IBC amendments: Govt reviews proposed changes in real estate insolvencies

Bill likely to be tabled in Monsoon session, MCA in talks with RERA to ensure no misuse

The Ministry of Corporate Affairs (MCA) is likely to table the Insolvency and Bankruptcy Code (Amendment) Bill in the monsoon session of Parliament. MCA is in talks with the Real Estate Regulatory Authority (RERA) over the proposed changes in the law over real estate insolvencies. “We want to ensure that there is no misuse of the law,” said a senior government official who did not wish to be named. 

MCA has proposed that if the insolvency is initiated against a promoter of a real estate project, then CIRP (Corporate Insolvency Resolution Process) provisions would apply only to projects that have defaulted, according to the discretion of the adjudicating authority. Experts have cited concerns that promoters could use this provision to simply declare a project insolvent if they feel they won’t get any commercial value from it. 

The ministry has received suggestions on its consultation paper on sweeping changes in the current IBC law and is working on the final draft.

“We are still in the consultation process. We have been asked about the individual insolvency process as well, but we first want to stabilise the corporate insolvency resolution process,” the senior official said.

One of the other major changes being proposed concern the pre-packaged insolvency schemes, which currently are available only to micro, medium and small enterprises, or MSMEs. MCA had proposed expanding the scope of the scheme beyond MSMEs, and providing a framework that would apply to prescribed categories of corporate debtors. 

Sources in the government have indicated that a threshold would be notified for companies that can access pre-packaged insolvency, which would be gradually increased. “To begin with, it would still be for small companies. It is an experiment that was started with the MSMEs, but very few companies have filed applications under this process,” the official added. 

MCA is also working to reduce the number of cases pending before several registrars of companies (RoCs) to ensure all cases older than two years are resolved. Currently, 3,000 cases are pending with RoCs, according to MCA. Of these, it plans to clear at least 1,000 this year, sources said. 

MCA is also working on a Companies (Amendment) Bill, which too is likely to be introduced in the monsoon session of Parliament. 

The draft proposal on IBC amendments seeks to bring more technology, transparency and speediness to the corporate insolvency resolution process.