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Homebuyers under the Code: Judicial Calibration Between Protection and Process

Summary: Recent judicial developments in India are reshaping the treatment of homebuyers under the Insolvency and Bankruptcy Code, 2016. Courts have moved beyond merely recognising homebuyers as financial creditors to substantively distinguishing genuine homebuyers from speculative investors, ensuring the Code is not misused as a recovery tool. While admission into insolvency remains a narrow enquiry of debt and default, broader homebuyer protection is addressed within the resolution process through prospective directions, equitable exceptions for belated claims, and judicial intervention against third-party actions that threaten project viability  Alongside, consumer protection remedies under RERA and the Consumer Protection Act continue to offer parallel avenues for redressal. The evolving framework seeks to balance procedural discipline with fairness, ensuring genuine homebuyers are not left without effective remedies.

Introduction

Recognising homebuyers as financial creditors under the Insolvency and Bankruptcy Code, 2016 (“Code”), marked a remarkable shift in Indian insolvency jurisprudence. However, recent judicial developments indicate that this recognition comes with inherent limitations and may require recalibration. The consequence of recognition remains contentious requiring courts to balance the sanctity of insolvency proceedings, the collective nature of the resolution process, and adequate protection to genuine homebuyers.

The discussion below reflects a progression from formal classification to substantive evaluation. The issue has evolved from determining the qualification of homebuyers as financial creditors to examining the way their rights operate within the broader insolvency framework.

Exploring the Remedial Limits of the Code: From Recognition to Restraint

The legislature intended to correct the structural imbalance by designating homebuyers as financial creditors. Despite being allottees funding real estate projects, homebuyers lacked participation rights in the Committee of Creditors (“CoC”) and were, in many cases, neither financial nor operational creditors under the Code. The amendment to Section 5(8)(f), upheld in Pioneer Urban Land and Infrastructure Ltd. v. Union of India[1], sought to address this by granting homebuyers the status of individual financial creditors akin to debenture holders and fixed-deposit holders, who, though unsecured, have a vital interest in the financial health of the corporate debtor.

However, this opened an unanticipated floodgate, enabling individual homebuyers to invoke insolvency proceedings for purposes beyond resolution. The Supreme Court (“SC”) in Mansi Brar Fernandes v. Shubha Sharma[2] (“Mansi Brar”) emphasised that the Code is not designed to facilitate exit or secure return on investment but aims to resolve and revive. The SC established a threshold for real estate insolvency applications, mandating collective action from a minimum number of homebuyers, reflecting both legislative and judicial intent to uphold the collective nature of the resolution process.

Genuine Homebuyers versus Speculative Investors

A key doctrinal development is the distinction between genuine homebuyers and speculative investors. In Mansi Brar, the SC examined the underlying transaction, holding that where agreements indicate investment intent rather than an intention to possess, such buyers ought not to claim the benefit of the Code as financial creditors. This transition from formal classification to economic substance prevents investors from exploiting the insolvency framework by masquerading as homebuyers, reinforcing the foundational principle that insolvency law is concerned with collective resolution rather than individual recovery.

A Parallel Consumer Protection Jurisprudence

The SC has consistently recognised that delay in delivery of possession constitutes a fundamental breach. In The Chief Officer, Nagpur Housing and Area Development Board v. Manohar Burde[3], the SC affirmed that a homebuyer cannot be compelled to accept possession after inordinate delay and can seek refund. However, the SC partly allowed the Housing Board’s appeal, reinstating the NCDRC’s refund award with 9% annual interest, overturning the High Court’s enhancement to 15%, and reducing harassment compensation from Rs 10,00,000/- to Rs. 7,50,000/-, considering the appellant’s status as a State instrumentality. In Greater Mohali Area Development Authority v. Anupam Garg Etc.[4], the SC further engaged with the scope of compensatory relief. GMADA had failed to hand over possession by the contractually stipulated date, and the NCDRC had directed payment of the homebuyers’ full bank loan interest in addition to the principal refund. The SC allowed GMADA’s appeal on this point, holding that the contractually stipulated refund, the entire principal with 8% interest compounded annually, constituted adequate recompense. The Court observed that “determination has to be made, keeping in view the stage of the work completed, where the service provider has lapsed in duty and the loss caused thereby, etc. Uniformity is foreign to such determination,” and that bank loan interest, while a relevant factor, could not be wholly transferred to the developer.

These decisions underscore that remedies under the Code operate parallelly with the consumer protection framework, allowing homebuyers to pursue relief depending on the nature of their grievance.

Admission and Subsequent Protection under the Code

Recent jurisprudence indicates that under the Code, homebuyers are first admitted into the resolution process and subsequently protected within insolvency.

It is settled law that the scope of enquiry at the admission stage under Section 7 is limited to the existence of a financial debt and the occurrence of default. In Elegna Co-operative Housing Society v. Edelweiss ARC, the SC[5] reiterated that once the Adjudicating Authority is satisfied that a financial debt exists and a default has occurred, it is obligated to admit the petition. Considerations of project viability, completion timeline, or potential prejudice to homebuyers are entirely extraneous to this enquiry.

