1. Introduction
The real estate sector has emerged as one of the most complex, litigated, and socially sensitive domains under the Insolvency and Bankruptcy Code, 2016 (IBC), particularly in relation to the rights of homebuyers, who are recognised as financial creditors under the Code. Prolonged insolvency proceedings, coupled with project-specific challenges, have often left homebuyers in a state of uncertainty despite substantial financial commitments.
To address these long-standing practical difficulties faced by homebuyers during the Corporate Insolvency Resolution Process (CIRP), the Insolvency and Bankruptcy Board of India (IBBI) introduced Regulation 4E in the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, with effect from February 2025. This regulatory intervention empowers the Resolution Professional (RP) to hand over possession of real estate units—such as plots, apartments, or buildings—to eligible allottees during the subsistence of CIRP, subject to prescribed safeguards and approval mechanisms.
2. Background and Need for Regulation 4E
Prior to the introduction of Regulation 4E:
- Even where construction was complete and buyers had paid substantially, possession could not be handed over during CIRP
- Homebuyers were compelled to wait until resolution or liquidation
- Completed units often deteriorated in value due to prolonged uncertainty
- RPs hesitated to hand over possession fearing violation of moratorium under Section 14
Regulation 4E seeks to balance asset preservation with consumer protection, without derailing the CIRP.
3. Scope of Regulation 4E
Regulation 4E applies to real estate projects of the corporate debtor undergoing CIRP and covers:
- Plots
- Apartments
- Buildings or independent units
It allows physical handover of possession, not transfer of ownership/title.
4. Conditions for Handover under Regulation 4E
The RP may hand over possession of a real estate unit only if all the following conditions are satisfied:
(a) Fulfilment of Contractual Obligations
The allottee (homebuyer) must have:
- Substantially complied with the allotment agreement, and
- Paid all amounts due (except minor dues, if any, as per contract)
(b) Approval of Committee of Creditors (CoC)
- A minimum of 66% voting share of the CoC must approve the handover
- This ensures that lenders and other financial creditors consciously agree to the impact of such handover
(c) RP’s Satisfaction and Documentation
- RP must be satisfied that handover does not prejudice CIRP or value maximisation
- Proper records and documentation must be maintained
5. Legal Nature of Handover
It is critical to note that:
- Regulation 4E permits possession, not conveyance or transfer of title
- Ownership rights remain subject to:
- Resolution plan, or
- Applicable laws and approvals
- The unit does not automatically exit the insolvency estate merely due to possession
6. Interaction with Moratorium (Section 14 of IBC)
Regulation 4E clarifies a long-standing ambiguity:
- Handover of possession under this regulation does not amount to recovery or enforcement action
- It is treated as a permitted CIRP activity, carried out with CoC approval
- Hence, it does not violate the moratorium
This provides statutory comfort to RPs.
7. Practical Significance
For Homebuyers
- Early relief and possession of homes
- Reduced uncertainty and financial stress
- Protection against value erosion
For Resolution Professionals
- Clear statutory backing for possession handover
- Reduced litigation and stakeholder conflict
- Better project management during CIRP
For CoC and Lenders
- Informed decision-making through CoC vote
- Avoidance of reputational and consumer backlash
- Preservation of remaining project value
8. Safeguards against Misuse
Regulation 4E incorporates safeguards to prevent abuse:
- Mandatory 66% CoC approval
- RP’s duty to ensure fairness and transparency
- Applicability only where buyer obligations are fulfilled
- No automatic transfer of ownership
These checks ensure that the regulation does not undermine creditor interests.
9. Likely Impact on Real Estate Insolvencies
Regulation 4E is expected to:
- Reduce litigation by homebuyers during CIRP
- Encourage cooperative resolution models
- Improve trust in IBC for retail stakeholders
- Align insolvency law with consumer justice
It marks a shift from a purely creditor-centric approach to a balanced stakeholder framework.
10. Conclusion
Regulation 4E, introduced in February 2025, is a landmark amendment in India’s insolvency framework for real estate companies. By allowing handover of possession to compliant homebuyers during CIRP, subject to CoC approval, it strikes a pragmatic balance between value maximisation, creditor rights, and consumer protection.
For Resolution Professionals, lenders, and homebuyers alike, Regulation 4E provides clarity, confidence, and compassion within the insolvency process.
RPs should exercise Regulation 4E with documented diligence, clear CoC approvals, and legal vetting, as such handovers are likely to be closely scrutinised in future audits and judicial proceedings.
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Author Note: The author is an Insolvency Resolution Professional with extensive experience in managing multiple CIRP and liquidation assignments. For queries or professional discussions related to the Insolvency and Bankruptcy Code (IBC), you may reach out to: Krit Narayan Mishra at kritmassociates@gmail.com | +91 99108 59116.
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