Introduction
The evolution of insolvency law in India has been shaped by the competing interests of financial creditors, operational creditors, and homebuyers, who often occupy a vulnerable position in the complex web of real estate financing. A structural shift towards a creditor driven model was introduced through the Insolvency and Bankruptcy Code, 2016 (“IBC”), yet its earlier framework failed to capture the distinctive concerns of allottees who invest substantial life savings into housing projects. This loophole in the protection generated litigation and policy debates concerning the equitable treatment of homebuyers during corporate insolvency resolution process (“CIRP”).
Despite the Supreme Court’s landmark decision in Pioneer Urban and Infrastructure ltd v. Union of India, AIR 2019 Supreme Court 4055 upholding the classification of homebuyers as financial creditors, recognising their contribution to the corporate debtor’s project, the practical hurdles are still persisting in representation, voting rights and asset distribution, leaving allottees exposed to delays and losses.
The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2025 (“2025 Amendment”) marks a step towards reformative trajectory. After the backdrop of a decade long experiment with insolvency process in the real estate sector, the further progress and the new 2025 framework attempts to reconcile competing claims through enhanced procedural clarity, and refined definitions of possessions and distribution entitlements.
The changing architecture of homebuyer protection is thus not merely a technical amendment but a substantive shift. The 2025 Amendment aims to address systematic inefficiencies observed in previous resolution processes, opaque asset valuation and underrepresentation in the Committee of Creditors (“CoC”).
Evolution of Homebuyer Protection under the IBC (2016–2024)
The evolution of homebuyer protection in IBC marks one of the most significant chapters in India’s jurisprudence. The primary intention behind the enactment of the Code was the interests of institutional creditors such as banks and other financial institutions. The homebuyers, who remained outside its protective ambit. This left the homebuyers stranded between contractual and financial claims, often without representation in the CIRP.
The recognition of this imbalance came in Chitra Sharma v. Union of India, AIRONLINE 2018 SC 1215 where the Supreme Court protected the homebuyers caught in stalled projects of Jaypee Infratech limited. It was observed that the Code, as it then stood, despite the allottees genuine financial exposure to the developer’s insolvency, offered no structured remedy. Further, this judgement led to the intervention of legislature after a lot of policy discussions.
Amid the growing crisis, Parliament introduced the Insolvency and Bankruptcy (Amendment) Ordinance, 2018, later turned into the 2018 enactment. Under Section 5(8)(f) of this amendment, it expressly included homebuyers as “financial creditors” recognising the advance paid by them while buying the flat as having the commercial effect of borrowing. This inclusion transformed it as turning point as it gave allottees a legal right to initiate CIRP and participate through authorized representative in the CoC. However, this triggered apprehension among developers who though that it could destabilize project financing and flood tribunals with homebuyer driven insolvency petitions.
These rivalled interests reached the apex court in Pioneer Urban Land and Infrastructure v. Union of India, where the constitutional validity of the 2018 amendment was challenged. The Court observed that the legislature had acted within its competence to correct a structural inequity. It upheld the inclusion of homebuyers as financial creditors and reasoned that the allottees finance the projects much like banks do, and therefore rights shall also be equal. Further, the Court also stated that tribunals should ensure that insolvency petitions are not misused as recovery tools but only used in cases on genuine defaults to maintain checks and balance.
Alongside the 2018 amendment, several procedural reforms were introduced by IBBI, which outlined the method of representation of allottees in the CoC through an authorised representation. These steps even though positive, faced a lot of challenges in implementation. Representation remained fragmented, with authorised representatives often overburdened and lacking real-time communication with thousands of dispersed allottees. The claims of homebuyers were frequently either undervalued or delayed during verification, leaving many without effective participation.
The NCLAT in started with addressing the procedural inadequacies in Flat Buyers Association Winter Hills 77, Gurgaon v. Umang Realtech Pvt Ltd, I.A No. 1987 of 2020 by underscoring that the resolution process for real estate projects must be project specific rather than companywide to protect allottee interests. These rulings demonstrate that the legal framework was gradually shifting towards recognising the unique structure of real estate insolvencies, distinct from other corporate failures.
Further, the evolution resulted in a series of consultations initiated by the IBBI in late 2024, culminating in the Discussion Paper on Streamlining the Corporate Insolvency Resolution Process for Real Estate Projects, published in November 2024 which acknowledged persistent gaps in communication, the non-participation of state Real Estate Regulatory Authorities (“RERA”) authorities, and possession specific amendments which later formed the foundation of the 2025 Amendment. Thus, the time between 2016-2014 can be referred to as the period of dialectical progression from the exclusion of homebuyers to their recognition and finally moving towards procedural maturity and empowerment within India’s insolvency system.
Analysing the 2025 CIRP Regulatory Framework
The 2025 Amendment is a significant development regarding homebuyer protection under the IBC. Notified in February 2025, these amendments are mainly intended towards real estate insolvencies, where the larger insolvency framework is often insufficient to safeguard the interests of individual allottees. These amendments aim to balance this by codifying accountability for resolution professionals, optimising participation of creditors and means for timely possession and registration.
The Resolution Professional (“RP”) now has the ability to hand over possession and further the registration of apartments or plots to homebuyers who have completed the contractual formalities. Under the 2025 Amendment, this move must meet the approval of at least sixty-six per cent of the CoC. The RP’s duty to act upon such approval is statutory and is not mere discretion, due to the provision using the word “shall”. If enforced properly, this could alleviate the plight of homebuyers who are often trapped in procedural entanglements during pending insolvency proceedings and do not receive their rightful possession.
