Individual Homebuyers are the backbone of the real estate sector of India as they collectively constitute the largest chunk of investors in a real estate project. However, the legal position of these important stakeholders is notoriously volatile due to the following reasons:

Firstly, a tri-remedial mechanism under Real Estate (Regulation and Development) Act, Consumer Protection Act (CPA) as well as the Insolvency and Bankruptcy Code is often too confusing and consequently, exhausting for the layman homebuyer to navigate even with proper legal assistance. Secondly, the divide in judicial opinion with regards to homebuyers’ rights in the past few years itself also puts an additional hurdle on the homebuyers’ legal standing and their fate is often decided by the discretion of the courts.

This article aims to analyse the plight of homebuyers when defaulting promoters fail to hand over possession of flats and how the existing legal regime, be it the legislative provisions or the judicial pronouncements fail to protect their vulnerable position adequately, thus tipping the scale in favour of the builders. It also aims to propose a few solutions that might go a long way in improving the situation.

Lacunae in Legislative Provisions

RERA- A powerless panacea

Firstly, let us talk about Real Estate (Regulation and Development) Act, 2016 (hereinafter ‘RERA’). The salient feature of this legislation is that it finally provided for a dedicated grievance redressal mechanism for homebuyers.

However, the statute has not fared very well in fulfilling its purpose. One of the main problems that homebuyers face are inordinate delays in receiving possession of their flats. Section 3 of RERA establishes a clear mandate that every potential project needs to be registered under the Act to establish its legitimacy. Even when a real estate project is developed in phases, every such phase shall be considered a stand-alone real estate project. Thus, the provision ends up acting as an impediment due to lack of a single-window clearance.

Nevertheless, this is yet just a bureaucratic drawback. The actual alarming aspect of RERA are the insufficient recovery powers of the regulatory authorities. There is a growing trend of non-compliance with orders passed in favour of homebuyers which leaves them with no choice but to eventually approach the High Court under a writ petition as a routine matter, which defeats the very purpose of the Act.

Very few refund orders passed by RERA authorities have been executed and there is a lack of assertiveness and sufficient suo motu action on part of the regulatory authority which has helped builders evade responsibility and accountability.

Why CPA is not the ‘Immediate’ Solution

One could also argue that an individual homebuyer could approach a Consumer Forum as he would fall within the definition of a ‘consumer’ under the CPA. Unfortunately, the redressal of grievances or adjudication of the dispute takes an average of 5 to 6 years by Consumer Forums and thus denies the homebuyers expeditious relief under the Act.

Ever-changing Insolvency Regime

A homebuyer might decide he would be better off availing a remedy under the Insolvency and Bankruptcy Code, especially after the 2018 amendment which bestowed the status of ‘financial creditor’ on the homebuyer. However, the actual situation has not seen a drastic improvement due to various reasons:

For example, while homebuyers are considered financial creditors but the amended law does not state whether they are secured or unsecured creditors. This mitigates the meaningfulness of the amendment as the homebuyers are still not certain about the priority in which they would be repaid their loans.

Another challenge has also been posed by the numerical threshold requirements introduced by the 2020 amendment, requiring application for initiating Corporate Insolvency Resolution Process (CIRP) by a minimum of hundred allottees or one-tenth of total number of allottees in a particular real estate project, whichever number is lesser.

While this amendment might have been enacted to reduce frivolous lawsuits by a lone allottee, it fails to consider the information asymmetry between promoters and buyers, and how the former is not obligated to provide names and details of all allottees which would assist homebuyers in co-ordinating to file a suit.

Conflicting Judicial Opinions and Clash with Legislation

The 2018 amendment of the IBC clarified that the amounts given by allottees to builders were similar to commercial borrowings in terms of impact, and thus allottees were considered financial creditors from that point onwards. This amendment was challenged in the case of Pioneer Urban Land and Infrastructure Limited v. Union of India, but the Supreme Court rightly recognised the disadvantaged position of homebuyers, and upheld the inclusion of money raised from allottees as a financial debt within the scope of Section 5(8)(f). However certain unexamined aspects of this amendment and subsequent developments raise a fresh crop of doubts:

Raising Threshold Requirements

As explained before, the Legislature, ceding to the view of developers on the dangers posed to them and their projects raised the threshold requirements for allottees to initiate insolvency proceedings twice – first by the IBC (Amendment) Ordinance of 2019, and next by the IBC Amendment Act of 2020, which replaced it. This was immediately challenged on both instances by allottees.

