Introduction
No sector has tested the limits of the Insolvency and Bankruptcy Code more severely or more publicly than real estate. The insolvency of large Indian real estate developers, with their thousands of homebuyers who have paid substantial sums for apartments that may never be built, has generated more litigation, more legislative intervention, and more public controversy than any other class of IBC cases. The homebuyer as a financial creditor, the project-wise resolution approach, the conflict between RERA and IBC, and the intractable problem of what to do when both resolution and liquidation are inadequate have all emerged from the collision between India’s housing market aspirations and the financial collapse of its largest builders.
The numbers tell a grim story. Tens of thousands of homebuyers across India were locked in contracts with developers like Jaypee Infratech, Unitech, Amrapali, and Supertech, having paid 80 to 100% of the purchase price, some of them years before the builder’s collapse. The IBC, as originally enacted in 2016, did not contemplate this class of creditor at all. Homebuyers were not financial creditors, they were not operational creditors, and they had no defined place in the IBC’s framework. Their only recourse was the consumer courts or civil suits, which were slow, individually expensive, and practically ineffective against a company in insolvency.
Parliament and the courts have, since 2018, worked to address this gap through legislative amendment, judicial intervention, and creative procedural innovations. This article traces that journey, examines where the legal framework stands today, and assesses what further reforms are needed to protect homebuyers in the next wave of builder insolvencies.
Legal Framework
The 2018 Amendment to the IBC, through the Insolvency and Bankruptcy Code (Amendment) Act, 2018, added homebuyers to the definition of financial creditors by amending Section 5(8)(f) to include “any amount raised from an allottee under a real estate project.” This recognition was transformative: it gave homebuyers the right to trigger CIRP against a developer by filing an application before the NCLT under Section 7, and it included them in the CoC as financial creditors.
However, the recognition created its own complications. Homebuyers, typically numbering in the thousands for large real estate projects, immediately became potential triggers for CIRP and potential CoC members. A single apartment buyer with a grievance could, theoretically, file a Section 7 application against a large developer, creating disruption disproportionate to the individual claim. Parliament addressed this concern through a further amendment requiring that a minimum of 100 homebuyers or 10% of the total allottees in a project (whichever is less) must jointly file a CIRP application for real estate developers.
The Real Estate (Regulation and Development) Act, 2016 (RERA) operates in parallel with the IBC for homebuyer grievances. RERA establishes a regulatory framework for real estate developers, including registration of projects, escrow of buyer funds, and a complaints mechanism before a RERA authority. Homebuyers may simultaneously pursue remedies under RERA and the IBC, though the intersection of these two regimes has created significant complexity around jurisdiction, stay of proceedings, and the scope of the IBC moratorium’s effect on RERA proceedings.
In 2023, IBBI introduced project-wise CIRP through amendments to the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations. This innovation allows CIRP to be initiated for a specific real estate project of a developer company rather than for the company as a whole, permitting project-specific resolution plans that address the particular circumstances of each project without necessarily triggering whole-company insolvency. This is a significant departure from the IBC’s traditional entity-based insolvency approach.
Judicial Developments
The Supreme Court’s intervention in the Jaypee Infratech insolvency in Chitra Sharma v. Union of India (2018) was the first major judicial engagement with homebuyer rights in IBC proceedings. The Court, while upholding the overall CIRP process for Jaypee Infratech, took active steps to protect homebuyer interests, directing the RP to ensure homebuyer representation in the CoC and requiring that the resolution plan adequately address the completion of housing units. The Court’s active monitoring of the Jaypee Infratech CIRP, continuing over several years, established the principle that homebuyer protection is a matter of constitutional importance that courts will supervise even within the framework of a statutory insolvency process.
The Unitech case took an even more unusual turn. When the Unitech CIRP failed to produce a viable resolution plan from the market, the government (through a new board appointed by the Supreme Court) effectively took control of Unitech and pursued a government-supervised completion of Unitech’s projects. This “reverse CIRP” or “reverse insolvency” approach, in which the purpose of the court-supervised process shifts from maximising creditor recovery to completing construction for homebuyers, is without explicit statutory basis but has been adopted as a pragmatic solution.
The Supertech Ltd insolvency proceedings (initiated in 2022 following the Supreme Court’s order demolishing Supertech’s illegally constructed towers in Emerald Court) illustrate the intersection of regulatory illegality and financial insolvency. The RP in Supertech faces the challenge of managing a company whose assets include partially constructed, legally compromised projects, while attempting to develop a resolution plan that addresses the claims of thousands of homebuyers and various categories of creditors. As of 2024, the Supertech proceedings have yet to produce a confirmed resolution plan.
The NCLAT and NCLT have grappled extensively with the threshold for homebuyer CIRP applications, the scope of the moratorium’s effect on RERA proceedings, and the treatment of homebuyer claims in resolution plans. NCLAT has consistently held that the IBC moratorium does not bar RERA proceedings that are pending before RERA authorities (as opposed to courts), since RERA authorities are not courts. This position has been challenged in several High Courts, creating uncertainty about the coordination of RERA and IBC proceedings for homebuyers.
Contemporary Issues and Analysis
The principal unresolved challenge in real estate insolvency is what to do with large, complex developers where neither traditional resolution (finding a new buyer for the whole company) nor liquidation (selling assets and distributing proceeds) serves the interests of homebuyers adequately. Traditional resolution is difficult because the developer’s “assets” are partly completed construction projects whose value depends on whether they are actually completed, and few resolution applicants wish to take on the liability and complexity of completing projects for thousands of homebuyers at contracted prices that are frequently below current market cost. Liquidation is even worse: it destroys the going-concern value of the projects entirely and leaves homebuyers with a claim against the proceeds of land and partially constructed buildings, which typically yields far less than the contracted price.
