Status of Homebuyers who are decree-holders as Financial Creditors under the Insolvency and Bankruptcy Code,2016

Posted On - 10 January, 2024 • By - Aditi Motwani


The real estate sector has grown significantly, but the COVID-19 pandemic posed challenges. A report in July 2023 identified around 4.12 lakh stressed dwelling units in stalled real estate projects, involving 4.08 lakh crores. Resolving 75% of these units could add three lakh units to the housing sector, benefiting allottees and contributing to economic growth.


The Insolvency and Bankruptcy Code, 2016 (the Code), was enacted to resolve stressed entities, aiming to maximize asset value while balancing stakeholders’ interests. Initially, homebuyers were not recognized as creditors capable of initiating proceedings against real estate companies.

Legal Challenges:

In 2017, the Jaypee Infratech case triggered concerns among homebuyers as there was no legal framework to protect their investments. In response to the Chitra Sharma vs. Union of India case, the Supreme Court appointed authorized representatives for homebuyers during Corporate Insolvency Resolution Process (CIRP) meetings.

Homebuyers as Financial Creditors:

To address the injustice faced by homebuyers, the Insolvency and Bankruptcy (Amendment) Ordinance, 2018, and the subsequent 2018 Amendment were introduced. These amendments recognized homebuyers as financial creditors, giving them statutory rights to initiate CIRP proceedings.

Threshold for CIRP Proceedings by Homebuyers

To prevent unwarranted resolutions, the Insolvency and Bankruptcy Code (Amendment) Act, 2020 introduced a minimum threshold for homebuyers to file CIRP proceedings jointly. This threshold was upheld by the Supreme Court.

Position of Homebuyers with Decrees:

The Code defines a ‘creditor’ but not a ‘decree-holder.’ Courts clarified that homebuyers with decrees under the Real Estate (Regulation and Development) Act, 2016, don’t fall under financial creditors. The Supreme Court, in Vishal Chelani vs. Debashis Nanda, declared that homebuyers with decrees are indeed financial creditors.

Key Observations by the Supreme Court:

– Section 5(8)(f) of the Code doesn’t distinguish between different classes of financial creditors.

– Treating a segment differently based on having a decree would be inequitable.

– Passing a decree only crystallizes the claim and doesn’t alter the party’s status.


The Supreme Court’s recognition of homebuyers with decrees as financial creditors is a positive move. It ensures they have a voice in the Corporate Insolvency Resolution Process, despite the moratorium on executing judgments, orders, or decrees during insolvency proceedings. The classification of homebuyers as ‘other creditors’ based on obtaining a refund decree is deemed arbitrary and unjust. This distinction is crucial, especially considering the unique nature of claims by homebuyers in the real estate sector.