Supreme Court Directions for CoC in Insolvency Proceedings: Safeguarding Homebuyers’ Interests

Introduction

The Indian real estate sector has witnessed unprecedented turmoil over the past decade, with thousands of homebuyers trapped in incomplete projects and their life savings hanging in balance. The Supreme Court of India recently delivered a landmark judgment in Elegna Co-Op. Housing and Commercial Society Ltd. v. Edelweiss Asset Reconstruction Company Limited [1], addressing the critical intersection between creditor rights and homebuyer protection in insolvency proceedings. This decision establishes crucial safeguards for homebuyers while reaffirming the mandatory nature of admitting insolvency petitions upon default. The Supreme Court judgment clarifies the position of housing societies in insolvency proceedings and issues prospective directions to the Committee of Creditors to ensure transparency and protect homebuyers’ interests during the Corporate Insolvency Resolution Process.

The Elegna Case: Factual Background

The dispute centered around Takshashila Heights India Private Ltd., a real estate developer that had undertaken a residential-cum-commercial project titled “Takshashila Elegna” in Ahmedabad. The developer had availed financial assistance amounting to Rs. 70 crores from ECL Finance Ltd. in 2018. Following defaults in repayment, the loan accounts were classified as Non-Performing Assets on December 30, 2021. Subsequently, the debt was assigned to Edelweiss Asset Reconstruction Company Ltd. Despite entering into a Restructuring cum One Time Settlement agreement in May 2023, the corporate debtor failed to adhere to the repayment schedule, leading to the revocation of the settlement. Edelweiss ARC then filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 before the National Company Law Tribunal, Ahmedabad Bench. The NCLT initially dismissed the petition on November 6, 2024, holding that the project was viable and substantially complete, and that insolvency proceedings were being invoked merely as a recovery mechanism. However, the National Company Law Appellate Tribunal reversed this order on July 1, 2025, directing admission of the Corporate Insolvency Resolution Process and rejecting an intervention application filed by Elegna Co-operative Housing and Commercial Society Ltd. on grounds of lack of locus standi.

Mandatory Admission under Section 7 of the Insolvency and Bankruptcy Code

The Supreme Court emphatically reaffirmed that admission of a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 is mandatory once the existence of financial debt and default is established. Section 7 provides that a financial creditor either by itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. The provision states that where the Adjudicating Authority is satisfied that a default has occurred and the application under sub-section 2 is complete, and there is no disciplinary proceeding pending against the proposed resolution professional, it shall admit the application.

The Division Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan rejected the corporate debtor’s reliance on Vidarbha Industries Power Ltd. v. Axis Bank Ltd. [2], clarifying that this judgment operates as a narrow exception applicable only where there is an adjudicated claim in favor of the corporate debtor exceeding the debt owed. The Court observed that the inquiry under Section 7(5)(a) is confined strictly to the determination of debt and default, leaving no scope for equitable or discretionary considerations. Once the ingredients of Section 7, most importantly default, are satisfied, admission must follow. This position aligns with the earlier pronouncements in Innoventive Industries Ltd. v. ICICI Bank [3] and E.S. Krishnamurthy v. Bharath Hi-Tech Builders Pvt. Ltd., which established that the Adjudicating Authority has limited discretion in admitting Section 7 applications.

The Court noted that the corporate debtor possessed no adjudicated claim exceeding the default amount, and arguments regarding business viability or project status did not constitute good reasons to deny admission. The legislative intent behind the Code is to provide a time-bound resolution mechanism for insolvency, and introducing subjective considerations regarding viability would defeat this purpose. The mandatory admission framework ensures that creditors can initiate the resolution process without facing prolonged litigation over the admission itself, thereby preserving the value of the corporate debtor’s assets during the insolvency resolution process.

Locus Standi of Housing Societies in Insolvency Proceedings

A significant aspect of the supreme court judgment concerned whether a cooperative housing society formed by homebuyers can intervene in insolvency proceedings against the developer. The Supreme Court held that while individual homebuyers qualify as financial creditors, a society or association does not automatically acquire such status unless it is a creditor in its own right. The Court observed that a society is a distinct juristic entity separate from its members. Unless it has itself advanced funds, executed allotment agreements, or received allotments, it cannot claim financial creditor status. The Insolvency and Bankruptcy Code does not contemplate ad hoc or self-appointed representation at the pre-admission or appellate stage.

The Court clarified that the right to participate in Corporate Insolvency Resolution Process flows from the statute, and under Section 21(6A) of the Code, collective representation of allottees is strictly regulated through an Authorized Representative after the admission of insolvency proceedings. The provisions mandate that for financial creditors who are allottees under a real estate project, an application for initiating corporate insolvency resolution process shall be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten percent of the total number of such allottees, whichever is less. This threshold requirement ensures that frivolous petitions are not filed by individual homebuyers acting alone.

