Homebuyers Under IBC: Five Years as Financial Creditors, Has the Amendment Delivered?

NEW DELHI — Five years after the Supreme Court settled the rules in Manish Kumar, and eight after Parliament rewrote the Insolvency and Bankruptcy Code to make homebuyers financial creditors, the question that allottees' associations ask has not changed: we have the vote, but where is the flat? The answer, on the evidence of the insolvency regulator's data and the cases the tribunals have decided, is mixed. Buyers are recovering more, and recovering homes rather than refunds, in a way the pre-2018 regime never allowed. They are also waiting longer than any other class of creditor, in processes that the Code was not designed for.

"We got a seat at the table. We are still waiting for the house," the president of an allottees' association in Noida, whose 1,100 members have been in a resolution process since 2022, told The Counsel.

How homebuyers became financial creditors

• June 2018 — The Insolvency and Bankruptcy Code (Second Amendment) Act inserts an explanation into Section 5(8)(f): amounts raised from allottees under a real estate project are deemed to have the commercial effect of a borrowing, and are financial debt. Allottees vote in the committee of creditors through an authorised representative under Section 21(6A).
• Aug 2019 — In Pioneer Urban Land and Infrastructure v. Union of India, (2019) 8 SCC 416, the Supreme Court upholds the amendment against a challenge by developers.
• Dec 2019 – Mar 2020 — An ordinance, then the 2020 amendment, adds a proviso to Section 7: allottees may file only jointly, by at least 100 allottees of a project or 10 per cent of them, whichever is less.
• Jan 2021 — In Manish Kumar v. Union of India, (2021) 5 SCC 1, the Supreme Court upholds the threshold.
• Oct 2023 — In Vishal Chelani v. Debashis Nanda, the Supreme Court holds that an allottee who has obtained a RERA decree remains a financial creditor, not a decree-holder treated as an operational creditor.

What the numbers show

According to the Insolvency and Bankruptcy Board of India's published data, real estate and construction account for roughly a fifth of the corporate insolvency processes admitted since the Code came into force, a share second only to manufacturing. Resolution, where it happens, takes longer in real estate than in any other sector — well over two years on average, against a statutory outer limit of 330 days — and a larger proportion of cases end in liquidation. Where plans are approved, however, the recovery for allottees is measured in completed homes rather than a percentage of claims, and the Board's own analysis shows that allottees fare better under approved plans than financial creditors with secured claims in the same cases.

Why resolutions stall

1. The project is not the company. Developers build each project through a separate entity and move money between them. The insolvency of one entity freezes a project whose land, approvals and receipts may sit in three others.
2. The land belongs to someone else. In the National Capital Region, project land is typically held on long lease from a development authority, which claims premium and lease dues with interest. Resolution plans cannot close without settling those claims, and the authorities have litigated their priority through to the Supreme Court.
3. Lenders and buyers want different things. Secured lenders want the sale of unsold inventory and land to repay debt; allottees want the money spent on construction. Committees with both classes deadlock.
4. Bidders are scarce. Completing someone else's half-built towers, with cost overruns and approvals to renew, attracts few resolution applicants and thin margins.
5. Promoters litigate. Challenges to admission, to the committee's decisions and to plan approval routinely add a year or more.

We got a seat at the table. We are still waiting for the house.

President of an allottees' association, Noida

The fixes tried so far

• Project-wise resolution. In Supertech (2022) the appellate tribunal confined the process to one project rather than the whole company, allowing other projects to continue. The approach has been followed in several cases since.
• Reverse insolvency. In Umang Realtech (2020) the appellate tribunal allowed the promoter to fund completion under the supervision of the resolution professional, with allottees treated as the primary beneficiaries. The experiment has had mixed results and the Supreme Court has not endorsed it as a general model.
• Court-supervised completion. In the Amrapali cases the Supreme Court appointed a public sector construction company to complete more than forty thousand homes outside the Code — a solution that has not been replicated.
• Regulatory changes. The Board's 2024 amendments to the insolvency process regulations allow committees to invite separate plans for each project, permit the resolution professional to hand over possession of completed units to allottees during the process with the committee's approval, and require registration of the project with the real estate regulator.
• Group insolvency. The appellate tribunal's approval this month of a single plan for a real estate group and five subsidiaries, and the enabling framework for group insolvency inserted into the Code by Parliament this year, address the first and largest cause of delay.

What homebuyers can do

• File a claim with the resolution professional in the prescribed form as soon as the process is admitted, with the allotment letter, payment receipts and any RERA order attached.
• Participate in the election of the authorised representative, who votes the allottees' share in the committee, and give instructions in writing before each vote.
• Ask the resolution professional, through the representative, to exercise the power to hand over completed units during the process.
• Track the case on the Board's website and the tribunal's cause list; plan approval hearings are the point at which objections must be raised.
• Preserve the RERA remedy for the interregnum: a RERA order against the company cannot be executed during the moratorium, but it fixes the claim.

Has it worked?

Measured against the position before 2018, when a homebuyer in a builder's insolvency was an unsecured creditor with no vote and a claim ranked after the banks, the amendment has worked. Allottees now shape the outcome, and the outcome is increasingly the completion of homes. Measured against the promise of a time-bound process, it has not: the Code's timelines are not kept in real estate, and the structural problems of project finance have had to be solved by tribunals case by case. The legislative changes of 2024 and 2026 are a response to that record. Whether they shorten the wait will be known in the next five years.

The Counsel will continue to track real estate insolvencies and the implementation of the 2026 group insolvency framework. Allottees in a stalled project should consult a qualified insolvency or real estate lawyer about filing and voting in the process.

This report is for general information only and does not constitute legal advice. Readers should consult a qualified lawyer about their own circumstances. Case citations are to The Counsel Reports (TCR) unless otherwise stated.