The financial implications for homebuyers in the context of the Insolvency and Bankruptcy Code, 2016 (Code) have been a subject of legal scrutiny. According to the Code, funds raised by a real estate company from a homebuyer or allottee are categorized as financial debt, granting them the status of financial creditors. This designation empowers them to petition the National Company Law Tribunal (NCLT) for initiating the corporate insolvency resolution process (CIRP) of the real estate company under the Code. Additionally, as financial creditors, homebuyers are entitled to participate in the committee of creditors (CoC). The Real Estate (Regulation and Development) Act of 2016 (RERA) which is a specific law to protect homebuyers, defines ‘allottee,’ as encompassing individuals or homebuyers who have acquired real estate properties, thereby positioning them as financial creditors under the Code.

2. Categories of Creditors:

2.1  The commencement of insolvency resolution processes under the IBC involves different types of creditors, each with distinct rights and motivations. The IBC recognizes three primary categories of creditors in order of priority: Financial Creditors (FC), Operational Creditors (OC), and other creditors. The Code defines financial debt as any amount disbursed against the time value of money, encompassing borrowed money with interest, bonds, debentures, and various financial transactions akin to borrowing.

2.2  One key amendment within this context is the inclusion of amounts raised from homebuyers under a real estate project as “having the commercial effect of borrowing.” The terms ‘allottee’ and ‘real estate project’ are defined according to the Real Estate (Regulation and Development) Act, 2016. Operational debt, on the other hand, includes claims for goods, services, employment dues, payments due under laws, or to the government or local authorities.

2.3  Judicial Decisions on the Position of Homebuyers:

Prior to the amendment in the IBC, Section 6 allowed a Corporate Debtor (CD), in case of default, to have an FC, OC, or the CD itself initiate the Corporate Insolvency Resolution Process (CIRP). In the case of Col. Vinod Awasthy Vs. A.M.R Infrastructure Ltd., the National Company Law Tribunal (NCLT) rejected a petition for insolvency proceedings against a developer, reasoning that homebuyers could not be considered as OCs under the Code. The payments made to the developer did not qualify as operational debt as defined by the Code. However, in cases where the contract guaranteed assured returns to homebuyers, they were categorized as financial creditors. In most instances, homebuyers were neither recognized as financial nor operational creditors, limiting their legal recourse. This challenge was further exacerbated by the Insolvency and Bankruptcy Board of India’s (IBBI) regulations that initially only provided for filing claims by financial and operational creditors. Homebuyers fell into the category of ‘other creditors.’

2.4  Government Amendment to Include Homebuyers as Financial Creditors:

The impetus for amending the IBC to include homebuyers as financial creditors arose from the plight of countless homebuyers across the nation, especially in the National Capital Region (NCR), who faced uncertainties regarding the possession of their flats and apartments. In some cases, possession was delayed by more than a decade. The Supreme Court, in the case of Bikram Chatterji Vs. U.O.I., issued a landmark judgment to protect the interests of beleaguered homebuyers of the Amrapali Group in Noida and Greater Noida. The court observed that these homebuyers were victims of a collusion involving statutory authorities, banks, and the developer. The court remedied the situation by directing the National Buildings Construction Corporation (NBCC) to complete the remaining projects and canceling the registration of the Amrapali Group under RERA. A similar scenario unfolded for homebuyers in projects developed by Jaypee Infratech Ltd. (JIL) under the aegis of Jayprakash Associates Ltd. (JAL).

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2.5  Benefits of the Amendment for Homebuyers:

The amendment profoundly impacted homebuyers, conferring several benefits:

1.     Elevation to Financial Creditors: Homebuyers were elevated from a liminal position to that of financial creditors.

2.     Initiation of Insolvency Proceedings: Amounts invested by homebuyers in a real estate project were redefined as a form of financial debt, allowing them to initiate insolvency proceedings without the need for a dispute with the builder.

3.     Representation and Voting Rights: Homebuyers were granted representation in the Committee of Creditors (CoC) and corresponding voting rights proportional to their financial stake.

4.     Equitable Treatment in Liquidation: In the event of liquidation, homebuyers would be treated on par with other financial creditors, ensuring equitable asset distribution.

5.     Subsequent Amendments: The IBC underwent further amendments, including the introduction of a proviso in Section 7, which specified a minimum threshold for allottees to initiate insolvency proceedings. Either a minimum of one hundred allottees from the same real estate project or not less than ten percent of the total allottees from the project, whichever figure was lesser, could initiate the insolvency resolution process against a recalcitrant real estate corporate entity.

In a recent legal development, the case ofVishal Chelani & Ors. v. Debashis Nandapresented a query before the Supreme Court of India regarding whether homebuyers, having obtained relief under RERA, should be recognized as financial creditors under the Code.

Facts of the case

The case revolved around a group of homebuyers who invested in a project by Bulland Buildtech Pvt. Ltd (Bulland Buildtech) and experienced project completion delays. Aggrieved, these homebuyers approached the Uttar Pradesh Real Estate Regulatory Authority and obtained a decree for a refund of the invested amount with interest. Simultaneously, Bulland Buildtech faced proceedings under the Code, and a resolution plan, favoring a specific group of homebuyers who did not seek RERA remedies, was approved by the CoC.

Discontented with the resolution plan, the RERA-decreed homebuyers contested it before the NCLT, which rejected their application. Subsequently, the National Company Law Appellate Tribunal (NCLAT) upheld the resolution plan on appeal. The RERA-decreed homebuyers then approached the Supreme Court, challenging the validity of the resolution plan that treated homebuyers differently.

