NRIs get extra protection on property buys in India's insolvency rule updates

Dubai: NRIs (Non-Resident Indians) who have bought property in India and awaiting delivery have got some extra security on their investments.

If the developers they bought from find themselves bankrupt, NRI investors can still take possession of the property – even if litigation is going on against the developer.

This comes after Indian authorities updated the rules on insolvency and proceedings related to this, thus ensuring investors and creditors rights too are suitably taken care of.    

“Earlier, home buyers who paid in full couldn’t take possession of completed flats during a developer’s insolvency process,” said Milan Vaishnav, CEO of ChartWizard.ae. “They had to wait until a resolution was reached, causing long delays and uncertainty.

“The new amendments now allow ‘resolution professionals’ - with creditor approval - to hand over finished property units to buyers even while insolvency proceedings are ongoing. This  significantly improves investor protections and outcomes.”

Many Indian expats have over the years been caught up in issues where the developers they bought from in India found themselves woefully short of cash flows and then went under. Even after India set up its RERA (Real Estate Regulation & Development Act), there were still issues related to handovers when the developers were engaged in insolvency proceedings.

“I am still waiting for handover of my Rs20 million apartment in NCR, Delhi, 5 years after the developer promised delivery,” said a Dubai-based NRI. “I could not take possession because of the litigation and similar properties in the area have risen to Rs2.4 million.”

Such investors stand a better chance under the new insolvency rules.

According to Vaishnav, “NRIs investing in real estate gain improved rights to timely possession of completed units.

“Equal treatment in creditor protection and disclosures assure NRIs their claims are fairly handled, while streamlined bidding allows for more targeted investments.” 

Under the new amendments, if a real estate project is not complete at the time of developer's insolvency, property owners do not get immediate possession.

A Committee of Creditors (where homebuyers are represented) 'prioritizes finding a resolution plan focused on project completion, such as appointing new developers or using hybrid completion models'.

The tightening up of India’s insolvency rules come with added protection for creditors to those companies going under. Banks will look favourably at the development, given some of the high-profile instances of delayed payments. Or payments that have stopped altogether.

“Earlier, there was no concept of ‘group insolvency’ in India,” said Mustaq  Khatri, CEO of the MKACE tax consultancy.

“If a business group had multiple companies in trouble, each entity had to go through a separate process. Now, a single co-ordinated procedure can be applied to all the companies together, which will save both time and value.” 

The other category that will have extra protection in insolvency disputes are foreign creditors.

“Previously, cross-border cases were decided through scattered court rulings, often contradictory,” said Khatri. “With the new amendment, India has moved to a global framework that gives transparency and predictability for global creditors.

“That’s a reassuring signal for banks and investors in the UAE who have exposure to Indian corporates.”