Real Estate Insolvency and the RERA and IBC Conflict in India

Vikrant D. Shetty

Oct 19

10 min read

Updated: Oct 21

Real Estate Insolvency: Navigating the RERA and IBC Conflict

When a real estate developer is admitted into the Corporate Insolvency Resolution Process, the Insolvency and Bankruptcy Code, 2016 takes primacy over the Real Estate (Regulation and Development) Act, 2016 for claims against the developer, though RERA continues to govern the underlying project. The Supreme Court held in Pioneer Urban Land and Infrastructure Ltd. v. Union of India that homebuyers are financial creditors under Section 5(8)(f) of the Code, and the Section 14 moratorium suspends proceedings before the Maharashtra Real Estate Regulatory Authority once insolvency is admitted. This article explains how the two regimes interact, including Reverse CIRP and the choice of forum.

The Homebuyer as Financial Creditor

Before the IBC Amendment Act, 2018, homebuyers occupied an uncertain position in insolvency proceedings. They were typically treated as operational creditors, with lower priority in the liquidation waterfall and no seat in the Committee of Creditors (CoC). The Supreme Court in Pioneer Urban Land and Infrastructure Ltd. v. Union of India [(2019) 8 SCC 416] upheld the 2018 Amendment, which classified homebuyers as financial creditors. The amendment inserted an Explanation to Section 5(8)(f) of the IBC, treating amounts raised from allottees under real estate projects as financial debt.

The practical effect: homebuyers now have representation in the CoC through an authorised representative (AR). They vote on resolution plans, though within constraints on the number of votes an AR can cast.

The 100-Allottee or 10% Threshold for CoC Participation

Under Section 21(6A)(b) of the IBC, a class of homebuyers can constitute a CoC member only if they number at least 100, or represent at least 10% of the total allottees under a project, whichever is lower. Individual homebuyers below this threshold cannot directly participate in CoC proceedings. This threshold was introduced to prevent fragmentation of CoC voting by very small groups.

Section 14 Moratorium vs. RERA Proceedings

Section 14 of the IBC imposes an automatic moratorium from the insolvency commencement date. The moratorium bars institution and continuation of suits, proceedings, and enforcement actions against the corporate debtor. RERA proceedings before state RERA authorities, such as MahaRERA in Maharashtra, fall within this moratorium.

Upon commencement of CIRP, pending MahaRERA proceedings against the corporate debtor are stayed. Homebuyers cannot prosecute existing RERA complaints or file new ones for possession or refund during the moratorium period. This creates a direct conflict: RERA was designed to protect homebuyers, but the IBC temporarily disables the very forum they would typically use.

Claims Must Be Filed Before the Resolution Professional

During the CIRP, the correct forum for homebuyer claims is the Resolution Professional, not MahaRERA. Homebuyers must submit their claims to the RP within the timeline prescribed under Regulation 12 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, ordinarily 90 days from the insolvency commencement date, with extensions available on cause shown. Failure to file in time risks exclusion from the resolution plan distribution.

Reverse CIRP: NCLAT's Response to Real Estate Insolvency

The conventional CIRP framework contemplates resolution of a company as a whole. For real estate developers with multiple projects, this creates a problem: a company-wide resolution plan may not protect homebuyers in individual projects, which may be at different stages of completion and have different creditor mixes.

The NCLAT developed the concept of Reverse CIRP to address this. In the Umang Realtech matter and related Union Bank of India proceedings, the NCLAT applied a project-specific resolution framework, ring-fencing individual projects from the company's overall liabilities. Under Reverse CIRP, the focus is on completing the specific project, using its assets and cash flows, rather than resolving the corporate debtor enterprise as a whole. The objective is to deliver units to homebuyers.

Limits of Reverse CIRP

Reverse CIRP is a judicial innovation, not a codified statutory framework. It applies selectively to ongoing real estate projects where completion is still feasible. The NCLAT has not extended it universally, and parties cannot demand Reverse CIRP as of right. The NCLT has discretion to apply it where the facts warrant, particularly where completing a specific project is clearly in creditors' and allottees' best interests.

Where Does RERA Compensation Rank in an IBC Liquidation?