Project-wise CIRP, introduced in 2023, addresses part of this problem by allowing a targeted resolution of individual projects rather than the entire company. A resolution applicant for a specific project takes on the liability to complete that project for the homebuyers and takes the project’s assets (land, partially completed construction, regulatory approvals) as the consideration. This approach aligns the resolution applicant’s incentives with homebuyer completion interests and limits the scope of each CIRP to a manageable unit.
However, project-wise CIRP creates its own complications. Many real estate developers have cross-collateralised their financing, using land from multiple projects as security for a single loan facility. Separating projects for resolution purposes requires unwinding these complex security structures, which involves negotiations with banks, regularisation of encumbrances, and legal mechanisms for carving out security interests that have not yet been legislated.
The RERA-IBC intersection remains contentious. The Supreme Court in Pioneer Urban Land & Infrastructure v. Union of India (2019) upheld the 2018 Amendment including homebuyer financial creditor status, but did not resolve the jurisdictional conflicts between RERA and the NCLT comprehensively. Homebuyers frequently face conflicting advice about whether to file under RERA, the NCLT, or both, and the outcomes of proceedings in one forum may be complicated by simultaneous proceedings in another.
Comparative and International Perspective
The United States Chapter 11 framework has been used extensively for real estate developer insolvencies, and the US experience offers several lessons for India. In the US, residential real estate developers in Chapter 11 have used the cramdown provisions to impose reorganisation plans on dissenting classes of creditors, allowing project completion to proceed while restructuring the developer’s debt obligations. The US framework does not specifically recognise homebuyers as a distinct class of financial creditor; instead, homebuyers’ claims are classified as general unsecured creditors (if they have rescission claims) or as secured creditors (if they hold purchase money mortgages). The treatment of homebuyers in US insolvencies depends heavily on the specific contractual and property law framework applicable in each state.
The UK’s experience with residential developer insolvencies is relevant through the administration process. A UK administrator may sell the developer’s projects to a third party (typically another developer) who completes the projects for the homebuyers. This is broadly analogous to India’s project-wise resolution approach. UK homebuyers who have paid deposits are protected by the New Homes Quality Code and, in some cases, by deposit insurance mechanisms, providing a floor of protection that is not replicated in India.
Australia’s experience with residential developer insolvency has led to state-level reforms requiring developers to hold buyer deposits in trust until title passes, creating a protection mechanism that limits the exposure of homebuyers to developer insolvency risk. This is analogous to RERA’s escrow requirements, though the Australian frameworks are generally more strictly enforced.
Practical and Policy Implications
The practical implication of the current framework for the real estate sector is that homebuyer protection in insolvency remains incomplete and dependent on case-specific judicial intervention rather than systematic legal protection. The Jaypee, Unitech, and Supertech cases have each produced different and novel solutions, none of which rests on a clear statutory foundation.
This unpredictability has consequences for the real estate market as a whole. Homebuyers, aware of the difficulties in obtaining completion or refund when a developer fails, are increasingly cautious about making large advance payments to developers. This caution, while individually rational, reduces the availability of buyer capital to fund construction and increases the cost of residential development. The RERA framework attempts to address this through escrow requirements, but compliance with RERA escrow provisions remains uneven across states.
For resolution professionals and insolvency practitioners, real estate cases present the most complex combination of stakeholder interests, regulatory frameworks, and asset management challenges of any sector. Specialised skills in real estate valuation, regulatory approvals, construction project management, and multi-creditor negotiations are required in addition to the standard insolvency skill set.
Suggestions and Reforms
Parliament should enact dedicated Real Estate Insolvency Regulations that provide a comprehensive, sector-specific framework for developer insolvency. This framework should incorporate the project-wise CIRP concept as a statutory provision rather than a regulatory innovation, provide clear rules for unwinding cross-collateralised security structures, and establish minimum homebuyer protections including guaranteed access to the completion of the specific unit contracted for (or full refund with interest at a statutory rate) as a minimum resolution outcome.
The RERA-IBC jurisdictional conflict should be resolved through a statutory provision clarifying that RERA proceedings are stayed by the IBC moratorium and that all homebuyer claims against a developer in CIRP must be submitted through the CIRP claims process, with RERA remedies available only for matters outside the scope of the insolvency proceeding.
A dedicated homebuyer protection fund, financed by a small levy on real estate transactions or by compulsory developer contributions, should be established to provide immediate relief to homebuyers waiting for resolution or project completion. This fund, modelled loosely on the UK’s Home Builders Federation warranty scheme or the US’s FDIC model for deposit insurance, would provide a minimum floor of protection independent of the insolvency outcome.
Conclusion
Real estate insolvency has been the most politically charged and practically complex frontier of the IBC’s first decade. The recognition of homebuyers as financial creditors was a significant step; the project-wise CIRP innovation is a promising further development. Yet the fundamental problem, that large real estate developer insolvencies do not fit neatly into the IBC’s business rescue or asset liquidation models, has not been definitively resolved.
The homebuyers who contracted for apartments at Jaypee, Unitech, and Supertech represent, in miniature, the broader challenge of an insolvency law that was designed for industrial corporate debtors and has been asked to manage the collapse of a consumer-facing service industry. Meeting this challenge requires statutory specificity, regulatory coordination with RERA, and genuine protection mechanisms that go beyond the ad hoc judicial supervision that has characterized the most high-profile real estate insolvencies to date.
