Best Builder Gone Bankrupt? How Home Buyers Get Their Flat or Money Lawyer

Hearing that your builder has been "taken to the NCLT" is unsettling. Buyers often assume it means the end: the money is gone, the flat will never be built, and nothing can be done. That isn't necessarily so. Since 2018, Indian insolvency law has treated home buyers as financial creditors of a builder, with a voice in what happens to the company and the project. Some of the most stuck projects in the NCR have been revived through insolvency. Others haven't, and buyers have had to fight hard for a fair outcome.

This page explains how insolvency works for home buyers, what changes the day insolvency starts, what you must do and by when, and how to protect your position. If you're thinking about starting insolvency against your builder yourself, see our page on group complaints and the section on home buyer petitions below.

The basic framework

Corporate insolvency in India is governed by the Insolvency and Bankruptcy Code, 2016 (IBC). When a company defaults on a debt of at least Rs 1 crore, a financial creditor, an operational creditor or the company itself can apply to the National Company Law Tribunal (NCLT) to start a corporate insolvency resolution process, usually called CIRP.

If the NCLT admits the application:

• the board of directors is suspended and an interim resolution professional takes charge of the company;
• a moratorium comes into force, freezing most legal proceedings against the company;
• creditors are invited to file claims;
• a committee of creditors is formed from the financial creditors;
• prospective resolution applicants submit plans to revive or take over the company; and
• the committee votes on a resolution plan, which then goes to the NCLT for approval.

If no plan is approved within the time allowed, the company usually goes into liquidation, which is generally a much worse outcome for home buyers.

Home buyers as financial creditors

Before 2018, it wasn't clear where home buyers fitted. They weren't lenders in the usual sense, and they weren't suppliers. In 2018 Parliament amended the IBC to provide that an amount raised from an allottee under a real estate project is treated as having the commercial effect of a borrowing. That made home buyers financial creditors.

Builders challenged the amendment. In Pioneer Urban Land and Infrastructure v. Union of India (2019), the Supreme Court upheld it. The Court also held that RERA and the IBC can operate together, and that where they conflict, the IBC prevails.

Being a financial creditor matters. It means home buyers are represented on the committee of creditors, vote on the resolution plan, and are entitled to be treated as creditors in any distribution.

What changes when insolvency starts

The moratorium

Under Section 14 of the IBC, once the NCLT admits the insolvency application, a moratorium prohibits the institution or continuation of suits and proceedings against the company, including execution of orders, and the transfer or sale of its assets. For home buyers, that usually means:

• pending RERA complaints and consumer cases against the builder company are paused;
• RERA orders and consumer orders already passed can't be executed against the company during the moratorium; and
• recovery certificates can't be enforced against the company's assets.

That's frustrating, but it doesn't wipe out your claim. The amount you're owed, including amounts ordered by RERA, becomes part of your claim in the insolvency.

The builder's management is replaced

The resolution professional runs the company. In real estate cases, the professional often tries to continue construction where funds permit, because a project that keeps moving is worth more to everyone.

Your claim needs to be filed

This is the most important practical change. The resolution professional publishes a public announcement inviting claims. Home buyers file their claims in the form prescribed for creditors in a class, commonly referred to as Form CA. If you don't file, you risk being left out of the process. See our page on filing your claim.

How home buyers vote

A large project may have hundreds or thousands of buyers. They can't all sit on the committee of creditors individually, so the IBC treats them as a class of creditors. Under Section 21(6A) and the regulations, a class of creditors is represented on the committee by an authorised representative, usually an insolvency professional chosen from options offered in the public announcement.

The authorised representative attends meetings, receives information, and votes on behalf of the class in line with the votes cast by the individual home buyers. In practice:

• each home buyer's voting share is proportionate to their admitted claim;
• home buyers vote electronically on key decisions, such as approving a resolution plan;
• the authorised representative casts the class's vote according to the decision of the majority of the class who voted.

