NEW DELHI: A government-appointed panel has called for a pre-insolvency restructuring framework and a larger role for public sector entities to resolve stress in the real estate sector.
The committee has argued that the current Corporate Insolvency Resolution Process (CIRP), though effective in select cases, often proves too slow and value-destructive for real estate projects, where timely completion is critical. Instead, it has proposed a framework that prioritises early intervention before insolvency admission, allowing lenders and developers to resolve stress while projects are still viable.
At the core of the recommendations is the creation of a structured pre-CIRP resolution mechanism, supported by early warning systems that can flag financial distress at the project level. The panel noted that delays in recognising and addressing stress often push projects into formal insolvency, by which time costs escalate, litigation mounts, and investor interest wanes. A pre-emptive approach, it said, would allow stakeholders to restructure debt, infuse last-mile funding, and realign project timelines without the procedural delays associated with the IBC.
Complementing this is a strong push for greater participation by public sector undertakings (PSUs) in reviving stalled housing projects. The committee has proposed the creation of PSU-backed platforms or vehicles that can step in to take over incomplete developments, provide funding support, and ensure execution. Such entities, backed by stronger balance sheets and institutional credibility, could play a critical role in restoring confidence among homebuyers and lenders, particularly in large, complex projects where private bidders have shown limited appetite.
A report submitted by the committee highlighted the potential participation of public sector undertakings (PSUs)—such as NBCC, HUDCO, and state housing or development boards—as resolution applicants where private-sector interest is limited but public-interest stakes are significant.
The recommendations come against the backdrop of persistent stress in the real estate sector, with hundreds of projects stuck at various stages of completion and lakhs of homebuyers awaiting delivery. The panel observed that private resolution applicants are often deterred by regulatory uncertainties, legacy liabilities, and the lack of reliable project-level data, creating a vacuum that public sector entities could help fill.
Importantly, the committee has emphasised that the IBC should be treated as a last resort rather than the default pathway for resolution. Once a project is admitted into CIRP, it noted, the process is frequently bogged down by litigation, delays in approvals, and coordination challenges among stakeholders, leading to significant erosion of value. In contrast, out-of-court restructuring and targeted interventions can preserve value and accelerate completion.
To support this shift, the panel has also called for tighter financial discipline at the project level, including the use of escrow mechanisms to ring-fence funds and ensure that cash flows are deployed strictly for construction. It has stressed the need for better coordination among lenders, regulators, and state authorities, as well as closer alignment with the Real Estate Regulatory Authority (RERA) to ensure continuity in oversight even outside the insolvency framework.
The broader thrust of the recommendations signals a move away from a creditor recovery-driven model to one focused on project completion and homebuyer protection. By enabling early resolution and leveraging PSU capacity, the panel believes the system can reduce delays, minimise litigation, and improve overall outcomes.