Written By: Apoorv Agarwal, Anuj Maheshwari
Introduction
The Insolvency and Bankruptcy Code, 2016 (the Code) marked a paradigm shift in India’s insolvency regime by introducing a consolidated and time-bound framework for resolving corporate distress. Enacted with the objectives of maximising the value of assets, balancing the interests of stakeholders and promoting credit availability, the Code replaced the erstwhile debtor-in-possession model with a creditor-driven insolvency process. Since its inception, the IBC has significantly strengthened India’s insolvency ecosystem by ensuring greater certainty and efficiency in debt resolution.
Although the Code is intended to operate uniformly across sectors, its application has revealed that certain industries possess unique commercial characteristics requiring a more nuanced approach. The real estate sector exemplifies this challenge. Unlike conventional lending relationships, insolvency in real estate directly affects thousands of homebuyers whose primary interest lies not in recovering their investment but in securing possession of their homes. Consequently, applying a uniform insolvency process to all projects of a developer often produces outcomes that are inconsistent with the underlying objectives of the Code.
Against this backdrop, the concept of project-wise Corporate Insolvency Resolution Process (CIRP) has emerged as an important judicial innovation. Instead of subjecting every project of a real estate developer to insolvency proceedings, this approach permits CIRP to be confined to the distressed project while allowing viable projects to continue independently. This article examines the evolution of project-wise CIRP through judicial decisions, analyses the principles governing its application, and evaluates the recent amendments to the CIRP Regulations that have accorded statutory recognition to this mechanism.
Real Estate Sector and the IBC
The real estate sector occupies a distinctive position within the insolvency framework because of its complex stakeholder relationships. Unlike traditional financial creditors, homebuyers invest in projects with the expectation of obtaining completed residential units rather than merely recovering their money. Their interests, therefore, are closely tied to the successful completion of the project instead of its liquidation or financial recovery alone.
This unique position was not adequately recognised during the initial implementation of the IBC. The legal status of homebuyers remained uncertain until the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, which expressly recognised them as financial creditors. This amendment granted homebuyers representation in the Committee of Creditors (CoC) and enabled them to actively participate in the insolvency resolution process. The amendment acknowledged that advances paid by homebuyers constitute a significant source of project financing and that their interests deserve protection comparable to those of institutional lenders.
The significance of the real estate sector within the insolvency framework is reflected in data published by the Insolvency and Bankruptcy Board of India (IBBI). Since the enforcement of the IBC, nearly one-fifth of admitted CIRPs have involved real estate companies. The sector has also consistently contributed a substantial share of approved resolution plans, second only to manufacturing. These figures demonstrate that insolvency in real estate is no longer an isolated phenomenon but constitutes a significant component of India’s insolvency landscape.
Despite these developments, the application of a common CIRP across all projects of a real estate developer often creates practical difficulties. Developers frequently execute multiple projects simultaneously, each differing in terms of geographical location, financial arrangements, regulatory approvals, construction status, and stakeholder composition. Consequently, treating every project as a single economic unit may jeopardise viable developments merely because another project has defaulted. It is within this context that the doctrine of project-wise CIRP assumes considerable importance.
Genesis of Project-Wise CIRP
Traditionally, the commencement of CIRP against a corporate debtor resulted in all its assets and ongoing projects becoming part of a common insolvency process. In the context of real estate, this approach frequently led to commercially undesirable outcomes. Projects that remained financially viable or were nearing completion became entangled in insolvency proceedings initiated on account of unrelated distressed developments. Such an approach not only delayed project completion but also adversely affected stakeholders who had no connection with the defaulting project.
A significant shift occurred with the decision of the National Company Law Appellate Tribunal (NCLAT) in Flat Buyers Association v. Umang Realtech Pvt. Ltd.[1] For the first time, the tribunal recognised that insolvency proceedings in the real estate sector need not invariably extend to every project undertaken by the corporate debtor. Instead, it held that the Resolution Professional could confine the CIRP to the defaulting project while allowing other independent projects to continue unaffected.
The NCLAT reasoned that every real estate project possesses its own commercial identity. Different projects generally have separate land parcels, statutory approvals, financial institutions, homebuyers, and regulatory authorities. Consequently, clubbing multiple projects into a single insolvency process merely because they belong to the same developer may defeat the objective of value maximisation under the IBC. The tribunal observed that projects located in different cities or operating under entirely different commercial arrangements cannot reasonably be treated as a single enterprise for insolvency purposes.
