Inclusion of Homebuyers as Financial Creditors & Increasing the Threshold: Bridging the RERA and IB

This article has been written by Naman Sharma, pursuing B.A. LL.B (Hons) from Institute of Law Nirma University, Ahmedabad.


The primary consideration shall be given to the fact that why IBC came into being and what are the major areas it deals with. It is necessary to understand that prior to the advent of the Code there were multiple and overlapping laws which dealt with the issues pertaining to the financial failures and insolvencies of companies and individuals. There was also a multiplicity of forums that were present at such times.

The resultant of the same only led to chaos and problems as there was no lucidity in the laws pertaining to the subject and the multiplicity of forums only added to the chaos. It was pursuant to these problems that the reforms in the insolvency sector were thought over by the experts and thence was the Insolvency and Bankruptcy Bill introduced in the year 2015. The Bill was drafted by an expert committee named Bankruptcy Law Reforms Committee under the Ministry of Finance.

The Bill was cleared from both the houses and took the form of the Insolvency and Bankruptcy Code which became the law of the land in the year 2016. It led to the clubbing and consolidation of all the laws pertaining to the insolvency of partnership firms, companies and individuals and along with the same aims at providing rime bound resolution of insolvency and bankruptcy issues through limited forums. Now, it becomes pertinent to move to the main issue of the research article which is the inclusion of homebuyers in the IBC.

The whole problem pertaining to the homebuyers and the issue of them being included in the Code arose when many of the homebuyers were left without any redressal and help due to them not getting their dream homes on time even after the whole of their money was given into such projects. It certainly shall be attributed to the lacunas on the side of the developers and builders who failed to perform their duty and denied the homebuyers from timely possession of their homes. The classic case for the same was the Jaypee Infratech Project case in which there were thousands of people who invested their money but were left in the lurch after neither were they provided timely possession of their houses nor were they left with any recourse.

Many of these homebuyers moved to NCLT, some chose the path of moving to the Apex Court where they rightly claimed that if insolvency proceedings are initiated against the Jaypee Infratech they will get nothing in their hands as they are the ones who will be the last in the list of beneficiaries from such insolvency proceedings. Pursuant to this, there was stay imposed by the Apex Court on the initiation of insolvency proceedings. The main issue here was that the homebuyers who have put their hard-earned money in such projects and have paid the major chunk of money out of the total sum are not treated as secured creditors nor as financial or operational creditors thus they shall be among the last people whose claims will only be fulfilled after all the other claims are being addressed. Hence this concern led the people in total dismay and pain.

A similar thing happened in the case of Amrapali Group Projects, where around 41,000 buyers moved the Supreme Court in a similar fashion where the Amrapali Group failed to give timely possession to the buyers. The SC in this case asked the Developer to devise out a plan to provide timely possession to the homebuyers. These are the cases which have always had a deep impact on the homebuyers who are only left with agony and pain after their hard-earned money is just wasted.

Inclusion of Homebuyers in the IBC

After collection of a significant amount of money from the homebuyers, the resultant what they got was nothing but only a place at the end of the queue in case the company got liquidated. It is the lacuna pertaining to the vulnerable situation of the homebuyers that has led to the wave of resentment among the homebuyers and has also led to the formation of the Insolvency Law Committee.

They released a report in March 2018 which was the first time when there was a recommendation that the definition of Financial Creditors shall be inclusive of the homebuyers. Thus, it was the first instance when the widening of the definition of Financial Creditors was brought into the picture. The ordinance for the same was passed by the President on 6th June 2018 and from then on the Homebuyers are included in the definition of Financial Creditors. It becomes pertinent to understand as to what the meaning of financial creditors is and what impact has the inclusion of homebuyers in the definition of financial creditors brought.

It is necessary for the same to primarily know as to how the term “Creditors”, “Debt” and “Financial Debt” are defined under the IBC, 2016.

  • Firstly, the definition of Creditor is present u/s 3(10) which states as - “creditor” means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder.

  • Secondly, Section 3(11) defines Debt which means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt.

  • Lastly, moving on to the definition of Financial Creditors, the same is present under section 5(7) of the code and it states that those who have “disbursed the money to the corporate debtor against the consideration for the time value of money” are the financial creditors.

On the other hand, the operational creditors as defined under Section 5(20) of the Code state that those who have established certain relation with the debtor company as that of the provider of services etc.