Homebuyers gain stronger protection as insolvency jurisprudence continues to evolve

The Insolvency and Bankruptcy Code, 2016 (IBC) has emerged as one of the most consequential legal interventions affecting India’s real estate industry over the past decade. Originally designed as a time-bound mechanism to resolve corporate insolvency, its application to real estate developers has produced a distinct jurisprudence that continues to evolve.

Homebuyers as Financial Creditors

The most transformative development came with the 2018 amendment, which classified homebuyers as “financial creditors” under Section 5(8)(f) of the Code. This gave allottees in real estate projects the status of financial creditors and enabled them, subject to the statutory requirements, to initiate insolvency proceedings against defaulting developers and participate in the Committee of Creditors (CoC).

The Supreme Court upheld this classification in Pioneer Urban Land & Infrastructure Ltd. v. Union of India (2019), affirming that amounts raised from homebuyers under real estate projects fall within the scope of “financial debt” under the Code, given the commercial effect of the transaction and the time value of money involved.

Project-wise Resolution

A recurring challenge in real estate insolvencies is that developers often undertake multiple projects, sometimes across different cities, under a single corporate entity. Admitting the entire company into insolvency for a default relating to one project can adversely affect homebuyers in otherwise healthy and ongoing projects.

Reverse CIRP Approach

The National Company Law Appellate Tribunal (NCLAT), notably in Flat Buyers Association Winter Hills-77, Gurgaon v. Umang Realtech Pvt. Ltd., adopted what came to be described as a “reverse CIRP” approach. This allowed the resolution process to be structured around the stressed project while seeking to protect the interests of stakeholders in other projects.

Evolving Jurisprudence

Subsequent judicial developments have continued to examine and refine the possibility of project-wise resolution in real estate insolvencies. The Supreme Court, in Indiabulls Asset Reconstruction Co. Ltd. v. S.D. Awasthi and other decisions concerning the treatment of real estate projects under the IBC, has also contributed to the evolving jurisprudence on balancing creditor recovery with the completion and preservation of viable projects.

The broader objective has been to avoid a situation where insolvency proceedings against a developer in relation to one stressed project unnecessarily jeopardise otherwise viable projects and their homebuyers.

Moratorium and Possession Rights

Section 14 of the IBC imposes a moratorium upon admission of a corporate insolvency resolution process (CIRP), restricting the institution or continuation of certain suits and proceedings against the corporate debtor and taking specified enforcement actions against its assets. This has significant implications for real estate stakeholders.

Homebuyers seeking possession, refunds or other remedies may therefore face limitations on enforcement proceedings during the CIRP. However, the effect of the moratorium depends on the nature of the proceeding and the relief being sought.

Interplay Between IBC and RERA

The relationship between the IBC and remedies available under the Real Estate (Regulation and Development) Act, 2016 (RERA) has been the subject of considerable judicial scrutiny. While the IBC, as a central legislation dealing specifically with insolvency and resolution, can prevail where there is a conflict between the two statutory regimes, the commencement of CIRP does not necessarily extinguish every remedy available to a homebuyer under RERA.

The Supreme Court has recognised that the two enactments operate in different fields, although the exercise of remedies under RERA may be affected once insolvency proceedings have commenced, particularly where such proceedings would interfere with the insolvency resolution process.

Impact on Lenders and Developers

For Lenders

For lenders, the threat of IBC proceedings has strengthened recovery leverage against defaulting developers and, in some cases, has encouraged settlements or restructuring efforts before or during insolvency proceedings.

For Developers

For developers, the risk of losing management control to a resolution professional, together with the possibility of a change in ownership or management through the resolution process, has created greater pressure for disciplined financial and project management. It has also contributed to consolidation in the sector, with financially stronger developers and investors acquiring stressed projects or developer entities through insolvency resolution processes.

At the same time, real estate insolvencies have demonstrated that resolution of a developer’s financial distress is often closely connected with the completion of the underlying projects. The interests of lenders, homebuyers, landowners, contractors and other stakeholders therefore have to be considered within the resolution framework.

Practical Considerations for Stakeholders

For real estate developers, the IBC underscores the importance of:

• Maintaining clear project-wise financial records
• Robust construction-linked payment structures
• Prudent cash-flow management
• Proactive engagement with creditors to reduce the risk of defaults escalating into insolvency proceedings

For homebuyers, key steps to safeguard their interests include:

• Timely filing of claims and active participation in the CoC, where applicable
• Closely monitoring the resolution process
• Understanding the implications of proposed resolution plans on possession, refunds and other contractual or statutory rights

For lenders and investors, understanding project-wise resolution jurisprudence is critical when assessing recovery prospects in stressed real estate assets. Key factors that can materially affect recovery and resolution outcomes include:

• The viability of the underlying project
• The status of approvals and construction
• The rights of homebuyers
• The availability of project-level assets

Conclusion

As real estate insolvencies continue to reach the NCLT and NCLAT, the interplay between the IBC, RERA and contract law will continue to evolve. The jurisprudence has increasingly sought to balance the objectives of insolvency resolution and creditor recovery with the need to preserve viable real estate projects and protect homebuyers.

Stakeholders including developers, homebuyers and financiers would therefore do well to stay abreast of these developments, given their direct bearing on transaction structuring, risk allocation, project completion and dispute resolution strategy in the real estate sector.

Last Updated on 12 August, 2026