Homebuyers as Financial Creditors: Allottees under the IBC

Homebuyers often pay most of the price of a flat years before possession, and when a developer fails, they are among its largest creditors. Yet when the Code was enacted, they fitted neither as financial creditors nor as operational creditors. The 2018 amendment deemed them financial creditors, giving them a seat and a vote in the committee of creditors. Later amendments and judgments then built safeguards against misuse. This note traces that development and explains how allottees participate in insolvency today.

1. The Problem and the Early Cases

• A gap in the Code. An advance paid for a flat is not a loan in the ordinary sense, and a homebuyer is not supplying goods or services, so allottees were initially treated as other creditors with no vote and little say.
• Nikhil Mehta v AMR Infrastructure, NCLAT, 2017. Buyers under assured return schemes, where the developer paid them a monthly return until possession, were held to be financial creditors because the transaction had the commercial effect of a borrowing.
• Chitra Sharma v Union of India, 2018. Concerning thousands of homebuyers of Jaypee Infratech, the Supreme Court used its powers under Article 142 to protect their interests and later directed a fresh process in which they could participate under the amended law.
• Insolvency Law Committee. Its report of March 2018 recommended that allottees be treated as financial creditors.

2. The 2018 Amendment

Figure 1: How the law on allottees developed

• Explanation to section 5(8)(f). Inserted by an ordinance of 6 June 2018 and the Amendment Act of 2018, it provides that any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing.
• Borrowed definitions. Allottee and real estate project have the meanings given in sections 2(d) and 2(zn) of the Real Estate (Regulation and Development) Act, 2016; an allottee includes a person who later acquires the unit by sale or transfer, but not a tenant.
• Scope. The deeming covers allottees of residential and commercial units alike, and is not confined to assured return schemes.

3. Pioneer Urban Land, 2019

• Validity. The Supreme Court upheld the Explanation as clarificatory and reasonable, since allottees' advances in substance finance the construction of the project (Topic 3)
• RERA and the Code. Both remedies are available; RERA's remedies are in addition to other laws, and in case of conflict the Code prevails.
• Safeguards. The developer may resist an allottee's application by showing that it is not in default, that the allottee is itself in default, or that the allottee is a speculative investor seeking to exit because of a fall in the market; section 65 also penalises fraudulent or malicious initiation (Topic 17)

4. The Threshold for Applications

• Second proviso to section 7(1). Inserted by an ordinance of December 2019 and the Amendment Act of 2020, it requires an application by allottees of a real estate project to be filed jointly by at least 100 allottees or 10 per cent of the total number of allottees under the same project, whichever is less.
• Purpose. To prevent a single dissatisfied buyer from pushing an entire company, with all its projects and buyers, into insolvency.
• Manish Kumar v Union of India, 2021. The Supreme Court upheld the threshold and its application to pending applications, which had to be brought into compliance within thirty days (Topic 3)

5. Allottees in the Committee of Creditors

Figure 2: How allottees vote as a class

• Claims. Allottees file claims as financial creditors in a class, in Form CA under the CIRP Regulations.
• Authorised representative. The interim resolution professional names three insolvency professionals in the public announcement, and the allottees select one to represent them (section 21(6A)(b) and the CIRP Regulations)
• Voting. Under section 25A(3A), inserted in 2019, the authorised representative casts the votes of the entire class in accordance with the decision of more than 50 per cent of the voting share of the class members who have voted.
• Jaypee Kensington Boulevard Apartments Welfare Association v NBCC, 2021. In approving NBCC's plan for Jaypee Infratech, where homebuyers held a dominant voting share, the Supreme Court confirmed that allottees voting as a class are bound by the decision of the class and the CoC.

6. Speculative Investors: Mansi Brar Fernandes v Shubha Sharma, 2025

Decided on 12 September 2025 by J.B. Pardiwala and R. Mahadevan JJ, the judgment upheld the NCLAT's refusal to admit applications by allottees whose agreements gave them buy-back rights and assured returns of up to 25 per cent a year. The Court held that the Code is a framework for revival, not a recovery tool for investors, and that possession of the unit is the defining feature of a genuine homebuyer.

Figure 3: Indicators of a speculative investor (not exhaustive)

• Inquiry at admission. The NCLT must examine the agreement, payment terms and conduct of the allottee and record a prima facie finding on whether the applicant is a genuine homebuyer or a speculative investor; this finding concerns only initiation and does not affect the admission of claims in the process.
• Other remedies. Speculative investors may pursue remedies before RERA authorities, consumer forums or civil courts.
• Right to shelter. The Court described the right of a homebuyer to shelter as part of Article 21, so that buying a home is not merely a commercial transaction.
• Directions. Among others: filling NCLT and NCLAT vacancies, resolving real estate insolvency project-wise as a rule, ensuring representation of allottees, escrow of project deposits, and guidelines by the IBBI in consultation with RERA authorities for real estate insolvency (Topic 36)

7. Resolution of Real Estate Companies

• Project-wise approach. Since one stalled project should not sink a developer's other viable projects, tribunals have increasingly confined the process to the defaulting project, an approach the Supreme Court endorsed as the rule in 2025.
• Plans. Resolution plans usually provide for completion of construction and delivery of units rather than cash payment, often by a new developer.
• Liquidation. If the developer is liquidated, allottees without security rank as unsecured financial creditors under section 53(1)(d)

8. Frequently Asked Questions

Can a single homebuyer file for the insolvency of a developer?

No. Since the 2020 amendment, an application by allottees of a real estate project must be filed jointly by at least 100 allottees or 10 per cent of the total allottees of the same project, whichever is less.

How does the NCLT identify a speculative investor?

By looking at the agreement and the allottee's conduct: buy-back or refund clauses replacing possession, unrealistic assured returns, special rights, refusal of possession, purchase of many units and departure from the RERA model agreement all point to speculation, as explained in Mansi Brar Fernandes (2025).

Can a homebuyer pursue RERA and the Code together?

Yes. Pioneer Urban (2019) held that the remedies coexist. If a moratorium is declared under section 14, however, proceedings against the corporate debtor under RERA cannot continue.

9. Related Topics

• Topic 7: Financial Debt and Financial Creditors. Section 5(8)(f)
• Topic 27: Creditors in a Class. Authorised representatives.
• Topic 36: Real Estate Insolvency. Project-wise resolution.