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The Insolvency and Bankruptcy Board of India (IBBI) has recommended introducing project-wise insolvency in the real estate sector to better safeguard homebuyers and ensure timely project completion. The proposal suggests treating each project as a separate unit during insolvency proceedings instead of including the entire developer entity. This is expected to prevent financially stable projects from being impacted by stressed ones. The recommendation comes in response to delays and fund diversion issues seen in past cases and aims to improve resolution efficiency and protect buyer interests.
The Insolvency and Bankruptcy Board of India (IBBI) has proposed a project-wise insolvency framework for the real estate sector, aiming to address long-standing concerns around delayed housing projects and protection of homebuyers. Advertisement
As per the recommendation, insolvency proceedings should be limited to the specific real estate project that has defaulted, instead of covering the entire developer entity. The committee noted that each project should be treated as an independent unit under the corporate insolvency resolution process. It also indicated that ongoing, financially stable or completed projects of the same developer should remain outside the insolvency process.
The panel explained that the current approach often leads to all projects of a developer being admitted into insolvency even if only one project is under stress. This has resulted in delays across multiple developments, disruption in cash flows and added uncertainty for homebuyers who are otherwise invested in viable projects.
The proposal also highlighted that real estate projects typically operate as separate financial and operational units, with distinct approvals, funding structures and buyer commitments. Treating them separately during insolvency would help ring-fence assets and liabilities, ensuring that funds meant for one project are not diverted to resolve issues in another.
This recommendation follows several cases in recent years where homebuyers have faced long delays due to stalled projects and weak recovery under the existing framework. The panel observed that many of these issues were linked to fund diversion and lack of project-level accountability, which affected timely completion and delivery.
It further suggested that a project-wise approach could improve resolution outcomes by allowing lenders and resolution professionals to focus on completing the stressed project without impacting other viable developments. This is also expected to help preserve value and reduce losses for stakeholders.
The proposal is part of a broader set of recommendations submitted by a committee constituted to review challenges in real estate insolvency. Earlier regulatory discussions and court observations have also supported the need for mechanisms that prioritise homebuyer interests and ensure transparency in the resolution process.
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