To make the insolvency resolution process for realty projects more transparent, IBBI (Insolvency and Bankruptcy Board of India) has made it mandatory for projects to be registered under the Real Estate Regulatory Authority (RERA) and the properties to be occupied by home buyers. It is proposed to be kept out of the scope of liquidation.

Five major changes in the rules

The Insolvency and Bankruptcy Board of India (IBBI) has proposed five major changes, including operating a separate bank account for each real estate project, approval of the Committee of Creditors (CoC) during the resolution process and CoC. This includes allowing separate plans for each project and permission to examine them.

The proposed change is expected to provide relief to home buyers whose investments are stuck in real estate projects. According to the discussion paper issued by IBBI, one of the proposed changes is that wherever an allottee owns property, it cannot be part of the liquidation estate.

Registration required

Liquidation of assets is done only when the matter cannot be resolved through the Corporate Insolvency Resolution Process (CIRP). Another proposal is that the Resolution Professional (RP) will have to follow the provisions of the RERA Act and the rules made thereunder. Under RERA, it is mandatory to register or extend all real-estate projects whose registration has expired or is about to be registered.

Apart from this, IBBI has also suggested maintaining separate bank accounts for each project. This makes it easier to monitor the progress of a project and identify potential issues. Because records of receipt and payment are kept separately for each project.

The Resolution Professional (RP) will have to hand over the assets to the allottees through handover during the resolution process with the approval of the CoC. Allottees will have to pay all applicable charges or comply with all conditions of sale. Additionally, the RP can invoke a separate resolution plan for each real estate project or projects of the corporate debtor.

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The Maharashtra Real Estate Regulatory Authority said that it has issued cancellation notices to promoters of a total of 563 housing projects for not updating project details and violating other norms. These are part of a total of 746 new housing projects, comprising 50,288 apartments worth approximately Rs 22,449 crore, that were registered with the regulator in January.

As per the Real Estate Act 2016, once a project is registered with the regulator, certain information provided by the promoter of the project at the time of registration needs to be updated every 3 months and financial details once a year. By not updating these details, the developers mislead the home buyers, due to which the customer sometimes feels cheated.

Action is being taken to cancel the registration of all project promoters after the investigation on the instructions of MahaRERA chief Ajoy Mehta. The regulatory body has started monitoring the financial progress report of the project from the first quarter of the financial year 2023-24. By doing this, MahaRERA is trying to bring more transparency in the sector, where home buyers can also get access to all the details related to a project.

Developers adopting different tactics

Developers in Delhi NCR are finding new ways to avoid RERA, in which builders are registering the land by giving 25 per cent share to four different owners and then starting development so that they do not come under the purview of RERA. For example, if there is 1,000 square yards of land, it is divided among four owners and then developed. The developed area shall not exceed 500 square meters and the developer shall be exempted from registration. RERA is keeping an eye on those who do this trick.

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