The real estate sector in India has undergone a dramatic legal transformation over the last few years, especially with the strengthening of homebuyer rights under the Insolvency and Bankruptcy Code, 2016 (IBC). For a long time, homebuyers were treated as unsecured creditors with limited recourse when a project stalled or a developer defaulted. But a series of amendments and judicial pronouncements, particularly from the Supreme Court and the National Company Law Tribunal (NCLT), have reshaped this landscape.
Today, homebuyers are no longer passive spectators in the insolvency process. They have a voice, a vote, and statutory recognition as financial creditors, enabling them to initiate insolvency proceedings, participate in the Committee of Creditors (CoC), and influence the future of the project.
This blog breaks down the evolution, key judgments, and practical rights of homebuyers, especially in situations where projects slip into insolvency, while also touching on the roles of NCLT insolvency lawyers and debt recovery mechanisms.
How IBC Changed the Game for Homebuyers
Before 2018, homebuyers struggled to recover their money when developers failed to deliver. Civil suits, RERA complaints, and consumer cases often ran in parallel, causing delays and confusion. The insolvency framework initially did not consider homebuyers as financial creditors, making it nearly impossible for them to initiate insolvency or participate in crucial decision-making.
The Turning Point: IBC Amendment, 2018
With the landmark amendment based on the Supreme Court’s direction in Chitra Sharma v. Union of India, homebuyers were deemed financial creditors, giving them two major rights:
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Right to initiate insolvency proceedings under Section 7
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Right to vote in the Committee of Creditors (CoC)
This brought unprecedented balance into the real estate ecosystem, placing homebuyers on par with financial institutions.
Key Judicial Pronouncements Strengthening Homebuyer Rights
Indian courts have played a pivotal role in interpreting the IBC in the context of real estate projects. Below is a concise yet insightful walkthrough of the most important judgments that shape the current legal framework.
(A) Pioneer Urban Land & Infrastructure Ltd. v. Union of India (2019): This is perhaps the most defining judgment for homebuyers under IBC. The Supreme Court held that homebuyers are financial creditors, and their investment is considered a “financial debt, they can trigger insolvency proceedings if a developer defaults. Section 7 applications are not abusive even if filed by a single homebuyer—unless part of a malicious intent.
This judgment cemented statutory protection to homebuyers and ensured that developers couldn’t challenge insolvency petitions on technical grounds.
(B) Manish Kumar v. Union of India (2021): After concerns about frivolous or coercive insolvency filings by isolated homebuyers, Parliament introduced a threshold limit for initiating insolvency against real estate companies: Minimum 100 allottees or 10% of total allottees in a project (whichever is less).
The Supreme Court upheld this requirement. This ensured collective action rather than individual-triggered insolvency, striking a balance between developer protection and homebuyer rights.
(C) Flat Buyers Association Winter Hills v. Umang Realtech (NCLAT 2020): This judgment laid the foundation for project-wise insolvency, meaning insolvency may be initiated for a specific project rather than the entire real estate company.
Only the concerned project enters Corporate Insolvency Resolution Process (CIRP). Other projects of the same developer remain unaffected. Protects viable projects and the larger business of the developer.
Project-specific resolution increases the chances of completion and delivery rather than liquidation.
(D) Jaypee Infratech & Amrapali Group Cases: Two of the most significant cases involving thousands of stranded homebuyers. Homebuyers gained participation rights in CoC. Government and courts intervened to protect the interests of homebuyers over banks where necessary. Resolution plans prioritized project completion over liquidation. These cases reinforce that insolvency is not merely a debt recovery mechanism but a resolution-centric framework for real estate.
Rights of Homebuyers in an Insolvency Scenario
Based on current law and jurisprudence, the following table summarizes the clearly established rights of homebuyers when a real estate developer faces insolvency under the Insolvency and Bankruptcy Code (IBC):
| Right | Key Provisions & Implication | Homebuyer Benefit |
| 1. Right to Initiate Insolvency Proceedings | Homebuyers can file a Section 7 application before the NCLT, individually or in a group (subject to threshold requirements). | Enables homebuyers to actively trigger the Corporate Insolvency Resolution Process (CIRP) against the defaulting developer. |
| 2. Right to be Recognized as Financial Creditors | Homebuyers are treated as Financial Creditors. Their voting power is based on the percentage share of the outstanding financial debt (amount paid). | Grants priority in decision-making, voting rights in the Committee of Creditors (CoC), access to resolution plan details, and influence over developer replacement. |
| 3. Right to Participate Through an Authorized Representative (AR) | Due to the large number of allottees, homebuyers select an AR who represents them and votes on their behalf in the CoC. | Ensures a collective and unified voice, avoids logistical complexity in CoC meetings, and improves transparency in the process. |
| 4. Right to Prefer Completion Over Refund | Judicial trends favor resolution for project completion (bringing in a new developer) over liquidation/refunds. | Protects the long-term interest of buyers by prioritizing the delivery of the apartment over a mere refund. |
| 5. Right to File Claims with the IRP/RP | Once insolvency is admitted, homebuyers must submit Form CA along with proof of payment, allotment letters, builder-buyer agreements, and receipts to the Interim Resolution Professional (IRP) or Resolution Professional (RP). | Ensures inclusion in the CIRP process and acknowledges their financial claim against the developer. |
| 6. Right to Challenge or Support Resolution Plans | Homebuyers can evaluate and influence which resolution plan is accepted. The plan needs 66% CoC approval, making the homebuyer vote crucial. | Allows homebuyers to assess the feasibility, developer credibility, and financial structure of proposed plans, and vote for the best option. |
| 7. Right to Be Protected Against Unfair Liquidation | Courts generally consider liquidation of real estate developers as a last resort, prioritizing resolution, as liquidation rarely secures homebuyer interests. | Provides a protective judicial framework, steering the process towards resolution and project completion rather than project termination. |
Interaction Between RERA, Consumer Courts, DRT, and IBC
A common question homebuyers face is: Should we approach RERA, Consumer Court, the Debt Recovery Tribunal (DRT), or NCLT under Insolvency and Bankruptcy Code, 2016?
Here’s a simplified understanding:
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RERA → Ideal for seeking compensation, interest, and delay penalties.
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Consumer Forum → Ideal for deficiency-of-service claims and personal relief.
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DRT → Primarily for banks and financial institutions seeking debt recovery.
Homebuyers generally do not approach DRT, but its actions may impact the project. -
NCLT under IBC → Best for project-wide resolution, completion, and structuring of the developer’s finances.
Once insolvency starts under IBC, other proceedings—like RERA or consumer cases—may be stayed due to the moratorium under Section 14. Homebuyers should consult both a real estate lawyer and an NCLT insolvency lawyer to choose the optimal strategy.
IBC Has Empowered Homebuyers, But Awareness Is Key
The evolution of the Insolvency and Bankruptcy Code, 2016, supported by robust judicial interpretation, has significantly strengthened the position of homebuyers in real estate insolvency. Today, they hold statutory power, financial creditor status, and a rightful seat at the negotiation table.
However, navigating insolvency is complex. Understanding your rights, staying coordinated, and consulting experienced professionals, especially NCLT insolvency lawyers, can make a decisive difference in recovering investments or securing home possession.
Homebuyers are no longer at the mercy of developers. With the right knowledge, they can transform insolvency from a setback into an opportunity for timely project completion and justice.
