Supreme Court affirms equal treatment of homebuyers under the Insolvency and Bankruptcy Code, 2016

Posted On - 20 December, 2023 • By - Renjith Nair


The financial implications for homebuyers in the context of the Insolvency and Bankruptcy Code, 2016 (Code) have been a subject of legal scrutiny. According to the Code, funds raised by a real estate company from a homebuyer or allottee are categorized as financial debt, granting them the status of financial creditors. This designation empowers them to petition the National Company Law Tribunal (NCLT) for initiating the corporate insolvency resolution process (CIRP) of the real estate company under the Code. Additionally, as financial creditors, homebuyers are entitled to participate in the committee of creditors (CoC). The Real Estate (Regulation and Development) Act of 2016 (RERA) which is a specific law to protect homebuyers, defines ‘allottee,’ as encompassing individuals or homebuyers who have acquired real estate properties, thereby positioning them as financial creditors under the Code.

In a recent legal development, the case of Vishal Chelani & Ors. v. Debashis Nanda presented a query before the Supreme Court of India regarding whether homebuyers, having obtained relief under RERA, should be recognized as financial creditors under the Code.

Facts of the case

The case revolved around a group of homebuyers who invested in a project by Bulland Buildtech Pvt. Ltd (Bulland Buildtech) and experienced project completion delays. Aggrieved, these homebuyers approached the Uttar Pradesh Real Estate Regulatory Authority and obtained a decree for a refund of the invested amount with interest. Simultaneously, Bulland Buildtech faced proceedings under the Code, and a resolution plan, favoring a specific group of homebuyers who did not seek RERA remedies, was approved by the CoC.

Discontented with the resolution plan, the RERA-decreed homebuyers contested it before the NCLT, which rejected their application. Subsequently, the National Company Law Appellate Tribunal (NCLAT) upheld the resolution plan on appeal. The RERA-decreed homebuyers then approached the Supreme Court, challenging the validity of the resolution plan that treated homebuyers differently.

The Supreme Court scrutinized crucial provisions of the Code, including the definition of “financial creditor”, the inclusion of real estate allottees’ payments as “financial debt,” and Section 238, which stipulates that the Code supersedes all conflicting laws. The Supreme Court dismissed the resolution plan’s distinction between the two groups of homebuyers, emphasizing that seeking remedies under RERA does not alter the homebuyers’ status. Consequently, the Supreme Court allowed the appeal, directing equal treatment for all homebuyers in the resolution plan.

Our thoughts

This judgment not only provides legal clarity but also reinforces homebuyers’ status as financial creditors, regardless of their chosen remedies under RERA. It underscores the significance of the Code’s provisions, ensuring uniform treatment for homebuyers and safeguarding their rights without penalization for seeking remedies under alternative statutes. The ruling upholds the supremacy of the Code and prevents its dilution by conflicting laws, thereby securing the rights of homebuyers.

Authors: Renjith Nair and Altamash Qureshi

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