On locus standi, the SC upheld the rejection of a housing society’s intervention application, holding that while individual allottees are deemed financial creditors under Section 5(8)(f), this status does not automatically extend to societies or associations. A housing society that is not itself a creditor and is not recognised as an authorised representative under the Code has no locus standi to intervene in pre-admission Section 7 proceedings.

The court further issued prospective directions: the Information Memorandum must mandatorily disclose details of all allottees; where the CoC determines it is not viable to approve handover of possession under Regulation 4E, it must record cogent written reasons; and any CoC recommendation for liquidation must be accompanied by reasoned justification addressing homebuyer interests.

The Need and Implications of Procedural Discipline

The treatment of homebuyer claims filed beyond prescribed timelines has emerged as a recurring issue. The National Company Law Appellate Tribunal’s (“NCLAT”) decision in Reena & Ors. v. Rabindra Kumar Mintri (CIRP of Today Homes Noida Pvt. Ltd.) represents a significant development that considerably undermines any characterisation of the NCLAT as uniformly enforcing procedural discipline.

The Corporate Insolvency Resolution Process (“CIRP”) against Today Homes Noida Pvt. Ltd. commenced in August 2019, and the CoC approved a Resolution Plan in March 2020. The appellant-homebuyers learned of the CIRP only in 2023 or 2024, many being geographically dispersed or affected by pandemic-related disruptions. Their belated claims were rejected by the Resolution Professional and dismissed by the National Company Law Tribunal (“NCLT”).

The NCLAT reversed the NCLT’s order. Relying on Puneet Kaur v. K.V. Developers and the SC’s ruling in Amit Nehra v. Pawan Kumar Garg, it held that where a homebuyer’s claim is reflected in the Corporate Debtor’s records, it ought to have been included in the Information Memorandum. It directed the Resolution Applicant to treat the appellants as financial creditors, at par with other homebuyers, holding that bona fide allottees who have paid substantial consideration cannot be relegated to a residual refund clause in the plan. The decision is significant as it reconciles the time-bound discipline of the Code with the equitable imperative of protecting homebuyers, particularly those who, due to genuine reasons, fail to file claims within the prescribed timelines.

CIRP and Third-Party Administrative Actions

The Allahabad High Court’s decision in Bulland Realtors Pvt. Ltd. v. State of U.P. & Ors. addresses the interplay between CIRP proceedings and administrative actions of development authorities.

The development authority had cancelled the corporate debtor’s sub-lease, the foundational asset for the housing project, due to lease rent default, while the Resolution Plan was pending NCLT approval. Without restoration, no viable resolution plan could be executed, rendering liquidation near-inevitable. The court recognised homebuyers as “vital stakeholders” whose protection should take precedence during insolvency proceedings of a real estate company. It observed that in the absence of any land available with the corporate debtor, revival of the housing project couldn’t be effectuated. The court directed restoration of the sub-lease upon payment of 25% of the recalculated dues, with the balance payable in two half-yearly instalments within a year, while expressly clarifying that the deposit created no indefeasible right in favour of the resolution applicant and that all pending objections before the NCLT would be considered on their merits in accordance with the Code.

Conclusion: Towards a Calibrated Equilibrium

A consolidated reading of the above judgments reveals a coherent and evolving legal framework, summarised as follows:

  • The SC has clarified that the Code is not a tool for recovery and should not be used to effectuate investment-driven claims.
  • Courts have introduced a substantive distinction between genuine homebuyers and speculative investors, limiting the misuse of insolvency proceedings.
  • Admission into insolvency is a narrow enquiry focused on debt and default; broader stakeholder considerations, including homebuyer protection and project viability, are accounted for within the resolution process itself, and through prospective judicial directions.
  • Consumer law remedies under RERA and the Consumer Protection Act continue to exist outside and alongside the insolvency mechanism, providing an alternative route for grievance redressal. However, the availability of such remedies is subject to the admission of the insolvency petition and the consequent imposition of the moratorium under the Code.
  • Procedural compliance remains a critical determinant of CIRP participation, though courts have recognised a meaningful exception for bona fide homebuyers whose claims are on record and whose default in filing arises from circumstances beyond their control.
  • Where third-party administrative actions threaten to undermine the viability of a resolution plan, courts may intervene to protect homebuyer interests, treating them as paramount in real estate insolvency proceedings.

The framework reflects an attempt to harmonise efficacy in insolvency resolution with fairness to homebuyers, with the challenge lying in maintaining the integrity of the process whilst ensuring genuine homebuyers are not left without effective remedies.

[1] (2019) 8 SCC 416.

[2] 2025 SCC OnLine SC 1972.

[3] 2025 SCC OnLine SC 642.

[4] 2025 SCC OnLine SC 1312.

[5] Elegna Co-operative Housing Society v. Edelweiss ARC 2026 SCC OnLine SC 92.