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Position of Homebuyers in India: An Analysis

Roti, Kapda aur Makaan the necessity of every human being for living a good life; the wish to own a house. However, for the wish fails to convert into reality because of the hurdles like frauds by home developers, delayed possessions and incomplete housing projects. It has been seen recently in cases like Supertech, Amrapali, Jaypee Infratech etc. where Homebuyers have been the worst suffers. All these obstacles impelled the government to recognise the “real estate allottees/homebuyers” as financial creditors under the Insolvency and Bankruptcy Code,2016 through the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018.

Sec. 2(d) of the Real Estate (Regulation and Development) Act, 2016 defines the allottee which is also known as Homebuyer as “means the person to whom a plot, apartment or building, as the case may be, has been allotted, sold (whether as freehold or leasehold) or otherwise transferred by the promoter, and includes the person who subsequently acquires the said allotment through sale, transfer or otherwise but does not include a person to whom such plot, apartment or building, as the case may be, is given on rent”. The agreement between the homebuyers and the real estate developers was bring under the ambit of financial debt given under Sec 5(8) by adding clause (f) which means “any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of borrowing”. So, that the homebuyers can initiate the insolvency process under Sec 7 of IBC, 2016. Moreover, homebuyers were now entitled to be a part of Committee of Creditors (CoC) as the court observed no good reason to exclude homebuyers from being a part of CoC.

In the case of Pioneer Urban Land and Infrastructure Limited vs. Union of India & Ors (2019 SCC OnLine 1005), where the Supreme Court upheld the constitutionality of the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 by dismissing many writ petitions filled by the developers after the said amendment came into force. The apex court further stated that there is no infringement of Article 14, 19(1)(g) which are read with Article 19(6) or 300-A of the Constitution of India by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018. Moreover, the court has observed Two-step scrutiny which has to be satisfied while adjudicating application made under Sec 7 of IBC, 2016 by the homebuyers, i.e.:

1. Allottee establishes prima facie case of “default”- Homebuyer can approach NCLT and initiate insolvency process against the developer by making an application under Sec 7 of IBC, 2016 but he needs to establish prima facie that “default” exists.

2. Onus of proof shifts to the promoter/developer- once the homebuyer/allottee has made the prima facie case the onus of proof shifts on the promoter/developer, who for dismissal of the application made has to prove that: (a) the allottee is himself a defaulter, or (b) the insolvency process initiated by allottee under IBC is fraudulently invoked with the malicious intention or for any other intention other than the insolvency resolution, or (c) Being a speculative investor the allottee just wants to jump ship and use IBC for his own personal interst are some illustrations provided by Supreme Court which fall under Sec 65 of IBC, 2016.

Whether Homebuyers comes under the category of secured or unsecured creditors?

Bringing homebuyers under the category of Financial Creditors and actually giving them relief under IBC are two different scenarios. Although through an amendment homebuyer are recognised as financial creditors but at the time of liquidation their exact priority above or below the various creditors is still uncertain. There is a difference in priority given at the time of payment to various creditors as per Sec 53, where the secured creditors get priority over unsecured creditors at the time of payment. If the homebuyer comes under the category of unsecured creditors, then his debt will fall under clause (d) which is financial debts to unsecured creditors whereas secured creditors (financial/operational) get at par priority with workmen dues which is under clause (b) of Sec 53 of IBC,2016. Many authors, experts said that the nature of agreement between homebuyer and the developer will be the basis in each to decide that homebuyer is secured financial creditor or unsecured financial creditor. M.S Sahoo also holds that the agreement will decide the nature of rights conferred upon homebuyers is of secured one or unsecured one.

As far as many cases have come before the NCLT, NCLAT and Supreme Court but in no specific case homebuyers are considered as secured financial creditors up till now. Although in many cases it is said that every possible thing needs to be done to protect the interest of the homebuyers. In Jaypee Orchard Resident Welfare Society vs. Union of India (Writ petition (Civil) No. 854 of 2017), the Chief Justice of India said that the Supreme Court would do every possible thing to protect the interest of the homebuyers. In Amish Jaysukhlal Sanghrajka vs. Akshar Shanti Realtors (P.) Ltd (2019 104 344 (NCLT Mum), where the Apex court gave the similar view by keeping in mind the letter and spirit of the ordinance and pronouncements made by the Supreme Court in this field, the homebuyers’ rights shall not be violated. In Chitra Sharma vs Union of India ((2018) 18 SCC 575), where court actually reconstituted the CoC and included the representations of homebuyers also in it. As the amendment came in between while the case was still pending. Moreover, after 270 days also no resolution plan was passed and there was a need for new resolution plan also. So, the court stated that now homebuyers will also be included in CoC as per the latest amendments and then the new resolution plan will be proposed to pass.

