The real estate sector in India, both residential and commercial, has long posed challenges for creditors, homebuyers and developers. The introduction of the Insolvency and Bankruptcy Code (IBC) promised a time-bound mechanism to maximise asset value and resolve distressed entities. In practice, real estate insolvencies under the IBC have differed in character and are more complex than corporate insolvencies in other sectors. Recent jurisprudence and judgments provide several important lessons for real estate entities and homebuyers.
Homebuyers as financial creditors
A major flashpoint in real estate Corporate Insolvency Resolution Processes (CIRPs) is the status of homebuyers or allottees when a developer (residential or commercial) undergoes CIRP under the IBC. In the past, homebuyers were not automatically classified as financial creditors, though they paid substantial sums to developers and suffered delays or defaults. The real estate sector under the IBC continues to evolve in both regulatory design and judicial interpretation.
By virtue of the 2018 amendment to Section 5(8)(f) of the IBC, any amount raised from an allottee under a real estate project has the commercial effect of borrowing, thereby recognising homebuyers as financial creditors. Subsequent IBC amendments in 2020 introduced a collective filing threshold (a minimum of 100 or 10% of allottees under the same project) to curb speculative misuse.
In the landmark case Vishal Chelani & Ors. v. Debashis Nanda (2023 (10) SCC 395), the Supreme Court held that homebuyers who had obtained decrees under the Real Estate (Regulation and Development) Act, 2016 (RERA) could not be treated differently from other homebuyer allottees or financial creditors for the purposes of the IBC. The Supreme Court ruled that Section 5(8)(f) (Explanation) of the IBC (2018 amendment) deems amounts raised from an allottee under a real estate project to have the “commercial effect of a borrowing”. Furthermore, the Court held that making a distinction between allottees who approached RERA and those who did not was arbitrary and violated Article 14 of the Constitution.
Homebuyers now have recognised status as financial creditors and must be treated on an equal footing in CIRPs of real estate developers. This means that CIRPs of developers must factor in the claims of homebuyers and involve authorised representation of this class in the Committee of Creditors (CoC), where applicable.
Reverse CIRP, project-wise insolvency and regulatory reforms
A reverse CIRP is one in which the developer continues the development of a project under the supervision of the Interim Resolution Professional (IRP). Reverse CIRP was first introduced by the NCLAT in Flat Buyers Association Winter Hills v. Umang Realtech Pvt. Ltd. (2020 SCC OnLine NCLAT 1199). The NCLAT held that a reverse CIRP can be followed in the cases of real estate infrastructure companies in the interest of allottees and for the survival of real estate companies, ensuring project completion. This case also laid the foundation for project-wise CIRP.
In Supertech Ltd. v. Union of India & Ors., the NCLAT reaffirmed project-wise CIRP for real estate companies with multiple projects, stating that the insolvency of one project cannot paralyse others that are viable and independently financed. Currently, a default in one project results in the triggering of the Corporate Insolvency Resolution Process against the entire company. Therefore, in cases of insolvencies specific to a particular project, the resolution process under the IBC should be invoked for that specific project and not the entire company.
In a landmark decision of the NCLT, Delhi, in Girish Luthra v. Cosmos Infra Engineering Pvt. Ltd. (2024), a resolution of a real estate corporate debtor was achieved without initiating CIRP (or appointing an IRP) in the same manner as if it were a reverse CIRP.
Dealing with speculative investors
In a recent decision dated 12 September 2025, in Mansi Brar Fernandes v. Shubh Sharma & Anr. (2025 SCC OnLine SC 1972), the Supreme Court stressed that speculative investors should not be allowed to misuse the IBC, which is designed for the revival of genuine homebuyers and companies. The Court reaffirmed Pioneer Urban Land and Infrastructure Ltd. v. Union of India, emphasising the need to differentiate between genuine homebuyers and speculative investors. The Supreme Court reaffirmed that the Right to Shelter is integral to the Right to Life under Article 21 of the Constitution of India.
This recognition highlights the importance of timely possession of homes for middle-class citizens who invest their savings in real estate. The Court issued several directives aimed at improving the regulatory framework for real estate, including filling vacancies in NCLT/NCLAT, strengthening RERA authorities and establishing a committee to suggest reforms. These measures aim to restore faith in the real estate sector and protect the interests of genuine homebuyers.
Lessons for residential and commercial segments
The real estate sector under the IBC is showing mixed results. Genuine homebuyers are financial creditors, distinct from speculative investors. Recent trends show that real estate CIRPs should proceed project-wise to protect the interests of genuine homebuyers. To curb misuse, the IBC introduced a threshold for homebuyers filing a petition to initiate CIRP, i.e. 100 allottees or 10% of allottees under the same real estate project.
Recent jurisprudence, including the Mansi Brar Fernandes case, has emphasised that genuine homebuyers benefit when RERA, NCLT and consumer forums work in tandem to advance the constitutional guarantee of the right to shelter under Article 21. RERA ensures compliance, the NCLT enables project-wise revival, and consumer forums provide individualised relief.
(Vijay K Singh, Senior Partner at S&A Law Offices.)
Views are personal, and do not represent the stand of this publication.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
