The committee tabled its report on the bill in the Lok Sabha last week and the corporate affairs ministry is expected to present a revised bill in the budget session of Parliament for approval.
Panda said the concept of a project-specific insolvency resolution in the case of the real estate sector goes against the grain IBC, which means ousting the defaulting management and disqualifying them from re-bidding for the company if they fail to pay the overdue amount.
Panda’s opinion is significant as the Supreme Court in its judgment in Mansi Brar Fernandes vs Shubha Sharma & ANR in September had suggested the government to consider resolving insolvency in the real estate sector of a particular project.
The Insolvency and Bankruptcy Board of India (IBBI) is looking into the proposal, but it is not part of the current IBC (Amendment) Bill as the apex court’s decision came after the bill was tabled in the House during the monsoon session.
Panda said the financial crunch faced by the developer’s specific real estate projects should be addressed by the real estate regulatory authorities (Rera), which should ensure that home buyers get completed houses.
Rera has the power to try to get the promoters to complete the projects. “And if the promoters cannot either refund the money or give the buyers their flats, then some other investor will take over this company under IBC and they will deliver,” he said. “The basic concept of the IBC is that the management of the defaulting companies will change and the promoter will change. In fact, the promoter is not allowed to bid directly or indirectly in the IBC process.”
“A project-specific resolution means that the company does not go into insolvency, which means that the proponent will continue while only one project goes into the resolution process. There is a fundamental problem here,” Panda said, referring to developers who deliberately default on specific projects while the vast majority of their projects are running well.
“Sending such specific projects for insolvency while allowing the promoter to continue to run the entire company goes against the grain of the IBC. Insolvency is about the company, not the project,” Panda said.
The issue of insolvency project resolution is a complex issue, said Anoop Rawat, partner (insolvency and bankruptcy) at law firm Shardul Amarchand Mangaldas & Co.
“Currently, the courts deal with this issue on a case-by-case basis depending on the nature of the case, but insolvency project resolution is not the norm. To implement an insolvency project resolution, there must be a rescue plan tailored to the project,” said Rawat. “Although the construction of real estate projects could be independent of other projects, several other aspects, such as the lease of land, often transcend individual projects. This is a complex issue that does not have a fixed formula, and solving it on a case-by-case basis by the courts may be a more flexible approach than specifying it in law.”
Panda explained that one of the committee’s recommendations was to lower the voting threshold for small businesses to enter the tailored debt resolution scheme while retaining control over the affairs of the business.
Micro or small businesses now have access to a pre-built resolution framework with a lower threshold for approval: 51% in the Committee of Creditors (CoC) compared to 66% in the regular process, making it easier to enter, Panda explained.
“Under this model, the owner remains in charge while the creditors’ committee oversees the resolution, which better suits the limited resources of small businesses,” he said. In the case of proper bankruptcy proceedings, the creditors take over managerial control over the defaulting company.
Panda called the IBC (Amendments) Bill transformative.
“Millions of crores of rupees have been returned under IBC, many tens of thousands of jobs have been saved and companies have been rehabilitated and some non-viable ones have been liquidated. Bank NPAs have come down dramatically,” he said. “But it’s time for a reboot. These 68 additions are game-changers.”
“I expect the time required to be reduced by 50%, the backlog to be reduced and I expect the return to increase dramatically. ₹50,000 to 60,000 crores annually to much more,” the lawmaker said. “All of us in the committee were very happy to learn that in the last few years, ₹50,000 to 60,000 crores a year of sunk investments were pumped back into the economy, giving rise to the IBC.”
Panda said the primary objective of the bill is to improve compliance with deadlines, as it currently takes more than two years to resolve debts despite the stipulated time frame being 330 days.
Panda explained that the language of the statutory provisions relating to the admission of cases under the IBC is couched in terms of the word “may”. The revised bill replaces this with the word “must”, making compliance with deadlines mandatory.
Also, only the successful bidder for the company will require approval from the Competition Commission of India (CCI); not all bidders must ensure the same before submitting bids. This is expected to save time in debt settlement, Panda said.
In addition, The amendments introduce provisions for group and cross-border insolvency for the first time, which address major gaps in the framework.’
Separately, and not as part of the legislative exercise, the government has brought forward a proposal to increase the number of benches of the National Company Law Tribunal, Panda said.