Moreover, in case of Ajay Walia vs. M/s. Sunworld Residency Private Limited (2018 SCC OnLine NCLT 3095), the NCLT stated that homebuyers will not be treated as financial creditors and their right to trigger insolvency process against the real estate developer will adversely affected in case of tripartite loan agreements. As the homebuyers’ book flat/house by taking loans from the banks and in such type of agreements third party interests are created. Where banks are subrogating the rights of homebuyers which means banks comes into the shoes of homebuyers.

According to the researcher’s view if the homebuyers are categorised as unsecured financial creditors, then the main intention behind recognising them as financial creditor is not fulfilled as intention was not only to recognise them as financial creditor but also was to give them relief under IBC. The intention was also to place them at such a position where their hard-earned money invested in the real estate project should be paid back or compensated in cases of frauds or failure to build the house. But if homebuyers are categorised as unsecured financial creditors, then the intention is not getting fulfilled entirely. As the interest of homebuyers will be given priority after the secured creditors which are usually Banks or other Financial institutions; and sometimes after paying the loans given by such big players in this field left with less amount to be paid to the people who comes next in the priority list. As according to the researcher this should not be the case as giving loans to Companies and charging interest against it is the part of business (where risk is involved) for Banks and Financial Institutions where it also creates charge on the property. But, investing hard-earned money in the desire to get a house is not a part of business or a regular activity for homebuyers. Moreover, no charge is created or property is mortgaged while getting into an agreement with the homebuyers by the real estate developers.

Remedies available under RERA & Consumer Protection Act to Homebuyers in India

Under the Real Estate (Regulation and Development) Act,2016- Section 18 which is read with Section 19(4) provides for the refund of amount to the real estate allottees in case the promoter/developer fails to complete or handover the possession of the property to the allottees; where Section 71 provides for the compensation to the homebuyers. Moreover, provisions of RERA states about the adjudication of compensation and also specifies penalties for non-compliance of it by the promoters/developers. An allottee can file a complaint under Sec 31 of the Real Estate (Regulation and Development) Act,2016 to the Real Estate Authorities in case of non-compliance of the statutory obligation by the builders which they are ought to obey. “If any promoter contravenes any other provisions of RERA, other than that provided under Section 3 or Section 4, or the rules or regulations made thereunder, he shall be liable to a penalty which may extend up to 5% of the estimated cost of the real estate project as determined by the concerned Real Estate Regulation Authority.” “Penalty is stricter in cases of contravening the orders of the Real Estate Appellate Tribunal as it can be extended up to 10% of the estimated cost or 3 yrs. of imprisonment or both”. Moreover, now there are strict rules which mandates the builder to deposit 70% of money received into a separate bank account and for withdrawing such amount for completing the project needs the documents certified by engineer, architect and the chartered accountant in practice.

If homebuyer satisfies the definition of Consumer as given under Sec 2 (7) of the Consumer Protection Act, 2019 then he can file a complaint under Section 17 to the authorities against the promoters/developers. As consumer buys house for his own purpose rather than for any commercial purpose. The respective forum will order the appropriate remedy to the homebuyer. Moreover, in Pioneer’s case court held that in case of conflict between RERA and IBC, the IBC would prevail.

Present position of Homebuyers

Before the Insolvency and Bankruptcy Code (Amendment) Act, 2020 was passed homebuyers were allowed to trigger the insolvency process against the promoters/developers/builders under Sec. 7 of Insolvency and Bankruptcy Code, 2016; where the minimum amount of default for initiating the insolvency, process was Rs. 1 lakh which is now raised to Rs. 1 Crore. Although, today also homebuyers can trigger the insolvency process under Sec 7 of the Insolvency and Bankruptcy Code, 2016 but not as freely as it was before the Insolvency and Bankruptcy Code (Amendment) Act, 2020 came into force. As the said amendment inserted the threshold limit which needs to be fulfilled by homebuyers (as financial creditors) for initiating insolvency process against the developers. Now Sec 3 of the Insolvency and Bankruptcy Code (Amendment) Act, 2020 will require “class” of financial creditors to trigger the insolvency process.