The Ordinance provided that at least 100 allottees or 10% of the total allottees were required to initiate insolvency proceedings, whichever number was lower, and the minimum default amount was Rs. 1 lakh. This provision was stayed by the Supreme Court in Manish Kumar v. Union of India, and status quo was ordered to be maintained in respect of applications already filed, and to be filed.

The 2020 Amendment Act, which replaced the ordinance, raised the threshold requirement of the defaulting amount to Rs. 1 crore from Rs. 1 lakh, along with the prior requirement of at least a 100 allottees, or 10 per cent of the total allottees, whichever number be lower. This provision was challenged in the case of Association of Karvy Investors v. Union of India, and the Supreme Court ordered status quo to be maintained in all pending applications that had been filed.

This back and forth between the orders of the apex court and the provisions of the amendments and ordinances have created a situation wherein there is uncertainty amongst allottees of real estate projects as to whether they are eligible to claim relief under the IBC.

Sushil Ansal: A New Complication?

In theory, allottees being able to claim relief under a multiplicity of laws should create a stronger net of protection for homebuyers. In reality, it has just created greater possibility of complication with regards to how obtaining relief under one law may affect the right of a homebuyer under another law, and this was reflected in the judgement of the NCLAT in the case of Sushil Ansal v. Ashok Tripathi.

The NCLAT held in this case that a homebuyer who once obtains a favourable decree against a developer from a competent court ceases to be a financial creditor as defined in the IBC, though a decree holder is included within the definition of a creditor in the IBC, in Section 3(10).

This decision especially becomes a cause of concern since enforcement of orders under RERA is a problem. It also goes against previous judgments of the NCLAT itself, such as Ugro Capital Ltd. v. Bangalore Dehydration and Drying Equipment Co. Pvt. Ltd. Homebuyers have placed reliance on the provisions of the IBC in numerous cases to get justice due to lacunae in RERA, but this judgement closes that door for allottees as well, obstructing them from initiating insolvency proceedings.

Conclusion and Recommendations

It is quite clear that the multiplicity of laws has not given homebuyers stronger protection, and judicial decisions have further complicated matters instead of clarifying them. A clear solution is required for any of the multiple laws to be effective. The authors seek to propose a few of them:

For strengthening the judicial framework under RERA, there is dire need of a legislative amendment especially on the aspects of single-window clearance for real estate projects to prevent delays and to penalise the District Magistrate for dereliction of duty in cases where he does not execute Recovery Certificate even after repeated requests of the concerned homebuyer/s.

Under IBC, a subsequent amendment equivalent to Section 37 of RERA can be incorporated which empowers State RERA to direct promoter to furnish the required information. The Adjudicating Authority under IBC can be similarly empowered.

Also, while it is undisputed that financial creditors have great powers when it comes to insolvency proceedings of a corporate debtor, we have already taken note of the gray areas that still put homebuyers at a disadvantage even after the 2018 amendment making them financial creditors. Apart from not being clear about the priority in which they will be repaid they often lose the ‘financial creditor’ tag itself in cases of judicial dissonance with the legislative intent of the Code.

To combat this, we need purposive interpretation to be followed by the judiciary to truly protect the interests of the homebuyers who end up feeling disenfranchised even in a legal regime with multiple remedies. This could include being flexible with the criteria to classify homebuyers as a secured creditor which will automatically ensure that they are not placed low on the waterfall mechanism under Section 53.

This could include stricter and perhaps even mandatory standards for creating ‘security interest’ as defined under the code in the builder-buyer agreements, a very important document for every homebuyer to provide further legal backing to their rights.

With certain legislative changes and a stronger judicial backing the situation of the disgruntled homebuyers can be drastically improved, which will also have the positive effect of increasing confidence and investment in an ailing real estate sector.


Written by Jai Babaria and Mallika Bothra, third year undergraduate law students pursuing BBA LL.B Hons. at Symbiosis Law School, Pune


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Qualification: Student- Others
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Location: Kolkata, West Bengal, India
Member Since: 10 Aug 2021 | Total Posts: 1

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  1. Sridharan. G says:

    Elucidation of this subject is fantastic. The author used simple language even a laymen buyer can understand the subject. Will authorities concerned take suitable action to mitigate the suffering of home buyers soon. Such action will make homebuyers to trust and every one tried to buy a home. Ultimately it will help the real estate sector to sell more and profit. Economy will also improve. Thanks to author.

    1. Jai Babaria says:

      Thank you so much for your kind comment! I absolutely agree with you that action needs to be taken to restore consumer confidence in the real estate sector.

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September 2021