When India’s real estate sector began facing serious financial stress, thousands of homebuyers were caught in the middle. Projects stalled midway, possession dates kept shifting, and for many families, years of savings remained stuck in unfinished homes.
For a long time, buyers had very little collective power against large developers. Most legal routes were slow and worked in isolation. That balance began to change with the introduction of the Insolvency and Bankruptcy Code, 2016 (IBC), which brought real estate disputes into a single financial resolution framework.
This blog looks at how IBC has actually played out in large real estate insolvencies, what it has meant for homebuyers, and whether it has truly corrected the imbalance between buyers and developers.
The Pre-IBC Reality: Where Homebuyers Stood
Before IBC, homebuyers had remedies, but none that addressed the full financial breakdown of a developer.
They commonly approached:
- Consumer courts
- Civil courts
- Regulatory authorities like RERA
Each forum dealt with individual complaints. While some buyers succeeded in getting favourable orders, enforcement remained weak. Developers often lacked funds, assets were already pledged to lenders, and proceedings dragged on for years.
In effect, buyers were unsecured participants in a broken system, fighting alone against well-funded real estate companies.
Entry of IBC: A Structural Shift
IBC introduced a unified process to resolve corporate insolvency. Instead of scattered lawsuits, all claims were brought under one time-bound mechanism.
Initially, homebuyers were excluded from the definition of financial creditors. This created backlash and legal challenges. In 2018, the law was amended to formally recognise homebuyers as financial creditors.
This single change transformed their legal standing.
What Being a Financial Creditor Really Means
Recognition under IBC gave homebuyers procedural power. They could now trigger insolvency proceedings and participate in crucial decisions about the developer’s future.
Their rights include:
- Filing insolvency applications
- Voting through the Committee of Creditors
- Evaluating resolution plans
However, participation usually happens through authorised representatives due to the large number of buyers involved. This often limits direct engagement and makes coordination difficult.
So while homebuyers gained a seat at the table, real influence still depends on organisation, clarity, and commercial realities.
Large Real Estate Insolvencies: What Actually Happens
Real estate insolvency is uniquely complex.
A single project can involve thousands of buyers, multiple lenders, regulatory approvals, and half-finished structures. IBC attempts to bundle all of this into one resolution process.
Banks look for financial recovery. Buyers want completed homes. New investors seek profitable revival. These goals rarely align perfectly.
IBC does not automatically prioritise possession over repayment or vice versa. Outcomes depend largely on commercial feasibility.
Key Supreme Court Interventions
Courts have played a central role in shaping how IBC applies to real estate.
In Pioneer Urban Land and Infrastructure Ltd v Union of India (2019), the Supreme Court upheld homebuyers as financial creditors. It recognised that buyer payments are a form of project financing and deserve legal protection.
At the same time, the Court warned against treating insolvency proceedings as a personal recovery shortcut.
The Jaypee Infratech insolvency further demonstrated the balancing act. While buyer representation was strengthened, secured lenders still retained major influence over outcomes.
These rulings show judicial support for buyers, but within the commercial framework of insolvency law.
The Committee of Creditors: Power and Limitations
The Committee of Creditors decides whether a company is revived or liquidated. In real estate cases, homebuyers often form the largest group numerically.
Yet practical challenges remain.
- Buyers have varied priorities
- Decision-making is indirect
- Financial institutions act more cohesively
Banks typically negotiate with greater clarity and unity. This often shapes the final resolution more than sheer voting strength.
Resolution Plans: Possession vs Money
Perhaps the biggest tension in real estate insolvency is between home completion and monetary recovery.
Most resolution plans attempt a combination of both.
- Project completion through new developers
- Delayed but structured handovers
- Partial refunds or haircuts
For many families, finally receiving their homes after long delays feels like a victory, even if timelines stretch further. For others seeking refunds, recovery is often limited.
IBC focuses on keeping projects alive rather than unwinding them completely.
Liquidation: The Worst-Case Scenario
When no resolution plan works, liquidation follows.
This is usually devastating for homebuyers.
- Assets are sold to repay secured creditors first
- Construction stops entirely
- Sale value rarely covers buyer claims
Although IBC aims to avoid liquidation, it remains a real risk in heavily stressed projects.
Has IBC Really Helped Homebuyers?
The impact is best understood in two parts.
Where It Has Made a Difference
IBC has:
- Pressured defaulting developers to act
- Centralised scattered legal battles
- Brought buyers into formal decision-making
- Encouraged project revival instead of abandonment
The fear of insolvency has also improved discipline across the sector.
Where It Still Struggles
At the same time:
- Proceedings often exceed timelines
- Buyer recovery remains uncertain
- Commercial priorities can outweigh consumer hardship
IBC was designed to resolve corporate failure, not to function as a consumer protection law.
Interaction with RERA and Other Remedies
IBC operates alongside RERA and consumer courts. Buyers may pursue different remedies, but once insolvency is admitted, a legal pause applies.
- All claims funnel into the insolvency process
- Individual lawsuits stop temporarily
- Recovery follows IBC priorities
This makes early legal strategy extremely important for affected buyers.
Lessons from Large Real Estate Insolvencies
IBC has reshaped behaviour across the sector.
For buyers, it offers collective strength but demands patience and coordination. For developers, financial mismanagement now carries serious consequences.
- Buyers benefit from acting together
- Developers face loss of control if defaults spiral
The law has introduced accountability where delays once went unchecked.
The Way Forward
IBC has undoubtedly changed the real estate insolvency story in India. It has forced stalled projects into structured resolution and given homebuyers formal recognition within financial proceedings.
But it has not created instant justice.
Homebuyers today have stronger legal standing, clearer processes, and better chances of project revival. Yet outcomes still depend on economic realities, asset value, and effective resolution planning.
IBC is not a perfect shield for buyers. What it offers is something equally important, a system where silence, delay, and endless litigation no longer dominate.
And in a sector long defined by uncertainty, that shift alone is meaningful.
