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Supreme Court : Homebuyers can now approach NCLT against the Builder



Around 200 Real Estate Developers approached the Supreme Court challenging the constitutional validity of the amendment made in the Insolvency and Bankruptcy Code (IBC) which deems allottees of real estate projects to be “financial creditors” under Section 7. In addition, being financial creditors, they are entitled to be represented in the Committee of Creditors by authorized representatives.

In the last week the Supreme Court upheld the said amendment in Insolvency and Bankruptcy Code (IBC) and rejected the plea of the real estate developers. Speaking of the benefits of IBC to homebuyers a bench of Justices R F Nariman, Sanjiv Khanna and Surya Kant said that IBC is a beneficial legislation to protect the interest of home-buyers who had invested their money to realize their dream of a house and there was no illegality in giving them a say in insolvency proceedings against a builder which failed to discharge its obligation to handover possession of flats on time.  

Further, highlighting the importance of RERA the court held that “RERA is to be read harmoniously with the Code, as amended by the Amendment Act. It is only in the event of conflict that the Code will prevail over RERA. Remedies that are given to allottees of flats/apartments are therefore concurrent remedies, such allottees of flats/apartments being in a position to avail of remedies under the Consumer Protection Act, 1986, RERA as well as the triggering of the Code,”

It was also pointed out that the threshold limit to trigger the Code is purposely kept low – at only Rs 1 lakh  – making it clear that small individuals may also trigger the Code as financial creditors, along with banks and financial institutions to whom crores of money may be due.

“The Code is thus a beneficial legislation which can be triggered to put the corporate debtor back on its feet in the interest of unsecured creditors like allottees, who are vitally interested in the financial health of the corporate debtor, so that a replaced management may then carry out the real estate project as originally envisaged and deliver the flat/apartment as soon as possible and/or pay compensation in the event of late delivery, or non-delivery, or refund amounts advanced together with interest,” it further said.

It was contended by the real estate developers that the law can be used as a tool of blackmail by speculative investors, to which the court said that the builders can also point out in the proceedings that the insolvency resolution process under the Code has been invoked fraudulently and with malicious intent.

The bench also stated that with the help of IBC the aggrieved home-buyers can take action against builders and if that status is taken away, they will not get anything in liquidation process against a defaulting company.





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