A spate of defaults at several prominent real estate companies has left creditors and homeowners on shaky ground, with several challenges awaiting them at the insolvency court, writes Vineeta Bansal

When Supertech, one of the New Delhi-NCR region’s largest real estate developers, was declared insolvent on 25 March 2022, it sent shockwaves across the sector. The National Company Law Tribunal (NCLT) issued the order in response to a plea by Union Bank of India and a group of 100 homebuyers.

The mega realty developer had defaulted on a payment of INR4.3 billion (USD56 million) to Union Bank for construction of the company’s Eco Village II project in Greater Noida, in Uttar Pradesh state. The project is being developed at a cost of INR11 billion, and out of 38,041 flats, 27,111 were delivered to homebuyers. The homeowners were in a quandary as they were paying a pre-equated monthly instalment before receipt of the flats and, because they had taken loans, were being forced to pay those or risk huge penalties.

After Supertech, the NCLT initiated insolvency proceedings against Logix Blossom Zest, allowing a plea by operational creditor Colliers International (India) Property Services. Logix’s project in the New Okhla Industrial Development Authority (Noida) was launched in 2011, and consists of 3,400 units spread across 14 towers, of which nine are incomplete. Several homebuyers had been unable to get their units registered because of the developer’s pending dues with the Noida city authorities. There were several irregularities stalling land allotment and development clearances due to a nexus between builders and Noida officials.

The Comptroller and Auditor General’s (CAG) report said: “Nearly 80% of the total allotment of plots in the commercial category between 2005-2018 were secured by three real estate firms named Wave, Three C and Logix Group. Despite repeated violations by these companies in terms of outstanding dues that accumulated to INR149 billion, the authority failed to take any action against them.”

The CAG observed that Noida’s authorities had weakened and changed rules to suit real estate developers and ignored the interests of homebuyers who had invested their savings. Hundreds of homebuyers who had booked properties belonging to the three companies have been unable to find their homes, even after a decade, and the companies were facing many cases in the courts.

Several other big names in the real estate industry such as Amrapali, Jaypee Group and Unitech have also been taken to the bankruptcy court.

Real estate is one of the top sectors where corporate insolvency resolution processes (CIRPs) have been initiated. In December 2020, a total of 1,600 cases were pending, while only 462 resolution plans were closed/approved and 350 CIRPs are still operating under the Insolvency and Bankruptcy Code, 2016 (IBC).

Several real estate projects are failing to pay debts to creditors or, in the case of homebuyers, provide units as per buyers’ agreements. Both are urging the NCLT to initiate the resolution process so creditors can be repaid and incomplete projects completed.

Once a company/real estate developer (referred to as a corporate debtor by the IBC) is admitted to the resolution process, a legal moratorium or stay applies to all suits and proceedings against it, thus denying any potential litigant or claimant recourse outside the CIRP. The only remedy left is for creditors to file claims with the interim resolution professional within statutory prescribed timelines under the IBC.

In addition to cases before the Real Estate Regulatory Authority, a legal moratorium or stay applies on all cases, such as civil suits, and cases pending under the Consumer Protection Act, 1986 and its successor legislation, the Consumer Protection Act, 2019 (under which litigants can seek remedies including compensation against developers).

The government enacted the IBC in 2016, which redefined the existing insolvency and bankruptcy regime. It has since regularly updated the IBC by bringing in new amendments, including adding homebuyers to the category of creditors so they can be treated on par with financial creditors.

In 2020, the IBC was amended to include a second provision in section 7(1) to empower homebuyers to jointly initiate a CIRP against erring builders with a filing prerequisite of not less than 100 allottees under the same real estate project, or not less than 10% of the total number of allottees under the same real estate project.


(1) Committee of creditors. The interim resolution professional constitutes a committee of financial and corporate creditors after assessing its financial position to reconcile all received claims against the corporate debtor and prepare a resolution plan. The success of any resolution plan depends on garnering sufficient votes from the committee of creditors (CoC) and the decision is likely to be driven by the CoC’s composition. The Insolvency and Bankruptcy Board of India (IBBI) has said since CoC decisions impacted on the life of a company and consequently its stakeholders, they needed to be fair and transparent.

In an August 2021 discussion paper, the IBBI pointed out instances where the conduct of a CoC or financial creditors was questionable. For example, in M/s Andhra Bank v Sterling Biotech Ltd & Ors, absconding and ineligible promoters attempted to take over the company in the guise of a one-time settlement with the approval of a 90.3% vote share of the CoC. In Bank of Baroda v Mr Sisir Kumar Appikatla & Ors, the CoC’s resolution plan was rejected on the grounds it was a ploy to gain control of the corporate debtor by the person who had pushed it into insolvency. In the CIRP of Varrsana Ispat, the lead financial creditor recovered debt from the company’s account during a moratorium and pressured the liquidator into paying them INR260 million against the NCLT’s instructions.

