Tackle injustice: Act decisively to protect homebuyers stranded by insolvent real estate companies
March 01, 2026
The apex court has clarified that in real estate insolvency cases, resolution must focus on protecting homebuyers and ensure project completion rather than liquidation. But unless regulators, insolvency professionals and disclosure rules align with this goal, that promise risks remaining on paper.
Its philosophical underpinnings must now permeate the legislative and regulatory regime governing the sector. It should include preventive and curative measures to straighten out kinks realtors exploit for their misdeeds. We discuss some important changes required.
The Supreme Court, in the Mansi Brar case, has directed the Insolvency and Bankruptcy Board of India (IBBI) to frame specific guidelines for real estate insolvencies. To have legal force, these should be issued as sector-specific regulations that must establish a legal framework for the completion and handover of housing units to homebuyers.
A workable option is to appoint turnaround specialists of proven integrity with experience in executing real estate projects as Resolution Professionals (RPs). They should have legal powers to arrange working capital, disgorge stolen funds, complete projects within an agreed timeframe and issue completion certificates. And, if need be, they can hire financial and legal experts in addition to the company’s existing management team under insolvency.
The RP is a key person in the insolvency process with a mandate to resolve a housing project. The current practice of institutional financial creditors proposing the appointment of RP can create conflicts of interest and distortions if there is collusion with the corporate debtor. Hence, the authority to appoint an RP should rest with the IBBI, which may also receive recommendations from financial creditors.
Further, an RP should not be allowed to handle more than two projects at a time. According to data published on the website of one state Real Estate Regulatory Authority (RERA) that we reviewed, as of 22 February, only four RPs were handling 66% (186 out of 282) of all projects under litigation at the National Company Law Tribunal. They each had 90, 41, 31 and 24 projects, respectively. The question is whether one RP can effectively handle so many projects. IBBI, which regulates RPs, including their authorization, should prevent concentration.
Currently, an RP remains in charge of a project even after that authorization is suspended. This is so even in cases of misconduct; the IBBI should be empowered to initiate their removal from existing projects in such cases. Finally, since RPs discharge important public functions, insolvency regulations should designate them as public servants to promote accountability. As of now, their status is unclear. The Madras high court has held that an RP is a public servant, while the Delhi high court has held a contrary view.
While publication of accounts is mandatory for publicly-listed companies, private limited companies need not do so, enabling private real estate companies to avoid disclosure and transparency. Further, unlike shareholders, flat aspirants who fund the project do not even receive an electronic copy of the builder’s financial statements. Thus, homebuyers are in the dark about the firm’s operational effectiveness and efficacy until insolvency is declared.
Therefore, real estate companies (RECs) should also be declared as ‘public interest entities’ (PIEs) under the Companies Act, given the public interest involved, and RERA should track their disclosures. This will ensure transparency of their operations.
The Supreme Court has already underscored the importance of red flags as a preventive measure. Analysis of the MCA-21 database, which is a repository of corporate information maintained by the ministry of corporate affairs, can raise red flags for preventive action. The data should be analysed in real time, using advanced analytical tools and artificial intelligence. An institutional mechanism for identifying red flags can be an important measure to prevent corporate malfeasance and enable swift course correction.
Following a spate of frauds and insolvencies, in August 2020 China adopted a Three Red Lines Policy to prevent excessive debt accumulation in the real estate sector and reduce financial risks. India should develop its own policy based on domestic and international experience and harness the MCA-21 database for identifying red flags.
The law applies strict ‘fit and proper’ criteria for the appointment of directors of deposit-taking institutions such as banks. As housing projects are akin to collective investment schemes, agencies like RERA should review the ‘fit and proper’ status of the boards of insolvent builders to determine whether they remain fit and proper to oversee public interest entities in the future.
The development of real estate, especially housing, is essential for a prospering society. It also contributes significantly to economic growth. This broad sector, related industries included, can contribute up to 20% to India’s GDP annually. And we cannot be a developed nation without an adequate housing stock.
The authors are, respectively, former chairman, Sebi and LIC; and former deputy comptroller and auditor general and member, National Financial Reporting Authority.
The Supreme Court, in the Mansi Brar case, has directed the Insolvency and Bankruptcy Board of India (IBBI) to frame specific guidelines for real estate insolvencies. To have legal force, these should be issued as sector-specific regulations that must establish a legal framework for the completion and handover of housing units to homebuyers.
A workable option is to appoint turnaround specialists of proven integrity with experience in executing real estate projects as Resolution Professionals (RPs). They should have legal powers to arrange working capital, disgorge stolen funds, complete projects within an agreed timeframe and issue completion certificates. And, if need be, they can hire financial and legal experts in addition to the company’s existing management team under insolvency.
The RP is a key person in the insolvency process with a mandate to resolve a housing project. The current practice of institutional financial creditors proposing the appointment of RP can create conflicts of interest and distortions if there is collusion with the corporate debtor. Hence, the authority to appoint an RP should rest with the IBBI, which may also receive recommendations from financial creditors.
Further, an RP should not be allowed to handle more than two projects at a time. According to data published on the website of one state Real Estate Regulatory Authority (RERA) that we reviewed, as of 22 February, only four RPs were handling 66% (186 out of 282) of all projects under litigation at the National Company Law Tribunal. They each had 90, 41, 31 and 24 projects, respectively. The question is whether one RP can effectively handle so many projects. IBBI, which regulates RPs, including their authorization, should prevent concentration.
Currently, an RP remains in charge of a project even after that authorization is suspended. This is so even in cases of misconduct; the IBBI should be empowered to initiate their removal from existing projects in such cases. Finally, since RPs discharge important public functions, insolvency regulations should designate them as public servants to promote accountability. As of now, their status is unclear. The Madras high court has held that an RP is a public servant, while the Delhi high court has held a contrary view.
While publication of accounts is mandatory for publicly-listed companies, private limited companies need not do so, enabling private real estate companies to avoid disclosure and transparency. Further, unlike shareholders, flat aspirants who fund the project do not even receive an electronic copy of the builder’s financial statements. Thus, homebuyers are in the dark about the firm’s operational effectiveness and efficacy until insolvency is declared.
Therefore, real estate companies (RECs) should also be declared as ‘public interest entities’ (PIEs) under the Companies Act, given the public interest involved, and RERA should track their disclosures. This will ensure transparency of their operations.
The Supreme Court has already underscored the importance of red flags as a preventive measure. Analysis of the MCA-21 database, which is a repository of corporate information maintained by the ministry of corporate affairs, can raise red flags for preventive action. The data should be analysed in real time, using advanced analytical tools and artificial intelligence. An institutional mechanism for identifying red flags can be an important measure to prevent corporate malfeasance and enable swift course correction.
Following a spate of frauds and insolvencies, in August 2020 China adopted a Three Red Lines Policy to prevent excessive debt accumulation in the real estate sector and reduce financial risks. India should develop its own policy based on domestic and international experience and harness the MCA-21 database for identifying red flags.
The law applies strict ‘fit and proper’ criteria for the appointment of directors of deposit-taking institutions such as banks. As housing projects are akin to collective investment schemes, agencies like RERA should review the ‘fit and proper’ status of the boards of insolvent builders to determine whether they remain fit and proper to oversee public interest entities in the future.
The development of real estate, especially housing, is essential for a prospering society. It also contributes significantly to economic growth. This broad sector, related industries included, can contribute up to 20% to India’s GDP annually. And we cannot be a developed nation without an adequate housing stock.
The authors are, respectively, former chairman, Sebi and LIC; and former deputy comptroller and auditor general and member, National Financial Reporting Authority.