The Court emphasized that homebuyers’ societies or welfare associations are ordinarily constituted for maintenance and management of common facilities. Their office-bearers cannot litigate on behalf of allottees or claim representative status before adjudicatory fora absent explicit statutory recognition or legally valid authorization. Any contrary interpretation would impermissibly enlarge the statutory definition of financial creditor, encroach upon individual rights of allottees, and create an extra-statutory layer of representation. It would also enable errant corporate debtors to obstruct and delay insolvency proceedings under the guise of purported collective interests, an abuse expressly cautioned against in Pioneer Urban Land and Infrastructure Ltd. v. Union of India [4].

Evolution of Homebuyers as Financial Creditors

The recognition of homebuyers as financial creditors represents a significant evolution in insolvency jurisprudence. Originally, the Insolvency and Bankruptcy Code, 2016 did not explicitly include homebuyers within the definition of financial creditor or operational creditor. This lacuna created enormous hardship for homebuyers who had invested their life savings in real estate projects that subsequently went into insolvency. The landmark case of Chitra Sharma v. Union of India arose from the insolvency proceedings against Jaypee Infratech Limited, where over twenty thousand homebuyers faced the prospect of losing both their money and their homes. The Supreme Court intervened to protect their interests and directed the appointment of authorized representatives to represent homebuyers in the Committee of Creditors.

Subsequently, the legislature enacted the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, which inserted an explanation to Section 5(8)(f) of the Code. This explanation specifically included any amount raised from an allottee under a real estate project within the definition of financial debt. The constitutional validity of this amendment was challenged in Pioneer Urban Land and Infrastructure Ltd. v. Union of India, where real estate developers argued that homebuyers should be classified as operational creditors rather than financial creditors. The Supreme Court upheld the constitutional validity of the amendment, observing that the sale agreement between developer and homebuyer has the commercial effect of a borrowing. Money is paid in advance for temporary use so that a flat or apartment is given back to the homebuyer. The Court noted several distinctions between homebuyers and operational creditors, including the fact that homebuyers are vitally concerned with the financial health of the corporate debtor, consideration for the time value of money exists in real estate transactions, and documentary evidence for amounts due is available through information registered with Real Estate Regulatory Authorities.

The Pioneer judgment established that homebuyers being financial creditors are entitled to be represented in the Committee of Creditors through their authorized representative. This participation gives homebuyers a voice in deciding the outcome of the corporate debtor undergoing insolvency proceedings, including decisions regarding resolution plans and liquidation. However, the representation through authorized representatives rather than individual participation ensures that the Committee of Creditors functions efficiently without being overwhelmed by thousands of individual homebuyers.

Committee of Creditors: Powers and Responsibilities

The Committee of Creditors plays a central role in the Corporate Insolvency Resolution Process. Under Section 21 of the Insolvency and Bankruptcy Code, 2016, the Committee of Creditors comprises all financial creditors of the corporate debtor. Section 21(6A) provides that where the financial debt owed to a class of creditors exceeds one hundred, the interim resolution professional shall make an application to the Adjudicating Authority for the appointment of an authorized representative to represent such class of creditors in meetings of the Committee of Creditors. For homebuyers in real estate projects, the authorized representative mechanism ensures collective representation while maintaining the efficiency of the insolvency process.

The Committee of Creditors exercises significant powers during the insolvency resolution process. It approves the appointment of the resolution professional, approves any interim finance to be raised by the resolution professional, constitutes a committee to assist the resolution professional, and most importantly, approves the resolution plan by a vote of not less than sixty-six percent of voting share. These decisions have far-reaching consequences for all stakeholders, including homebuyers who are waiting for possession of their units. The Committee’s commercial wisdom is generally respected by tribunals and courts, and individual dissenting creditors cannot override the collective decision of the majority.

However, this concentration of power in the Committee of Creditors, which is often dominated by institutional financial creditors such as banks and financial institutions, has raised concerns about adequate protection of homebuyer interests. Institutional creditors are primarily interested in recovering their dues and may not prioritize project completion or delivery of possession to homebuyers. Resolution plans that maximize recovery for financial creditors may involve liquidation or transfer to third parties, which could delay or defeat homebuyers’ expectations of receiving possession of their units. Recognizing these concerns, the Supreme Court in the Elegna judgment issued specific directions to the Committee of Creditors to ensure transparency and protect homebuyer interests.

