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This article is written by Surabhi Sharma, and Pushkar Deo, pursuing a Certificate Course in Insolvency and Bankruptcy Code from


Insolvency and Bankruptcy Code, 2016 (IBC) came into effect in 2016. It was introduced to address a substantial rise in the level of distressed debt of the country. The IBC is the consolidation of different laws into one code, involving insolvency resolution process for companies, LLPs, partnerships and companies, and subsequently resulted into abrogation of several archaic legislations pertaining to insolvency and bankruptcy. The framework of law for insolvency was introduced to provide a time-bound process for the resolution of insolvency in order to enable maximization of the value of the debtor’s assets, so that entrepreneurship can be promoted along with balancing the interests of the stakeholders. 

India was in dire need of the IBC, as before the advent of this Code, erstwhile acts and rules which dealt with the situation of corporate creditors and debtors, were exceedingly insufficient. The major problem was the lack of clarity of jurisdiction. The erstwhile regime was rather fragmented and the average time for the resolution of insolvency in India was comparatively very high. Soon after the implementation of the Insolvency and Bankruptcy Code, fast track resolution process was possible. The IBC deals with the economy of the country as a whole and has smoothened the relation between lenders and borrowers.

Constitutionality of IBC was upheld in the matter of Swiss Ribbons Pvt. Ltd. & Anr. v. UOI & Ors. The Hon’ble Supreme court observed that working of the Code has been remarkable since the flow of financial resources to the commercial sector in the country has risen exponentially, which has subsequently led to the repaying of financial debts. Adjudicating Authority has disposed almost 3300 cases, based on out-of-court settlements between corporate creditors and debtors.It was thus observed that these figures manifest the Code is proving to be emphatically successful, and Justice RF Nariman concluded by phrasing that “The defaulter‘s paradise is lost. In its place, the economy‘s rightful position has been regained.” 

Initially, in Insolvency and Bankruptcy Code, Homebuyers or allottees were not the part of financial creditors. It was only after the amendment of 2018 that they were given the rights as financial creditors under the code. Before amendment, the Supreme Court also included Homebuyers within the definition of financial creditor in several pronouncements.
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Situation of homebuyers prior to amendment Act of 2018

The persons who were worst affected by this delay were individuals who invested significant amounts through loans and savings to get a dream home for  themselves. The massive delays meant that these amounts remained tied up in the incomplete projects. The usual remedy for such individuals or ‘homebuyers’ was to approach the Consumer Court or the Real Estate Regulatory Authority (RERA) under the RERA Act, 2016. 

However, many high profile insolvency proceedings were witnessed in 2017 against defaulting real estate and housing development companies which complicated the position of homebuyers. Under Section 14 of the Insolvency and Bankruptcy Code, if an insolvency resolution process is initiated, a ‘moratorium’ period is imposed in terms of Section 14 (1) (a). In this period, no adverse action by way of suits and proceedings can be brought against the company undergoing insolvency resolution. This meant that the homebuyers were left in the lurch as their right to seek redressal before a Consumer Court or Real Estate Regulatory Authority would stand suspended in the moratorium period. Since the Code also did not consider homebuyers to be either financial or operational creditors, they would have no locus in the Corporate Insolvency Resolution Process. If the housing companies/builders went into liquidation, the homebuyers would also stand deprived of their right to own a home. Furthermore, homebuyers would receive refunds which would be limited to the extent of the liquidation value of the company, which would be extremely low due to their inferior ranking in the distribution mechanism or ‘waterfall’ under Section 53 of the Code.

The Supreme Court took note of the plight of such homebuyers in the landmark case of Chitra Sharma & Ors. v. Union of India [2017] 144 SCL 1(SC) (see here) wherein a high profile corporate insolvency resolution process was initiated against Jaypee Infratech Ltd. (JIL) and the homebuyers of JIL’s projects were facing complications akin to those mentioned earlier. The Court, in absence of any solace to the homebuyers in the framework of the IBC, put in place a workable arrangement by appointing a representative of the homebuyers in the Committee of Creditors (CoC) to protect their interest. During the pendency of the proceedings, the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 was passed which recognized the homebuyer’s position as financial creditors. The Court, in exercise of its powers under Article 142 of the Constitution, directed that the CIRP be reinitiated to protect the interests of the homebuyers.

Originally, when the code was enacted only operational and financial creditors were given the right of filing claims under the insolvency and Bankruptcy Code, 2016. The Code excluded some classes of claimants, who were neither operational nor financial debtors. When claims regarding prepayment brought to fore by the Homebuyers, NCLT in Col. Vinod Awasthy v. AMR Infrastructure Limited, held that the Homebuyers are neither financial nor operational creditors. Homebuyers were regarded as an ‘unsecured creditors’ and they were not deemed as “operational creditors” or as “financial creditors”. Thus they were not entitled to initiate the insolvency proceedings against a defaulting Real Estate developer or builder.

