From Spectators to Stakeholders: The Rise of Homebuyers under the IBC
Priyanshi Jain
3rd Year, B.A. LL.B(Hons.) Nirma University
Introduction: From Sideline to Mainstream
The homebuyers had a very long journey in the India’s corporate insolvency system and it is a fascinating tale of regulatory recognition, judicial interpretation, and legislative progress. Earlier they were confined to the mere fringes of consumer forums and contract enforcement, but now homebuyers have evolved and they stand tall as financial creditors under the Insolvency and Bankruptcy Code (IBC). This shift was not merely legalistic but it also symbolises the pursuit of justice in the India’s evolving real estate sector.
This blog unfolds a central question: Can law actually ensure equality of power among asymmetric economic actors like wealthy institutional creditors, corporate debtors with complex structures, and thousands of fragmented individual homebuyers and diffused groups? The solution comes in understanding how the IBC evolved to cater to these diverse interests. The discussion covers everything from jurisprudential changes to policy innovations and recent change in legislation which is aimed at putting homebuyers in the middle of the insolvency process.
The Jurisprudential Journey: Inclusion of Homebuyers as Financial Creditors.
After a series of landmark judgments, homebuyers’ legal stance under the IBC changed profoundly. In Chitra Sharma and Ors. Vs. Union of India and Ors., (2018) ibclaw.in 102 SC, the Supreme Court acknowledged the adverse situation of homebuyers who have been left stranded by defaulting developers amid stalled real estate developments. The court damaged homeowners’ vulnerability by emphasizing how delays in possession of the house not only caused financial hardship but also infringed their right to shelter under Article 21.
The landmark decision came in Pioneer Urban Land and Infrastructure Ltd. & Anr. Vs. Union of India & Ors., [2019] ibclaw.in 13 SC, when the Supreme Court ruled that funds which are paid by homebuyers are financial debts under Section 5(8)(f) of the IBC. This judicial affirmation came from a 2018 amendment that added an explanation to Section 5(8)(f), emphasizing that homebuyers are financial creditors since they paid the consideration for a real estate asset. This reform allowed the homebuyers to join the Committee of Creditors (CoC) and vote on resolution of real estate companies. The transition from consumer litigants to insolvency creditors with voting rights, represented a theoretical shift in Indian financial jurisprudence.
From Corporate Rights to Collective Claims: Recasting Homebuyers as Financial Creditors
The inclusion of homebuyers raises major conceptual tensions within the IBC’s structure. The Code was traditionally designed for corporate debts and institutional claimants and was rooted in recovery of business but never focused on consumer protection.
The framework of “corporate personhood” continues to dominate the jurisprudence of insolvency. The prioritisation of claims, the emphasis on time-bound resolution, and the financial metrics applied often sideline the complex social stakes involved in real estate insolvency.
Homebuyers, however, have introduced an angle of “humanisation” into the usual transactional sphere of insolvency. Their claims are not just economic but they are also rooted in aspirations of housing, life planning, and family stability. The challenge is in aligning these individual-centric concerns with a framework which is originally built corporate interest. The existing framework demonstrates a cautious yet undeniable shift toward rights-oriented approach towards insolvency.
Real Estate as a Regulatory Outlier: The Need for Tailored Insolvency Norms
Real estate insolvency is not like any other project. Projects here are not like regular businesses which can be interchanged easily or could be sold. They’re amalgamation of legal approvals, land ownership rights, and agreement with individual buyers. The sector is highly regulated, with multiple government agencies supervising development approvals, land use changes and occupancy certification that allow people to move in.
The traditional CIRP mechanisms which was designed for individual business units, doesn’t perform well here, they are proved to be ineffective and often struggles to provide desired outcomes. Valuation becomes complicated due to incomplete construction. Asset resolution is difficult due to non-transferable development rights. Most critically, the consumers (homebuyers) are not mere creditors but parties to an unfulfilled promise.
As a result, standard tools of CIRP have often proved inadequate which prompts the need for sector-specific innovations.