The decision was particularly significant because it recognised the distinctive nature of the relationship between developers and homebuyers. Unlike conventional creditors, homebuyers are primarily interested in the completion of the project rather than recovering their investment. Restricting CIRP to the distressed project therefore preserves the interests of homebuyers associated with other viable projects and prevents unnecessary disruption of ongoing developments.
Although, Flat Buyers Association established the conceptual foundation of project-wise CIRP, it did not prescribe a definitive legal test governing its application. Instead, the tribunal left the determination to be made on the basis of the facts and circumstances of each case. Consequently, subsequent judicial decisions have played a crucial role in shaping the contours of the doctrine.
The Supreme Court subsequently affirmed the legitimacy of this approach in India Bulls Reconstruction Company vs. Ram Kishore Arora[2] The Court upheld the principle that, where appropriate, insolvency proceedings may be confined to the distressed project rather than encompassing every project of the corporate debtor. It observed that subjecting all projects to a common CIRP could result in greater prejudice to homebuyers and other stakeholders associated with financially viable developments. The Court also approved the constitution of a project-specific Committee of Creditors, recognising that creditors connected with one project should ordinarily make commercial decisions relating to that project alone.
While the judgment firmly endorsed project-wise CIRP, it similarly refrained from laying down an exhaustive checklist governing its application. Instead, it reinforced the principle that adjudicating authorities must evaluate each case on its own facts while keeping in view the overarching objectives of the IBC, particularly value maximisation and stakeholder protection.
The absence of a statutory framework or judicially prescribed test has meant that project-wise CIRP continues to evolve through case law. Tribunals have gradually identified factors such as the independence of stakeholders, separate financing arrangements, geographical distinction between projects, and varying stages of construction as relevant considerations while deciding whether project-specific resolution is appropriate. These judicial developments have laid the foundation for the doctrine as it exists today.
Judicial Evolution of Project-Wise CIRP
Although the judiciary has consistently recognised the viability of project-wise CIRP, it has refrained from prescribing a definitive framework governing its application. Instead, the doctrine has evolved incrementally through judicial decisions, each highlighting practical considerations that justify confining insolvency proceedings to a specific project. A review of these decisions reveals that courts have primarily focused on preserving commercially viable projects while protecting the interests of stakeholders directly associated with them.
In Flat Buyers Association, the NCLAT underscored that every real estate project possesses an independent commercial identity. Projects typically differ in terms of land ownership, statutory approvals, financial institutions, allottees, and geographical location. Consequently, treating all projects of a developer as a single economic unit merely because they belong to the same corporate debtor may undermine the objective of value maximisation. The tribunal observed that projects situated in different cities or governed by separate commercial arrangements cannot reasonably be subjected to a common insolvency process. Restricting CIRP to the distressed project, therefore, enables viable projects to continue while safeguarding the interests of stakeholders connected with them.
The principles laid down in Flat Buyers Association were subsequently adopted and refined by other adjudicatory authorities. In Nucleus Premium Properties Pvt. Ltd.[3] Case, the NCLT, Kochi Bench considered a developer undertaking ten separate real estate projects. The homebuyers opposed a common insolvency process on the ground that the projects were at different stages of completion and had varying numbers of registered allottees. Accepting these submissions, the tribunal recognised that a uniform CIRP would create practical difficulties and that projects at different stages of development may require distinct resolution strategies. The decision reinforced the need to account for the commercial realities of individual projects rather than adopting a one-size-fits-all approach.
A similar rationale was adopted by the NCLAT in Ambika Prasad[4] Case, where the tribunal emphasised that the objective of the IBC is to maximise asset value while balancing stakeholder interests. Significantly, the tribunal viewed value maximisation from a project-specific perspective. It observed that every project has its own set of creditors, homebuyers, lenders, and regulatory authorities, whose interests may not coincide with those associated with other projects of the same developer. Project-wise CIRP, therefore, better serves the objective of preserving value for stakeholders directly connected with the distressed project.
