Six years of IBC - impact on Real Estate sector

Six years of IBC 2016 www.infralive.com 28 InfraLIVE January 15, 2023 defunct. In these corporate debtors (CDs), the claimants have realised 21.27 percent of their admitted claims. It was therefore apparent that most of the creditors have to undergo heavy hair-cuts under IBC even when resolution plans are approved for the CDs. Huge number of IBC cases pendingwithNCLTs/NCLAT The NCLT, which is the dispute r e so l ut i on f orum unde r the companies' law, was also desig- nated as the adjudicating authority (AA) for CIRPs and liquidations under IBC. Data suggests that post 2016, NCLT has pre-eminently become the forum for insolvency resolution and liquidation. As per ministry of corporate affairs (MCA)'s annual report for the year 2021-22, a whopping 21,445 cases were pending as of October 31, 2021 in 16 benches of NCLTs across the country, of which more than 62 per cent (13,452) were IBC cases. If we compare the number of IBC cases disposed (4,142) during the prev i ous twe l ve months i . e . November 1, 2020 to October 31, 2021 with the number of IBC cases pending (13,452) as on November 1, 2021, the gravity of the situation becomes evident i.e. it would take more than three years to settle outstanding cases, if no fresh cases are registered in next three years. This is particularly very disap- pointing when compared to the s t ri c t t ime l ines of di sposa l s prescribed in the IBC. Unfortunately, the pendency situation at the both benches of National Company Law Appellate Tribunal (NCLAT) was also not very rosy. As many as 1,322 cases (66.5 per cent) out of 1,987 cases pending as of November 1, 2021 at the two Benches of NCLAT are related to the IBC. Such an expo- nential rise in IBC cases at NCLTs/ NCLATs do not give any solace to thousands of homebuyers waiting for their apartments or refund of the life-savings invested in the stalled/ incomplete real estate projects. Government may have to consider setting up of additional regional benches of NCLATs and an increase in bench strengths at NCLTs so as to meet the challenges of the future. Time is of the essence IBC's success was incumbent on judicial discipline, and to an extent it has fared better than its predeces- sor SICA (Sick Industrial Compa- nies Act). For the CIRP, the IBC prescribed a strict timeline of 180 days, extendable by 90 days at the discretion of the AA. This was further extended to 330 days by an amendment to the IBC in 2019. However, IBBI's reports suggest that the average time taken for CIRPs, which resulted in resolution plans, was 450 days (after exclud- ing time permitted by AAs), while those which ended up in liquida- tion took an average of 414 days for conclusion. Many cases took much longer. The delays may have contributed to significant erosion in value and larger haircuts for creditors. A consequence of the delays has been more liquidations than resolution plans. According to available data as of September 30, 2022, out of the 3,946 CIRPs closed, in 1,807 (46 pc) cases the AA passed orders for liquidation. The number of corporate debtors going forward with a resolution planwas a low14.01 per cent. IBC inReal Estate sector The details of data of CIRPs related to Real estate sector was not available in public domain. Even request to the regulator (IBBI) for such information didn't yield any results. We have therefore tried to collect and collate the information available in various fora in the public domain. We found that in the state of Uttar Pradesh alone, there are 240 projects of 47 real estate developers/ companies (excluding Amrapali group of companies) under CIRPs as of November 30, 2022, out of which majority of projects of real estate companies are located in Noida/ Greater Noida area of Delhi NCR. The present status of CIRPs in resolution of insolvency of those promoters. As per the data of IBBI, the real estate sector remains the second biggest sector in which IBC petitionswere filed in last six years. Progress report of CIRPs as on th 30 September 2022 under IBC IBBI data reveals that out of 5,893 CIRPs including 21 per cent cases from real estate sector commenced during December 2016 to September 2022, as many as 3,946 CIRPs cases have been closed. Of which, 1,586 CIRPs (40 per cent) were closed on account of withdrawal under Rule 12A, or under Appeal/ Review/ Settled as corporate debtors settled the grievances/ debts with the credi- tors for the fear of losing control of the firm on initiation of CIRPs. As many as 553 CIRPs including 13 per cent cases from real estate sector have resulted into resolution plans, as against liquidation orders for 1,807 CIRP cases. As on October 1, 2022, there were 1,947 ongoing CIRP cases. IBBI has reported that out of 553 CIRPs for which resolution plans have been approved by Adjudicat- ing Authorities (AAs), creditors have realised Rs 2.43 lakh crore as against their admitted claims of Rs 7.91 lakh crores till September 30, 2022, forcing the creditors to take a hair-cut of 70 per cent on an average in these cases. Out of 1,807 CIRPs cases ordered for liquidation by AAs, IBBI has disclosed that only in 429 cases of liquidations, final reports were available with them. In these 429 cases, stake- holders/ creditors have been disbursed Rs 3,301 crores (about 4 per cent) as against the admitted claims of Rs 84,025 crore. There are 1,378 ongoing liquidation processes, of which 73 per cent cases are outstanding for more than a year. About 35 per cent of the CIRPs (193 out of 547 for which data were available), which yielded resolu- tion plans, were earlier with Board for Industrial and Financial Reconstruction (BIFR) and/or