Real estate sector weighs on IBC but accounts for 18% of total realisations

• The real estate sector still has a relatively high share of the total realisations under the Insolvency and Bankruptcy Code.
  
• The Ministry of Corporate Affairs (MCA) is considering changes to the IBC to make the CIRP more efficient and effective.
  
• These changes could help to reduce the time it takes to resolve insolvencies and increase the chances of a successful resolution.
  

The real estate sector has accounted for a significant portion of the total realisations under the Insolvency and Bankruptcy Code (IBC) since its inception in 2016. In a joint report by property consultants ANAROCK and leading law firm Khaitan & Co., it was found that the real estate sector accounted for more than 50% of the total realisations under IBC on a reported basis.

However, subsequent to the release of data by the Insolvency and Bankruptcy Board of India (IBBI), a large key case went sub-judice following the admission of an appeal before the National Company Law Tribunal Appellate Tribunal (NCLAT). This resulted in the real estate sector accounting for 18.8% of the total realisations under IBC.

Despite this decrease, the real estate sector still has a relatively high share of the total realisations under IBC.

Says Shobhit Agarwal, MD & CEO, ANAROCK Capital, “The total number of corporate insolvency resolution process (“CIRP”) cases filed has risen from an average of ~208 in FY 2022 to average of ~313 in FY 2023. FY 2024 however has commenced on a weak note with 238 cases admitted overall in the first quarter. Real estate cases have averaged about 18-20 in each quarter between October 2021 and December 2022. However, this jumped sharply in March 2023 to 44 corporate debtors being admitted into CIRP.”

Says Kumar Saurabh Singh, Partner, Khaitan & Co, “One of the key reasons for prolonged delay in resolution of insolvencies has been the large number of vacancies in the National Company Law Tribunals (NCLTs). With a view to strengthen the bench, the government has recently appointed 21 members, which will take the bench strength closer to the sanctioned number of 63”

This is expected to reduce the delays faced in the resolution of insolvent companies. However, it will be critical for the government to continue this momentum and ensure that vacancies are filled on time.”

Ministry of corporate affairs considering changes to IBC

The MCA is considering changes to the IBC to make the CIRP more efficient and effective. These changes include increased use of technology, shorter timelines, greater flexibility for resolution professionals, and a strengthened role for the Insolvency and Bankruptcy Board of India (IBBI).

These changes could help to reduce the time it takes to resolve insolvencies, improve recovery rates for creditors, and increase the chances of a successful resolution.

The report provides an overview of the suggested revisions by the Ministry of Corporate Affairs (MCA) and the suggestions put forth by the Ministry of Housing and Urban Affairs (MHUA).

Additionally, it delves into the latest developments concerning various real estate firms that are either in the process of CIRP or have successfully concluded it. Notable companies in this category encompass Jaypee Infratech, Unitech, Supertech, Lavasa Corporation, Amrapali, D S Kulkarni, Three C Homes, Radius Estates, and more.