Authored By: Avik Sarkar

In the recent past, there has been a slew of reports regarding the oppression of homebuyers in the hands of the real estate kings. The real estate entities oppress by delaying in giving possession to the owners of the flat, and in various instances, it was heard that the developer/builders used to borrow a sum of money from the home buyers in one project and then direct the amount into another project which resulted in failure of delivery of possession. Though there were various remedies provided for the home buyers under various statutes, nothing could safeguard their interest. Some of the worst cases where the home buyer suffering in the hand of builders are the Jaypee Infratech case, Amrapali Case, etc. Therefore, the government, through the Insolvency and Bankruptcy Code (Amendment) Ordinance 2018, has crystallised the fact that homebuyers are going to be considered as ‘financial creditors’ and can file a case of insolvency to realise their monies. The committee discussed that the definition of ‘financial debt’ would include money raised from the home buyer under the name of a real estate project. And accordingly, in the Corporate Insolvency Resolution Process [“CIRP”], the home buyers are going to be a part of the Committee of Creditors and will be represented in a specified manner and in the event of liquidation, they will fall within the relevant entry in the liquidation waterfall under section 53 of IBC. Well, this amendment prima facie looks positive from the perspective of the home buyer, but certain conundrums need to be demystified. The conundrums identified by the author are basically lacunae that need to be dealt with immediate effect. The lacunae areas are as follows:

  • Lack of crystallisation of the term ‘default’

Through section 6 of IBC, the ‘financial creditor’ could file for insolvency proceedings against a corporate debtor in case of ‘default’. But the word ‘default’ in relation to the home buyers has not been crystallised. What amounts to default by a builder/developer and when does a ‘debt’ becomes ‘due’ still needs to be demystified.

As per section 6 of IBC, default occurs only when the corporate debtor fails to pay back the monies to the financial creditor. In agreements and allotment letters of under-construction flats, the monies can only be realised once the builder/developer fails to deliver. On the contrary, a mere delay of delivery by the developer/builder shall not render the agreement to be infructuous and does not create any kind of encumbrance on the builder/developers to return the monies of the home buyers.

Therefore, only in cases where there is a failure of delivery by developer/builder or termination of allotment by the home buyer- it can be said that the amount of debt has become due. And if such dues are not paid, then the home buyers can proceed for insolvency proceeding against the corporate debtor for committing defaults in payments. On the contrary, in the situations of delay in the delivery of possession, which is largely the substratum of the dispute, in the absence of termination of the agreement, there needs to be crystallisation as to when does the ‘debt’ become due and the ‘default’ gets committed.

  • Home-buyers secured or unsecured?

Though many see this amendment as a panacea for the home buyers but is it really? While declaring the home buyers as ‘financial creditors,’ the supreme court has failed to address the question of whether the home buyer falls under secured creditor or unsecured creditor[i]. As per the chairman of the board, which incorporated the said amendment, the onus is on the home buyers to prove themselves as secured or unsecured creditors[ii]. As per MS Sahoo, chairman of IBBI, it is the nature of the agreement between the buyer and developer which will determine the position of the buyers as secured or unsecured creditors[iii].

Such an important aspect of the law shall not be kept open. Crystallisation of this aspect of the law is required. If for instance, the home buyers fall within the ambit of unsecured debtor, then there is little or no chance for the buyers to realise their monies as the banks and other secured creditors stand top on the insolvency list under section 53 of IBC. And to add on to the harrowing situation of the home buyers, the moratorium period also begins with Corporate Insolvency Process (CIRP), thereby leaving them with no other option of getting their grievances redressed.

The interest of the home buyers shall not be jeopardized by putting them lower in the hierarchy list. The court has to find ways of putting the home buyers under the secured creditors list in every case. Otherwise, the whole point of bringing the amendment would be infructuous. Though it is seen that the judiciary, through its various judgments has always iterated about the priority that the home buyers deserve. In Jaypee Orchard Resident Welfare Society v. Union of India,[iv] the apex court has clearly assured to protect the interest of the home buyers in every aspect. The same has been iterated in the case of Chitra Sharma[v]. Therefore, it’s high time that the courts shall crystallise its standpoint regarding the law and avoid speculation to assure immaculate application of the law.


  • Disputed debt

In the said amendment above it is always presumed that the developer/builders are at default. But such may not be the case always. A default may also occur due to irregular payments of installments by the home buyers. It must be noted that insolvency proceedings will be admitted irrespective of the fact that the debt was disputed or not, as long it is due[vi]. These prevailing conundrums need to be demystified because if there is no default and the claim is disputed, the whole IBC proceeding will just become abuse to the process of law.

One should not forget that Corporate Insolvency Resolution Process (CIRP) exists to recover a company from getting insolvent. If there is no demarcation made to identify a disputed claim, then the whole CIRP process would turn into a recovery tool. And a dispute with one amongst hundred allottees can turn a financially solvent and healthy real estate business into insolvency thereby vitiating the whole purpose of the act.


In entirety, IBC is considered as a game-changer as it provides a quick mechanism of insolvency and makes sure that the creditors position is strengthened compared to the debtor. The introduction of IBC has undoubtedly led to amelioration to the condition of creditors. Though, certain reservations remain, as has been mentioned above, which need to be dealt with immediate effect. The courts have to find an equilibrium where they shall provide priority to the home buyer by including them in the secured creditors list and, at the same time, be able to identify a disputed debt, which can cause a potential abuse of the process of law.

[i] Chitra Sharma & Ors. v. Union of India and Ors., (2018) 18 SCC 575.

[ii]K. R Srivats, Why the Centre has not classified home buyers as ‘secured’ or ‘unsecured’ creditors under IBC, The Hindu Business Line (June 11, 2018)

[iii] Banikinkar Pattanayak, Bankruptcy Code: Are homebuyers secured financial creditors? Read builder agreement carefully, Financial Express (July 12, 2018)

[iv] Jaypee Orchard Resident Welfare Society v. Union of India, Writ Petition (Civil) No. 854 of 2017

[v] Chitra Sharma and Ors. v. Union of India, (2018) 18 SCC 575.

[vi] M/s Innoventive Industries Ltd. vs. ICICI Bank

The author is an undergraduate at K.L.E Society’s law college, Bengaluru.


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