Project-Wise Insolvency vs. Company-Wide Insolvency

The application of the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC) to real estate developers has generated one of the most contested and consequential jurisprudential debates in Indian insolvency law: should CIRP be applied at the level of the company as a whole, or can and should it be disaggregated and applied on a project-by-project basis? This question is not merely academic. It goes to the heart of competing interests: homebuyers seeking delivery of their flats in a specific project, secured lenders with charges over discrete project assets, and the larger creditor body of a multi-project developer whose composite estate may be the most efficient vehicle for value maximisation.

The Structural Problem: Multi-Project Developers

A major real estate developer is typically a complex legal entity or a group of entities operating multiple residential and commercial projects at various stages of completion, financed by a combination of project-specific lenders, corporate-level financial creditors, and allottees who have made stage-based payments. When such a developer enters financial distress, the CIRPs of different group entities or the different projects within a single entity rarely present a uniform picture. Some projects may be near-complete, requiring only modest infusion to deliver possession. Others may be at nascent stages with significant cost-to-completion. Still others may be embroiled in regulatory litigation or encumbered by competing security interests.

Applying a single, company-wide CIRP to such an entity creates profound practical difficulties. Resolution applicants bidding for the company as a going concern must account for the liabilities of all projects. The information memorandum, which serves as the basis for bids, may obscure project-specific financials. Allottees of a near-complete project may find their claims subordinated to or diluted by the demands of financial creditors whose exposure relates to an entirely different project. The result, in several high-profile insolvencies, has been protracted resolution processes with depressed bids, erosion of asset value, and continued construction delays that compound the very harm the IBC was intended to address.

The Case for Project-Wise Resolution

The proponents of project-wise CIRP argue that disaggregating the insolvency by project better aligns the resolution process with economic reality. Where projects are financed through ring-fenced structures dedicated escrow accounts, project-specific charge documentation, and regulatory requirements under the Real Estate (Regulation and Development) Act, 2016 (RERA) mandating that 70% of collections be deposited in project-specific accounts the assets and liabilities of each project are, as a matter of commercial substance, separable. Applying a company-wide CIRP effectively pools assets from one project to satisfy liabilities from another, which the project-level creditors may justifiably resist as inequitable cross-subsidisation.

In Umang Realtech Pvt. Ltd. v. Governing Body of IBBI (2020), the National Company Law Appellate Tribunal (NCLAT) indicated approval of a project-specific resolution approach in the context of a real estate developer, recognising that the interests of homebuyers  elevated to the status of financial creditors by the 2018 amendment to the IBC are most directly served by a process focused on project completion rather than enterprise-wide liquidation. The RERA framework reinforces this logic: RERA’s project-specific registration, escrow, and disclosure regime treats each project as a discrete regulatory unit, and its insolvency interface with the IBC has been the subject of significant judicial attention.

The Case for Company-Wide CIRP

Counterbalancing these arguments, the company-wide approach reflects the fundamental structure of corporate insolvency law: it is the legal entity, not the project, that is the debtor. Corporate creditors financial institutions with corporate-level term loans, unsecured creditors, and employees have contracted with the entity, not the project. Applying CIRP at the project level may leave corporate-level creditors without recourse, particularly where the developer has deployed corporate-level borrowings across multiple projects, and there is no clean separation of assets and liabilities.

The Supreme Court’s engagement with the Supertech Limited insolvency, and the broader Amrapali group proceedings (in the latter of which the Court exercised extraordinary jurisdiction under Article 142 of the Constitution), illustrates the limits of the statutory framework in dealing with multi-project developers. In Amrapali, the Court effectively superseded the conventional CIRP framework, directing the National Buildings Construction Corporation (NBCC) to complete pending projects an outcome that would not have been achievable within the strict contours of a company-wide CIRP governed by the IBC.

RERA and the IBC: A Contested Interface

The interface between RERA and the IBC has added a further layer of complexity to the project-wise debate. RERA confers on allottees the right to seek project-specific remedies, including the revocation of a developer’s registration and the appointment of a government-supervised body to complete a project, that are, in structural terms, analogous to a project-level resolution mechanism. The Supreme Court, in Pioneer Urban Land & Infrastructure Ltd. v. Union of India (2019), upheld the classification of allottees as financial creditors under the IBC, but did not resolve the deeper question of whether RERA’s project-specific framework should influence the design of the CIRP itself.

The IBBI’s Real Estate Project Insolvency framework, and the ongoing legislative and regulatory discussions around introducing project-specific CIRP mechanisms, reflect a wider acknowledgment that the one-size-fits-all approach of company-wide CIRP is ill-suited to the economic and regulatory structure of the real estate sector. Dedicated resolution frameworks analogous to the group insolvency provisions currently under deliberation may ultimately be the appropriate legislative response.

Practical Implications for Stakeholders

For homebuyers and allottees, the distinction has immediate practical consequences. In a company-wide CIRP, allottees must file claims with the resolution professional, and their recovery, whether in the form of refunds or completion commitments, is subject to the overall resolution plan approved by the committee of creditors. The composition of that committee, in which institutional financial creditors frequently hold the balance of voting power, may not prioritize project completion over financial recovery. In a project-wise CIRP, by contrast, allottees of a near-complete project may be better positioned to negotiate a completion-focused resolution.

For lenders, the project-wise approach raises concerns about enforcement of corporate guarantees, cross-default provisions in multi-project financing arrangements, and the risk of cherry-picking by resolution applicants acquiring viable projects while leaving distressed ones to liquidation.

Conclusion

The project-wise versus company-wide insolvency debate is unlikely to be resolved by judicial pronouncement alone. It calls for legislative intervention to create a bespoke framework for real estate insolvency, one that respects the project-specific economic realities of the sector while preserving the integrity of the corporate insolvency process and protecting the legitimate expectations of all categories of creditors. Until such a framework is enacted, practitioners must navigate a complex, overlapping matrix of IBC provisions, RERA mandates, and evolving case law, with outcomes that remain highly fact-specific and jurisdiction-dependent.