Investing the hard-earned money in purchasing an apartment is not only about creating a financial asset, rather, at the back of it, the decision is the product of years of savings, EMIs, and long-term planning. And when the homebuyers come across the news about the builder himself filing for insolvency or getting dragged before the National Company Law Tribunal (NCLT), the homebuyers face genuine concern regarding: What happens to the flat they booked? Will they get possession, or will they get their money back and how much of it? This blog examines the legal framework governing builder insolvency and homebuyer rights under the Insolvency and Bankruptcy Code, 2016 (“IBC”), and explains, in practical terms, what options are available once a developer is admitted into the Corporate Insolvency Resolution Process (“CIRP”).

Comprehending the Implications of Insolvency for a Property Development Project

If a builder (called the “corporate debtor” in the IBC) fails to meet a payment obligation above the specified limit, a financial creditor, an operational creditor, or the company itself can file with the NCLT to start the CIRP. Upon admission, a moratorium under Section 14 of the IBC takes effect. This moratorium halts all ongoing lawsuits, execution processes, and recovery actions aimed at the builder, encompassing cases before consumer forums and, in most situations, RERA authorities. An Interim Resolution Professional (“IRP”), and later a Resolution Professional (“RP”), assumes control of the company’s management, while the previous board of directors is suspended.

At this moment, purchasers frequently inquire: builders in NCLT what occurs with the flat they have already paid for, occasionally significantly, at times completely. The simple answer is that the apartment doesn’t automatically belong to them, nor is it automatically given up. Its outcome relies on the resolution strategy that is ultimately sanctioned for the particular project or, if no feasible plan exists, on liquidation.

Homebuyers as Financial Creditors

The position of the homebuyer was dramatically altered when an explanation was inserted into Section 5(8)(f) under the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018. It clarified that the amounts raised from allottees under real estate projects are treated as “financial debt.” This signified that homebuyers, who had previously been assigned a lower rank as unsecured or operational creditors, were upgraded to the status of financial creditors putting them, at least theoretically, on equal ground with banks and financial institutions.

The Supreme Court affirmed the constitutional legitimacy of this amendment in Pioneer Urban Land and Infrastructure Ltd. v. Union of India (2019), stating that allottees were always meant to fall under the primary provision of Section 5(8)(f), with the Explanation simply clarifying any ambiguity. This serves as the basis for all future conversations regarding CIRP homebuyer claim rights: homebuyers are not passive observers in the insolvency process they are stakeholders who have a voice. That position, however, carries stipulations. Due to the large and scattered nature of allottees, Section 7(1) of the IBC mandates that homebuyers must file a joint application to initiate CIRP with a minimum of 100 allottees from the same project or 10% of the total allottees in that project, whichever is lower. This threshold has been continuously maintained by courts, including in rulings that specify that allottees possessing refund orders or recovery certificates from RERA authorities still fall under this numerical threshold and are classified within the same category of financial creditors.

The Committee of Creditors and the Authorized Representative

Once the homebuyers get admitted into the class of financial creditors, they participate in the Committee of Creditors (“CoC”) which is the primary decision-making body for corporate insolvency resolution under the guidance of an Authorized Representative (“AR”). Under Regulation 16A of the CIRP Regulations, the IRP asks allottees to choose their AR, which is usually an insolvency professional, who then votes in accordance with the directions issued by the group. This gives homebuyers a collective voice, no matter how many there are, but it also means that a buyer who does not file a claim or work with the AR will have little to no say in the outcome.

Filing Your Claim: A Non-Negotiable First Step

No matter how great a buyer’s rights may sound on paper, they depend on strict and timely adherence to the process. The CIRP commences with the publication of a public notice calling for claims from all creditors including allottees, generally in Form CA as prescribed by the CIRP Regulations. Missing this deadline or submitting an incomplete claim can seriously undermine a buyer’s position as the remedy plan depends on the claims that the RP has collected. Purchasers must retain and provide the builder-buyer contract, payment receipts, allotment letters, and any communication related to delays or possession as evidence for the claim.