Supreme Court Directions to Committee of Creditors in Insolvency Proceedings to Protect Homebuyers

Recognizing the need to protect homebuyers interests during insolvency proceedings, the Supreme Court issued three crucial prospectively operating directions to the Committee of Creditors in all future cases involving real estate developers. The first direction mandates transparency regarding allottee information. The Information Memorandum prepared by the resolution professional must mandatorily disclose comprehensive details of all allottees under the real estate project. This ensures that the Committee of Creditors and potential resolution applicants have complete information about the number of homebuyers, amounts paid by them, units allotted, and possession status. Such transparency is essential for formulating resolution plans that adequately address homebuyer claims and expectations.

The second direction concerns decisions regarding possession of completed or substantially completed units. If the Committee of Creditors decides not to approve the handover of possession under Regulation 4E of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, it must mandatorily record cogent and specific reasons in writing. Regulation 4E provides that where the corporate debtor has completed construction of a real estate project and holds a completion certificate, the resolution professional may hand over physical possession to allottees who have paid the full consideration. However, the Committee of Creditors may decide not to approve such handover if it believes that possession would adversely affect the resolution process. The Supreme Court’s direction ensures that such decisions are not arbitrary and are supported by specific reasoning that can be examined by stakeholders and courts if necessary.

The third direction addresses the extreme measure of liquidation. Any recommendation for liquidation must be accompanied by a reasoned justification recorded in writing, evidencing proper application of mind and due consideration of all viable alternatives. Under Section 33 of the Code, if the Committee of Creditors decides to liquidate the corporate debtor, the resolution professional shall file an application before the Adjudicating Authority for liquidation. However, liquidation should be the last resort, particularly in real estate cases where completed or substantially completed projects exist. The requirement of recorded reasoning ensures that the Committee of Creditors genuinely explores all resolution possibilities, including project completion, partial sale, or Reverse CIRP mechanisms, before recommending liquidation.

These directions represent a significant judicial intervention to balance creditor rights with homebuyer protection. While the Code vests substantial decision-making power in the Committee of Creditors, the Supreme Court has imposed procedural safeguards to ensure that these powers are exercised transparently and with due consideration of homebuyer interests. The supreme court directions apply prospectively to all future insolvency proceedings, thereby creating a framework for more balanced decision-making that protects both creditor rights and homebuyers’ interest in real estate insolvency cases.

Real Estate Regulation and Development Act: Harmonization with IBC

The Real Estate (Regulation and Development) Act, 2016 was enacted to establish Real Estate Regulatory Authorities in each state for regulation of the real estate sector and to protect the interest of consumers in the real estate sector. Section 3 of the Act requires every promoter to register real estate projects with the Authority before advertising or selling. Section 4 mandates disclosure of comprehensive project details, approvals, timelines, and payment schedules. Section 11 obligates promoters to maintain separate accounts for each project and deposit seventy percent of amounts collected from allottees in a separate account to be used only for construction and land costs of that project.

Homebuyers have remedies under the Act for various grievances. Section 18 provides that if the promoter fails to complete or is unable to give possession of an apartment in accordance with the agreement for sale, the allottee is entitled to claim refund of the amount paid along with interest, or claim possession with compensation for delay. Section 31 empowers the Real Estate Regulatory Authority to impose penalties on promoters for violations, and Section 71 makes certain violations punishable with imprisonment and fine. These provisions create a robust regulatory framework specifically designed to protect homebuyer interests and ensure timely project delivery.

However, the relationship between the Act and the Insolvency and Bankruptcy Code has been subject to judicial examination. Section 88 of the Real Estate Act provides that its provisions are in addition to and not in derogation of the provisions of any other law for the time being in force. This suggests that remedies under the Act can coexist with other legal remedies. In contrast, Section 238 of the Insolvency and Bankruptcy Code states that its provisions shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. This creates an apparent conflict regarding which law prevails.

The Supreme Court in Pioneer Urban Land and Infrastructure Ltd. v. Union of India held that it is difficult to accede to arguments that the Real Estate Act is a special enactment which, in case of conflict, would override the Code. The Court noted that under Section 88, the provisions of the Real Estate Act are in addition to and not in derogation of provisions of any other law, whereas no similar provision exists in the Code. The Court further observed that the legislative judgment was that the Code would prevail notwithstanding any other law for the time being in force. Therefore, homebuyers can pursue remedies under both statutes, and insolvency proceedings under the Code do not automatically bar proceedings under the Real Estate Act, except to the extent the moratorium under Section 14 of the Code prohibits institution of suits or proceedings against the corporate debtor.

Challenges and Recent Regulatory Reforms

Despite legislative and judicial interventions, homebuyers in real estate insolvency cases continue to face significant challenges. The representation of homebuyers through authorized representatives in the Committee of Creditors often results in dilution of their collective voting power. Institutional financial creditors like banks and asset reconstruction companies hold substantial voting shares based on the quantum of debt owed to them, whereas homebuyer representatives may have limited voting power even though they represent thousands of individual allottees. This power imbalance means that decisions of the Committee often favor recovery for institutional creditors over project completion and possession for homebuyers.

