Introduction
The Insolvency and Bankruptcy Code, 2016 (“IBC”) brought significant reforms to India’s insolvency framework, particularly impacting the real estate sector. In 2018, an important amendment was introduced under Section 5(8)(f) of the Code, recognising homebuyers as financial creditors, which granted them a seat at the table in the Committee of Creditors (“CoC”) and enhanced their ability to influence insolvency resolution proceedings. Despite these legislative improvements, the real estate sector continues to face persistent issues such as delayed project completions, opaque financial dealings, and a surge in insolvency cases. These problems have led to substantial delays in delivering possession of properties and instances of financial mismanagement by developers.
In response to these persistent challenges, the judiciary has developed a mechanism known as the Reverse Corporate Insolvency Resolution Process (“Reverse CIRP”) with the aim to protect homebuyers by allowing financially viable developers (promoters) to retain control over stalled projects and complete them without undergoing the standard CIRP process.
In this article, we will explore the concept of Reverse CIRP and its development through various judicial pronouncements. First, we will examine its key principles and the challenges associated with its implementation. Next, we will analyze the inconsistencies in judicial decisions regarding its application. Finally, we will assess how the 2025 amendments to the CIRP regulations attempt to address these gaps and enhance the rights of homebuyers under the IBC.
Understanding Reverse CIRP
Reverse CIRP is a judicial innovation designed to address the unique challenges of real estate insolvency. Unlike traditional CIRP, reverse CIRP allows developers (promoters) to retain control over stalled projects by infusing funds, ensuring completion without transferring control to a resolution professional (RP) and the Committee of Creditors (CoC). This mechanism permits promoters to act as financial creditors, balancing the goal of project completion with the need for financial resolution.
Stakeholders and Process
Reverse CIRP involves the following key stakeholders: banks, homebuyers, and developers by providing a structured pathway for project completion. The process follows below steps:
- Resolution Plan Submission: Promoters submit a plan that must receive CoC approval (66% majority).
- Affidavit Submission: Promoters pledge financial commitments and timelines for project completion.
- New Agreement: A binding agreement is executed to ensure project completion, with homebuyers’ financial participation being essential for success.
Concerns and Challenges
Although Reverse CIRP facilitates project completion, it raises transparency concerns. The process can result in private settlements that prioritize developers and homebuyers over other creditors, potentially undermining the IBC’s objective of equitable resolution for all stakeholders.
Evolution of Reverse CIRP through Judicial Decisions
The development and application of Reverse CIRP have been shaped primarily by judicial rulings, given the absence of specific legislation or formal guidelines. This has led to varied judicial interpretations and the need for frequent interventions by the National Company Law Appellate Tribunal (NCLAT) and the Supreme Court to protect homebuyers’ interests.
Early Judicial Recognition
The first significant acknowledgment of Reverse CIRP came from the NCLAT in the Flat Buyers Association Winter Hills-77, Gurgaon v. Umang Realtech Pvt. Ltd. (2019)1 case. In this ruling, the tribunal permitted the promoter to infuse funds to complete a stalled real estate project, with the goal of prioritizing the interests of homebuyers. This judgment laid the foundation for Reverse CIRP as a remedy for stalled real estate projects.
Subsequent cases reaffirmed this approach. In Asset Reconstruction Company India Ltd. v. Dagcon India Pvt. Ltd.2, the NCLAT built upon the Umang Realtech precedent, again emphasizing the need to protect homebuyers. Similarly, in Rajesh Goyal v. Babita Gupta & Ors3, the tribunal allowed a promoter to invest funds as a financial creditor to ensure project completion, reinforcing the application of Reverse CIRP in the real estate sector.
Supreme Court’s Role in Shaping the Doctrine
The Supreme Court has played a key role in cementing Reverse CIRP as a viable option. In Anand Murti v. Soni Infratech (P) Ltd. (2022)4, the Court allowed a promoter to resume a stalled housing project, prioritizing constructive resolutions over lengthy insolvency proceedings. This decision emphasized judicial support for solutions that involve promoter-driven project completions over traditional CIRP.
However, a significant gap remains in addressing compliance with Section 4(2)(l)(d) of the Real Estate (Regulation and Development) Act, 2016 (RERA), which mandates that 70% of project funds be set aside in a dedicated account for project costs. Several judgments, including Anand Murti, did not directly address this, raising concerns about potential fund mismanagement.
Challenges and Inconsistencies
Despite its advantages, Reverse CIRP has faced challenges. In Whispering Tower Flat Owner Welfare Assn. v. Abhay Narayan Manudhane5, the tribunal permitted project-specific Reverse CIRP without mentioning the RERA requirement, leading to further ambiguity. Similarly, in Suspended Director of M/s. Supertech Ltd. v. Union Bank of India6, the court ordered compliance with RERA but failed to ensure uniform enforcement across cases.