Later on, complications and conflicts between RERA and the IBC arose, as home-buyers started filling grievances against errant developers under the IBC. NCLAT, in the matter of Nikhil Mehta & Sons (HUF) & Ors. v. AMR Infrastructures Ltd., in its observation held that investors who had been promised an “assured return” by real estate companies would fall within the category of financial creditors since the monies owed to them are ‘debt’ as defined under Section 3(11)  of the IBC. Homebuyers, therefore, were considered as financial creditors in those cases where assured returns were guaranteed.  

Down the line, the Apex Court in the matter of Bikram Chatterji v. Union of India and Chitra Sharma v. Union of India, while observing that Homebuyers being deprived from the rights under the Code, regarded that the homebuyers deserve to enjoy the same protection that other financial creditors have been granted under the IBC. Therefore, the Court passed orders directing the construction of homes and also asked for undertakings to be given to protect the interests of Homebuyers. Similarly, The Hon’ble Supreme Court in the Unitech Residential Resorts case directed for the deposition of Rs. 17 crores by the Unitech, to the respondents who had been waiting for over seven years for the flats. On the same lines, in another case the Supreme Court asked Jaypee Associates to pay ten Homebuyers Rs 5 lakh each, who received their flats with the delay of 5 years.

Again IBC regulations 2016, allowed merely financial or operational creditors to be a part of the committee of creditors (COC), in order to participate in voting to determine every aspect regarding the proposal for revival, resolution process etc. Earlier, before the amendment in IBC, the Homebuyers were not a part of financial creditors, and therefore could not participate in COC. It was another point of concern which triggered the demand to consider Homebuyers as financial creditors.  Hence, it is worth noting that Homebuyers, before Insolvency and Bankruptcy Code (Amendment) Act, 2018, could not initiate the corporate insolvency resolution process (CIRP) or participate in committee of creditors (COC) for not being either financial or operational creditors in most cases.

Insolvency law committee report

Non-inclusion of home buyers within the ambit of IBC, as either a financial creditors or operational creditors, caused a lot of complications as it deprived them of the right to initiate the corporate insolvency resolution process (CIRP) and the right to be a member of the committee of creditors (COC).  Homebuyers raised their voice against the biases in the Code, which subsequently led to the committee’s attention about the tremendous confusion upon the status of Homebuyers. There have been multiple judgements, deeming their status neither equivalent to financial nor to operational creditors. Accordingly, courts in such cases realizing that interests of Homebuyers were not protected, imposed ad hoc safe guards. 

Correspondingly, the report was submitted by the committee on 26th March, 2018, which recommended adding of an explanation to Section 5 (8)(f) which would empower the Homebuyers and entitle them the status of a financial creditor, so that they can trigger the corporate insolvency resolution process (CIRP), under section 7 of the IBC. The Supreme Court in this context, relied upon the recommendations put forth by the report of Insolvency Law Committee and accentuated the fact that the amounts raised from Homebuyers contributes considerably to the financing of the construction of such apartments/flats.

Resultantly, upon considering it crucial, parliament approved the amendment to the IBC, and inserted an explanation in Section 5 (8)(f) of the Code, vide the Amendment Act, clarifying the position of Homebuyers as financial creditors, so that they can initiate the CIRP under Section 7 of the IBC. Since Homebuyers obtained the status of financial creditors, the amendment authorized them to represent in the Committee of Creditors (COC).

Furthermore, the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 at first provided a procedure for filing of claims by operational and financial creditors only. For that reason, Homebuyers had to face procedural barriers in filing of claims. In consequence to the inclusion of Homebuyers, the Insolvency and Bankruptcy Board of India amended the Regulations to permit “other creditors” also to file their claims through the process of insolvency.

Inclusion of homebuyers under IBC- Amendment Act of 2018 

In concurrence with the view adopted by the Supreme Court in the Jaypee Infratech case (supra), the Insolvency Law Review Committee in its March 2018 report (see here) was of the opinion that the payments made by the homebuyers to the builders were a means of financing the real estate project and assist in raising finance and, therefore, fall within the meaning of ‘commercial effect of borrowing’ under Section 5(8), entry (f). The Committee concluded that such payments are ‘financial debt’ and suggested inserting an explicit explanation which would give statutory recognition to the homebuyer’s payments as ‘financial debt’, which would then make the homebuyers as ‘financial creditors’. 

