Reverse Insolvency: A Judicial Innovation with Unintended Consequences

An examination of the “reverse corporate insolvency resolution process”, devised by the NCLAT in Flat Buyers Association v. Umang Realtech to let promoters of real estate projects stay at the helm and complete homebuyers’ units, a concept with no basis in the text of the Insolvency and Bankruptcy Code.

The article argues that, without consistent monitoring, the process risks diversion of project funds, since the requirement under Section 4(2)(l)(D) of RERA to keep 70% of receipts in a separate account has not been applied uniformly. It makes the case for an ex-ante rule mandating a separate account, rather than leaving the question to case-by-case assessment after the fact.