Why Should Homebuyers approach NCLT against defaulting Real Estate Developers/Builders?


Status as on- 30/04/2021

The Insolvency and Bankruptcy Code, is a beneficial legislation which aims to put financially defaulting companies (Corporate Debtors) back on their feet as a robust and functional going-concern. This objective is achieved by reorganizing and insolvency resolution of the Corporate Debtor through the decisions agreed upon by the Committee of Creditors, maximization of value of assets of the Corporate Debtor and balancing of interest of all stakeholder. It is pertinent to note that even by an order of liquidation the law enables the Insolvency Resolution Professional to sell the Corporate Debtor in its entirety as a going concern. Thus, the Code enables the revival and continuation of the Corporate Debtor by protecting the company from its own management by handing over the reins of the company to the Committee of Creditors i.e. financial creditors of the Corporate Debtor.

Eligibility of Homebuyers to initiate Corporate Insolvency Resolution Process

The minimum financial default for initiating insolvency process as on date is Rs. 1 Crore. Further, the IBC Code imposes a minimum threshold for financial creditors such as homebuyers from initiating insolvency process. At present as the laws stands at least 10% or 100 Homebuyers of a project (whichever is lowers) are required to collectively file an application for initiating insolvency process.

Benefits of the IBC

Homebuyers have several lawful remedies against defaulting builders be it under RERA, Consumer Protection Act, Civil Courts, Arbitration and so forth. However, what differentiates the IBC Code from other applicable laws is that it is not adversarial in nature and is not a forum of simple recovery; the IBC Code enables Homebuyers and other stakeholders to remove the management of the Corporate Debtor so that the company can be rehabilitated. Thus whereas legislation like RERA provides for individual remedies against the Builder, the IBC Code gives collective control over the affairs and management of the Corporate Debtor to its financial creditors.

Thus Homebuyers can form a part of the Committee of Creditors and appoint an Insolvency Resolution Professional to run the Corporate Debtor as a going concern, remove the erstwhile management of the Corporate Debtor and take commercial decisions for the benefit of the Company and ensure maximization of asset value by completion of stalled projects.



It must be noted that the most fundamental change introduced by the IBC code is moving the insolvency law away from the framework of “debtor-in-possession” to “creditors-in control.” Such a drastic change in regime has made Companies and their promoters cautious and afraid of losing control of their business on the appointment of a Resolution Professional who is bound by the code of ethics and conduct as prescribed under the IBC Regulations, decisions taken under the commercial wisdom of the Committee of Creditors and under the overall supervision of the Adjudicating Authority i.e. NCLT.


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 rera@centrik.in



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