Can Homebuyers Still Get a RERA Refund After a Project Enters Insolvency? NCLT Mumbai Explains

Mumbai: For homebuyers stuck in delayed or stalled housing projects, the question of whether they can simply ask for their money back can become complicated once the developer enters insolvency proceedings.

A recent order from the Mumbai bench of the National Company Law Tribunal (NCLT) has highlighted this issue, holding that an individual homebuyer cannot necessarily pursue a separate refund under the Real Estate (Regulation and Development) Act, or RERA, when the claim is inconsistent with a resolution plan approved through the insolvency process.

The matter involved four homebuyers of Spenta Enclave’s Altavista project, who had sought a refund after the developer failed to deliver possession. They argued that their entitlement to seek a refund under Section 18 of RERA, which provides remedies in certain cases of delayed possession, should continue to protect them even after the project entered insolvency.

The NCLT, however, emphasised that once insolvency proceedings are underway, claims have to be dealt with through the collective framework established under the Insolvency and Bankruptcy Code (IBC).

What did the Mumbai NCLT say?

The tribunal observed that the insolvency process is designed around the collective resolution of claims and the balancing of interests among different stakeholders.

According to the order, the homebuyers’ claims had already been admitted as part of the Corporate Insolvency Resolution Process (CIRP). Therefore, their rights were to be determined by how those claims were treated under the resolution plan approved by the Committee of Creditors (CoC).

The tribunal rejected the argument that the resolution plan must independently incorporate the individual buyers’ refund rights under Section 18 of RERA in the manner they had sought.

A key factor in the decision was Section 238 of the IBC, which provides that the Code will prevail over other laws where there is an inconsistency.

In simple terms, once a real estate project moves into the insolvency framework, an individual buyer may not be able to step outside that process and demand a separate remedy if doing so conflicts with the resolution plan.

Why this matters to homebuyers

For someone who has invested years of savings in a home that has been delayed, the instinct may be to seek a refund through RERA rather than wait for an insolvency process to conclude.

The Mumbai NCLT order shows why that approach can become more complicated once insolvency proceedings have started.

If a resolution plan has been approved and provides a particular manner of dealing with homebuyers’ claims, an individual buyer cannot necessarily insist on a different outcome if the requested refund is inconsistent with that plan.

This does not mean that homebuyers automatically lose their rights when a developer becomes insolvent. Instead, the order reinforces that those rights must be considered within the insolvency framework once the project comes under the IBC.

What happens when a new developer takes over?

Another important aspect of the order concerns the developer who takes over a stalled project through insolvency proceedings.

Homebuyers may naturally expect the incoming developer to honour every promise and contractual condition made by the original developer. However, the NCLT indicated that this cannot automatically be assumed.

A successful resolution applicant taking over a troubled project is not necessarily required to inherit every contractual obligation of the previous developer, particularly where the resolution plan provides a different treatment of the claims.

The exact rights and obligations will therefore depend on the terms of the approved resolution plan and the applicable insolvency framework.

The collective decision becomes important

One of the central features of insolvency proceedings is that claims are dealt with collectively rather than through separate arrangements with every individual creditor.

Homebuyers are recognised as financial creditors under the IBC. Their claims can be submitted to the resolution professional, while their interests are represented through an authorised representative in the insolvency process.

This means that an individual buyer’s preferred outcome may not always be the same as the outcome ultimately approved for the homebuyers as a class.

For example, some buyers may want possession of their flats, while others may prefer a refund. The resolution process has to address these competing interests within the framework of the resolution plan.

Does the order mean RERA protection is gone?

Not necessarily.

The ruling should not be read as saying that RERA no longer protects homebuyers. Rather, it clarifies that when the provisions of RERA come into conflict with an approved insolvency resolution plan, the provisions of the IBC can take precedence because of Section 238 of the Code.

Legal experts have also pointed out that the ruling needs to be understood in the context of insolvency proceedings rather than as a blanket removal of homebuyers’ RERA rights.

Once insolvency begins, buyers therefore need to pay close attention to the CIRP, the filing and admission of their claims, and the way the proposed resolution plan intends to treat those claims.

What should homebuyers watch for?

For buyers caught in an insolvent real estate project, understanding the resolution plan becomes particularly important.

They should determine whether the plan proposes completion and possession, a refund, compensation, or another form of settlement. They should also verify that their claims have been properly filed and admitted during the insolvency process.

The authorised representative mechanism is another important part of the process because it provides a channel through which homebuyers, as a class of creditors, can participate in decision-making.

Homebuyers also have legal avenues to challenge certain decisions through the appellate framework, including proceedings before the National Company Law Appellate Tribunal (NCLAT) and, where applicable, the Supreme Court.

The bigger picture for stalled housing projects

The NCLT Mumbai order highlights the difficult balance between individual homebuyer remedies and the larger objective of rescuing a financially distressed real estate project.

For a buyer who has waited years for possession, a refund may appear to be the most straightforward solution. But insolvency law is structured around finding a collective resolution that can potentially revive the project and address the claims of multiple stakeholders.

That can create situations where the remedy preferred by one buyer does not match the solution approved for the project as a whole.

The latest order therefore provides an important reminder: once a real estate project enters insolvency, homebuyers need to look beyond an individual RERA claim and understand how their rights and claims are being handled under the IBC.

The outcome for each buyer can ultimately depend on the facts of the case, the status of the insolvency proceedings and, most importantly, the terms of the resolution plan approved for the project.

News source: Information for this article was gathered from a variety of reliable news outlets.