Under Section 53 of the IBC, the liquidation waterfall distributes proceeds in the following order: CIRP costs, workmen's dues (up to 24 months), secured creditor claims, employee wages (up to 12 months), unsecured financial creditor claims, government dues, operational creditor claims, and remaining dues to shareholders. Homebuyers as unsecured financial creditors rank at Step 4. RERA itself creates no separate priority in IBC liquidation. In a liquidation scenario, after secured lenders are paid, the residue available for unsecured financial creditors (including homebuyers) is typically very limited.

Should a Homebuyer Approach the NCLT or MahaRERA First?

Once a developer enters CIRP, the NCLT has exclusive jurisdiction over claims against the corporate debtor. A homebuyer cannot seek a refund or possession order from MahaRERA during the CIRP moratorium; the RP is the correct respondent for all claims. After the CIRP ends, whether through an approved resolution plan or liquidation, RERA jurisdiction may revive in respect of obligations imposed on the new entity or surviving project obligations, depending on the plan terms.

Do RERA Obligations Survive After a Resolution Plan Is Approved?

If the resolution plan provides for project completion, the resolution applicant assumes the developer's obligations, including obligations under RERA registrations, completion timelines, and quality standards. The resolution applicant must comply with MahaRERA requirements, register as the new promoter, and meet delivery commitments set out in the plan. Homebuyers can enforce these obligations through MahaRERA after plan approval.

What the Supreme Court Held on the RERA and IBC Overlap

The relationship between the real-estate regulatory regime and the insolvency process was addressed by the Supreme Court in Pioneer Urban Land and Infrastructure Ltd. v. Union of India [(2019) 8 SCC 416], which upheld the treatment of homebuyers as financial creditors and explained that the remedies under the insolvency law operate in addition to, and are to be harmonised with, those under the real-estate legislation rather than being ousted by them. The Court's approach was one of reconciliation: the two statutes serve overlapping but distinct purposes, and an allottee is not compelled to choose one to the permanent exclusion of the other, though the same relief cannot be recovered twice. This harmonising approach is the starting point for navigating any conflict between the two regimes.

When Each Regime Is the Better Route

In practice, the choice between the regulatory route and the insolvency route turns on the state of the project and the relief sought. Where a developer is fundamentally solvent but delayed or non-compliant, the real-estate regulator may offer faster and more targeted relief, including directions to complete the project or to refund with interest. Where the developer has genuinely failed and collective resolution of the project is needed, the insolvency process, with its moratorium and its committee of creditors, may be the only realistic path to a workable outcome. Homebuyers and other stakeholders should assess the developer's real financial condition before deciding which regime to invoke.

Managing the Conflict in Practice

Because both regimes can be triggered in relation to the same project, conflicts arise over the moratorium, the priority of claims, and the treatment of project assets, and these have to be managed with care. Once insolvency commences, the moratorium generally halts other proceedings against the corporate debtor, which affects parallel regulatory actions, and the resolution process then becomes the forum in which the project's future is decided. Stakeholders should therefore coordinate their strategy across both regimes rather than pursuing them in isolation, and should take advice early, because the interaction between real-estate regulation and insolvency is intricate and the sequence of steps can determine the outcome.

In the end, homebuyers and other stakeholders in a distressed project are best served by understanding that the real-estate regulator and the insolvency process are complementary tools, each suited to different situations, and by choosing the route, or the sequence of routes, that fits the developer actual financial condition and the relief they most need.

Because the two regimes can operate on the same project at the same time, coordinating strategy across them, and taking advice on the sequence of steps, is often what determines whether a stalled real-estate project is successfully revived or lost to a disorderly scramble among its many stakeholders. Early, joined-up planning is almost always better than reacting to each development as it arises.

Frequently Asked Questions

Can a homebuyer file a RERA complaint after the developer enters CIRP?

No. The Section 14 moratorium bars institution or continuation of proceedings against the corporate debtor, including RERA complaints. Homebuyers must file claims before the Resolution Professional within the prescribed timeline.

Are homebuyers financial creditors or operational creditors under the IBC?

Homebuyers are financial creditors under the IBC since the 2018 Amendment, which inserted an Explanation to Section 5(8)(f). This gives them a right to participate in the CoC through an authorised representative.

What is Reverse CIRP?

Reverse CIRP is a judicial concept developed by the NCLAT for real estate insolvency cases. It involves a project-specific resolution framework that ring-fences individual projects and focuses on completing them for homebuyers, rather than resolving the corporate debtor as a whole.

What happens to a pending MahaRERA complaint when CIRP starts?

