Six years of IBC - impact on Real Estate sector

Six years of IBC 2016 www.infralive.com 43 InfraLIVE January 15, 2023 challenges, the Government of India (GOI) has amended the IBC Code six times since its inception. The GOI/MCA has proved that it meant business and has been sensitive to the requirements of evolving situations and challenges. The IBBI has also made 84 amend- ments to its 18 regulations made under the Code, out of which around 22 amendments have been made in the past one year alone. Many of these amendments are related to the real estate sector. Homebuyers have been classified as financial creditors and have been made important stakeholders in committee of creditors (CoCs). The concept of Authorised Representa- tives (ARs), their selection process and role in CoCs have also been prescribed. In order to curb the insanity of individual homebuyers, the concept of 100 homebuyers or 10 per cent of homebuyers in a project, whichever is lower, has been made mandatory to be able to initiate the CIRP against a real estate developer. These amend- ments have strengthened the position of homebuyers as well as real estate promoters in CIRP. Therefore, there is no doubt that the Code has led to significant b e h a v i o u r a l c h a n g e i n t h e debtor/real estate developer- creditor/homebuyer relationship. It is worthwhile to note that the fear of losing control of the firm on initiation of CIRP, is already prodding and pushing debtors to settle their dues with the creditors as soon as possible. As many as 23,417 applications for initiation of CIRPs having underlying default of Rs 7.31 lakh crore, were resolved till September 30, 2022, before their admission by AAs. In real estate sector, CIRPs of 412 real estate companies/ CDs were closed on appeal, review, settled or with- drawn as CDs/real estate develop- ers resolved their disputes with the creditors/homebuyers evidently due to the fear of losing control of the company. This is primarily attributable to the behavioural change effectuated by the IBC Code. Inordinate delay in CIRPs followed by huge haircuts to the creditors IBBI data reveals that as against the prescr i bed t ime l ines of 180/270/330 days for completion of CIRP, the average time taken for CIRPs, which resulted in resolu- tion plans, was 450 days excluding time permitted by AAs, while those which ended up in liquidation took an average of 414 days for conclu- sion. Many cases have taken much longer time period. The delays have further contributed to significant erosion in value and larger haircuts for creditors. Also, consequence of the delays has been more liquidations than resolution plans. According to available data as of September 30, 2022, the AAs passed orders for liquidation of CDs in 46 percent CIRPs cases and for resolution plans in 14 per cent cases only whereas the remaining 40 percent CIRPs were closed on appeal or review/withdrawn/settled. IBBI has also revealed that resolution plans approved by AAs have yielded on an average 30 percent of the admitted claims to the creditors till September 30, 2022 whereas in CIRPs cases ordered for liquidation by AAs, creditors have been disbursed on an average about 4 per cent of their admitted claims. Therefore, the creditors have to suffer substantial haircuts under IBC. It was therefore no wonder that the first choice for the homebuyers in real estate sectors was not the IBC as IBC is not expected to be a recovery mechanism. When the homebuyers approach the NCLT and on their petition getting admitted, they do not get their money back in the near foresee- able future and haves to stand in line and await either the vagaries of a resolution plan which gives them certain percentage of money and/or completes the project for them in unforeseeable future. In the event of winding up, the home buyers have to stand in line and receive whatever is available. It is therefore evident that it is the from the website of UP RERA and would affect tens of thousands of homebuyers/ consumers. UP RERA has also deregistered three real estate projects of APIL located at Lucknow for diversion/ misappropriation of funds. As per the data uploaded by IRP, 3,140 creditors of the CD have lodged the claims of Rs 4476 crore st as of 1 December, 2022, out of which the claims of 2535 creditors for Rs 2268 crore have been admitted till date. Further, claims of Rs 798 crore are still under verifica- tion. Theway ahead IBC-2016 was launched with a belief that it would revolutionize the insolvency and bankruptcy regime in India particularly due to strict timelines and judicial restraint. However, even after completion of six years, the jury is still out on whether IBC has succeeded in achieving its objectives, particularly in real estate sector. In many ways, the IBC has made a good beginning. It created new classes of profession- als who were unrestrained by the baggage of the past, and a new jur i sprudence for insol vency resolutions has evolved in India. IBC has brought a transformation in insolvency/Bankruptcy laws and such cultural changes require enormous patience, perseverance and tenacity. To that extent, it is still very much a work in progress. Undoubtedly, the government have been alive to the evolving situations, challenges in implementation, clarifying and resolving issues as and when they appeared. Each of the various stakeholders in the process, such as the government, the regulator, courts, creditors and corporate debtors, need to work in tandem to derive optimumoutcome o f t he p r o c e s s . Wh i l e s ome appeared to have risen to the occasion, one hopes that others become a part of team, too. A t t e n t i v e R e g u l a t o r s - MCA/IBBI To keep the unprecedented reform abreast with the upcoming