Accordingly, the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, which later received Parliamentary approval as the Insolvency and Bankruptcy (Second Amendment) Act, 2018 (see here), inserted an Explanation under Section 5(8) (f) which clarified that payments made by an allottee under a real estate project would be deemed to be a financial debt i.e. a homebuyer will be considered as a financial creditor. This amendment meant that the homebuyers were now free to initiate a corporate insolvency resolution process against real estate and housing development companies if the amount of default exceeds INR 1 crore. They would also form a part of the Committee of Creditors and hence would be able to play a direct role in the insolvency resolution process and, if the company goes into liquidation, they (homebuyers) would be entitled to a greater share in the proceeds from the sale of assets of the liquidated company.

However, in the matter of Anil Kumar Tulsiani v. Rakesh Kumar Gupta, NCLAT thoroughly evaluated and observed that even though generally an allottee of real estate is regarded as a financial creditor, cannot allege default on the part of Corporate Debtor if the allottee does not pay the whole amount. Whereas, when the Corporate Debtor did not complete the work within time and the allottee has been agreeing to pay the total amount or has already paid the whole amount, the default can be alleged by the allottee. Again, the allottee can claim the default on the part of the Corporate Debtor when he finds that the project has not been completed by the Corporate Debtor on time and on the failure to refund the amount paid to the Corporate Debtor.

Understanding the changes made by the amendment act of 2018

The term ‘homebuyers’ has not been defined anywhere in the amendment act. The Insolvency Law Review Committee Report termed homebuyers as buyers of under-construction apartments. The amendment has used the terms ‘allottee’ and ‘real estate project’.

The amendment added an explanation to the effect that any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of borrowing. The term ‘allottee’ has been defined under Section 2(d) of the Real Estate (Regulation and Development) Act, 2016 as a person to whom a plot, apartment or building, has been allotted or sold or otherwise transferred by the promoter. Section 2(zn) defines the term ‘Real Estate Project’ as development of a building or a building consisting of apartments, or converting an existing building or a part thereof into apartments, or the development of land into plots or apartment for the purpose of selling all or some of the said apartments or plots or building.  Thus, the term ‘allottee’ and ‘real estate project’ is loosely defined as ‘homebuyer’ and ‘apartment’ respectively.

Flat buyers case and its implications 

The decision of the Supreme Court in the matter of Pioneer Urban Land and Infrastructure Limited v. Union of India, was noteworthy and regarded as one of the celebrating cases. In this, the constitutionality of the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 was challenged, alleging that the impugned act infringe Articles 14, 19 (1)(g) read with Article clause (6) of Article 19 or 300-A of the Constitution. The court upheld the constitutionality of amendment and observed that “the experiment contained in the Code should be judged by the generality of its provisions and not by so-called crudities and inequities that have been pointed out by the petitioners and hence the amendment act passes constitutional muster and thus, dismissing the allegation that impugned act infringe Articles 14, 19 (1)(g) read with Article 19 (6) or 300-A of the Constitution of India.”

It was held that the explanation added in Section 5(8)(f) by the Amendment Act 2018 is merely to clarify doubts that had arisen regarding the position of Homebuyers under IBC. Section 5(8)(f) as it originally provided in the Code being a residuary provision, always included allottees of flats/apartments within it. With respect to the provisions of RERA, the court held that they must be read harmoniously with the Code, as amended by the Amendment Act. The code will prevail over RERA, in case of any conflict. 

In the said case the Supreme Court has, in fact also cleared the dust from retrospective applicability of the Amendment Act by declaring that Homebuyers were included in the main provision, i.e. Section 5(8)(f) of the IBC with effect from the inception of the IBC and the explanation was added later in 2018, merely to clear the doubts that had arisen due to ambiguous status of Homebuyers in Code.

Following this, Delhi High Court in the matter of M/s M3M India Pvt. Ltd. v. Dr Dinesh Sharma and Anr., placed reliance on the Supreme Court judgment in the Flat Buyer’s Case. In the instant case the issue was “whether proceedings under the CPA 1986 can be commenced by Homebuyers against developers after the commencement of RERA 2016?” Upon taking the cognizance of Supreme Court’s decision, Delhi High Court held that “remedies available to the Homebuyers under the CPA and RERA are concurrent, and there is no ground for interference with the view taken by the NCDRC in these matters. In case of conflict arises between the RERA, CPA and the IBC, the IBC would prevail.”

Insolvency and Bankruptcy (Amendment) Ordinance, 2019: Inclusion of threshold for initiating CIRP by homebuyers

On December 28, 2019 the President of India promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 (see here). Through this ordinance, Section 7 of the Code was amended and three provisions were inserted prior to the Explanation Section 7(1). The second proviso now mandated that if allottees under a real estate project i.e. homebuyers wished to initiate corporate insolvency resolution process against real estate and housing companies, the application would have to be filed jointly by a minimum 100 such allottees or 10% of the total allottees of the same real estate project, whichever is lesser. The third proviso where applications by allottees had been filed before the Ordinance had not been admitted by the NCLT, these applications would have to be modified to comply with requirements of the second proviso within 30 days of the commencement of the Ordinance.

