Proposal of IBBI to transfer ownership to buyers in insolvent real estate projects

On 7th November 2024, the Insolvency and Bankruptcy Board of India (‘IBBI’) released its discussion paper addressing seven issues related to Real Estate and invited public comments on proposed amendments pertaining to the same. The implications of these proposals are mainly aimed at protecting the interests and rights of buyers in insolvent real estate projects. One of the crucial issues discussed by the IBBI is the plight of buyers who paid the full consideration for buying the property and were given possession of the same. However, before execution of the sale deed, the real estate company enters insolvency proceedings. In such scenario, IBBI has proposed to grant the Resolution Professional the authority to execute registration, sale deed and sub lease deeds in favour of such buyers. Further, for the projects where part payment is made by the buyer or project is still under construction, an option is proposed to be given to buyers to acquire such properties on ‘as is where is’ basis or on payment of balance required to complete the project. However, the Resolution Professional is required to obtain approval of the Committee of Creditors (‘CoC’) by 66% voting before executing registration in cases where full payment is already made by the buyers and provide an option of buying the property to buyers in case of part payment made.

LKS Comments:

The proposal of IBBI would significantly alleviate the plight of buyers who do not want their money back but a roof above their heads. The effective implementation of the proposal would facilitate the smooth handover of properties to their rightful owners even during moratorium period without unnecessary hold-ups due to administrative bottlenecks. Further, it will increase the resolution rates in the real-estate sector which faces a very slow rate of resolution. By implementing the proposal, the technical formality of execution of sale deed can be expedited and buyers need not wait till completion of insolvency proceedings despite contractual obligations being fulfilled. Therefore, the proposed amendments outlined in the Discussion Paper should be implemented to provide a more efficient resolution process, protected rights of buyers during insolvency proceedings and a structured mechanism for property transfers with CoC involvement.

However, it should be noted that while the proposal presents a positive trajectory, it should have further relaxations. In cases where full or substantial payment is already made by the buyer and only execution of the sale deed is pending, the Resolution Professional should be empowered to transfer the ownership to buyers without any approval of the CoC. It is necessary for cases wherein the majority of CoC does not comprise of buyers. In cases where the majority of CoC comprise of financial creditors other than the home buyers who have paid full or substantial amount towards the apartment, they may not agree to give consent for transfer of properties in favour of buyers until their dues are completely paid off or the insolvency proceedings are concluded. Therefore, the Resolution Professional who is empowered to manage the company as a going concern during insolvency proceedings should be allowed to transfer the ownership to rightful buyers without any approval from CoC in cases where contractual obligations are already being fulfilled.