Builder in Insolvency - What Happens to My Flat?

The news usually arrives sideways. Someone posts a link in the buyers' WhatsApp group, or a hearing before RERA is suddenly adjourned because "the company is under moratorium", or an email turns up from a stranger calling himself the interim resolution professional. However you hear it, the message is the same: your builder has been admitted into insolvency, and the normal ways of getting your flat or your money back have just been put on hold.

It's frightening, but it isn't the end. Since 2018, Indian law has treated home buyers as financial creditors of an insolvent builder, with a seat at the table and a vote on what happens next. Many stalled projects have been completed through insolvency that would never have been finished otherwise. Others have gone badly. What you do in the first few weeks makes a real difference to which side of that line you end up on.

This guide explains how the process works under the Insolvency and Bankruptcy Code, 2016, what it means for your RERA case, what you need to do and by when, and what outcomes are realistic. It's written for buyers, not lawyers, so we've kept the jargon to a minimum and explained the terms we can't avoid.

First, what does "insolvency" actually mean here?

When people say a builder has "gone into insolvency" or "gone to NCLT", they usually mean that the National Company Law Tribunal has admitted an application against the company and started a corporate insolvency resolution process, often shortened to CIRP. That's not the same as the company being shut down. The aim of CIRP is to find someone who will take over the company, or at least its projects, and keep things going. Shutting the company down and selling its assets, called liquidation, only happens if resolution fails.

The application can be filed by a bank or other lender, by an operational creditor such as a contractor or supplier, by the company itself, or by home buyers. Once the tribunal admits it, three things happen almost at once:

• The board of directors is suspended. The promoters no longer run the company. An insolvency professional takes over management, first as the interim resolution professional (IRP) and then as the resolution professional (RP).
• A moratorium starts under Section 14 of the Code. Most legal proceedings against the company, including RERA complaints and execution of RERA orders, are frozen.
• A public announcement is issued inviting creditors to file their claims, with a last date for doing so.

The process is meant to finish within 180 days, extendable to 330 days including litigation time. In real estate cases it almost always takes longer. Two or three years isn't unusual, and some of the large NCR insolvencies have run much longer than that.

Home buyers are financial creditors

Before 2018 there was real doubt about where home buyers stood. Banks were financial creditors with votes; buyers who had paid far more than the banks lent often had no vote at all. Parliament changed this through the 2018 amendment, which added an explanation to Section 5(8)(f) of the Code saying that money raised from an allottee of a real estate project has the commercial effect of a borrowing. In plain terms: the money you paid the builder is treated like a loan you gave it.

The builders challenged this, and lost. In Pioneer Urban Land and Infrastructure Ltd v. Union of India (2019), the Supreme Court upheld the amendment. It said home buyers are genuinely financial creditors, that this is consistent with RERA, and that the two laws can work together. It also said that where the Code and RERA conflict, the Code prevails, which matters for the moratorium.

Being a financial creditor gives you three important things:

1. The right to file a claim for the money you've paid, with interest as the law allows.
2. A vote in the committee of creditors (CoC), through an authorised representative who votes for the home buyers as a class.
3. The right, subject to a threshold, to start insolvency proceedings against a builder that has defaulted.

That third right was narrowed in 2020. A proviso added to Section 7 says that home buyers can only file an insolvency application jointly, with at least 100 allottees of the same project or 10% of the total allottees of that project, whichever is less. The Supreme Court upheld this in Manish Kumar v. Union of India (2021), on the reasoning that a single buyer shouldn't be able to put an entire company, and every other buyer's project, into insolvency. So a lone buyer who wants to push a builder into NCLT now needs company.

What happens to your RERA case

This is usually the first question buyers ask, and the answer is uncomfortable. Once the moratorium starts, a RERA complaint against the builder company generally can't go ahead. If you'd already won an order and were trying to execute it through a recovery certificate, that's frozen too. The Supreme Court made it clear in Pioneer that the Code overrides RERA where they clash, and Section 238 of the Code says so expressly.

A few points soften this.

