through which the allottees can be informed about the start of CIRP.
  5. With the CoC’s approval, Section 28 of the Code may be modified to allow the RP to transfer ownership and occupancy of a plot, flat, or building to the allottees.”
  6. Creation of special benches in NCLT for bankruptcy and insolvency process of real estate sectors.

In conclusion, it is evident from the above discussion that the challenges faced by the advocates, legal consultants, legal advisors at the best law firm, and other people who are dealing with bankruptcy and insolvency under the Insolvency Bankruptcy Code of India for real-estate sectors. Some of the recommendations mentioned above are given by the advisors of the best law firm in India. Modifying the whole code can’t be a solution to the problems. Some reasonable amendments can help to solve the problems.

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