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Informist, Thursday, Nov. 7, 2024

NEW DELHI – The Insolvency and Bankruptcy Board of India Thursday proposed including land authorities as invitees to meetings of the committee of creditors, in cases involving real estate companies. This would allow the land authorities to offer inputs and raise concerns during the insolvency proceedings as they would not have voting rights, according to a discussion paper by the board.

From a stakeholder's perspective, the presence of land authorities in the meetings of committee of creditors can enhance transparency and build confidence among homebuyers and other stakeholders in the resolution process, the board says in the paper. The paper said that land authorities play a crucial role but currently lack mandatory representation on the committee of creditors. At present, financial creditors are included in the committee, while land authorities, generally being operational creditors, are not, according to the paper.

To facilitate the smooth handover of occupied units or where possession has been transferred to home buyers, the board proposes to allow the resolution professional to handover the ownership of a plot, apartment, or building to the allottees through transfer during the resolution process, with the approval of the committee. Further, to avoid delays due to unnecessary holds-ups, the paper moots that with the approval of the committee, the resolution professional may also be permitted to hand over the possession of units to the allottees on "as is where is" basis or on payment of balance amount, if any, after taking into account the funds due and funds required for completing the unit.

The paper drew significantly from the findings and recommendations of a study group constituted by the Indian Institute of Insolvency Professionals of the Institute of Chartered Accountants of India, which focussed on "Improving Real Estate Resolutions Under IBC (Insolvency and Bankruptcy Code, 2016) and Coordination With RERA (Real Estate (Regulation and Development) Act, 2016)." The board has invited comments on the proposals by Nov. 27.

The report by the institute of insolvency professionals noted issues related to cancellation of land leases or allotments, in cases involving real estate corporate debtors. There were instances where the allotment of land was cancelled and possession taken back by the authorities before the insolvency commencement date. The paper proposes that the insolvency professional should report to the committee and national company law tribunals when land allotment is cancelled and possession taken back by authorities before the insolvency commencement date.

The paper moots to expressly provide that the committee may approve relaxations to the eligibility criteria, earnest money deposit, and performance security requirements for allottee associations or groups that represent at least 10% of allottees or 100 allottees, whichever is higher.

Further, the paper notes that an issue exists in the treatment of notional interest for homebuyers' claims in real estate insolvency claims. While Regulation 16A(7) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 provides for calculating voting shares based on financial debt with an 8% per annum interest rate. This average rate of 8% specified in regulation 16A(7) is seen as fair for calculating the allottee's claim amount. However, in practice, many insolvency professionals use this 8% rate for claim calculations, some apply it only to determine voting shares and not for the actual claim. It is proposed to clarify that the provision of interest at 8% per annum should also be considered as part of the claim for the purpose of resolution plans and distributions under Section 53 of the Code, the paper said.

Among other proposals, the board bats for allowing the appointment of facilitators for large classes of creditors, primarily to improve communication and representation. The paper said that in cases where a class of creditors has a very large number of creditors, a single authorised representative may face challenges in effectively representing and communicating with all creditors. 

Regarding allottees in real estate projects, the paper proposes to give them access to the minutes of meeting of committee in real estate insolvency cases for them to stay informed about project developments. This will in turn enhance transparency and counter rumours and misinformation, said the paper.  End

Reported by Surya Tripathi

Edited by Ashish Shirke

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