Pending RERA proceedings are stayed by the Section 14 moratorium once CIRP commences. They cannot be continued during the moratorium. Homebuyers must file claims in the CIRP process with the Resolution Professional instead.

If the developer is liquidated, what do homebuyers receive?

Homebuyers as unsecured financial creditors rank at Step 4 in the Section 53 liquidation waterfall. After secured creditors are paid, the residue available for unsecured financial creditors in most real estate liquidations is very small. Many homebuyers in liquidation scenarios receive minimal recovery.

Can homebuyers vote in CoC meetings directly?

No. Homebuyers vote through an authorised representative. The AR casts votes on behalf of the entire class. Individual homebuyers attend the CoC meeting through the AR and cannot independently cast votes.

If the resolution plan promises project completion, is that enforceable?

Yes. Once the NCLT approves a resolution plan under Section 31, it is binding on all stakeholders. If the plan commits to completing the project and delivering units, the resolution applicant is obligated to comply. Non-compliance can be brought before the NCLT, which has continuing jurisdiction over plan implementation.

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What is the limitation period for a homebuyer to file a claim with the Resolution Professional?

Regulation 12 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 requires a claim to be submitted within ninety days of the insolvency commencement date, or by the date fixed for issuing the request for resolution plans, whichever is later, and a claim filed after that must state the reason for the delay. A homebuyer who misses the initial window should still file promptly with reasons for the delay, since the Resolution Professional retains discretion to admit a late claim before the resolution plan is finalised.

What documents must a homebuyer submit to prove a claim in a developer's CIRP?

A homebuyer claiming as a financial creditor in a class submits Form CA under Regulation 8A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, along with the allotment letter or agreement for sale, proof of payments made to the developer, and any Maharashtra Real Estate Regulatory Authority order recording the amount due. Regulation 8A specifically covers creditors belonging to a class, the category into which allottees of a real estate project fall, distinguishing their claim process from an individual financial creditor filing Form C.

Can homebuyers withdraw an admitted CIRP application under Section 12A?

Yes. Section 12A of the Insolvency and Bankruptcy Code, 2016 allows an admitted application to be withdrawn if ninety percent of the voting share of the Committee of Creditors approves. Where homebuyers form a large part of the creditor base, their authorised representative casts a single collective vote reflecting the majority view of the class, so an individual homebuyer cannot unilaterally withdraw the application or block a withdrawal once the class vote is cast in a particular direction.

Does the developer's CIRP apply project-wise or to the entire company?

The Insolvency and Bankruptcy Code, 2016 is ordinarily company-wide, so admission of CIRP freezes the developer's entire corporate structure, not just the project in which a particular homebuyer invested. This is why the National Company Law Appellate Tribunal developed Reverse CIRP for real estate cases, since a company-wide moratorium can otherwise stall a nearly complete project to protect creditors of an entirely different, unrelated project of the same developer.

Can a homebuyer enforce a MahaRERA recovery certificate once CIRP is admitted?

A recovery certificate issued by the Maharashtra Real Estate Regulatory Authority cannot be executed against the developer once the Section 14 moratorium of the Insolvency and Bankruptcy Code, 2016 takes effect, because execution of any decree or order against the corporate debtor is expressly suspended. The homebuyer must instead file the certificate as evidence of a quantified claim with the Resolution Professional, who treats it as proof of the amount due rather than as an independently enforceable order.

Can a homebuyer object to a resolution plan that offers less than the amount ordered by MahaRERA?

A homebuyer can raise objections before the Committee of Creditors through the authorised representative and, after approval, can challenge the plan before the National Company Law Tribunal on the limited grounds available under Section 30(2) and Section 31 of the Insolvency and Bankruptcy Code, 2016, such as non-compliance with the minimum payout to dissenting creditors. Courts have been reluctant to reopen the commercial terms of an approved plan merely because it pays less than a prior regulatory order.

Is there a fee for a homebuyer to file a claim in a developer's insolvency?

There is no fee prescribed under the Insolvency and Bankruptcy Code, 2016 or the IBBI regulations for a homebuyer to submit Form CA and supporting documents to the Resolution Professional. The costs a homebuyer typically incurs are professional fees paid to an advocate or chartered accountant engaged to prepare the claim and represent the homebuyer's interests before the authorised representative and the Committee of Creditors, since the statutory filing itself carries no government charge.