Successful resolution seen in 62% realty insolvency cases

The insolvency and bankruptcy cases of real estate companies have witnessed steady progress in terms of resolutions despite several complexities involved including troubled homebuyers in large numbers.

The possibility of the government bringing in changes to the code to allow resolution depending on the nature of the projects instead of stipulating one rigid framework for the entire property sector is likely to push the performance further, experts said.

A total of 6,571 companies across sectors were brought into administration until March-end this year, showed the latest data from the Insolvency & Bankruptcy Board of India (IBBI).

Out of these cases, about 21% or 1,380 companies were from the real estate sector and of these 854 or nearly 62% companies have seen a successful resolution plan since the inception of the Insolvency & Bankruptcy Code (IBC) in 2016. "The issues and challenges in any real estate project or developer's insolvency resolutions are different than any other sector as it involves homebuyers as operational creditors. The numbers achieved so far need to be analysed after considering such peculiar factors. A customised code will help in resolving the issues at a faster pace," said Jaxay Shah, former president, CREDAI.

On May 17, the New Delhi bench of the National Company Law Tribunal (NCLT) approved Gurugram-based Experion Developers' revival plan for New Delhi builder Dignity Buildcon.

Similarly, on April 24, the NCLT also approved the revival plan for Sare Gurugram. The company had admitted liabilities of over ₹2,112 crore and lenders and the tribunal approved the consortium of KGK Realty and Dhoot Infrastructure Projects' plan.

These are not sporadic examples but growing trends of buyers and investors looking at bankrupt realty firms to acquire from the insolvency resolution process to turn it around and also pocket some profit in the process.

Most stressed realty developers facing the insolvency resolution process are from the metro cities where prime land parcels are very difficult to get. This is driving bidders' interest in bankrupt realty companies to take over at discounted prices.

"There are several instances where the real-estate companies are facing insolvency due to project delays or delay in receiving approvals or cost overruns or unavailability of funds but many investors are willing to invest in such projects, keeping the future upside in mind," said NPS Chawla, co-founder of New Delhi-based law firm Aekom Legal.

According to him, in many projects where companies have gone into insolvency, the allottees themselves have joined hands and are completing the projects under the pool and build mechanism.

Interestingly, about 678 companies that were rescued through the approval of the revival plans of which almost a fourth, or 164 companies, were from the real estate and construction sector. However, it is not a completely rosy picture due to several complications in such cases, feels legal experts.

Pooja Mahajan, managing partner of a law firm Chandiok & Mahajan Advocates says it is very difficult to admit a realty firm into liquidation, hence, such cases either get dragged on for a long time or see approval of resolution plans.

"However, even after approval, managing multiple litigations, particularly by homebuyers, clarity on land parcels and required licenses to complete unfinished projects are some of the challenges that new owners of such companies face," Mahajan added

As demand for residential and commercial properties picks up, several strategic buyers and investors are actively scouting for real estate companies with large land parcels currently under bankruptcy administration for loan defaults, especially in cities.