Experts differ on IBBI's move to permit flat possession during insolvency

Sector experts appear divided over the legal and practical implications of the Insolvency and Bankruptcy Board of India’s (Ibbi) recent amendments to its regulations. These include granting homeowners possession of their properties during the ongoing insolvency process.

 

While welcoming the attempt to address challenges in real estate insolvencies, Raheel Patel, partner at Gandhi Law Associates, said the changes may risk weakening the insolvency framework by introducing legal ambiguities and potential conflicts.

 

“Without stronger safeguards, clearer implementation guidelines, and mechanisms ensuring homebuyers’ interests are genuinely prioritised, these changes may end up being well-intentioned but largely ineffective,” he added.

 

One major decision in the new amendments is that resolution professionals can hand over possession of plots, apartments, and flats to homebuyers while the insolvency process is ongoing.

 

This step is expected to impact several real estate developers, including Jaypee, Unitech, Amrapali, Supertech, and Ajnara, which are facing bankruptcy proceedings.

 

Welcoming the move, Aashiesh Agarwaal, senior vice-president of research and investment advisory at Anarock Capital, said that homebuyers, particularly those who have paid substantial sums to the developer for completed units that have not been handed over, will benefit greatly from these amendments.

 

“By allowing possession handover to these homebuyers, we can ease their financial and emotional burden, while also reducing the potential for litigation and driving speedier resolutions,” he added.

 

However, this can only happen after the relevant Committee of Creditors (CoC) approves such proposals with at least a 66 per cent majority, according to a notification from the bankruptcy regulator.

 

“Although homebuyers may benefit from the provision, the requirement of a 66 per cent majority approval from the CoC, which is dominated by financial institutions, means the decision largely remains out of their hands,” Patel said.

 

Patel cautioned that if homebuyers take possession but the insolvency process later results in liquidation, their rights may be uncertain, potentially leading to more litigation.

 

The amendments also allow for the appointment of facilitators for sub-classes within large creditor classes, such as homebuyers, to ensure their effective participation in the CIRP, facilitate communication between the authorised representative and the creditors assigned to them, and provide information and clarifications to the creditors about the insolvency resolution process.

 

It also gives the CoC the right to invite relevant land authorities, such as the Noida Authority and Haryana Urban Development Authority, to their meetings for input and perspectives on regulatory and land development-related matters.

 

While Agarwaal said this will help minimise disputes after the resolution plan is accepted, Patel contended that the move to invite land authorities appears to be more symbolic than substantive, as their participation is neither mandatory nor binding, leaving key regulatory bottlenecks unresolved.

 

Mohit Mittal, chief executive officer of the real estate investment firm MORES Techno, added that while the reforms strengthen homebuyer protections and transparency, they require effective implementation and stakeholder cooperation to balance insolvency objectives with sector-specific needs.