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.
Two practical notes on that sequence. The public announcement goes into the newspapers and onto the website of the Insolvency and Bankruptcy Board of India, so set up a search for the builder's name rather than relying on hearing about it from a neighbour. And the announcement fixes the last date for claims, which is short. File within it, with the allotment letter, the agreement for sale, every receipt, the bank statements and the home loan account statement, and keep the acknowledgement you get back. Late claims are sometimes admitted at the resolution professional's discretion, but that is not an argument you want to be having about your own money.
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.
Read the words of Section 14(1)(a) closely, because they matter more than most homebuyers realise. What is barred is the institution or continuation of suits or proceedings against the corporate debtor, meaning against the company that is in insolvency. Whether a case you have already filed can continue against the other respondents on the array, the promoters, the directors, an associated company or the landowners of the project, is a live and important question, and our guide on what happens to a homebuyer's case when the developer enters the NCLT takes it up. Do not simply abandon a complaint on the day the builder is admitted. Take advice on which of your respondents survives, and on whether the complaint should be amended rather than withdrawn.
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.
There is a second threshold underneath that one. The process cannot be started at all unless the default is at least one crore rupees, and our explainer on the minimum default threshold under the IBC sets out where that figure comes from and what counts towards it. Once an application is filed, Section 7(4) requires the Adjudicating Authority to ascertain the existence of the default within fourteen days of receiving it, though admission in practice takes considerably longer than the section suggests.
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.
In liquidation the distribution follows the order of priority in Section 53, and allottees, being financial creditors, take their place in that order rather than ahead of it. That is precisely why the effort belongs at the resolution stage, and why organised buyers do better than resigned ones. Keep the regulatory track alive as far as it can be kept alive, since a registered project carries obligations to the Authority that are not the company's alone, and our guide on filing a RERA complaint is worth reading before you put everything into the insolvency process and nothing anywhere else.