Seen, But Not Heard: The Unfinished Business of Regulation 38A

[Kriti is a student at Gujarat National Law University.]

With the inclusion of homebuyers within the scope of financial creditors under Section 5(8) of the Insolvency and Bankruptcy Code (Second Amendment) Act 2018 and the subsequent Supreme Court judgement of Pioneer Urban Land and Infrastructure Limited v. Union of India, various steps have been taken to include homebuyers within the corporate insolvency resolution process (CIRP). 

The new IBBI (CIRP) (Amendment) Regulations 2026 vide Notification No. IBBI/2025-26/GN/REG135 require the information memorandum (IM) to include the details of non-claiming allottees in real estate insolvencies, such as their names, the amounts due and the units allotted to them. Under Regulation 36(2)(ja), information is taken from the books of accounts of the corporate debtor or the records of the concerned Real Estate Regulatory Authority. The change was prompted by the concerns identified in IBBI’s 2025 Discussion Paper, which noted that only claim filing allottees were previously accounted for in the IM. As a result, resolution applicants were presented with an incomplete picture of the corporate debtor’s liabilities. This became an issue later on as non-filing homebuyers would approach resolution professionals or successful resolution applicants with their claims, leading to uncertainty, delay and litigation. 

In furtherance of the above, the amendment also requires the provision of “treatment” for such claimants within the resolution plan under Regulation 38A. Interestingly, it stops short of clarifying what this entails. While this provides flexibility so that it can be determined on a case-to-case basis, the absence of statutory guidance leads to unpredictability. Against this backdrop, this piece aims to examine the practical consequences of leaving the concept of “treatment” undefined and proposes reforms that may help give substantive effect to the protection contemplated under Regulation 38A. 

The Unforeseen Consequences

While Regulation 38A mandates that a resolution plan must provide for the treatment of non-filing allottees, it does not elaborate on what it consists of, whether any minimum treatment is guaranteed and if there are any realistic timelines for claiming the same. Without adequate standards, any “treatment” can be considered fulfilment of the statutory requirement, irrespective of how insufficient it may be. The court noted in Puneet Kaur v. K V Developers that homebuyers often failed to participate in the CIRP because of practical difficulties such as lack of awareness, geographical constraints etc. So despite the regulation taking a welcome step forward in creating the obligation, it fails to prescribe a benchmark against which effective compliance can be assessed, undermining the purpose of Regulation 38A itself.

Leaving the resolution plan selection entirely to the discretion of the committee of creditors (CoC) risks the non-filing allottee’s interest being at the mercy of represented creditors. Since there is no guarantee that their interests will be independently considered and they have no sway over negotiation or voting outcomes, their fate is effectively decided by stakeholders whose interests may not coincide with theirs. While the CoC acting unfairly is always a concern, the burden of restricting such behaviours lies with Regulation 38A. The absence becomes glaringly obvious in light of the high degree of autonomy and faith placed in the commercial wisdom of the CoC by courts.

The insolvency framework is not a stranger to prescribing minimum objective standards to protect the interests of vulnerable stakeholders. Under Section 30(2), operational creditors and dissenting financial creditors are guaranteed a minimum floor to ensure that their interests are not disregarded. This legislative move is indicative of the stance that when a stakeholder is unable to protect its own interests in the resolution process, an objective benchmark is necessary to protect them from arbitrary actions taken by others. Therefore, it is possible to extend the same assistance to this class of creditors as well.

The omission has consequences throughout the entire resolution process. Since resolution applicants have no indication of what constitutes adequate treatment, they structure their plans according to their own convenience. In turn, the CoC has no statutory benchmark to evaluate the plans against. When the plan finally goes to the Adjudicating Authority under Section 31 for approval, the evaluation does not delve into the merits of the CoC’s decisions, but merely limits itself to the criteria in Section 30(2). As a result, the Regulation risks reducing substantive protection to a mere disclosure exercise, where non-filing allottees are recognised within the resolution plan but are not guaranteed any meaningful entitlement under it.

Suggestions to Improve Regulation 38A

Prescribing a minimum standard of treatment

The first step would be to amend Regulation 38A to prescribe a minimum benchmark against which the treatment of non-filing allottees may be assessed by resolution applicants, the CoC and the Adjudicating Authority. One possible approach would be to extend the treatment of filing allottees to non-filing allottees of the same class. Since the scope of judicial review is limited to procedural grounds as noted in Amit Goel v. Piyush Shelters India (Private) Limited, inclusion of such a treatment standard within the scope of Section 30(2) would make it possible for the Adjudicating Authority to enforce it the same way other standards are enforced.

Expanding the mandate of the monitoring committee

Regulation 38(4) requires the constitution of a monitoring committee to supervise the implementation of the approved resolution plan. Instead of creating an entirely new institutional mechanism, the responsibilities of the existing committee can be expanded to verify claims of non-filing allottees. While the exact constitution of the committee is flexible, the provision suggests the inclusion of the resolution professional, representatives of the committee, representatives of the resolution applicants etc., i.e., those who are already familiar with the existing CIRP, which makes them better candidates to evaluate potential claims. It is also easier for allottees to approach a committee instead of the Adjudicating Authority, as the latter requires extensive paperwork and may delay representation even further. By leveraging existing infrastructure, this approach improves implementation without imposing significant additional costs. 

Escrow-based protection and a defined recovery window

Finally, if the resolution plan provides for disbursement of funds to non-filing allottees, then the Regulations should require the creation of an escrow, which would set aside funds specifically for this purpose. These funds would be retained for a specific time period and upon completion of the same, the remaining amount would revert to the successful resolution applicant. No further claims would be maintainable. Doing so separates the amount from the resolution applicant’s general assets and prevents it from being used for other purposes. It also protects the funds in case of subsequent financial difficulties. Furthermore, it ensures that the disbursement process of potential claims remains independent of the successful resolution applicant so that such claims cannot be disregarded arbitrarily. The logic is similar to that of Regulation 13(1B), wherein creditors are given a second chance to file claims within a later timeline and the same is considered by the resolution professional.

This balances the interests of non-filing allottees as they are given a realistic window to access their treatment, and the interests of the successful resolution applicant as they are not at the risk of unending liabilities. Such a structure falls squarely within the clean slate mechanism of Section 31. Additionally, a reasonable notification requirement also needs to be incorporated in order to ensure that non-filing allottees are made aware of their rights in a timely manner.

Conclusion 

While Regulation 38A is undoubtedly a welcome step forward, the inclusion of non-filing allottees remains incomplete until clear standards are imposed. As it stands, the amendment risks reducing a substantive provision to a mere procedural formality. The next phase of reforms should focus not merely on identifying vulnerable creditors but also ensuring that their inclusion translates into meaningful protection. Only then can such amendments achieve their intended purpose within the CIRP framework.