New 'local-only' rule irks insolvency professionals of real estate projects

The Insolvency and Bankruptcy Board of India (IBBI) recently amended the insolvency law pertaining to the selection of authorised representative, who represents the home buyers of a real estate project or company under insolvency proceeding in meeting of committee of creditors.

The law now requires the authorised representative or insolvency professional selected to be 'from the state or union territory, which has the highest number of creditors in the class as per records of the corporate debtor'. This local-only rule according to the IBBI has been done to facilitate ease of coordination and communication between the authorised representative and the creditors in the class the representative represents.

However, there are practical problems with implementing such a law, argue insolvency professionals. What about a Delhi-based insolvency professional who wants to represent the home buyers, majority of whom are based in say Noida in Uttar Pradesh? Will he/she be eligible to become an authorised representative?

Also, there are other challenges. How will an Insolvency Professional come to know about the creditors' details in two days from the corporate debtor to ascertain the place of such creditors?

"How will the authorised representative seek views from the home buyers? Should the representative float some sort of a questionnaire or ask for response from each home buyer through mails, and then compile them in 1-2 days? And if we do take so much pain will we be entitled to additional remuneration for this job," asks an infuriated insolvency professional who has been an authorised representative of home buyers of a very large real estate company under insolvency.

He says getting all these details without the cooperation of the realtor would be a difficult task for the prospective authorised representative.

He says the focus should be on sensitising other stakeholders where IBBI does not have control or jurisdiction. Instead, all compliances are always asked from insolvency professionals, which makes no practical sense, he adds. He argues insolvency professionals are made liable for just about everything which goes wrong in IBC.

Indrajeet Mukherjee, a Mumbai-based insolvency professional who has also acted as an authorised representative, says home buyers can be based out of any place; an army officer posted in Ladakh can plan to buy a house in Pune or Mumbai. He feels the correct way would be to have the authorised representative from the same city where the project is.

The Insolvency and Bankruptcy Code requires appointment of an authorised representative by the Adjudicating Authority to represent financial creditors in the committee of creditors. For this purpose, the regulations require the interim resolution professional to offer a choice of three insolvency professionals in the public announcement, and the creditors to choose one of them to act as their authorised representative.