Defaults affecting homebuyers in real estate are not uniform; they vary widely, including cases where possession of the property has been delivered, properties are prepared but not handed over, and other similar situations causing distress to homebuyers. The 2023 Amendment focuses on protecting the interests of homebuyers during the liquidation process of Real Estate companies. Properties whose possession has been allotted to homebuyers will be excluded from the liquidation process, this is aimed at safeguarding the interests of homebuyers, ensuring that their investments are not part of the liquidation estate even if the corporate debtor (builder/developer) goes into liquidation.

Homebuyer’s interests will be protected even if the possession is transferred without official registration with the registrar. This ensures that their rights are upheld, and their units are not included in the liquidation estate. To benefit from this protection buyers must be insured that all applicable charges are paid, required legal compliances are adhered to and the instruments for transfer and possession (such as the sale deed) are consistent with the applicable laws.

In the case of M/s. Samruddhi Realty Ltd. several homebuyers entered into sale agreements in 2011, made full payments, and took possession of nearly completed villas in 2016. These homebuyers later filed an application to exclude the properties in their possession from the Liquidation Estate and sought registration in their favor. Despite the full payments made by these homebuyers, NCLT ruled on May 25, 2023, that since no sale deed was executed, the properties could not be excluded from the Liquidation Estate. This decision was affirmed by the National Company Law Appellate Tribunal (“NCLAT”), which highlighted that no security interest was created in favor of the applicants, without a registered sale deed, the homebuyers have no ownership rights, thereby denying them any relief. This case underscores the critical importance of executing a sale deed to establish ownership rights and protect the interests of homebuyers during insolvency proceedings.

The NCLAT recognized the unique challenges involved in the Corporate Insolvency Resolution Process for Real Estate Companies in India. It deliberated on whether a corporate debtor in the real estate sector could be resolved under the Insolvency and Bankruptcy Code (IBC) without the approval of a third-party Resolution Plan. These discussions led to the innovative concept of Reverse CIRP in the landmark judgment of Flat Buyers Association Winter Hills – 77, Gurgaon V. Umang Realtech Pvt. Ltd. Introduction of  Reverse CIRP has provided a pathway to protect the interests of homebuyers and creditors while offering a chance for promoters to revive their stalled projects and regain control of their companies.

This pioneering approach balances the interests of all stakeholders involved and enhances the efficiency and effectiveness of the insolvency resolution process in the real estate sector. The NCLAT’s decision in Puneet Kaur vs. K.V. Developers Pvt. Ltd. and Ors. underscores the importance of protecting homebuyers’ rights in the insolvency process. By acknowledging the limitations of public announcements due to geographical distributions and the challenges faced by middle-class homebuyers, the tribunal set a precedent for more inclusive and fair treatment of claims. The ruling ensures that even if homebuyers fail to meet the filing deadlines, their claims must still be considered if they are documented in the corporate debtor’s records. This decision significantly enhances the protection of homebuyers’ interests and promotes a more equitable insolvency process.