The Supreme Court scrutinized crucial provisions of the Code, including the definition of “financial creditor”, the inclusion of real estate allottees’ payments as “financial debt,” and Section 238, which stipulates that the Code supersedes all conflicting laws. The Supreme Court dismissed the resolution plan’s distinction between the two groups of homebuyers, emphasizing that seeking remedies under RERA does not alter the homebuyers’ status. Consequently, the Supreme Court allowed the appeal, directing equal treatment for all homebuyers in the resolution plan.

Our thoughts

This judgment not only provides legal clarity but also reinforces homebuyers’ status as financial creditors, regardless of their chosen remedies under RERA. It underscores the significance of the Code’s provisions, ensuring uniform treatment for homebuyers and safeguarding their rights without penalization for seeking remedies under alternative statutes. The ruling upholds the supremacy of the Code and prevents its dilution by conflicting laws, thereby securing the rights of homebuyers.

4.     Conclusion:

The overarching objective of the IBC is the maximization of asset value for the Corporate Debtor through timely resolution. While expeditious resolution is essential, it is equally crucial to safeguard the rights of primary stakeholders, such as homebuyers. Recent amendments have struck a balance by introducing a threshold limit to prevent misuse of the insolvency process, thereby ensuring the protection of homebuyers’ rights while advancing the broader goals of the IBC. But after the judgment of  Vishal Chelani & Ors. Vs Debasis Nanda it is declared that declared as financial creditors under Section 5(8)(f) of the IBC and were entitled to equal treatment with other home buyers for the resolution plan. The legal landscape is continuously evolving, and courts have been proactive in upholding the rights of homebuyers. In this dynamic environment, the amendments align with the principles enshrined in the preamble of the Code itself.

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1.     insolvency and Bankruptcy Board of India Centre for Legal Policy, “Understanding the Insolvency and Bankruptcy Code, 2016: Analysing developments in jurisprudence”, (June 2019) (last visited Nov. 16, 2019).

2.     The Report of the Banking Law Reforms Committee, 2015, Vol.1, available at: (last visited on Nov. 19, 2019)

3.     Insolvency and Bankruptcy Code, 2016, s. 5(8)(f).

4.     Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 No. 26, Acts of Parliament, 2018 (India).

5.     Insolvency and Bankruptcy Code, 2016, s. 6- Persons who may initiate corporate insolvency resolution process.

6.     2017 SCC OnLine NCLT16278.

7.     Nikhil Mehta and Sons Vs. AMR Infrastructure Ltd., 2017 SCC OnLine NCLAT 859: Company Appeal (AT) (Insolvency) No.7 of 2017; Anil Mahindroo Vs. Earth Organics Infrastructure, NCLAT New Delhi, 2017 SCC OnLine NCLAT 216: Company Appeal (AT) (Insolvency) No. 74/2017.

8.     Insolvency and Bankruptcy Board of India (Insolvency Regulation Process for Corporate Persons) 2016, Regulation 9A.

9.     2019 SCC OnLine SC 901

10.  Pranav Shroff, IBC amendment gives voice to beleaguered homebuyers, Vol.12 Issue 5 India Business Law Journal 53 (2018).

11.  Initiation of corporate insolvency resolution process by financial creditor.

12.  Chitra Sharma Vs. Union of India, (2018) 18 Supreme Court Cases 575: 2018 SCC OnLine SC 874.

13.  The Insolvency Law Committee Report 2018, March 26, 2018.

14.  Insolvency and Bankruptcy (Amendment) Ordinance, 2018: a consensus had emerged among the lawmakers that further fine tuning of the Code would be required. The Government constituted an Insolvency Law Committee to review the functioning and implementation of the Code. The recommendations of the Committee were examined by the Government and it was accordingly decided to amend the Insolvency and Bankruptcy Code, 2016. Since Parliament was not in session and immediate action was required to be taken, the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 was promulgated by the President on the 6th day of June, 2018.

15.  Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, No. 26, Acts of Parliament, 2018 (India), s. 5(8)(f) Explanation: any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of borrowing.

16.  Pioneer Urban and Land Infrastructure Co. Ltd. Vs. Union of India (2019) 8 Supreme Court Cases 416: (2019) 4 Supreme Court Cases (Civ) 1: 2019 SCC OnLine SC 1005.

17.  Real Estate (Regulation & Development) Act, 2016, No. 16, Acts of Parliament 2016 (India).

18.  (2018)1 SCC 407: 2017 SCC OnLine SC 1025.

19.  (2019)4 SCC 17.

20.  C.P. No. (IB) 1564(PB)/2018,

21.  Insolvency and Bankruptcy Code (Amendment) Act, 2020, No. 1, Acts of Parliament, 2020 (India).

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22.  Manish Kumar Vs. U.O.I. 2021SCC OnLine SC 30.

23.  Insolvency and Bankruptcy Code, 2016 s. 3(30).

24.  Insolvency and Bankruptcy Code, 2016, s. 3(31).

25.  2020 SCC OnLine NCLAT1199 see paras 11 & 12.

26.   Company Appeal (AT) (Insolvency) No. 1056 of 2019.

27.  Union Bank of India Vs. Rajasthan Real Estate Regulatory Authority, Special Leave to Appeal (C) Nos. 1861-1871/2022.

28.  Civil Appeal No.3806 of 2023 Supreme Court of India.

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