India’s real estate sector is witnessing a major shift as the insolvency landscape undergoes a transformation aimed at safeguarding homebuyers’ interests. In the past few years, significant strides have been made to ensure homebuyers receive the protection they deserve during the insolvency resolution process.
Previously, real estate insolvency processes lacked a clear framework, leaving homebuyers vulnerable. However, legislative and judicial reforms have reshaped this narrative, ushering in a more equitable approach to resolving issues faced by homebuyers and developers alike.The inclusion of homebuyers as financial creditors under the Insolvency and Bankruptcy Code (IBC) of 2016 marked a significant milestone in this journey. Prior to the amendments, homebuyers had no legal standing in the insolvency process. However, the introduction of the Insolvency and Bankruptcy Code (Second Amendment) Act in 2018 changed this, classifying homebuyers as financial creditors and treating their dues as financial debts. This was further supplemented by the 2020 amendment, which set clear thresholds for homebuyers to initiate Corporate Insolvency Resolution Process (CIRP). Homebuyers, either jointly or individually, now have a voice in the process, a crucial step toward greater fairness in the real estate sector.
Despite these advancements, challenges remain in the smooth execution of insolvency procedures. Real estate projects often involve complex networks of interconnected companies, making the resolution process tricky. In response, the judiciary and regulatory bodies have adopted innovative solutions. The National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) have repeatedly intervened to clarify how insolvency proceedings should be structured. Their efforts have introduced concepts like the consolidation of CIRPs, which allows the combination of insolvency processes across interconnected companies, helping to address the synergies between them. The NCLAT has been instrumental in allowing the consolidation of insolvency cases, particularly in instances where multiple companies share common assets or directors.
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One of the most groundbreaking developments in this field has been the introduction of reverse CIRP. This concept, first implemented by NCLAT in the case of a real estate project in Winter Hills, has allowed developers to act as lenders to ensure project completion without external interference. This approach helps ensure that homebuyers receive their homes while simultaneously protecting developers from liquidation. The courts have further refined this concept, emphasising the importance of prioritising homebuyers over institutional creditors, even though reverse CIRP has not been as widely adopted as other methods.
Another notable shift has been the concept of project-wise CIRP, where individual projects, rather than entire companies, are subject to insolvency resolution. This model helps to prevent the disruption of ongoing projects that are financially viable and protects homebuyers’ interests. This approach was first advocated by the NCLAT and has since gained traction, with the Supreme Court recognising its practicality. The Insolvency and Bankruptcy Board of India (IBBI) has also stepped in, publishing amendments that reflect this change. These amendments, which include provisions for project-specific bank accounts and separate resolution plans, represent a significant leap forward in the treatment of real estate insolvencies.
The latest regulatory changes reflect the growing focus on ensuring homebuyers’ rights during insolvency. In February 2025, IBBI introduced new regulations that empower resolution professionals to hand over completed units to homebuyers during the insolvency process. This shift in policy comes after years of judicial precedents and the recognition that the sale of completed units is a crucial part of maintaining the going concern status of the corporate debtor. Furthermore, new amendments allow for the participation of land authorities in insolvency meetings, ensuring that regulatory and development concerns are addressed early in the process.These reforms are seen as an important step toward stabilising the real estate sector and offering much-needed relief to homebuyers who have often been caught in the limbo of unfinished projects.
The real estate sector in India has been marked by delayed possession and stalled projects, with an estimated 4.12 lakh dwelling units, worth ₹4.08 lakh crore, trapped in insolvency. The successful resolution of these distressed units would provide a significant boost to economic activity and contribute to the country’s growth.While the government continues to explore the possibility of establishing a dedicated insolvency framework for the real estate sector, the ongoing amendments to the IBC and the proactive judicial involvement have begun to alleviate some of the pressures homebuyers face. However, despite these positive developments, the path to full resolution remains challenging. Homebuyers, who typically have most of their savings tied up in a single project, continue to face significant disadvantages compared to institutional creditors. As the real estate insolvency landscape evolves, it is essential for further legislative and regulatory measures to level the playing field and ensure that homebuyers’ interests remain protected.
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Transforming Real Estate Insolvency in India
