Regulation 4E of the IBBI (CIRP) Regulations, 2016
Table of Contents
Real estate insolvencies under the Insolvency and Bankruptcy Code, 2016 (IBC) have presented unique challenges, particularly for homebuyers in partially completed projects. During the corporate insolvency resolution process (CIRP), homebuyers often face uncertainty regarding the possession of their units, with the resolution process frequently prioritizing financial creditors and potentially stalling construction. In response, the Insolvency and Bankruptcy Board of India (IBBI) introduced Regulation 4E to the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) in February 2025, a targeted regulatory intervention designed to specifically address and safeguard the interests of this vulnerable group. The primary objective of this regulation is to create a framework that enables eligible homebuyers to take possession of their completed dwelling units during the ingoing CIRP, ensuring they are not unfairly penalised by developer insolvency and facilitating unit delivery without derailing the broader corporate resolution efforts.
Background and Evolution of Regulation 4E
Regulation 4E stems from stalled real este projects and uncertainty regarding possession rights during the moratorium period under section 96 of the IBC, where developers sought to halt consumer protection penalties by invoking insolvency proceedings. Prior to this regulation, the Supreme Court clarified that the IBC moratorium does not extend to regulatory penalties imposed under the Consumer Protection Act for non-compliance, emphasizing that such penalties are not “debt” and serve a public interest in safeguarding consumer rights. The regulatory intent behind introducing Regulation 4E was to address the imbalance by ensuring that homebuyers are not deprived of relief and that statutory liabilities, especially those protecting consumer interests, are not evaded through insolvency mechanisms. This aligns with the IBC’s objective of value maximisation by preserving the integrity of consumer protection frameworks, which are essential for maintaining trust and ensuring long-term project viability. Consequently, Regulation 4E supports stakeholder balance by preventing developers from using insolvency as a shield against regulatory accountability while preserving the core purposes of the IBC to resolve financial distress without undermining public policy.
Scope and Applicability of Regulation 4E
Regulation 4E applies to real estate projects of a corporate debtor undergoing CIRP. It covers completed real estate units such as plots, apartments, buildings, or independent units, as well as substantially completed units where the homebuyer has fulfilled contractual obligations. It also applies to ongoing projects and phase-wise developments, provided the units are completed or substantially completed and meet the conditions for handover.
Key Conditions for Handover of Units
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Stage of Completion: The unit’s physical construction must be fully completed or substantially completed as a prerequisite for handover. This ensures the unit is in habitual and usable state before the transfer of possession can be legally considered. An authorized engineer or architect must certify that the construction aligns with the approved plans and required quality standards. This certification provides independent verification of the project’s completion and structural integrity.
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Compliance with Applicable Laws: The project must strictly adhere to all relevant legal and regulatory requirements and local building codes. Hence, obtaining necessary occupancy and completion certificates from the competent authorities is essential to ensure legal compliance.
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No Adverse Impact on CIRP: The process of handing over units must not disrupt the ongoing corporate insolvency resolution process (CIRP) or compromise the debtor’s “going concern” status. The resolution professional (RP) must assess the handover’s impact, ensuring it does not prejudice the interests of creditors or diminish the overall resolution value of the project.
Role of the Resolution Professional
- The RP must examine the eligibility of units for handover by verifying that homebuyers have fulfilled all contractual obligations and that the units are completed or ready for possession, subject to the Committee of Creditors (CoC) and the Adjudicating Authority within 60 days of the insolvency commencement date.
- The RP must maintain separate bank accounts for each real estate project undergoing the corporate insolvency resolution process (CIRP) to ensure transparency, track project-specific finances, and facilitate project-wise resolution planning.
- The RP is expected to maintain neutrality between homebuyers and other creditors by ensuring fair representation, facilitating communication, and making decisions based on CoC approval and legal compliance, without favoring any stakeholder. Read about this Ultimate Guide to the Limited Insolvency Examination in India
Interaction with Moratorium under Section 14
Possession under Regulation 4E does not constitute a recovery action and therefore does not violate the moratorium under section 14 of the IBC. The moratorium prohibits actions, such as transferring encumbering, or disposing of assets, enforcing security interests, or recovering property from a corporate debtor. However, statutory compilation of contractual obligations, such as the surrender of property under a lease or contract, is not equivalent to asset alienation and may be permitted if it is a fulfillment of a pre-existing legal duty. The distinction lies in whether the action is aimed at recovering value from the debtor or merely completing a contractual or regulatory requirement, which is not barred by the moratorium.
