Builder insolvency changes the entire landscape for a homebuyer, and the most important thing is to act within the claim window.
Homebuyers are financial creditors
An amendment to the Insolvency and Bankruptcy Code, 2016 treats amounts raised from allottees under a real estate project as having the commercial effect of a borrowing, which makes homebuyers financial creditors. This was upheld in Pioneer Urban Land and Infrastructure v. Union of India (2019). The practical result is a seat at the table rather than standing at the back of the queue.
What you must do
- Watch for the public announcement of the corporate insolvency resolution process, published in newspapers and on the IBBI website, which states the claim deadline.
- File your claim in Form CA with the interim resolution professional, attaching the allotment letter, agreement, all payment receipts and bank statements.
- Your class is represented on the committee of creditors by an authorised representative, who votes according to the majority of the class. Engage with that representative; it is your only voice.
- Track the resolution plan when it is circulated, since it will state what allottees receive.
Once the process is admitted, Section 14 imposes a moratorium that bars the institution or continuation of suits and proceedings against the corporate debtor. Your pending RERA complaint or consumer case will not progress. This surprises homebuyers who assume their existing case continues in parallel. It does not.
Threshold for allottees to file
For allottees to initiate insolvency against a builder, the application must be filed jointly by not less than 100 allottees of the same project, or 10 percent of the total allottees of that project, whichever is less. A single homebuyer cannot start the process, though a single homebuyer can certainly file a claim once it has begun.
Realistic outcomes
The best outcome is usually a resolution plan under which a new developer completes the project and allottees receive their flats, sometimes with a haircut on compensation. Liquidation is the worst case, in which allottees rank as per the statutory waterfall and recovery is generally poor. Association with other allottees, and active engagement with the authorised representative, materially affects which of these happens.