What Are the Possible Outcomes?

The main concern for nearly all allottees lies in the realities of obtaining a refund as an ibc homebuyer or, on the other hand, acquiring the flat. In general, there are three potential results:
1. Completion of the project according to a resolution plan– When a resolution applicant assumes control of the project and invests money for its completion, buyers who chose to take possession might ultimately get their flats, usually with adjusted timelines and, at times, altered conditions noted in the sanctioned plan.
2. Reimbursement according to the resolution plan– If a buyer chooses a refund or the project is no longer feasible, the plan might allow for repayment typically at a value set by the plan itself, as financial creditors are generally compensated on a pro-rata, value-maximization basis instead of one-for-one.
3. Dissolution– If a feasible resolution plan is not sanctioned within the legal timeframe, the company could be directed towards liquidation. In that situation, homebuyers’ recovery is regulated by the waterfall framework in Section 53 of the IBC, which prioritizes financial creditors over operational and unsecured creditors, yet still behind secured creditors who have not given up their security interest, along with the costs of the insolvency resolution process and workmen’s dues for a defined timeframe.

Project-Specific Assistance: Reversing CIRP and Further


Acknowledging that one failing project shouldn’t disrupt a solvent developer’s other unrelated ventures, tribunals established the idea of project-specific insolvency and “Reverse CIRP” where, rather than completely removing the promoter, the promoter is allowed to inject funds as an external investor under the RP’s oversight, enabling construction to progress while insolvency procedures only apply to the struggling project. This method, initially outlined in cases related to Amrapali and subsequent developments like the Supertech litigation, has now gained clear statutory acknowledgment. The Insolvency and Bankruptcy Code (Amendment) Act, 2026 has introduced resolution processes at both the asset and project level, expanded disclosure obligations for real estate corporate debtors, and created a Creditor-Initiated Insolvency Resolution Process, with various initiatives designed to protect viable, nearly completed projects from being negatively impacted by unrelated financial issues in other segments of the developer’s portfolio. Homebuyers must consider these particular project elements, as they can greatly affect whether ownership stays realistically achievable.

RERA or IBC: Which Path Will You Select?

Buyers frequently ask whether they should obtain help from the Real Estate Regulatory Authority or under the IBC. The two regimes are not mutually exclusive; however, Section 238 of the IBC gives it priority over other laws, including RERA, in cases of inconsistencies. Once CIRP is approved, the moratorium essentially stops RERA activities directed at the builder. Importantly, a refund order issued under RERA does not bar a buyer from being defined as a financial creditor under the IBC; courts have clarified that these buyers remain in the same category for threshold and voting purposes.

Practical Takeaways for Homebuyers

  • Submit your claim quickly and correctly as soon as a public announcement is issued; procrastination can be detrimental.
  • Keep all documentation intact such as allotment letter, payment timeline, receipts, and any correspondence related to possession.
  • Participate actively with the Authorized Representative and attend or reply to messages concerning CoC meetings.
  • Recognize that an approved resolution plan eliminates previous claims not included in it thus, being attentive during the resolution process is more crucial than complaints made after approval.
  • Think about obtaining specialized legal counsel promptly, especially when several allottees can collaborate on a joint claim or representation.

Conclusion

Builder insolvency is certainly troubling for homebuyers; however, the legal framework strengthened by twenty years of judicial advancements and, more recently, by legislative changes provides a systematic, albeit flawed, route to recovery. Acknowledgment as financial creditors, involvement in the CoC, targeted resolution mechanisms for projects, and a clear claims procedure collectively guarantee that homebuyers are prioritized in insolvency cases. However, results differ greatly depending on the particular details of each project, the construction phase, and the effort buyers put into asserting their rights. In situations where uncertainty exists, seeking insolvency advice as soon as possible is the best protection for your property and finances.

 

Author: Mahima Rathore, Associate
Co- Author: Nitisha Rai, Intern