The long road ahead for Supertech’s homebuyers

The role that NCLT plays to decide what happens to your unconstruction home

So what is the fate of a homebuyer is a builder in whose project the homebuyer has invested becomes insolvent or unable to complete the construction to handover possession of the flat purchased?

If the builder is unable to complete construction and hand over possession, home buyers have the following options:

• Approach Real Estate Regulatory Authority (RERA) set up under the Real Estate (Regulation and Development) Act, 2016for possession, interest for delayed possession.

• Approach to the relevant Consumer Forum as a consumer for deficiency in services or delay in possession.

• 10% of the home buyers can jointly approach National Company Law Tribunal (NCLT) under Insolvency and Bankruptcy Code, 2016 (IBC) as Financial Creditors to have the builder declared insolvent.

• Home buyers can also approach the NCLT under IBC in case the builder does not honour an order of any court to pay/refund the amounts despite the order of the court.

It is very important to note that a home buyer can only approach NCLT, if the developer is a Company under the Companies Act, 2013 (or 1956). In case the developer is not a company incorporated under the Companies Act, and if the developer is either a sole proprietorship, partnership firm or an individual, then they do not have a remedy in NCLT as of now.

However, homebuyers will have recourse against individuals, firms and proprietorships under the IBC once the relevant part of the IBC is notified by the Government.

In case NCLT deem it fit that the developer is not in a position to perform its obligations or pay its debt, IBC provides for two broad solutions – resolution or liquidation, i.e.,

• NCLT along with committee of creditors (COC) of the Developer, initiates the corporate insolvency resolution proceedings (CIRP) involves an analysis of the builder’s financial position to see if the business can be rescued or revived. It can invite proposals for restructuring from public at large to revive the business

• If the first option is not viable, the builder’s assets will be liquidated and the proceeds will be used to clear the claims of creditors, banks and homebuyers, amongst others on the basis prescribed in IBC.

If CIRP has already been initiated against the builder by someone else, the homebuyers can file their claims in such proceedings, which can be for the refund of the amount they had invested in the builder’s project, the damages suffered by them due to the non-execution of their purchase agreement, or for not receiving possession of the property they had paid for.

Alternatively, the builder may itself file for insolvency proceedings before the concerned National Company Law Tribunal (NCLT), in which case, the NCLT will appoint an IRP who will attempt to resolve the builder’s financial situation. If a revival is not possible, the IRP will verify the claims of creditors, and oversee the liquidation and settlement process. However, it is pertinent to note that in CIRP or insolvency proceedings, primary and secured financial creditors such as banks are likely to get the first right to receive payments if the builder’s assets are liquidated. Often, this might not leave enough funds for the homebuyers.

What happens if the builder has already been declared insolvent?

Here, there is no full-proof solution available to the homebuyers. The IBC does not set out any specific recourse available to homebuyers in these cases, however, any of the following scenarios may occur:

• Some of the funds raised by selling off the builder’s assets may be used to complete the project and hand over the units to the homebuyers;


• Homebuyers may be directed to pay the balance purchase price pending for their units, which will be used to complete the project and handover flats to homebuyers;


• Homebuyers may form a resident welfare association, acquire the under-construction project, and oversee its completion through contributions or by transferring the ongoing project to another developer;


• Creditors may take over and attempt to revive the project.

Besides approaching NCLT, the homebuyers may approach the concerned authority set up under the Real Estate (Regulation and Development) Act, 2016, with various claims for compensation, return of invested money, interest or possession.

Further, homebuyers may file appropriate proceedings before the concerned civil court for recovery. Such civil courts may also promote settlement between the parties and take a solution-based approach to direct the builder to fulfil its obligations.

It should be noted that whilst investing in any property, specially an under construction property, a fully-stamped and registered document goes a long way, as compared to merely an allotment letter. A stamped and a registered Agreement to Sell / Deed of Transfer permanently creates a lien on the underlying land and whatever the fate of the developer may be, the document forms a part of the permanent record and any new developer that steps in will not be able to circumvent that document.

As such, the fate of homebuyers is in the hands of the developer. Accordingly, it is advisable to do your research and due diligence beforehand, identify errant developer and invest wisely.