In light of such cases, the IBBI proposed establishing “a code of conduct for CoCs that shall elevate accountability and responsibility” and ensure transparency in their functioning. The IBBI’s draft code requires that CoC members maintain integrity in the discharge of their roles and functions under the IBC, not misrepresent any facts or situations, refrain from getting involved in action that is detrimental to the IBC’s purpose, maintain fairness in decision making, disclose details of any conflicts of interest, not adopt illegal or unfair means, co-operate with a resolution professional, and not acquire any assets of the corporate debtor without disclosure to stakeholders.

(2) Hindrance in the bargaining process. When a project’s construction has been severely delayed, a homebuyers’ group may form a majority, and any CoC decision would depend heavily on their consent. Corporate lenders that generally provide 60%-80% of finance would then find it difficult to take decisions that would favour maximum recovery of their debt (generally through selling defaulting developers’ assets). The objective of financing banks would be recovery, while homebuyers would like the project completed. Including homebuyers as financial creditors provides a forum for negotiation between homebuyers and other secured creditors for an effective resolution of the corporate debtor, but that introduces the hold-out problem, where negotiations can be hampered due to non-alignment of incentives between the two main classes of creditors – homebuyers and secured creditors. It is challenging for interim resolution professionals to decide how to efficiently allocate resources between construction and payment to secured creditors.

(3) A difficult task to file petitions. A buyer faces difficulties obtaining contact details of others invested in a project given the prerequisites of more than 100 allottees, or more than 10% of allottees, under the same project to meet the threshold for initiating proceedings under the IBC. By the time a buyer locates other homebuyers, which will be time consuming, the time to file a claim petition may have lapsed. It would be difficult for homebuyers to track every sale and thus practically impossible to initiate proceedings under the IBC.

(4) Single representation. The IBC amendment that designated homebuyers as financial creditors also introduced provisions for class representation and voting. Section 25A was added to the IBC, which provided for an authorised representative to be elected to represent the class in the CoC. The authorised representative was required to obtain voting instructions from each member of the class beforehand, and vote in accordance with those instructions. As the IBC provides for a single representative to represent the entire group of homebuyers, it is difficult to represent a multiplicity of views in the CoC. The IBC class voting provisions do not allow for a multiplicity of views to be represented through the voting mechanism. Consequently, homebuyer groups tend to seek to influence the process by approaching the NCLT, resulting in increased litigation and delays to the resolution process.

(5) Delays in resolutions. For the CIRP, the IBC prescribed a strict timeline of 180 days, extendable by 90 days at the discretion of the adjudicating authority. That was further extended to 330 days by an amendment to the IBC in 2019. However, the IBBI’s reports suggest the average time taken for CIRPs that resulted in resolution plans was 406 days (excluding time permitted by adjudicating authorities). Those that ended up in liquidation took an average of 351 days for conclusion. Many cases took much longer. A consequence of the delays has been more liquidations than resolution plans. The delays in most cases were caused by repeated judicial interventions, such as in Amparapali and Unitech.

(6) Threat of liquidation. Compulsory liquidation may not apply equally to both classes of creditors if resolution cannot be achieved within the statutory timeframe. Homebuyers may not be treated equal to lenders because they are categorised as unsecured creditors while financing lenders having charge on the assets are categorised as secured creditors. Hence homebuyers fall below secured lenders in getting their money back from the sale of builders’ assets in the liquidation process. The interests of creditor banks and homebuyers often clash when real estate companies fail to complete projects on time and repay loans, and both start legal action against the developer, depending on accounting rules and contractual aspects in various states. Thus, the threat of liquidation is applied disproportionately to secured lenders and homebuyers favouring liquidation rather than attempting resolution. In Jaypee Kensington Boulevard Apartments Welfare Association v NBCC (India) Ltd (2021), in response to the particularly susceptible position homebuyers find themselves in during liquidation, the court evolved a judicial principle that liquidation should be considered only as a last resort for real estate disputes involving large numbers of homebuyers.


Real estate has become the second-largest sector for filed insolvency petitions. Although homebuyers have protections under the code, the CIRP process is long and arduous and possibly without resolution. Concurrently buyers need to repay their individual home loans. Before taking adverse action against developers, the authorities need to ensure buyers are protected. Equally for secured creditors, a delay in resolution reduces the value of corporate debtors’ assets and increases their losses.

The IBC model provides that a company’s business be continued irrespective of the insolvency resolution process. The model also applies to real estate, resulting in the company continuing to build and deliver homes despite CIRP, and enabling cash flow to settle homebuyers’ claims.

There are concerns that difficulties in obtaining timely resolution may discourage investment in future real estate projects by secured creditors and homebuyers.

Real estate companies face difficulties resolving claims under the IBC, but the IBC’s structure can be sustainable for the real estate sector. To meet the challenges faced by homebuyers in real estate insolvency, the IBC may need to be further developed to increase their confidence.

VINEETA BANSAL is an advocate practising in Delhi High Court.