Can Homebuyers Seek a RERA Refund After a Real Estate Project Enters Insolvency?

• RERA refund claims may be affected by an approved insolvency resolution plan.
• Homebuyers participate collectively in the insolvency process through their authorised representative.
• A new developer may not automatically inherit every contractual obligation of the original builder.

The Mumbai bench of the National Company Law Tribunal (NCLT) has ruled that an individual homebuyer may not be able to pursue a separate refund remedy under the Real Estate (Regulation and Development) Act, 2016 (RERA), when that claim is inconsistent with an approved insolvency resolution plan.

The matter involved four homebuyers in Spenta Enclave’s Altavista project who sought a refund after possession of their homes was not delivered as expected. The buyers relied on Section 18 of RERA, which provides certain remedies, including refund with interest, in cases involving failure to hand over possession. The tribunal examined whether those individual rights could override the resolution plan approved during the project’s insolvency proceedings.

The NCLT Mumbai bench emphasised that insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC) operate through a collective resolution mechanism. Once a resolution plan is approved, individual claimants generally cannot demand treatment outside the framework of that plan simply because they have a separate contractual or statutory remedy.

A key factor is Section 238 of the IBC, which gives the Code overriding effect where there is an inconsistency between the IBC and another law.

The tribunal noted that the homebuyers’ claims had already been admitted as part of the Corporate Insolvency Resolution Process (CIRP). Their claims were therefore subject to the manner in which the approved resolution plan dealt with homebuyer interests.

In practical terms, this means a buyer cannot necessarily insist on a separate refund if doing so would conflict with the resolution plan approved through the insolvency process.

The tribunal rejected the argument that the resolution plan was required to separately incorporate the buyers’ Section 18 RERA refund rights in the manner they had sought.

The order stressed that the insolvency process is designed around collective resolution of claims and balancing the interests of different stakeholders. Since the applicants’ claims were already admitted in the CIRP, the tribunal held that they could not seek an individual remedy outside the insolvency framework when it conflicted with the approved plan.

The ruling also highlights an important point for buyers dealing with stalled projects: a successful resolution applicant taking over a project does not automatically become responsible for every obligation and contractual promise made by the previous developer.

The order is significant because real estate insolvency cases often involve hundreds or thousands of homebuyers, each with different financial and contractual circumstances.

When a project enters insolvency, homebuyers are treated as financial creditors under the IBC. Their claims can be submitted to the resolution professional, while their interests are represented collectively through an authorised representative.

Therefore, a buyer who wants a refund cannot assume that a standalone RERA proceeding will necessarily result in an individual exit once the insolvency process has progressed and a resolution plan has been approved.

The practical question for buyers becomes: What does the approved resolution plan provide for their claim? Depending on the plan, the proposed resolution may involve possession, payment, restructuring of claims or another form of settlement.

Legal experts also point out that this does not mean RERA protection disappears when insolvency begins. Rather, the available remedy has to be considered alongside the IBC framework and the stage reached by the insolvency proceedings.

For buyers caught in an insolvent real estate project, the first step is to determine whether their claim has been properly filed and admitted in the CIRP.

They should also review the resolution plan carefully to understand:

• Whether the plan provides for completion and possession of the project.
• How outstanding homebuyer claims will be settled.
• Whether a refund mechanism has been provided.
• What happens to interest or other contractual claims.
• What obligations are being assumed by the incoming developer.
• Whether the plan has already received approval from the relevant authorities or tribunal.

Homebuyers should also participate in the collective insolvency process through the authorised representative representing their class.

According to legal experts cited in the matter, homebuyers continue to have procedural safeguards under the IBC, including the ability to submit their claims, participate through their authorised representative and challenge certain decisions through the appellate mechanism where legally available.

The ruling provides further clarity on the relationship between RERA and the IBC when a real estate project enters insolvency.

The central takeaway is that an individual homebuyer’s statutory or contractual claim cannot automatically be treated separately from an approved insolvency resolution plan. Where the two conflict, the insolvency framework can take precedence because of the overriding provisions of the IBC.

For homebuyers, this makes early participation in the insolvency process particularly important. Once a resolution plan has been approved, the scope for pursuing an individual remedy that conflicts with that plan may become significantly narrower.

Homebuyers involved in an insolvency-bound or already insolvent project should check the project’s CIRP status, verify that their claim has been filed and admitted, and examine how the resolution plan proposes to address their interests.

They should also seek professional legal advice before deciding whether to pursue a RERA refund, challenge a resolution plan or accept the settlement offered under it. The outcome can depend on the specific facts of the project, the stage of insolvency proceedings and the terms of the approved resolution plan.

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