Can homebuyers get refund if project goes insolvent?

NCLT says approved insolvency resolution plans can override conflicting individual refund claims

Property Pulse

The Mumbai National Company Law Tribunal (NCLT) has clarified how homebuyer claims under the Real Estate (Regulation and Development) Act, 2016 (RERA) are treated when a real estate project enters insolvency proceedings. The matter concerns the Altavista project, developed by Spenta Enclave Private Limited in Mumbai. Four homebuyers approached the NCLT after possession of their homes was not delivered within the promised timeframe.

They sought refunds and relied on their rights under Section 18 of RERA. By that stage, however, the developer was already undergoing insolvency proceedings and a resolution plan had been approved. The Tribunal held that where an individual homebuyer’s refund claim is inconsistent with an approved resolution plan, the provisions of that plan take precedence.

Why Does IBC Take Precedence?

The key provision is Section 238 of the Insolvency and Bankruptcy Code (IBC). It provides that the IBC will prevail where there is an inconsistency with another law. The NCLT therefore held that an individual remedy available under RERA cannot be separately enforced when it conflicts with an approved resolution plan under the IBC. This distinction becomes important when a stalled project is taken over by a new developer through the insolvency process.

The incoming developer may not necessarily be required to honour every term of the agreements entered into between the original developer and individual homebuyers if those terms are inconsistent with the approved resolution plan. A resolution plan is considered within the collective insolvency framework, taking into account project completion, delivery of homes and the interests of creditors and other stakeholders.

Does This Remove Homebuyer Protection?

No. The ruling should not be read as eliminating homebuyers’ rights under RERA. Under the IBC, homebuyers are recognised as financial creditors. They can submit their claims to the resolution professional and participate in the insolvency process through an authorised representative representing the interests of the homebuyer class. The precise remedy available can depend on the stage of insolvency, the resolution plan and the facts of the individual case.

A homebuyer may have a right under RERA to seek a refund in certain circumstances. But once the project enters insolvency, that claim operates within a collective insolvency framework. If an approved resolution plan provides a different treatment, an individual claim cannot simply be enforced separately in a manner that conflicts with the plan.

What Should Homebuyers Do?

• Check whether formal insolvency proceedings have actually commenced.
  
• Ensure the claim is submitted to the resolution professional within the applicable process and deadline.
  
• Verify whether the claim has been admitted and the amount recognised.
  
• Pay particular attention to provisions covering possession, refund, interest and other compensation.
  
• Homebuyers should track the representative’s communications and participate through the mechanism provided under the IBC.