India's Insolvency Reform Targets Homebuyer Protection in Bankrupt Projects

India's Ministry of Corporate Affairs (MCA) is advancing amendments to the Insolvency and Bankruptcy Code (IBC) aimed at safeguarding homebuyers in projects where developers face insolvency proceedings. The proposed 'project-wise resolution' framework seeks to ring-fence specific real estate projects from the financial distress of the parent developer, provided the project itself remains financially viable and healthy. This legislative push follows a recommendation from a 14-member committee established to review the implementation of the IBC. Under the current IBC framework, the insolvency of a real estate developer can lead to a moratorium on all ongoing projects, regardless of their individual financial health. This often results in stalled construction, significant delays in delivery, and potential financial haircuts for homebuyers who have invested in these healthy projects. The proposed amendments aim to create a mechanism that allows for the continued funding and completion of solvent projects, even if the larger developing entity is undergoing liquidation or resolution. This reform is expected to provide greater certainty and protection to a significant segment of the residential real estate market. By differentiating between a financially distressed parent company and its healthy individual projects, the government intends to mitigate systemic risks to homebuyers and ensure the continuity of construction activities. This could also enhance investor confidence in the real estate sector by reducing the risk associated with developer insolvency for specific project-level investments. The MCA is currently soliciting stakeholder feedback, indicating a potential legislative push in the near term.