One of the most notable challenges arose in Ram Kishore Arora Director (Powers Suspended) Supertech Township v. Punjab & Sind Bank & Anr.7, where the NCLAT rejected settlement proposals due to opposition from lenders and homebuyers, citing the corporate debtor’s liabilities. This case highlighted the risks of fund mismanagement and underscored the need for stricter monitoring to hold promoters accountable.
In Arun Kumar v. Sripriya Kumar8, the Supreme Court dismissed a plea for Reverse CIRP, citing delays by the promoter and the approval of an existing resolution plan. This case reinforced the principle that Reverse CIRP cannot be invoked at a late stage, emphasizing the need for timely interventions in insolvency proceedings.
Examining these decisions, it is evident that the foremost challenge to Reverse CIRP is the lack of a statutory foundation. Since it is not formally recognized under the IBC, its application remains uncertain and inconsistent. Despite these challenges, Reverse CIRP has emerged as a beneficial mechanism for resolving distressed real estate projects, particularly in protecting the interests of homebuyers. However, its effectiveness is undermined by the absence of standardized guidelines and monitoring mechanisms to prevent fund mismanagement and ensure compliance with RERA provisions.
2025 Amendment: A Positive Shift
On 3rd Feb 2025, IBBI introduced Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2025 (“CIRP Amendment”) to further streamline the process of CIRP especially for real estate projects.
Regulation 4E of this Amendment is one of the most notable changes, it allows the RP to hand over the plots, apartments or buildings to homebuyers during the resolution process, provided that the CoC approves at least 66% votes and that the allottees have fulfilled their obligations. Regulation 16C further strengthens homebuyer representation, as it introduces facilitators for sub-classes within creditor groups. These facilitators will ensure better communication between homebuyers, RPs and other authorities. Additionally, Regulation 18(4) enables CoC meetings to include competent authorities like NOIDA, YEIDA, HUDA, or PUDA as non-voting participants. This will ensure the development of projects even during insolvency.
Another measure to enhance transparency and assist creditors in making informed decisions is present under Regulation 30C which mandates RPs to prepare a report on the status of development rights and project permissions within 60 days of the commencement of insolvency. Regulation 38(4) introduces a Monitoring Committee which will supervise the implementation of approved resolution plans to ensure effective plan execution. This committee consists of IPs, creditors and representatives of the RAs who must submit quarterly progress reports to the AAs.
These regulations show that the recent amendments recognize the rights of homebuyers and that possession could be given to homebuyers while undergoing CIRP. However, applying these amendments may have its own set of challenges. The appointment of multiple facilitators can give rise to coordination issues and lead to greater confusion. The procedure for the handover of possession while CIRP is going on should be operationalized to ensure a smooth implementation for all stakeholders. It is also a matter of contention if such grant of possession would be the discretion of the CoC entirely. The coordination between all stakeholders is essential for the success of these amendments. However, this is a positive step by the legislature in the interest of homebuyers.
Conclusion
The Supreme Court and NCLAT’s innovative approach to Reverse CIRP, followed by the IBBI’s February 3rd, 2025 amendments, marks a progressive step in addressing real estate insolvency. However, it still lacks a structured legal framework. To strengthen this model, clear safeguards are essential, such as appointing an independent resolution professional to oversee all financial transactions, limiting the involvement of defaulting promoters to project execution roles, and enforcing strict financial penalties for unmet commitments. Establishing specific qualifications and financial criteria for promoters proposing resolutions under Reverse CIRP will enhance their credibility and financial soundness. A balanced approach is also needed to protect the rights of banks, financial institutions, and suppliers, ensuring their avenues for recovery while enabling project completion. Compliance with RERA obligations within the Reverse CIRP framework will be crucial to achieving this balance.
1Company Appeal (AT) (Insolvency) No. 926 of 2019, decided on 4 February 2020, coram : S.J. Mukhopadhaya J. and Bansi Lal Bhat J.
2Civil Appeal No. 13889/2020, decided on 11 August 2020, coram: Arun Mishra J, B.R. Gavai J, Krishna Murari J.
3Company Appeal (AT) (Ins) No. 1056 of 2019
4CIVIL APPEAL NOS.7534 OF 2021, decided on 27 April 2022, coram: B.R. Gavai J. anf L. Nageshwar Rao J.
5Company Appeal (AT) (Insolvency) No. 896 of 2021
6Company Appeal (AT) (Insolvency) 406/2022
7Company Appeal (AT) (Insolvency) No.1441 of 2024
8CIVIL APPEAL Diary No(s). 38998/2023, decided on 5 January 2024