Because home buyers' combined claims in a real estate company are often large, their class can carry a significant share of the committee's voting power. In many real estate insolvencies, home buyers have been decisive in which plan is approved.

Resolution plans: what to look for

When plans are put to the vote, home buyers often have to decide quickly on complex documents. A few questions help.

• Does the plan complete construction, and by when? Look for specific timelines for each tower, with consequences if they're missed.
• How is it funded? A plan that depends on selling unsold inventory in a weak market is riskier than one backed by committed funding.
• What happens to delay interest and refunds? Many plans offer possession but waive delay compensation, or offer refunds of principal only, sometimes over several years.
• What about buyers who want refunds? Some plans offer refund options for a limited number of buyers, or alternative units.
• Are any additional payments demanded? Some plans ask buyers to pay more than their agreed price, or to pay balance dues on accelerated timelines.
• Who is the resolution applicant? Their track record in completing real estate projects matters.
• What's being given up? Plans frequently extinguish all claims not provided for in the plan, including RERA orders and pending complaints. Read that part carefully.

Once a resolution plan is approved by the NCLT under Section 31, it binds all stakeholders, including home buyers who voted against it or didn't vote. That's why participation matters.

Section 29A: can the old promoters bid?

Section 29A of the IBC disqualifies certain persons from submitting resolution plans, including, broadly, promoters of the defaulting company whose accounts have been classified as non-performing for a specified period, unless they clear the overdue amounts. The idea is to prevent promoters who caused the default from regaining control at a discount. In practice, questions about connected entities and indirect bids by promoters come up often in real estate insolvencies.

Project-wise insolvency

A builder often has several projects, some healthy and some stalled. Putting the whole company into insolvency can drag down projects that were on track. The National Company Law Appellate Tribunal, in cases including Flat Buyers Association Winter Hills-77 v. Umang Realtech (2020), has accepted that in real estate cases the insolvency process can be confined to the particular project in default, an approach sometimes called project-wise or "reverse" insolvency, where the promoter itself may fund completion under the supervision of the resolution professional. Whether this approach applies depends on the facts of the company and the decision of the tribunal in that case.

For home buyers in a healthy project of an insolvent builder, project-wise insolvency can be important protection. For buyers in the stalled project, it can focus resources on finishing their towers.

Starting insolvency as home buyers

Home buyers can themselves file a Section 7 application to start insolvency against a defaulting builder, as financial creditors. Since an amendment in 2020, such an application by allottees must be filed jointly by at least 100 allottees under the same real estate project, or at least 10% of the total number of allottees under the same project, whichever is less. The Supreme Court upheld this threshold in Manish Kumar v. Union of India (2021). The default must be at least Rs 1 crore, which in most delayed projects is easily met.

Starting insolvency is a serious step. It can unlock a stuck project where the builder is unable or unwilling to complete, but it also freezes RERA proceedings and puts the outcome in the hands of a collective process. It's usually considered after other routes have failed, or where the builder is plainly in financial collapse.

If the process fails: liquidation

If no resolution plan is approved within the time allowed, or the plan approved isn't implemented, the company may be ordered into liquidation. In liquidation, the company's assets are sold and the proceeds are distributed according to the order of priority in Section 53 of the IBC. Secured creditors, such as banks with a mortgage over the project land, generally rank ahead of unsecured financial creditors, which is where home buyers usually sit.

For home buyers, liquidation tends to be the worst outcome: the project may be sold as a whole to a buyer who isn't bound to complete it for existing allottees, and recoveries on unsecured claims can be low. That's why home buyers often push hard for any viable resolution plan, even an imperfect one, rather than risk liquidation.

The role of the courts in very large cases

A few very large NCR real estate failures have involved the Supreme Court directly, beyond the ordinary IBC process. In the Amrapali case, the Supreme Court in 2019 cancelled the group's RERA registrations, appointed a state-owned company to complete the stalled projects, and directed a forensic audit. In the Unitech case, the Court approved a government-nominated board to take over the company's management. These were exceptional measures for exceptional situations, but they show that where insolvency processes are not enough, courts have been willing to intervene to protect home buyers.

