Slum residents awaiting rehabilitation in stalled redevelopment projects may soon gain representation in insolvency proceedings, if new recommendations are accepted. A study group under the Insolvency and Bankruptcy Board of India (IBBI) has suggested that original slum dwellers be allowed to participate in hearings before the National Company Law Tribunal (NCLT) when developers seek bankruptcy protection.
At present, lenders initiating proceedings under the Insolvency and Bankruptcy Code (IBC) are safeguarded, but the interests of slum dwellers—whose consent enables such projects—often remain overlooked. To address this imbalance, the committee has proposed that these residents be considered during the preparation of resolution plans. It has also recommended that the Slum Rehabilitation Authority (SRA) or cooperative housing societies representing slum dwellers be included in the committee of creditors.
A growing number of financially distressed developers have approached the NCLT under the IBC, with construction firms accounting for nearly 30% to 40% of total cases. In many instances, projects are subsequently taken over by new developers, ensuring recovery for lenders. However, the rehabilitation of original occupants frequently suffers delays or neglect.
In a report outlining sector-specific guidelines, Jayanti Prasad, Whole Time Director of the IBBI, has emphasised the need to formally recognise slum dwellers within the insolvency framework. Initially, the IBC only recognised lenders, but later amendments allowed homebuyers to be treated as financial creditors under certain conditions. Despite this, slum residents—central to redevelopment projects—were excluded, prompting repeated calls for reform.
The panel has recommended that while slum dwellers may not have voting rights, they should be present at creditors’ meetings and be involved at every stage of the resolution process, from planning to execution. These provisions are intended to ensure their rehabilitation concerns are addressed.
The report also highlights the scale of such projects in Maharashtra. Advocate Shirish Deshpande of the Mumbai Consumer Panchayat has argued that the scope of these recommendations should extend beyond slum schemes to include the rehabilitation component of all redevelopment projects.
Source: Loksatta
