Bankruptcy Courts to Focus on Stressed Real Estate Projects Only

A panel established by the Insolvency and Bankruptcy Board of India has put forth recommendations to confine bankruptcy proceedings to stressed real estate projects, moving away from the current practice of involving the entire company. This strategic adjustment is anticipated to allow unrelated, solvent projects of the same developer to continue operations, thereby protecting numerous homebuyers and speeding up the resolution of troubled developments.

The panel advocates that insolvency resolution for real estate should "ordinarily be admitted on a project-wise basis," treating each project as a distinct economic unit. This aligns with previous Supreme Court observations emphasizing project-specific insolvency, prioritizing project completion and homebuyer protection.

Further recommendations include increasing the minimum default threshold for initiating insolvency proceedings in the real estate sector to Rs 5 crore from Rs 1 crore. The panel believes this recalibration will better reflect the economic scale of real estate development, reduce premature admissions, and encourage out-of-insolvency solutions.

These proposals come as several major developers, including Jaypee and Unitech, are already undergoing insolvency proceedings. The panel suggests that the corporate affairs ministry facilitate project-wise insolvency within the existing corporate insolvency resolution process, permitting entity-level resolution only in exceptional cases of fund commingling or demonstrable fraud.