The Insolvency and Bankruptcy Code, 2016 (IBC) has met with success since its introduction, steadily reshaping India’s insolvency landscape. By June 2025, about 8,492 cases had entered the Corporate Insolvency Resolution Process (CIRP), 77.56 per cent of which have concluded, with 44.31 per cent ending in resolution, settlement, or withdrawal, rather than liquidation. This means that companies and creditors are increasingly finding ways to preserve value, reflecting growing maturity in the system.
However, the IBC faces equally demonstrated lacunae which need redress. The latter include the needs of the homebuyers when a developer (as a group or a project-specific Special Purpose Vehicle) enters insolvency.
Limits of IBC
Homebuyers are necessarily interested in project completion and possession of their respective homes. A successful resolution plan holds value to them only to the extent that this aim is achieved. We clarify that no distinction has been drawn between first-home or primary-residence buyers, and so-called ‘investors,’ as in our view, such a categorisation would ultimately work to the detriment of genuine homebuyers.
Following the plight of homebuyers witnessed during high-profile insolvencies such as those of the Amrapali Group and Jaypee Infratech, the Insolvency and Bankruptcy (Amendment) Act, 2018, expressly recognised homebuyers as financial creditors, as opposed to operational creditors. Consequently, homebuyers have representation on the Committee of Creditors (CoC), and avail related rights. However, their place in the waterfall mechanism remained uncertain, whether in terms of receiving the value of their prospective home or by treating the home as the underlying security.
As often happens in our jurisdiction, courts were approached to address these issues. In Indiabulls Asset Reconstruction Company Limited v. Ram Kishore Arora and Ors (2023), the Supreme Court recognised that a single, stalled project should not derail an entire, otherwise viable corporate entity, and ruled that insolvency proceedings should be primarily ‘project-specific.’ This follows the principle of project specific registration under the Real Estate (Regulation and Development) Act, 2016, by the Real Estate Regulatory Authority (RERA).
The NCLAT conceptualised a ‘reverse CIRP’ in Flat Buyer’s Association v. Umang Realtech through IRP & Others (2020) allowing the original developer, under the court (NCLAT) supervision, to step in as a lender and finish the stalled projects. While this is a useful innovation, it is ad hoc and so creates uncertainty, and conflicts with Section 29A of the IBC, which bars defaulting promoters and related parties from regaining control of the company.
Given that the structural issues affecting the construction-development sector continue to adversely affect projects, homebuyers continue to press for statutory intervention to address the challenges they face in the insolvency of a developer. The Insolvency and Bankruptcy Code (Amendment) Bill, 2025, tabled in the Lok Sabha on August 12, 2025, seeks to address these, and we assess the Bill in this context.
Proposed changes
In Vidarbha Industries v. Axis Bank (2022), the Supreme Court held that an application to initiate the IBC proceedings may be rejected for subjective “good reasons.” This created uncertainty, which the 2025 Bill addresses by proposing to amend Section 7, mandating that an application must be admitted in the case of: (i) default by the entity concerned; (ii) application being complete; and (iii) no pending disciplinary case against the insolvency professional. The clarity is welcome, especially to homebuyers. Again, addressing the interests of stakeholders, the 2025 Bill proposes that IBC proceedings can be withdrawn only with the approval of 90 per cent of the CoC, so as to preclude withdrawal before the CoC is formed, and before the first resolution plan is invited. This engenders transparency by precluding closed-door limited settlements to the detriment of inter alia homebuyers.
The 2025 Bill widens the definition of a resolution plan to allow asset-level or project-wise sales. This allows investors to choose and revive viable projects to the exclusion of others. This is balanced by a new Group Insolvency framework which allows related entities to be resolved together rather than in isolation, all of which is crucial for the homebuyers. The process allows for a viable project to be addressed without the continued stress of unviable projects and liabilities and, equally, allows for a situation where an otherwise unviable project can also be completed.
The 2025 Bill introduces a Creditor-Initiated insolvency process empowering creditors holding a majority stake to pursue resolution outside court; effectively a commercially pragmatic ‘work out.’
Finally, for present purposes, the Bill strengthens the role of the Insolvency and Bankruptcy Board of India (IBBI) to set standards of conduct for creditors’ committees, discipline service providers, inspect and investigate complaints as also address requisite matters through a disciplinary committee, and levy higher penalties. All this, if implemented as envisaged, should aid transparency and governance while disincentivising dilatory tactics, all of which balance the field and give homebuyers meaningful recourse.
Gains and gaps
While the new Bill addresses homebuyers’ requirements, it does not propose a bespoke regime for the construction-development sector nor does it, as it cannot, address systemic issues facing the sector. Specifically, homebuyers’ status remains ambiguous as unsecured creditors and even the best and most bona fide of developers face chronic liquidity shortages and a maze of regulatory delays.
Homebuyers are still not treated as secured creditors, despite hopes to the contrary. Homebuyers rarely have mortgages or charges registered, and they rely on contracts or RERA protections. However, the Bill limits security interest to agreement-based mortgages and pledges, leaving homebuyers largely unsecured. Thus, a broader definition is needed to safeguard their interests.
The Bill overlooks the role RERA can play in strengthening the IBC. A practical step such as requiring resolution professionals to use RERA databases to verify homebuyers, and speed up authorised representatives’ appointments has been ignored. The focus needs to be to ensure RERA’s cooperation to help resolution professionals through a statutory mandate.
The Bill does not explore the effect of RERA-compliant projects. Recently, the Supreme Court in Mansi Brar Fernandes v. Shubha Sharma (2025) held that the IBC is to be invoked as a last resort to secure revival and completion of viable projects, and RERA remains the primary forum for homebuyers’ grievances. It may be worthwhile to note that while RERA compliance signals financial discipline, it cannot guarantee solvency.
Market shocks and funding shortages can push RERA-compliant projects into distress. The standout issue is that once the IBC is invoked, a Section 14 moratorium halts RERA proceedings, leaving homebuyers remediless outside insolvency. The better approach may be to treat RERA compliance as a positive factor in assessing viability, not as a ground to exempt projects from CIRP.
The Bill may have further explored ways to incorporate judicial endeavours like project-wise CIRP and reverse CIRP, which have helped adapt the rigid IBC framework to the real estate sector. Equally notable is the absence of a statutory revival fund for distressed projects, a measure that could have offered vital support to stalled developments, as also suggested by the Supreme Court in Mansi Brar.
Both writers are Partners, Bharucha & Partners. Ms Jaisingh is Practice Lead, Disputes Practice Group, and a multi-faceted litigator specialising in commercial disputes. Founded in 2008, Bharucha & Partners is a full-service law firm, catering to Fortune 500 companies, MNCs, PSUs, and not-for-profits.