Relief for the Homebuyers under Insolvency and Bankruptcy Code, 2016


“Is the battle against the homebuyers over or has just begun?”

The moment it comes to the homebuyers and the relief provided to them, no accurate answer comes to one’s mind. Although Real Estate (Regulation and Development) Act (RERA) has been enacted to provide relief to the homebuyers due to the lack execution arms not much action upon the orders provided by the RERA authorities is visible.

The decision of the Supreme Court in Jaypee Infratech case introduced Homebuyers into the category of financial creditors for the purpose of representation in the meeting of the committee of creditors and did not clarify whether the homebuyers can file a petition against the builder or developer to commence Corporate Insolvency Process or not.

After the Insolvency and Bankruptcy (Amendment), 2017 the homebuyers were included in the definition of financial creditors arising from:-

Section 5 (8) (f):- “any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of borrowing”

  • But to what extent?
  • Can any homebuyer directly approach the adjudicating authority to initiate insolvency resolution process or not?

Essentials for a debt to qualify as financial debt:-

  1. There must be a liability or debt due to any person.
  2. The debt must have been given against the consideration for the time value of money.
  3. The debt must arise from a transaction having the commercial effect of borrowing.

As a general rule NCLAT has held that transactions wherein amounts are disbursed for sale of real estate in the future do not have the commercial effect of borrowing and thus, are not financial debts. However, in certain circumstances, the NCLAT has included home-buyers as financial creditors.
In Nikhil Mehta vs. AMR Infrastructure Ltd. the NCLAT observed that by entering into assured return plan, the respondent had borrowed the amount for the commercial purpose of financing its real estate development activities and equated the Allotment Debt with a loan which arose out of a transaction having the commercial effect of borrowing, therefore enabling the homebuyers, who are entitled to get assured return from the builder/developer till the actual delivery of possession of the said property, to directly approach the adjudicating authority for commencement of CIRP against the builder.

Now, what about the other situation where the homebuyers are not being provided to any assured return plan?

In this instant scenario, only one component i.e. liability to deliver the possession of the unit is established whereas the other components regarding accrual of default and actual default are not yet established hence, in that case, homebuyers can approach NCLT under IBC by following few steps:-

  1. Firstly the homebuyers shall approach the RERA to claim the refund or possession of the said property.
  2. Secondly, RERA will either pass the orders of refund along or the possession of the property.
    1. If the possession orders are passed in favor of the claimant, however, if the possession is not delivered within the prescribed time frame then the homebuyer shall be entitled to interest till the actual delivery of the possession of the property.

With the receipt of the order, the default component or accrual of default gets established wherein if the builder fails to comply with the same the default occurs on the part of builder/developer.

3. Now the Homebuyer can approach the NCLT if the respondent or developer defaults in complying with the RERA orders by recognizing the refund as the financial debt and failure to comply as the default under IBC.


According to section 238 of the IBC if there is any inconsistency between IBC and another law then the IBC will prevail. In the light of same provision both the enactments i.e. RERA and IBC shall be read harmoniously to provide relief to the homebuyers and in case of inconsistency, IBC shall prevail over RERA enabling the homebuyers to approach NCLT without any hesitation.


Disclaimer – Please note that the above articles is based on the interpretation of related laws and judicial pronouncement which may differ from person to person. The reader are expected to take the expert opinion on the matter.

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