How NCLT through IBC can help homebuyers to get refund from defaulting Builders


What is IBC?

The Indian Bankruptcy Code outlines insolvency resolution process for individuals, companies and partnership firms, the key features of this act include, Insolvency regulatorscomprising of 10 members, representatives from the Ministries of Finance and Law, and the Reserve Bank of India, to oversee the insolvency proceedings, Insolvency professionals who manage the insolvency proceedings, these are licensed professionals and control the assets of the debtor during insolvency proceedings.

Relation between NCLT and IBC

Under the IBC two tribunals are empowered to oversee the process of insolvency resolution, National Company Law Tribunal for individuals and companies, and Debt Recovery Tribunal for individuals and partnerships. An application for insolvency is submitted to the adjudicating authority by “financial creditors”, “operational creditors” or by the “corporate debtor” itself.

Status of Homebuyers under IBC

Before 2018 home buyers were not considered as “financial creditors” or “operational creditors” but rather they fell in the definition of “other creditors”, this status of the homebuyers restricted their ability to initiate Corporate Insolvency proceedings under the IBC, 2016. After the amendment to IBC in 2018, if an allotee is claiming an amount against a developer in relation to a real estate project then this amount so claimed will have a similar commercial effect of that of a “borrowing” hence it is considered as a financial debt and the home buyer is categorized as a “financial creditor”.

In the year of 2019, several home buyers approached the Apex Court searching for relief against the defaulting builders, they claimed that the funds were fraudulently diverted through fraudulent means. To the relief of the homebuyers the Supreme Court clarified the position of the homebuyers similar to that of a “financial creditor” under the IBC, after this the homebuyers were at a par with banks and financial institutions.

CIRP procedure available for Homebuyers

After a plea is made the maximum time allowed to either accept or reject the plea is 14 days. If the plea is accepted, the tribunal is supposed to appoint an Interim Resolution Professional to draft a resolution plan within 180 days, after which the Corporate Insolvency Resolution process is initiated by the court. For the said period, the board of directors of thecompany stands suspended, and therefore the promoters do not have a say within the management of the said company. The IRP, if required, can seek the support of the company’s management for day-to-day operations. If the CIRP fails in reviving the corporate the liquidation process is initiated. The home buyer can approach the NCLT under Section 7 of the IBC to trigger the corporate insolvency resolution process (CIRP) and needs to at least prima-facie establish that a ‘default’ exists in relation to any amount due and payable to the home buyer.

In the year 2020 there was an amendment to the IBC, Section 7 of the code was amended, and its effect was that to initiate the resolution process it is to be filed jointly by at least 100 allottees or 10% of the total allottees under the said “real estate project”, whichever is less. The Supreme Court from time to time has held that the IBC is a ‘beneficial legislation’ that can be invoked by unsecured financial creditors like home buyers.

Disclaimer – The above article is based on the personal interpretation of the related orders and laws. The readers are expected to take expert opinion before relying upon the article. For more information, please contact us at

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