2025 Amendments: Do They Really Empower the Homebuyers?
The recent amendments introduced in the 2025 to the CIRP regulations shows an effort to bring real estate responsiveness to the Code, as it wanted the IBC to be more in line with the realities of real estate. One of the key changes is the introduction of Regulation 4-E, which requires that resolution professionals must obtain approval from CoC before transferring the possession of property to homebuyers during the insolvency process. Although the aim is to maintain the value of asset, it may also cause delay in relief to homebuyers who are waiting for possession. Another significant change is introduction of facilitators under Regulations 16-C and 16-D, they are introduced to bridge gap for large creditor groups by representing smaller groups during CoC meetings. But since their role is limited and their fees are capped, their effectiveness depends on the implementation. The major question is – Do they actually give homebuyers a voice, or offer a mere symbolic representation? A note-worthy reform is Regulation 18(4), which allows the CoC to invite state regulators like Noida Authority or HUDA to participate during insolvency process. This can resolve compliance uncertainties and reduce disputes after the case is resolved. This step integrates developmental governance into insolvency, ensuring resolution plans are not just legally correct but also workable on the ground level. Additionally, Regulation 30-C introduces that RPs must now submit a detailed report on development rights and regulatory clearances in 60 days. These changes aim to simplify the processes and help CoC to make better decisions and reduced failure of resolution plan due to faulty due diligence. However, whether this will truly upgrade efficiency or simply add another layer of bureaucracy remains to be seen.
Collectively, these reforms try to balance procedural order with stakeholder responsiveness. But critics argue they institutionalise visibility without offering much decision-making power to homebuyers.
Homebuyers as Resolution Applicants: Legal Fiction or Real Participation?
Can homebuyers themselves become resolution applicants? Technically yes, especially through a group or association of homebuyers. However, practically there are a lot of hurdles like people have financially constraints, they do not have that kind of money to set up, they also lack legal knowledge needed to take charge. Apart from this, it’s very tough for large group of people with varying interest to come together and act smoothly.
Regulation 36-A now mandates disclosure of MSME status. For example, when homebuyers, organise themselves as MSME entities, they may get benefit from relaxed eligibility. Furthermore, the CoC has the power to waive certain conditions to allow homebuyer-led plans. Yet, this remains a matter of discretion, and homebuyer cannot demand it as a matter of right.
Collective action problems, internal disputes, and financing gaps make such participation rare. While the door is open, the threshold remains high because it’s still very difficult in practice. Real participation will depend on facilitative mechanisms like financing support, legal aid, and ready-made plan templates to guide homebuyers through the process.
A Rights-Based Critique: Homebuyers Beyond Numbers
The CIRP is more than just a financial tool, it basically creates a balance between rights and interests. For homebuyers, it’s not just about recovering money, it is about the right to shelter and security. The Insolvency Code, however, often reduces all claims to a common denominator that is financial debt, and treats everyone in the same way – just as creditors.
This creates a problem. Should institutional lenders with secured interests be equated with ordinary people risking life savings? There is a case to create a sub-class of “consumer-creditors” within the financial creditor category—those whose claims are linked to livelihood and welfare, not commercial investment of profit-making.
Recognising such differentiation can make insolvency more just, not just efficient.
Towards a Human-Centric Insolvency Code: Policy Recommendations
There is a genuine need to strengthen the position of homebuyers and therefore certain constructive reforms must be introduced such as:
- A separate CIRP framework must be established for real estate projects, which includes following rules of building, valuation norms, and tailored provisions for possession of property.
- Ensuring homebuyers a formal representation in the Committee of Creditors, not merely on-paper but through assured representation.
These reforms would align the IBC with constitutional values, economic justice and right to shelter.
Conclusion: A Step Forward, but Miles to Go
From fringe complainants to key decision-makers, homebuyers have come a long way under IBC. Earlier, they were just seen as side players. Now they have key roles and their voice is important in the process. The 2025 amendments mark a further growth of the system, embedding procedural protections to homebuyers and encourage everyone to work together.
Yet, the real test lies ahead. Will NCLT benches interpret these rules with empathy and sensitivity? Will the CoCs exercise discretion with prudence? And will state regulators step up as active participants to protect homebuyer’s interest. The IBC is no longer just about who gets paid—it now reflects how India treats its most fundamental promise: a home.
The question now is not whether homebuyers belong—but whether the system truly works for them.