• Your RERA order isn't wasted. It's evidence of what you're owed, and you can rely on it when you file your claim. But in Vishal Chelani v. Debashis Nanda (2023), the Supreme Court said that a buyer who has a RERA order doesn't become a separate, better class of creditor. You're still treated as an allottee, alongside the other buyers. The flip side is that you can't be treated worse than them either.
• The moratorium protects the company, not everyone connected with it. Proceedings against directors or promoters personally, or against guarantors, may not be covered in the same way. Whether a particular complaint against a director can continue depends on what it's for and how it's framed, and the case law is still developing, so take advice before relying on this.
• Some RERA functions continue. The regulator can still deal with the project's registration, and in some cases RERA authorities have worked with resolution professionals to monitor completion. The authority isn't irrelevant, even if it can't order the company to pay you.
• The moratorium ends. When a resolution plan is approved, or the company goes into liquidation, the moratorium lifts. What you can do then depends on what the plan says, which is why the plan is so important.

The single most important step: file your claim

When the IRP is appointed, a public announcement is published in newspapers and on the IBBI website, giving the last date for claims. Home buyers file their claims in Form CA, which is the form for financial creditors in a class. You can usually file it online through the link the IRP provides, or by email or post to the address given.

If you don't file a claim, you risk being left out of the resolution plan entirely. And in Ghanashyam Mishra and Sons v. Edelweiss ARC (2021), the Supreme Court held that once a resolution plan is approved, claims that aren't part of it are extinguished. The new owner takes the company clean. A buyer who didn't file, and whose claim the RP didn't otherwise account for, can find that there's nothing left to claim against. RPs often include allottees from the company's own records even without a claim, but you should never rely on that.

Your Form CA should include:

• Your name, address, email and phone number, and those of any co-allottee.
• The project, tower and unit number.
• The total amount you've paid, with dates, supported by receipts and bank statements.
• Interest claimed, if any, and how you've worked it out.
• A copy of your allotment letter, builder-buyer agreement and any RERA or consumer court order.
• Whether you want the flat or a refund, if the form or the RP asks.
• Your choice of authorised representative from the names listed in the announcement.

Keep proof of submission. If the RP later admits your claim for a lower amount, or rejects part of it, you'll get an opportunity to object, and if that fails, to apply to the NCLT. Check the list of admitted claims that the RP publishes and make sure your name and amount are right.

Missed the deadline? Don't give up. The rules allow claims to be filed after the last date in many cases, up to a point in the process, though the RP and the tribunal have some discretion and the regulations on late claims have been changed more than once. File as soon as you can and explain the delay. We help buyers with this through our Form CA filing service.

Here's a made-up example. Neha paid Rs 62 lakh for a flat in Greater Noida. She hears about the insolvency three weeks late, after the last date for claims. She files Form CA the same week with all her receipts and a short note explaining when she learned of it. The RP admits her claim, because the resolution plan hasn't yet been approved and her name was already in the company's records. A buyer in the same project who waited until after the plan was approved found it much harder.

How home buyers vote

A big project can have thousands of buyers. They can't all sit in committee meetings, so the Code groups them into a class of creditors. The class is represented by an authorised representative, an insolvency professional chosen by the buyers from three names put forward in the public announcement. The representative attends CoC meetings, reports back, collects the buyers' voting instructions, and votes accordingly.

Since a 2020 amendment, the authorised representative votes the whole class's share according to how the majority of those who actually voted decided, rather than splitting the vote. That means buyers who don't vote leave the decision to those who do. If you care about the outcome, vote. The representative will usually send voting instructions through an e-voting platform, with a deadline, and the window can be short.

Home buyers' voting share in the CoC depends on how much they've paid compared with what the banks and other financial creditors are owed. In many residential projects the buyers together hold the largest share and effectively decide whether a plan passes. In others, especially where a lender has funded a lot of the project, the banks dominate. Either way, the CoC needs 66% of the votes to approve a resolution plan.

In Jaypee Kensington Boulevard Apartments Welfare Association v. NBCC (India) Ltd (2021), one of the cases from the long Jaypee insolvency, the Supreme Court looked closely at how buyers' votes are counted and how dissenting creditors are treated. It upheld the class voting system and confirmed that the commercial wisdom of the CoC is largely not open to challenge in court. In practical terms, if the buyers and banks approve a plan by the required majority, a single unhappy buyer has limited grounds to overturn it.