The Ordinance therefore included a threshold for homebuyers if they wished to initiate a corporate insolvency resolution process against the corporate debtor housing development companies. Multiple writ petitions were filed by homebuyers challenging the Ordinance as unjust, unfair and arbitrary. It was contended that the State had denied equality of right to allottees of real estate project under the IBC

On January 13 2020, the Apex Court granted partial relief and stayed the application of the third proviso to Section 7. It stated that until hearing is completed, the NCLT cannot reject applications filed by homebuyers before the Ordinance for want of  achieving the threshold limit imposed by the second proviso within 30 days. The hearings of various petitions have started and the matter is now subjudice.

IBC amendment, 2020 – A fallacy?

Following the Amendment of 2018, after Homebuyers acquired the status of financial creditors, complaints have been constantly filed before NCLT, claiming rights against the real estate developers. However, there had been many instances when initiation of the resolution process accompanied malafide intentions. The amendment of 2018 exacerbated the situation for the developers, who are mostly speculative investors. 

Insolvency and Bankruptcy (Amendment) Act, 2020, which pushed the Code towards a more neutral legislation, for both allottees and developers. The said amendment lays down: “for the financial creditors, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such creditors in the same class or not less than ten percent of the total number of such creditors in the same class, whichever is less.”

This amendment under IBC has introduced a requirement that is a joint application with the minimum threshold of 100 or 10% of the homebuyers, the one which is lower, to trigger the resolution process and filing it before the NCLT. This illustrates that individual buyers cannot trigger the insolvency process, which has definitely been increasing the difficulties for them. Hence, there is no denial that it might be harsh on the genuine homebuyers, who had recently got their rights against the errant developers under the IBC. But, the fact should not be ignored that the amendment is actually to do away with the ingenuine complaints brought by the dishonest buyers. 

Prior to the amendment, under the IBC, creditors could file a case against the company, when default payment is of one lakh or above. Now this limit is raised to one crore, which has come to the rescue of the corporate debtor, to obviate the already deteriorating conditions of the borrower company. The original threshold, Rs. 1 lakh was undoubtedly low to declare a company insolvent was realized and subsequently managed through IBC Amendment of 2020. After all, when it comes to the individual Homebuyers or less than 100 or 10 percent, and even when the default amount is less than one crore, they have a chance to seek necessary recourse under the Real Estate (Regulation and Development) Act, 2016.


The Insolvency and Bankruptcy Code is a consolidated legislation which deals with the economy of the country as a whole. Prior experiments on insolvency rules and regulations have been failed. IBC is speedily, becoming a vital financial resolution legislation in India since its commencement. Although, the IBC had faced some problems at the initial implementation stage, for not including the Homebuyers explicitly in the code. On account of that, the Indian real estate sector was suffering greatly in terms of non-performing assets and incomplete projects. But given the proactive approach by legislators and courts, the code has been doing wonders, as the resolution process got fast-tracked. After the IBC Amendment of 2018, Homebuyers got their right to trigger the insolvency process, and represented the Committee of Creditors. The amendment hence, was introduced to ensure the confidence of creditors and investors in the resolution processes.

The provisions in the Code are required to be judged by the generality of its provisions and not by so-called crudities and inequities, as held in Pioneer Urban Land and Infrastructure Limited v. Union of India. Additionally, it was explicated that the Homebuyers can invoke the remedies under the CPA and the RERA along with IBC, 2016. 

Recently, on December 28, 2019, the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 was promulgated.  After introducing in the Parliament, the Bill was referred to the Standing Committee on Finance on December 23, 2019. The said ordinance has facilitated a simplified voting process for the Homebuyers which would help their authorized representative to effectively participate in the COC. By enhancing the participation, it would help the Homebuyers by streamlining the decision-making process in the COC. Since, the Homebuyers are the most vulnerable class, introducing comprehensive structuring schemes in the Amendment has brought a great relief to them. Although, it can be noticed that the Amendment of 2020 has diluted some of their rights, but it was to balance the relationship between Homebuyers and real estate developers. 

Thus, it is pertinent to conclude that the jurisprudence on the Code has been improved after the Amendment of 2018 by accommodating changes in the favour of the Homebuyers, whereas amendment 2020 was introduced to get rid of ingenuine complaints. The IBC has been proved to be a fruitful legislation in the Indian economic structure so far, and would keep strengthening the foundations of India’s insolvency framework. 

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