Conflict Between Homebuyers and Other Creditors in the Real Estate Sector During Insolvency Proceedings: A Law and Economic Analysis
By Rajbeer Singh Saluja & Bharadwaja Reddy Chintakunta
The Insolvency & Bankruptcy Code, 2016 (IBC) was enacted to consolidate and streamline insolvency proceedings in India, aiming for timely resolution and maximisation of asset value. However, its initial framework did not take into account, the unique position of homebuyers in real estate insolvency cases, leaving them without statutory recognition as creditors. This gap often resulted in financial and personal problems for individuals who had invested in underconstruction properties. The Insolvency & Bankruptcy Code (Second Amendment) Act, 2018 addressed this by conferring the status of financial creditors upon homebuyers under Section 5(8)(f), thereby granting them representation in the Committee of Creditors and voting rights in resolution processes. While this reform was a significant step towards consumer protection, practical challenges in its implementation such as coordination among dispersed creditors, high voting thresholds, and prolonged litigation have limited its effectiveness. This paper explores the statutory framework, judicial pronouncements with a special emphasis on the Supertech judgement, and economic analysis to evaluate the current regime. It further proposes reforms to enhance efficiency, ensure equitable treatment, and align the IBCs application in the real estate sector with its core objectives.
Keywords: Macroeconomics and law, Insolvency and Bankruptcy Code, Real estate, Committee of Creditors.
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