Rescued cos 2.5 times those liquidated in real estate sector: IBBI chief

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3 min read Last Updated : Aug 14 2024 | 5:18 PM IST

The Insolvency and Bankruptcy Code (IBC) has seen successful resolution in 46 per cent of the cases admitted in the real estate sector as of June 2024, the latest data by the Insolvency and Bankruptcy Board of India (IBBI) showed. Of 1,400 admitted insolvency cases for real estate and construction companies, 645 have so far been rescued, while 261 ended up in liquidation.

“The rescued companies are around 2.5 times those liquidated… By providing a structured framework for insolvency resolution, empowering homebuyers, and ensuring a time-bound process, IBC has instilled a sense of hope and confidence among stakeholders,” said Ravi Mittal, chairperson, IBBI, in the April-June newsletter.

The Economic Survey 2023-24 noted that the IBC has been the most favoured among the three available remedies for the real estate sector, besides the Consumer Protection Act 2019 and the Real Estate (Regulation and Development) Act 2016.

According to the IBBI, large-size real estate cases such as Jaypee Infratech, Kohinoor CTNL Infrastructure Company, and SARE Gurugram have yielded recovery of more than 60 per cent of the admitted claims.

For the overall corporate insolvency resolution process, till June 2024, creditors had realised Rs 3.4 lakh crore from resolution plans, which is a recovery of 32 per cent against the total admitted claims, with a haircut of about 68 per cent.

IBC experts feel that despite the positive trend of more resolutions than liquidations in real estate insolvencies under the IBC, several challenges persist. The resolution process, they feel, remains lengthy, often delayed by complex stakeholder dynamics, asset valuation disputes, and regulatory hurdles.

“The lack of specialised knowledge among insolvency professionals and the need for greater protection of homebuyer interests continue to complicate matters. These issues highlight the need for ongoing refinement of the IBC framework and improved coordination among stakeholders to ensure timely and effective resolutions in the real estate sector,” said Gauri Jagtap, associate partner, King Stubb & Kasiva, Advocates and Attorneys.

Given some of the unique challenges of the real estate insolvency process, including multiple projects and the large number of homebuyers, several steps have been taken in the last few years to accommodate the sector’s peculiar requirements.

These include giving homebuyers the status of financial creditors, keeping units already in possession out of the liquidation process, allowing project-wise insolvency resolution, and allowing homebuyers to be resolution applicants.

The IBBI chief said that despite the challenges, the IBC’s success in resolving high-profile real estate cases highlights its potential to bring positive change to the sector.