The recent amendments to the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2025 have sought to address some of these concerns. The amendments mandate that the resolution professional prepare and submit a detailed report on the status of development rights and permissions required for project development within sixty days of appointment. This ensures that resolution applicants have accurate information about regulatory approvals and pending clearances, which is crucial for formulating viable resolution plans for real estate projects.

The amendments also allow relaxed eligibility criteria for homebuyer associations submitting resolution plans. Recognizing that homebuyer associations may not have the same financial and technical capacity as large corporate applicants, the Committee of Creditors can waive requirements for performance security and earnest money deposit for homebuyer-led resolution plans. This encourages homebuyer participation in the resolution process and prevents liquidation due to lack of resolution applicants. Additionally, the amendments require resolution professionals to invite the competent authority under the Real Estate Act to Committee of Creditors meetings, allowing regulatory authorities to provide inputs on project completion and approvals. This integration of Real Estate Regulatory Authority perspectives into insolvency proceedings represents an important step toward harmonizing the two regulatory frameworks.

Conclusion

The Supreme Court’s judgment in Elegna Co-Op. Housing and Commercial Society Ltd. v. Edelweiss Asset Reconstruction Company Limited represents a significant milestone in the evolution of homebuyer protection within the insolvency framework. By reaffirming the mandatory nature of admission upon default while simultaneously imposing transparency and accountability requirements on the Committee of Creditors, the Court has attempted to balance creditor rights with homebuyer interests. The directions regarding disclosure of allottee information, reasoned decisions on possession, and justification for liquidation create procedural safeguards that will apply to all future real estate insolvency cases.

The supreme court judgment must be viewed within the broader context of legislative and regulatory reforms aimed at protecting homebuyers in insolvency proceedings. The recognition of homebuyers as financial creditors through the 2018 Amendment to the Code, upheld in Pioneer Urban Land and Infrastructure Ltd. v. Union of India, gave homebuyers standing to initiate insolvency proceedings and participate in the Committee of Creditors. The recent regulatory amendments further strengthen homebuyer position by facilitating their participation as resolution applicants and integrating Real Estate Regulatory Authority inputs into the insolvency process. These reforms collectively reflect a policy shift toward recognizing that homebuyers are not merely unsecured creditors seeking monetary recovery but stakeholders with a unique interest in project completion and possession of their units.

However, challenges remain. The dominance of institutional creditors in the Committee of Creditors, the complexity of coordinating among thousands of dispersed homebuyers, and the tension between maximizing creditor recovery and ensuring project completion continue to pose difficulties. Future reforms should focus on enhancing homebuyer representation in the Committee of Creditors, establishing dedicated resolution mechanisms for real estate projects that prioritize completion over liquidation, and creating government-backed relief funds to support project completion when resolution plans are not forthcoming. The Supreme Court on homebuyers in cases like Elegna provides a foundation for more balanced and transparent decision-making in insolvency proceedings, but sustained legislative and regulatory attention will be necessary to fully realize the objective of protecting homebuyer interests while maintaining the efficacy of the insolvency resolution process.

References

[1] Elegna Co-Op. Housing and Commercial Society Ltd. v. Edelweiss Asset Reconstruction Company Limited & Anr., Civil Appeal No. 10261 of 2025, Supreme Court of India (2025). Available at: https://lawtrend.in/cirp-admission-mandatory-on-default-housing-societies-lack-locus-to-intervene-in-section-7-proceedings-supreme-court/ 

[2] Vidarbha Industries Power Ltd. v. Axis Bank Ltd., (2022) 8 SCC 32, Supreme Court of India.

[3] Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407, Supreme Court of India.

[4] Pioneer Urban Land and Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416, Supreme Court of India. Available at: https://indiankanoon.org/doc/118478827/ 

[5] Insolvency and Bankruptcy Code, 2016, No. 31 of 2016. Available at: https://ibclaw.in/section-7-initiation-of-corporate-insolvency-resolution-process-by-financial-creditor-chapter-ii-corporate-insolvency-resolution-processcirp-part-ii-insolvency-resolution-and-liquidation-for-corpor/ 

[6] Real Estate (Regulation and Development) Act, 2016, No. 16 of 2016.

[7] Chitra Sharma & Ors. v. Union of India & Ors., (2018) 18 SCC 575, Supreme Court of India.

[8] E.S. Krishnamurthy v. Bharath Hi-Tech Builders Pvt. Ltd., (2022) 2 SCC 367, Supreme Court of India.

[9] Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Available at: https://corporate.cyrilamarchandblogs.com/2025/03/latest-reforms-in-real-estate-cirp-strengthening-the-position-of-homebuyers/