The Insolvency and Bankruptcy Code (IBC) was introduced in 2016 which primarily aims at the resolution of corporate insolvency of corporate persons, partnership firms and individuals. The IBC framework is intended to facilitate the financially distressed corporate debtor and not as a mere recovery mechanism for creditors. Accordingly, proceedings before the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) are resolution centred and not recovery centred.
In the real estate sector, we see that developers’ insolvencies include a large group of stakeholders which includes financial creditors, operational creditors, homebuyers, and regulatory authorities. Homebuyers, who are included in the class of financial creditors are statutorily recognised under the IBC and are entitled to participate in the Committee of Creditors through authorized representatives (AR). However, this statutory recognition does not extend to all homebuyer related entities which in particular are Resident Welfare Associations (RWAs) or cooperative housing societies, unless they independently meet the Code requirements are left out.
RWAs play a role in running the day to day affairs of residential complexes. Their functions usually include management of common areas, collection of maintenance fees, interaction with local authorities on behalf of residents, and advocacy for public services. RWAs often act as representatives of residents in issues related to living conditions and administrative coordination. Their role is primarily managerial and welfare-oriented and arises through local housing and municipal regulations, not insolvency law.
When a Real Estate company goes into insolvency we see RWAs often attempt to step in on behalf of the residents, particularly on matters relating to maintenance, possession, or completion of the project. At a practical level such association may raise concerns before the authorities or seek to represent the collective interest of the occupant, however once proceedings commence under the Insolvency and Bankruptcy Code, the rights and obligations of parties are strictly governed by the framework of the code, The NCLT and NCLAT, being statutory insolvency tribunals, operate within a limited jurisdiction and cannot entertain such types of issues which fall outside the ambit of the IBC.
Most Importantly, RWAs, merely by virtue of being representative bodies, do not qualify as financial or operational creditors unless they independently satisfy the requirements laid down under the Insolvency Code. Therefore, while RWAs may initially voice the concerns of residents, they do not possess an automatic or independent right to participate or intervene in insolvency proceedings when they are not recognised stakeholder under the IBC.
Hon’ble Supreme Court of India has settled this issue by holding that Resident Associations and cooperative housing societies do not have a determinative role in insolvency proceeding initiated against real estate developers. In the case of Elegna Co-operative Housing and Commercial Society Ltd. versus Edelweiss Asset Reconstruction Company Limited (2026 INSC 58) the Court examined that whether RWAs had a right to get involved in proceedings under Section 7 of the IBC. The Court in this instance put forth that insolvency processes are for the recognized stakeholders as per the Code. Allowing RWAs into these proceedings would introduce into the process issues which the statute did not provide for. Also, the Court made it clear that the objective of the resolution process is not to expand beyond what is contemplated under the Code.
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