IBBI Amends Rules to Protect Homebuyers from Liquidation Process

In a significant move aimed at providing relief to homebuyers, the Insolvency and Bankruptcy Board of India (IBBI), by way of its notification dated February 12, 2024, has amended its rules to exclude assets in real estate projects possession of which have been handed over to homebuyers, from liquidation process of the company.

Section 36 of Insolvency and Bankruptcy Code, 2016 lays down the list of assets which would form part of the ‘liquidation estate’ of a corporate debtor. Prior to the amendment, even units of which possession had been handed over to the homebuyer, could still have formed part of the liquidation estate of a corporate debtor in the absence of an executed conveyance deed, thereby leaving the homebuyer with no recourse except a claim for refund of the amounts paid as consideration for the unit in the event the developer underwent Corporate Insolvency Resolution Process (CIRP).

The following insertion has been made in Section 36: “For the purposes of clause (e) of sub-section (4) of section 36, wherever the corporate debtor has given possession to an allottee in a real estate project, such asset shall not form a part of the liquidation estate of the corporate debtor.”

This decision by the IBBI reflects a proactive effort to address the concerns of individuals arising on account of CIRP being initiated against the developer. By exempting these residential properties from the liquidation process, the regulatory body aims to reassure homebuyers and protect their rights and interests. The IBBI, by excluding real estate assets for which possession has already been handed over to homebuyers from the liquidation process of a corporate debtor, has further identified that unlike a majority of the companies undergoing CIRP, real estate companies operate differently due to their stakeholder composition and operational intricacies.