What a resolution plan can offer you

Resolution plans for real estate companies vary widely. Some of the common features we see:

• Completion of the project by the resolution applicant, often a developer, sometimes with a new construction partner, within a stated timeline.
• A revised possession date, sometimes years after the original one.
• Reduced or waived delay compensation. Plans often say that buyers who take their flats give up all or part of their claim for delay interest. This is one of the most contested points, and it's a commercial decision for the CoC.
• Additional payment from buyers, for example a cost escalation or a contribution towards completion. Some plans ask buyers who've paid in full to pay more.
• Refund options for buyers who don't want the flat, usually a fraction of what was paid, paid in instalments over years.
• Swapping units, offering buyers in a tower that won't be built a flat in another tower or another project.
• Changes to specifications, amenities or layout.
• Handover of the common areas and an association formation process.

Read the plan, or at least the summary the authorised representative circulates, carefully. Ask questions at the buyers' meetings. Look at who the resolution applicant is, what money it's bringing in, whether it has completed projects before, and how realistic the timeline is. A plan that promises everything but brings in little fresh money is a warning sign.

Project-wise insolvency

One problem with insolvency against a builder is that a default in one project can drag every project of the company into the same process, including healthy ones nearing completion. The NCLAT has in some cases confined the insolvency process to the defaulting project, an approach sometimes called project-wise or "reverse" insolvency. The case most often cited is Flat Buyers Association Winter Hills v. Umang Realtech (2020), where the tribunal allowed the promoter to stay involved in completing the project under supervision.

This isn't a universal rule, and tribunals have taken different views on when it's appropriate. But if your project is one of several and the default is in another, it's worth asking the RP or the authorised representative whether a project-wise approach is being considered. The IBBI has also amended its regulations in recent years with real estate cases in mind, including provisions that allow units to be handed over to allottees during the process in some circumstances, with the committee's approval. These rules change, so check the current position.

If the process fails: liquidation

If no plan is approved within the time allowed, the tribunal orders liquidation. A liquidator sells the company's assets and distributes the money according to the order in Section 53 of the Code. Secured creditors who give up their security, and the costs of the process, come first. Home buyers, unless they have a security interest, rank as unsecured financial creditors, below the secured lenders. In practice this can mean getting back only a small part of what you paid, and only after a long time.

That's why liquidation is the outcome most buyers fear, and why buyers' votes are often used to approve plans that aren't great but are better than the alternative. Whether a particular plan is better than liquidation depends on the project, the value of the land, how much construction is done, and who the lenders are. The resolution professional is required to obtain a liquidation value estimate, and while the exact figure is confidential, the authorised representative can usually give buyers a sense of the comparison.

Your home loan during insolvency

Your obligation to repay your own home loan doesn't stop because the builder is in insolvency. The bank lent to you, not just to the builder. If you stop paying, your credit record suffers and the bank can take recovery action against you. This is especially painful for buyers whose loans were part of a subvention scheme where the builder was meant to pay the EMIs. Talk to your bank early. Some banks have agreed to restructure or defer EMIs for buyers in stalled projects, and in some cases courts have given relief. There's no general rule, though, and you'll need to make your own case.

Where the bank has a charge on your flat, it may also file a claim in the insolvency on the basis of the tripartite agreement. Find out what the bank has claimed and how it's being treated, so that the same money isn't counted twice against you.

A worked example

Here's a made-up example. A Noida project of 1,200 flats stops at 60% construction. The builder defaults on a bank loan, and the bank files under Section 7. The NCLT admits the case, and an IRP is appointed.

Of the 1,200 buyers, 1,040 file Form CA within the deadline, and another 90 file late but before any plan is voted on. Together, the buyers' claims are about Rs 640 crore. The bank's claim is Rs 180 crore. So the buyers hold roughly three-quarters of the votes.

Two resolution applicants bid. The first offers to complete the project in 36 months, asks buyers to pay an extra Rs 300 per square foot, and waives all delay interest. The second offers completion in 30 months with no extra payment, but brings in less fresh money and has a thinner track record. The buyers' association holds meetings, invites both applicants to present, and gets an independent engineer to look at whether the cheaper plan is realistic. The CoC eventually approves the first plan with 81% of the votes, after the applicant agrees to reduce the extra payment for buyers who had already paid 95%.

It isn't a happy ending for everyone. Buyers lose their delay interest and wait three more years. But the project is completed, and buyers get flats that, at the time, would have cost much more to buy elsewhere.