“Sec. 3 of the Insolvency and Bankruptcy Code (Amendment) Act, 2020 inserts the threshold limit and it also provides the procedure for homebuyer (financial creditors) to initiate the corporate insolvency proceedings. The threshold applies is that the application must be filled by allottees of the same real estate project, whichever is lower amongst as mentioned below-

(a). Minimum 100 allottees; or

(b). Minimum 10% of total allottees.”

As now Section 3 of the amendment inserts a pre-condition by amending Sec. 7 of IBC, 2016 under which homebuyers can initiate the insolvency process. Now for triggering the insolvency process against the developers, the homebuyers need to fulfil the pre-condition of one hundred allottees of the same real estate project or ten percent of total allottees, whichever is less. As before the amendment there was no condition like that as homebuyer (financial creditor) being an individual was allowed to initiate the insolvency process but now homebuyers claim needs to be filled in a “class action” suit as per the threshold. Further the amendment provides the time period of 30-day window for the existing homebuyers to conform with this amended threshold which means the retrospective effect is given to the existing applications which are pending before the tribunal/ court. “After the said amendment many petitions were filed on the grounds that the amendment is being of discriminatory nature and infringing the fundamental right given under Article 14 of the Constitution of India with various other issues were also filed. Supreme Court of India granted temporary relief to homebuyers by issuing notice to the central government and putting status quo on the matter itself.”

The introduction of threshold not only creates discrimination amongst its class but also indirectly bar the homebuyers to trigger insolvency process under Sec. 7 of IBC, 2016. Discriminatory in the sense as the amendment further categorise the financial creditors into two parts as “real estate allottees” and “other financial creditors” which is violation of Article 14 of the Constitution of India. “As Article 14 talks about two concepts- equality before the law and equal protection of laws.” Here, in the present situation equal protection of laws is violated as the amendment discriminates between the same class of people by putting threshold on the allottees and not on the other financial creditors. Moreover, if there is violation of Article 14 it has to show that it is backed by the test of reasonable classification i.e., “the said classification is based on intelligible differentia” and “the differentia has a direct nexus with the objective of the act” which is not been seen behind this amendment as of now. As the said amendment has created the pre-condition to be fulfilled by the allottees which is not the condition with other financial creditors except the allottees.

Further, it is quite impossible to bring homebuyers under the same umbrella and then file the application against the developers. Moreover, the amendment demands that the existing homebuyers should also comply with the threshold within 30 days. This amendment has again brought the homebuyers on the same position on which they were before the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 was passed. The only difference now is that of before amendment 2018 they were having no right under IBC but now they have the right with the pre-condition which is practically impossible to fulfil before filling an application.

In Swiss Ribbons vs. Union of India ((2019) 4 SCC 17), where Supreme Court held that the operation creditors and financial creditors are two different class of creditors and no discrimination is being done. But the Insolvency and Bankruptcy Code (Amendment) Act, 2020 has discriminated between the same class (financial creditors) by introducing threshold for the real estate allottees and making free from it to the other financial creditors. Definition as per Sec. 5(7) of IBC, 2016 states “a person to whom a financial debt is owed and includes a person who has been assigned debt or transferred through legal means” nowhere it classifies different classes within the class of financial creditors.


Homebuyers were given the status of financial creditors by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 through which they were allowed individually to initiate corporate insolvency process. But, the Insolvency and Bankruptcy Code (Amendment) Act, 2020 has inserted a threshold to be fulfilled by the homebuyers before filling an application against the developers under the Insolvency and Bankruptcy Code, 2016 which has indirectly barred the homebuyers from seeking relief under the Act. The amendment is in favour of developers by bringing the homebuyers on the same position.


  1. Abhilash Pillai and Tarun Agarwal, “HOMEBUYERS=FINANCIAL CREDITORS: SUPREME COURT REIGNS”: available at




  5. Anjashi Shah, “HOMEBUYERS VS. DEVELOPERS: A TUG OF WAR?”: available at

By Manisha Kalra, (3rd yr. MNLU, Nagpur)

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