However, judicial opinion has not been entirely uniform. In N. Kumar Case[5], the NCLT, Chennai Bench declined to apply project-wise CIRP and adopted a stricter interpretation of the IBC. The tribunal held that neither the Code nor the CIRP Regulations expressly contemplated project-wise segregation of assets. It also distinguished Flat Buyers Association on facts, noting that, unlike the earlier case, the promoters had not undertaken to infuse additional funds for project completion. Consequently, the tribunal rejected the request for project-specific insolvency proceedings.
While N. Kumar demonstrates that project-wise CIRP is not an automatic consequence of insolvency in the real estate sector, it also illustrates that its application depends upon whether such an approach advances the objectives of the IBC in the factual circumstances of a particular case.
Collectively, these decisions indicate that, although no rigid legal test has emerged, certain recurring considerations guide judicial discretion. Courts have consistently examined whether projects have separate statutory approvals, independent financing arrangements, distinct classes of allottees, different lending institutions, varying stages of construction, and geographical separation. Where these factors establish that projects function as commercially independent units, confining CIRP to the distressed project is more likely to preserve value and protect stakeholder interests than a consolidated insolvency process.
Legislative Recognition Through the 2024 CIRP Amendments
The judicial evolution of project-wise CIRP has now received legislative recognition through the recent amendments to the Insolvency Resolution Process for Corporate Persons Regulations, 2016. The amendments empower the Resolution Professional to invite separate resolution plans for individual projects of a real estate corporate debtor, thereby formally incorporating project-specific resolution into the insolvency framework.
These amendments bridge an important legislative gap by recognising an approach that had previously evolved almost entirely through judicial interpretation. They also provide greater flexibility in resolving distressed real estate companies by permitting commercially viable projects to be resolved independently of defaulting ones.
Nevertheless, the amendments also raise an important issue concerning the commercial wisdom of the Committee of Creditors (CoC). Under the amended framework, the decision to invite separate resolution plans requires the approval of the CoC. Since commercial decisions of the CoC ordinarily remain insulated from judicial review, questions may arise regarding the extent to which adjudicating authorities can examine whether project-wise resolution has been appropriately adopted in a given case.
This presents an interesting paradox. Project-wise CIRP originated as a judicial innovation designed to accommodate the unique realities of the real estate sector. However, once its implementation becomes contingent upon the commercial wisdom of the CoC, judicial scrutiny over its application may become considerably narrower. Future disputes are therefore likely to focus not on the legitimacy of project-wise CIRP itself, but on the extent of judicial oversight over decisions taken by the CoC under the amended framework.
Conclusion
The evolution of project-wise CIRP demonstrates the flexibility of the IBC in responding to the distinctive commercial realities of the real estate sector. Judicial decisions have recognised that treating every project of a developer as part of a common insolvency process may undermine value maximisation and adversely affect stakeholders associated with otherwise viable developments. Accordingly, project-wise CIRP has emerged as a pragmatic mechanism that aligns insolvency resolution with the Code’s broader objectives of preserving enterprise value and balancing stakeholder interests.
The recent amendments to the CIRP Regulations further strengthen this approach by expressly permitting separate resolution plans for individual projects. While these amendments provide greater legislative certainty, they also raise important questions regarding the extent to which decisions of the Committee of Creditors on project-wise resolution, as matters of commercial wisdom, remain subject to judicial scrutiny.
Ultimately, project-wise CIRP represents a purposive application of the IBC rather than an exception to it. As the jurisprudence continues to evolve, greater judicial or legislative clarity regarding the principles governing its application would promote consistency, minimise uncertainty, and further strengthen India’s insolvency framework.
[1] Flat Buyers Association v. Umang Realtech Pvt. Ltd., Company Appeal (AT) (Insolvency) No. 926 of 2019.
[2] India Bulls Reconstruction Company vs. Ram Kishore Arora Civil Appeal No. 1925 of 2023
[3] Nucleus Premium Properties Pvt. Ltd.,CP(IB)/01/KOB/2021
[4] Ambika Prasad Sharma vs. Horizon Buildcon Pvt. Ltd., Company Appeal (AT) (Insolvency) No. 1398 of 2019
[5] Mr. N. Kumar vs. Tata Capital Housing Finance Ltd., CP(IB)/889/CHE/2019