Rights and Obligations of Homebuyers
- Homebuyers are obligated to make payments as specified in the agreement for sale, including registration charges, municipal taxes, maintenance charges, and other applicable fees, and must comply with all registration and documentation requirements, including participation in the formation of an allottee association and timely registration of the conveyance deed.
- A homebuyer’s claim status is not forfeited by the delay in possession; rather, upon issuance of an allotment letter and receipt of payment, the homebuyer acquires a contractual right to the specific unit, and the developer’s failure to deliver possession creates a statutory debt, entitling the homebuyer to either possession or a refund, which must be considered in the Information Memorandum even if the claim is not formally filed.
Treatment of Project Assets and Accounts
- Project assets and accounts, including handed-over units, are generally not considered part of the insolvency estate if legal title and beneficial interest have been transferred to the buyer, even if formal documentation is pending, as the economic substance reflects a completed sale.
- Project-specific receivables, such as payments due from buyers, are treated as contract asset or liabilities and are disclosed separately on the balance sheet, with their classification impacting financial ratios and covenants.
- Funds under escrow or project accounts, must be kept separate from operating funds and not commingled, with strict financial record-keeping required to ensure proper segregation and accountability.
Impact on CoC and Other Creditors
- Financial creditors, particularly secured lenders like banks, are concerned that homebuyers’ claims, treated as financial debt with commercial effect, could diminish their recovery rates in the liquidation waterfall, as the funds from asset sales must now be shared with homebuyers, thereby increasing the risk and cost of debt financing for developers.
- Balancing homebuyers relief with creditor recoveries requires innovative mechanisms like reverse CIRP, which allows the original promoter to infuse funds supervision to complete projects, thus prioritizing homebuyer delivery over liquidation, even if it means secured creditors may lose their preferred recovery path.
Judicial and Regulatory Perspective
The National Company Law Appellate Tribunal (NCLAT) and Supreme Court have consistently emphasized that homebuyers who have completed their payments and are in possession of completed units should be granted possession and registration of deeds during CIRP, even without formal claim adjudication. This judicial approach prioritises completion-based relief, ensuring that homebuyers are not left in limbo despite fulfilling their contractual obligations. Regulation 4E of the CIRP Regulations formalises this principle by allowing RPs to hand over possession of completed real estate units to compliant homebuyers during CIRP. The RP’s discretion under Regulation 4E is conditional: possession can only be granted if the homebuyer has substantially complied with the agreement, paid all dues, and the CoC approves with a 66% voting share. This framework ensures that relief is tied to physical completion and payment, not claim status, thereby protecting homebuyers while preserving the integrity of the insolvency process.
Practical Challenges in Implementation
- Incomplete documentation or approvals, hinders project registration and compliance.
- Disputes over “substantial completion” arise due to delays in obtaining occupancy certificates and lack of clarity on what constitutes completion, leading to conflicts between promoters and allottees.
- Coordination with local authorities and RERA is hampered by poor inter-departmental collaboration, multiple approval requirements, and the absence of a single-window system.
Key Principles Emerging
- Homebuyers are not recognised as key stakeholders in the insolvency process, not just passive claimants, with enhanced rights and representative mechanisms introduced through recent amendments.
- The CIRP is no longer intended to indefinitely delay possession, as Regulation 4E now permits the handover of completed units to compliant homebuyers during CIRP with CoC approval.
- Regulation 4E operationalises a project-centric resolution approach by enabling possession transfer, facilitating project completion, and aligning insolvency outcomes with real estate delivery timelines.
Conclusion
Regulation 4E bridges insolvency law with real estate realities by enabling the handover of possession of completed units to homebuyers during the CIRP, subject to CoC approval, and fulfillment of contractual obligations. By allowing possession without violating the moratorium under section 14 of the IBC, Regulation 4E ensures project continuity while balancing stakeholder interests. It facilitates humane and pragmatic outcomes for homebuyers who have met their financial commitments, offering timely relief and reducing prolonged uncertainty. Hence, this provision reinforces that the primary objective of CIRP is resolution and value maximisation, not the paralysis of ongoing real estate projects.
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