IBBI notifies new rules to shield healthy real estate projects from developer insolvency

The new IBBI rules allow financially sound real estate projects to avoid being pulled into the Corporate Insolvency Resolution Process when their developer becomes insolvent. This matters because a project can be healthy even if another part of the developer’s portfolio caused the financial trouble. Keeping it separate may reduce disruption for its buyers and stakeholders.

The resolution professional must present project-level information at the CoC’s first meeting. The CoC can then recommend excluding one or more projects. Creditors representing at least 66% of voting share must approve the recommendation. It must include reasons and go to the National Company Law Tribunal for final approval.

The rules took immediate effect on October 30. However, cases admitted before notification may not automatically qualify. Courts are expected to clarify how the changes apply. The framework also requires separate project accounts, financial reporting, and technical assessments.

The Corporate Insolvency Resolution Process, or CIRP, is the formal insolvency process used after a company is admitted for resolution. In this article, it applies when a real estate developer enters insolvency proceedings. A resolution professional then coordinates information, creditor decisions, and possible bids for resolving the distressed business.

Under the existing framework, the developer is treated as one insolvency case. Its completed, healthy, incomplete, and troubled projects all come under the process. For example, buyers in a financially sound apartment project could face the same insolvency-related uncertainty as buyers in a delayed project elsewhere in the portfolio.

The new rules create a possible exception. The CoC can recommend excluding individual projects, subject to at least 66% creditor approval and NCLT clearance. The change is significant because real estate represents 22% of cases undergoing resolution, making it the second-largest sector after manufacturing.

The resolution professional first gives the CoC project-wise information, including registrations, construction stages, possession status, occupancy status, and completed or incomplete units. Based on that information, the CoC may recommend excluding one or more projects from CIRP. It must explain its reasons.

Creditors holding at least 66% of the voting share must approve the recommendation. This threshold ensures that exclusion is supported by a substantial majority of creditors, rather than a small group. The recommendation is then submitted to the NCLT, which must also approve it. The article presents this as part of a more transparent and accountable process.

Both approvals matter because exclusion changes how insolvency proceedings treat the developer’s projects and creditor interests. The regulations also strengthen reporting to the CoC and require authorised representatives’ views to appear in meeting minutes. Courts may still determine how the new rules apply to earlier cases.

The change could protect buyers whose projects are completed or financially healthy but whose developer has financial problems elsewhere. Under the earlier blanket approach, the developer’s admission into CIRP brought every project into the process. That could disrupt maintenance, create uncertainty over registrations, and cause other delays even when the project itself was not responsible for the default.

For example, buyers in a completed project might still face insolvency-related uncertainty because another development has stalled. The CoC can now recommend excluding the healthy project, provided creditors holding at least 66% of voting share agree and the NCLT approves. The article does not specifically identify blocked home-loan payments as an affected problem.

The regulations also allow the CoC to approve homebuyers’ requests for possession and facilitate registration. Their immediate effect is prospective in usual practice, so earlier cases may not automatically qualify. Courts are expected to clarify the precise applicability of the changes.

Separate project bank accounts create clearer financial boundaries. Money received for one development can be tracked against payments for that same development. The resolution professional must periodically place project-wise receipts, payments, and other financial information before the CoC. The process must also comply with RERA fund-utilisation requirements.

The rules require independent professionals to assess every project’s technical condition and cost to completion. These assessments must be finished before expressions of interest are invited and included in the information memorandum given to potential resolution applicants. Bidders therefore receive a common picture of what remains to be done and what it may cost.

This can reduce information asymmetry between stakeholders and bidders. It may also support better-quality and more realistic bids, according to IBBI. The framework is designed to ensure that funds contributed for one project are used for that project, while giving applicants clearer information about completion needs.

Real estate accounts for 22% of cases undergoing resolution in India’s insolvency system. That makes it the second-largest sector in the article’s comparison. Its large share explains why project-wise insolvency has important consequences for homebuyers, creditors, developers, and resolution professionals.

Manufacturing is the largest sector, accounting for 36% of cases undergoing resolution. The difference between manufacturing and real estate is 14 percentage points. Real estate’s 22% share is therefore substantial, although it remains below manufacturing’s share. The article does not provide the total number of cases.

The scale gives the new framework broader importance than a change affecting only a few developers. Developers or subsidiaries named as facing proceedings include Raheja Developers, Supertech, Today Homes, and Ajnara. The rules aim to make resolutions more viable and transparent while protecting homebuyers and improving project-level oversight.

One developer can have several projects at different financial stages. Under the existing framework, admitting the developer into CIRP brings all its projects into the insolvency process. As a result, a default connected with one part of the portfolio can expose buyers in completed or financially healthy projects to the same proceedings.

The article gives practical consequences: maintenance may be disrupted, registrations may become uncertain, and other delays may follow. The new rules require project-wise information, separate bank accounts, and financial reporting. The CoC can use that information to recommend excluding a healthy project, subject to 66% creditor approval and NCLT clearance.

This shows that company-level insolvency can connect project assets, project funds, and creditor claims even when projects have different conditions. The new framework does not automatically separate every project. Instead, it creates a controlled route for project-level treatment while preserving creditor and tribunal oversight.