The process involving the National Company Law Tribunal (NCLT) and Insolvency Resolution Process (IRP) in real estate in India is primarily related to the insolvency and bankruptcy of real estate companies or developers. This process is governed by the Insolvency and Bankruptcy Code, 2016 (IBC), and involves the legal framework to resolve financial distress, safeguard stakeholders' interests, and promote business continuity.
Steps of NCLT and IRP Process in Real Estate:
Filing of Application with NCLT:
- The insolvency process begins when an application is filed before the NCLT by either a financial creditor, operational creditor, or the corporate debtor itself (usually the developer or real estate company).
- A financial creditor can be a bank, financial institution, or other entities that have provided loans to the company. An operational creditor is one who has provided goods or services but has not been paid.
Admission by NCLT:
- NCLT examines the application to determine whether the company is in default and whether the necessary conditions for initiating the insolvency process are met.
- If the application meets the criteria, NCLT admits the case and initiates the Insolvency Resolution Process (IRP).
Appointment of Interim Resolution Professional (IRP):
- Upon the admission of the application, NCLT appoints an Interim Resolution Professional (IRP), who takes over the management of the real estate company. The IRP acts as a representative of the creditors and manages the assets and operations of the company.
- The IRP has the authority to take control of the company's assets, finances, and business operations.
Public Announcement:
- The IRP must make a public announcement of the commencement of the IRP and invite claims from all creditors. This process ensures transparency, and all creditors must submit their claims within a specified period, usually 14 days from the public announcement.
Constitution of Committee of Creditors (CoC):
- After the claims are verified, a Committee of Creditors (CoC) is formed. The CoC consists of the financial creditors who will decide on the future course of action. They may approve or reject any proposals for resolution plans or liquidation.
- In the case of real estate companies, the CoC may include banks, homebuyers (if classified as financial creditors), and other creditors.
Submission of Resolution Plan:
- The IRP, in consultation with the CoC, invites resolution plans from interested parties (potential investors, other real estate developers, or resolution applicants).
- The resolution plan must propose a strategy to revive the real estate company, protect creditors' interests, and maximize the value of the company's assets.
Approval of Resolution Plan:
- The resolution plan submitted by the resolution applicant is reviewed by the CoC. If the CoC approves the plan, it is submitted to NCLT for final approval.
- NCLT has the final authority to approve or reject the resolution plan. The resolution plan must be approved within 180 days of the initiation of the IRP, with a possible extension of 90 days.
Resolution of the Company:
- If NCLT approves the resolution plan, the real estate company undergoes a successful resolution, and the company is handed back to its management under the supervision of the creditors and IRP.
- The creditors are paid according to the terms laid out in the approved resolution plan.
Liquidation (if no Resolution Plan is Approved):
- If the CoC does not approve a resolution plan, or no resolution plan is submitted in the given time frame, the real estate company is ordered to be liquidated by NCLT.
- The assets of the company are sold off to pay back the creditors. Liquidation is typically the last resort in the IRP process.
Key Features in the Real Estate Sector:
Homebuyers as Financial Creditors:
- A significant aspect of the IRP process in real estate is that homebuyers have been recognized as financial creditors by the Supreme Court. This allows homebuyers to be a part of the Committee of Creditors (CoC) and have a say in the resolution process, especially in the case of stalled housing projects.
Impact on Stalled Projects:
- In the real estate sector, insolvency can help in the resolution of stalled housing projects. A successful resolution plan may involve completing the construction and handing over possession to homebuyers. However, liquidation would mean that the project is terminated, and creditors are paid based on the available assets, which could leave homebuyers without homes.
Priority of Creditors:
- In the case of liquidation, the order of payment priority is well-defined under the IBC. Financial creditors (like banks and homebuyers) have a higher priority over operational creditors (like suppliers and contractors).
Challenges:
- Stalled Projects: In real estate, many projects get stuck in the insolvency process because of the complicated nature of land acquisition, regulatory approvals, and project execution, making it harder to complete them in a timely manner.
- Homebuyers’ Concerns: Though homebuyers are part of the CoC, they may still face challenges in receiving possession of their properties, especially when there is a delay or disagreement in the resolution plan.
Conclusion:
The NCLT and IRP process provide a structured approach to addressing financial distress in real estate companies. The insolvency process offers a chance to revive the company through resolution and ensure that stakeholders, including homebuyers and creditors, are treated fairly. However, the complexities of real estate projects and the long timelines often make the process challenging for all parties involved.
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Many Projects in Noida are in the NCLT process like:
Logix Blossom County sector-137 Noida
Logix Blossom Greens Sector-143 Noida
Logix Blossom Zest Sector-143 Noida
Jaypee Greens Cosmos sector-134 Noida
Jaypee Greens KPA sector-133 Noida
Jaypee Greens KBA sector-129 Noida
Jaypee Greens klassic sector-134 Noida
For any other project details contact 8595105966