Whether Home Buyers Are Financial Creditors Under The IBC?

Published date27 November 2023
Subject MatterLitigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Trials & Appeals & Compensation
Law FirmMajmudar & Partners
AuthorMr Mustafa Kachwala and Ketaki Pansare


Recently, in the case of Vishal Chelani & Ors. v. Debashis Nanda (Civil Appeal No. 3806 of 2023), India's Supreme Court (SC) ruled on the interface of the Insolvency and Bankruptcy Code, 2016 (IBC) with the Real Estate (Regulation and Development) Act, 2016 (RERA).

Factual background

The appellants, home buyers, invested in a real estate project developed by Bulland Buildtech Pvt. Ltd. (Developer). The Developer faced delays and did not complete the project in time. Aggrieved, the home buyers approached the Uttar Pradesh Real Estate Regulatory Authority and obtained a decree for a refund with interest. Simultaneously, proceedings were initiated against the Developer under the IBC, and a resolution plan was put forth. However, a crucial issue surfaced from the resolution plan - how to distinguish between home buyers who sought remedies under the RERA and those who did not? This led to disparate terms, and home buyers not seeking RERA remedies enjoyed 50% better conditions than those that did.

Dissatisfied with the resolution plan, the appellants contested it before the National Company Law Tribunal (NCLT). The NCLT rejected the application. In appeal, the National Company Law Appellate Tribunal also upheld the resolution plan, deeming it unflawed and not warranting interference. Consequently, the appellants filed an appeal in the SC.


The question before the SC was whether there should be differential treatment under the IBC for two categories of home buyers. The crux of the matter lay in the treatment of home buyers who sought remedies under the RERA as compared to those who did not, and whether the latter could be classified as "financial creditors."

Legal framework

To address this question, the SC delved into the key provisions of the IBC.

  1. Section 5(7) defines a "financial creditor" as any person to whom a financial debt is owed.
  2. Section 5(8)(f) specifies that financial debt, including amounts paid by allottees under real estate projects, shall be deemed to have the commercial effect of "borrowing."
  3. Section 238 of the IBC reinforces the primacy of IBC...

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