At the same time, this safeguard requiring more than half of the CoC’s approval could lead to complications for the same class of people it attempts to protect, even though in line with other IBC thresholds. This clause may be frustrated by the institutional financial creditors who comprise the majority of the CoC though minority blocking votes. In cases where there may be potential collusion between such financial institutions and developers, as seen in the proceedings before the NCLT in Logix Infrastructure, the approval threshold can become another barrier for homebuyers.
There is no explanation of the rationale behind this voting requirement provided in the 2025 Amendment, and this could be grounds for a challenge. Additionally, the RP’s duty to hand over possession should directly flow from the allottee’s contractual compliance, not from the commercial wisdom and discretion of the CoC.
The 2025 amendment also provides for the appointment of facilitators, allowing sub-classes of homebuyers (where total numbers exceed one thousand) to seek facilitators who act as intermediaries between authorised representatives and individual creditors. This provision attempts to improve communication but could inadvertently lead to another procedural hurdle. Homebuyers would remain represented indirectly in the CoC through intermediaries, instead of as full members, and this goes against the IBC’s principle of treating financial creditors equitably.
Under the 2025 amendment, representatives from RERA may be allowed to attend CoC meetings. This brings some uniformity between IBC and real estate law, where RERA and IBC operated in parallel silos for years with well-defined scopes but overlapping roles. By including RERA officials in CoC discussions, projects would remain compliant with statutory requirements even under CoC supervision during CIRP.
Lastly, RPs are mandated to submit reports on project status, approvals, and developmental rights within sixty days of initiation under the 2025 Amendment. This aims to directly address the difficulties homebuyers often face where they do not have access to information about the progress in projects under insolvency. This regulation increases a burden to comply but creates a transparent mechanism for the stakeholders involved.
Critical Appraisal: The Continuing Challenges in Homebuyer Empowerment
Although the 2025 Amendment represents a modernized effort to correct systemic injustice in insolvency of real estate, there are still a few structural inconsistencies. The spirit behind the reform of equalizing the rights of homebuyers and institutional creditors and developers is yet to overcome the deep-rooted hierarchies of the insolvency regime.
Ranking as the most urgent is the fact that the conditionality of the rights to possession is imposed. Under Regulation 4E, the right to possession is granted to homebuyers once CoC is approved by a majority of 66 per cent. The principle underlying the right of possession as a result of a completed contractual obligation is undermined, and it rests on discretion of creditors. The regulation also states that the homebuyer is obliged to have done his part of the agreement, yet is silent on the non-performance of the developer, which is the very cause which led to the insolvency.
On the other hand, facilitators are just the liaisons between authorised representatives and sub-groups of creditors, and do not possess the actual power of voting or making decisions. This model continues to give a paternalistic attitude to homebuyers, as stakeholders in the CoC they need to be mediated.
The other challenge that is still persistent is disjointed collaboration between IBC and RERA. Inclusion of the RERA officials in CoC meetings is a good move, but its position is only observatory and not decisive in terms of the resolution plans. The regulatory convergence between IBC and the RERA is still not complete. Inter-regulatory coordination requires attendance, but it also requires common jurisdiction and parity of enforcement.
Measures of transparency and accountability imposed on RPs including the sixty-day reporting requirement are welcome, but there are weak enforcement mechanisms. There is no disciplinary sanction regime to instigate, unless non-compliance triggers action under the IBBI (Inspection and Investigation) Regulations, the reforms will be but mere statements.
It is also proposed that the reforms can be extended through acknowledging homebuyer associations as applicants of the resolution, with dispensation of burdensome eligibility and performance security requirements. This acknowledgment would turn passive beneficiaries into active resolution agents. Nevertheless, this vision will succeed only with the support of the institutions, legal clarity, simplified compliance forms of collective homebuyer bids.
The Supreme Court in Mansi Brar Fernandes v Shubha Sharma and Anr, 2025 INSC 1110 gave clear guidance on who qualifies as a genuine homebuyer under Section 5(8)(f) of the IBC. In paragraph 21, the Court said tribunals must see if the allottee meant to live in the property, if there were buy-back or assured return clauses, and if the investment was mainly for profit.
If it was speculative, the person could not claim to be a financial creditor. This test now helps prevent misuse of the Code by investors posing as consumers. It also supports the 2025 CIRP framework by keeping protection limited to genuine homebuyers. Together, the judgment and reforms strengthen fairness between allottees and developers while keeping the focus on real financial distress.
In essence, the 2025 regulatory reforms mark a clear philosophical shift towards inclusivity, yet they remain an incomplete realisation of substantive parity for homebuyers. The true test of these amendments will lie in their implementation whether they can transcend procedural symbolism and translate into tangible empowerment.
Conclusion
The new CIRP regulations by virtue of Regulation 4E signify a sincere effort to regulate India’s insolvency process for homebuyers in a more humane way. By giving possession rights and regulatory cooperation, the reforms move the code closer to fairness and inclusivity. However, the real impact will rest on the implementation of these regulations and willingness of the institutions to treat homebuyers not as peripheral creditors but as equal stakeholders. Therefore, genuine empowerment will only come when procedural equality translates into lived justice for those who invest their savings in the promise of a home.
The principles discussed in IBBI’s 2025 Liquidation Shift & SC Value Maximization directly influence how value preservation and creditor prioritisation operate in the CIRP regime governing homebuyers’ insolvency protection.