Answer By law4u team
Yes, homebuyers can file for insolvency proceedings against builders under the Insolvency and Bankruptcy Code (IBC), typically by classifying themselves as financial creditors. This legal option has become an important tool for addressing defaults by real estate developers in delivering projects on time or fulfilling financial commitments.
Homebuyers and Insolvency Proceedings Under IBC
Status as Financial Creditors
Following the Supreme Court ruling in Swiss Ribbons Pvt. Ltd. vs. Union of India and subsequent amendments, homebuyers who have made payments for flats under construction are recognized as financial creditors under the IBC.
This recognition allows homebuyers to initiate insolvency proceedings against the defaulting builder.
Grounds for Filing
Homebuyers can file if the builder has defaulted in payment obligations related to the project, delayed possession, or failed to complete the real estate development.
Default must meet the minimum threshold amount prescribed by the IBC.
Initiation of Corporate Insolvency Resolution Process (CIRP)
Homebuyers can approach the National Company Law Tribunal (NCLT) to initiate CIRP against the builder, aiming for resolution or liquidation to recover dues or ensure project completion.
Committee of Creditors (CoC)
Homebuyers, as financial creditors, form part of the CoC and participate in decisions related to the resolution plan, giving them collective bargaining power.
Interaction with Real Estate Laws
IBC proceedings complement other protections under the Real Estate (Regulation and Development) Act (RERA), providing an additional legal avenue for homebuyers.
Challenges and Considerations
Though homebuyers have this right, practical challenges include collective action, proving default, and managing timelines.
Engaging insolvency professionals and legal experts is advisable.
Legal Context
IBC Amendments recognizing homebuyers as financial creditors.
Supreme Court Judgment in Swiss Ribbons Pvt. Ltd. vs. Union of India.
Section 7, IBC – Initiation by financial creditors.
NCLT Jurisdiction over insolvency proceedings.
Example
A group of homebuyers, who paid for apartments in a delayed residential project, file a petition under IBC against the builder for default. The NCLT admits the case and initiates CIRP. The Committee of Creditors, including homebuyers, negotiates a resolution plan which mandates timely completion of the project or compensation, protecting buyers’ interests.