Practical steps the day you hear about insolvency

1. Confirm the facts. Has the NCLT admitted the application, or has one merely been filed? Admission triggers the moratorium and the claims process.
2. Find the public announcement. It names the interim resolution professional and the last date for claims. It's published in newspapers and on the insolvency regulator's website.
3. Gather your documents: agreement, payment receipts, bank statements, any RERA or consumer orders.
4. File your claim on time, in the correct form, with proof.
5. Choose an authorised representative, if the announcement asks home buyers to indicate a choice.
6. Join a home buyers' group for the project. Coordinated buyers make better decisions and are taken more seriously.
7. Read every communication from the authorised representative, and vote on key resolutions.

How we help home buyers in insolvency

• Preparing and filing claims, including calculating amounts and attaching proof, and dealing with claims that the resolution professional rejects or admits only in part.
• Advising buyer groups on resolution plans: what the plan offers, what it extinguishes, and how it compares with likely alternatives.
• Representing buyers before the NCLT and NCLAT on objections to claim decisions, plan approval and implementation failures.
• Filing Section 7 applications on behalf of qualifying groups of allottees where insolvency is the right route.
• Coordinating RERA and insolvency strategy, so that buyers don't lose rights by acting in the wrong forum at the wrong time.

Documents to gather

• Allotment letter and builder-buyer agreement
• All payment receipts and bank statements
• Home loan documents and tripartite agreement, if any
• Any RERA, consumer commission or court orders in your favour
• The public announcement and any communications from the resolution professional
• Your identity documents and, for NRIs, a power of attorney if someone is acting for you

RERA or insolvency: which first?

Buyers in a stalled project often ask whether they should go to RERA or start insolvency. The two routes do very different things.

• RERA gives each buyer an individual order: refund with interest, or delay interest, and possession directions. It's designed for the relationship between a builder and its buyers, and it works well where the builder is still functioning and has assets. It works poorly where the builder has no money and no intention of completing.
• Insolvency is collective. It puts the whole company, or the project, into a process aimed at finding someone to complete it or, failing that, selling its assets. It's designed for situations where the builder can't go on as it is. It freezes individual remedies while the process runs.

In practice, many buyers start with RERA and turn to insolvency only when it's clear that RERA orders won't be honoured. Others, in projects where the builder has plainly collapsed, go straight to insolvency because individual orders would be worthless. A RERA order obtained before insolvency still has value: it fixes the amount of your claim and is strong evidence in the claims process.

There's also the question of what other buyers do. If another creditor, such as a bank, has already started insolvency, the choice may be made for you. If you're considering a Section 7 application with other buyers, it's worth talking to the larger group first, because a split among buyers can weaken everyone's position.

Common concerns from home buyers

"We'll end up paying more to get the flat." Some resolution plans do ask buyers to pay additional amounts or to give up delay compensation in exchange for completion. That's a real trade-off, and whether it's acceptable depends on what the alternative is. A plan that completes your flat with a modest extra payment may be far better than liquidation.

"The resolution professional isn't listening to us." Resolution professionals have duties to all creditors and must follow the regulations. If you think the process isn't being run properly, for example, claims wrongly rejected or information withheld, those decisions can be challenged before the NCLT.

"Banks will take everything." Secured lenders rank ahead of unsecured creditors in liquidation, which is why liquidation is so dangerous for home buyers. In resolution, though, home buyers' votes count, and plans have to address their claims. That's another reason to push for resolution.

"It will take years." The IBC sets time limits for the resolution process, and real estate cases frequently exceed them because of litigation and complexity. A realistic view is that insolvency resolves some projects that would otherwise never be completed, but rarely quickly.