What you should do now

1. Find the public announcement. Search the IBBI website or ask your buyers' group for the IRP's details and the claim deadline.
2. Gather your documents. Agreement, allotment letter, every receipt, bank statements, loan papers, any RERA order. Our list of documents for a RERA complaint works well here too.
3. File Form CA before the deadline, with proof. If you're late, file anyway and explain.
4. Choose your authorised representative when asked.
5. Join or form a buyers' association, so that buyers can share information, hire advisers jointly and negotiate as a group.
6. Check the list of admitted claims and object if yours is wrong.
7. Read every update from the authorised representative and vote on every resolution.
8. Keep paying your home loan, or talk to the bank before you stop.
9. Get advice before signing anything the resolution applicant sends after the plan is approved.

Common misunderstandings

"The builder is bankrupt, so my money is gone."

Not necessarily. Many insolvent builders have land and partly built towers worth a great deal, and a new developer can finish what the old one couldn't. Insolvency has saved a lot of projects in NCR that would otherwise have rotted. The outcome depends on the project, the plan and how engaged buyers are.

"I'll wait for my RERA case to finish first."

Your RERA case won't finish while the moratorium is in force. Waiting means missing the claim deadline. File the claim now. Your RERA order, if you have one, supports the claim.

"The RP is working for the builder."

The resolution professional is an independent insolvency professional, regulated by the IBBI, and runs the company in the interest of all creditors during the process. RPs vary in quality and you're entitled to ask hard questions, but the promoters no longer control the company. If you think an RP is acting improperly, you can raise it with the CoC, the tribunal or the IBBI.

"I can sue the directors instead."

Sometimes, but it's not a straightforward alternative. Criminal complaints for cheating or fraud may proceed separately where the facts support them, and personal guarantors can face their own proceedings. But claims for your money against the company go through the insolvency. Take advice on your specific facts.

"If I don't like the plan, the court will stop it."

The tribunal checks that the plan complies with the law. It generally doesn't second-guess the CoC's commercial judgment. Your real influence is at the voting stage, so use it.

Where this fits with other remedies

If your builder is not in insolvency yet but is in serious trouble, you have choices to make. A RERA complaint for refund with interest or delay interest is usually the first step. If you have a RERA order the builder won't pay, our guide on orders not complied with explains recovery. Insolvency against the builder is a last resort: it freezes everyone's cases, including yours, and you lose control over what happens. Buyers who join together to file under Section 7 should only do so after thinking through whether resolution is genuinely likely to produce a better result than continuing with RERA. Our builder insolvency service covers both filing and defending these cases for buyers.

The bottom line

Insolvency changes the rules. Your RERA case pauses, the promoters lose control, and what happens to your flat is decided by a committee in which home buyers usually hold a large share of the votes. File your claim on time, keep your paperwork in order, stay in touch with the other buyers and your authorised representative, and vote. The buyers who come out best are almost always the ones who stayed engaged from the first week.

Frequently asked questions

Can I continue my RERA complaint after the builder goes into insolvency?

Generally no, not against the company while the moratorium under Section 14 of the Code lasts. File your claim in the insolvency instead, relying on any RERA order you already have.

What is Form CA?

It's the claim form for financial creditors who belong to a class, such as home buyers. You file it with the interim resolution professional or resolution professional, with proof of what you've paid.

What if I missed the claim deadline?

File as soon as possible and explain the delay. Late claims are often admitted before the resolution plan is approved, but the RP and tribunal have some discretion, and after approval it becomes very difficult.

Can one home buyer start insolvency against a builder?

Not alone. Since 2020, home buyers need at least 100 allottees of the same project, or 10% of its allottees, whichever is less, to file together under Section 7. The Supreme Court upheld this in Manish Kumar (2021).

Will I get delay interest in the resolution plan?

That depends on the plan. Many plans reduce or waive delay interest for buyers who take possession. The CoC decides, and buyers vote through their authorised representative.

Do I have to keep paying my home loan?

Yes. Your loan is your own obligation to the bank. Speak to the bank if you're struggling, and get advice if the loan was under a subvention scheme.

What happens if the company goes into liquidation?

The assets are sold and the money is distributed under Section 53. Unsecured home buyers rank below secured lenders, and recoveries are often low. That's why most buyers prefer a workable resolution plan.

This guide explains, in general terms, how insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 affect home buyers. The IBBI regulations and case law in this area change often, and every insolvency is different. This isn't legal advice on your situation; speak to a lawyer about your project.