Home loans when the builder is insolvent

Buyers with home loans face a particular squeeze when the builder is in insolvency: the bank still expects EMIs, while the flat's future is uncertain. A few points:

• Your loan is your own obligation. The builder's insolvency doesn't suspend it. Defaulting damages your credit record and can lead to recovery action against you.
• Your bank may be a creditor too, if it lent to the builder as well as to you, or has rights under a tripartite agreement. Its interests and yours may overlap or diverge.
• Your claim in the insolvency is for what you paid to the builder, which includes the bank's disbursements on your behalf. How the bank's interest in that claim is treated depends on your loan documents and the tripartite agreement.
• Subvention schemes add another layer. If the builder was paying your pre-EMIs and stopped before insolvency, you may have claims against both. See our page on subvention schemes.

Talk to your bank early, and in writing. Some banks have restructured loans for buyers in insolvent projects; others haven't. Your position is better if the bank knows the facts before arrears build up.

Where proceedings happen

Insolvency applications are heard by the NCLT bench with jurisdiction over the place where the builder company's registered office is located. For many NCR builders, that's the New Delhi benches; for companies registered in Uttar Pradesh, the Allahabad bench; for those registered in Haryana, the Chandigarh bench. Appeals go to the National Company Law Appellate Tribunal in New Delhi, and from there to the Supreme Court. The project's own location doesn't decide the bench. The company's registered office does.

Our approach

We act for individual home buyers and organised buyer groups in real estate insolvencies. For individuals, the priority is getting your claim admitted for the right amount and making sure you're heard on the plan. For groups, it's helping you understand the options, organise your votes, scrutinise resolution plans and, where necessary, challenge decisions before the NCLT and NCLAT. Where insolvency hasn't started but your builder is clearly failing, we'll help you weigh whether starting it is wise, and if so, prepare the application with the required number of allottees.

When a resolution plan isn't implemented

Approval of a resolution plan isn't the end of the story. Some approved plans in real estate cases have run into trouble: the successful applicant fails to bring in the promised funds, construction milestones slip, or disputes arise over what the plan actually promised buyers. Section 74 of the IBC provides consequences for contravention of an approved plan, and creditors, including home buyers, can approach the NCLT where a plan isn't being implemented. Keep the approved plan and any implementation timelines, and track progress against them. If a plan promised completion of your tower by a date and that date passes without real progress, raise it with the monitoring committee, if there is one, and take advice on an application to the tribunal.

Frequently asked questions

Are home buyers creditors of the builder?

Yes. Since 2018, amounts raised from allottees are treated as financial debt under the IBC, making home buyers financial creditors. The Supreme Court upheld this in Pioneer Urban Land (2019).

What happens to my RERA case when the builder goes into insolvency?

Once the NCLT admits the builder into insolvency, the moratorium under Section 14 generally stops proceedings against it, including RERA complaints and execution of RERA orders. Your claim moves into the insolvency process.

Will I lose my flat?

Not necessarily. Many resolution plans provide for completion and handover to existing buyers. Liquidation is the outcome that puts allotments most at risk.

How do I file my claim?

In the form prescribed for creditors in a class, commonly Form CA, with proof of payments, to the resolution professional by the date in the public announcement.

Can home buyers start insolvency against a builder?

Yes, jointly, if at least 100 allottees of the same project, or 10% of the total allottees, whichever is less, file together, and the default is at least Rs 1 crore.

Do I get a vote on the resolution plan?

Yes, through the class voting process. Your authorised representative votes for the class in line with the majority of home buyers who vote.

Can the old promoter buy back the company?

Section 29A disqualifies certain promoters, particularly those whose accounts have been non-performing for a specified period, unless they clear overdue amounts. Connected-party bids are scrutinised.

Is a plan binding if I voted against it?

Yes. Once approved by the NCLT under Section 31, a resolution plan binds all stakeholders, including dissenting creditors.

Can insolvency be limited to my project only?

In some real estate cases, the appellate tribunal has allowed the process to be confined to the defaulting project. It depends on the facts and the tribunal's decision.

General information about home buyers in insolvency under the Insolvency and Bankruptcy Code, 2016. Insolvency law and regulations change frequently; check the current position. Not legal advice.