Builder Insolvency and the NCLT: Home Buyer Rights in Bangalore

A builder that cannot pay its debts may be taken into insolvency before the National Company Law Tribunal (NCLT). For a home buyer in Bangalore with a flat still under construction, that changes who runs the project and where a complaint is heard. This guide explains the buyer's legal position under the Insolvency and Bankruptcy Code, 2016 (IBC), how a claim is filed, how the process works alongside RERA and what changed in 2026.

What Insolvency Means for a Builder

The corporate insolvency resolution process, or CIRP, starts when the NCLT admits an application against a company that has defaulted on a debt of Rs. 1 Crore or more. The Bengaluru bench of the tribunal hears cases against companies registered in Karnataka. On admission, the board of the company loses control and an insolvency professional takes charge of its affairs.

Three things follow from the admission order, and each one affects a buyer directly:

• A moratorium under section 14 of the IBC pauses suits, recovery steps and other proceedings against the company
• An interim resolution professional issues a public announcement and invites claims from everyone the company owes
• A committee of creditors is formed to vote on a resolution plan, or on liquidation if no workable plan arrives

The law sets 180 days for the process, with one extension of 90 days and an outer limit of 330 days that includes time spent in litigation. Real estate cases often run longer, because each project has land owners, lenders and hundreds of buyers with different interests.

Home Buyers Are Financial Creditors

An amendment made in 2018 added an explanation to section 5(8)(f) of the IBC. Money paid by an allottee towards a real estate project is treated as a financial debt, which makes the buyer a financial creditor. The Supreme Court upheld this in Pioneer Urban Land and Infrastructure v. Union of India in August 2019.

The status carries real weight. Financial creditors make up the committee of creditors, and the committee decides which resolution plan is accepted. Buyers are members of it as a class, alongside the banks that lent to the builder.

How buyers vote on the committee

Hundreds of buyers cannot attend every meeting, so the tribunal appoints an authorised representative for the class. The representative collects the buyers' votes before each meeting and casts the vote of the whole class in line with the majority of buyers who voted. A buyer who stays silent is still bound by that majority, so taking part in each vote matters.

Starting Insolvency Against a Builder

A single buyer has no standing to file an insolvency application alone. Since the IBC amendment of 2020, an application by allottees needs at least 100 allottees of the same real estate project, or 10% of its total allottees, whichever is lower. The Supreme Court upheld this threshold in Manish Kumar v. Union of India on 19 January 2021.

The count is taken within one project, so buyers from different projects of the same builder cannot be added together. A buyer who already holds a refund order from the RERA authority is still counted as an allottee and must meet the same threshold. The Supreme Court confirmed in Vishal Chelani v. Debashis Nanda in October 2023 that such buyers remain financial creditors.

Filing a Claim Once Insolvency Begins

The public announcement names the resolution professional, the last date for claims and the forms to use. Home buyers file as a class of creditors on Form CA under the IBBI regulations for the resolution process, usually by email or through an online claim portal. The claim covers the money paid and the interest due under the agreement.

These papers support a buyer's claim and are best kept in one file from the day of booking:

• The allotment letter and the registered agreement for sale
• Every payment receipt and the bank statements that show the transfers
• Demand letters and emails from the builder
• The home loan sanction letter and the lender's disbursement statement
• Any order from the RERA authority or a consumer commission

The first deadline is short, typically 14 days from the appointment of the interim resolution professional. Late claims are accepted for a further period under the regulations, but a claim filed after the committee has approved a plan may be shut out. A buyer whose claim is admitted appears in the list of creditors that the resolution professional publishes.

RERA Case or Insolvency

RERA and the IBC work at different levels. The Karnataka RERA authority deals with one project and one complaint, and orders a refund with interest, compensation or completion. The IBC deals with the whole company and everyone it owes. Section 238 gives the IBC overriding effect, so the moratorium pauses a pending RERA complaint and the recovery of an earlier RERA order.

The table sets the two routes side by side:

For a delayed project with a builder that is still solvent, a RERA complaint is usually the more direct route. Insolvency is a collective remedy for a builder that has run out of money. The choice and the order of the two routes change what a buyer recovers, so it is a decision to take with a lawyer who handles NCLT work.

What Changed in 2026

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 received the President's assent on 6 April 2026, and most of it was brought into force by a notification of 25 May 2026. The widened definition of a resolution plan allows one or more assets of a company to be sold through separate plans from different bidders. For a builder with several projects, this supports a project-by-project resolution in place of a single plan for the whole company.

Earlier rules already point the same way. Since February 2024, the IBBI regulations have required a separate bank account for each real estate project of a builder in insolvency. They also allow possession of a flat to be handed over during the process with the approval of the committee of creditors.

The IBBI issued a discussion paper on real estate cases on 30 June 2026. It proposes a simpler claim form for allottees, project-wise disclosure of units and construction status, and a seat for the buyers' representative on the committee that monitors an approved plan. These are proposals, and they apply only once the regulations are amended.

What a Buyer Can Realistically Expect

The most common good outcome is a new developer or investor taking over the project under an approved plan and finishing the flats. Delivery is late, and the plan may ask buyers to give up delay interest or pay a revised cost. A buyer who wants a refund may be offered less than the amount paid, depending on the plan.

Liquidation is the weakest outcome. Allottees rank as unsecured financial creditors in the order of payment under section 53, behind the insolvency costs, workmen's dues and secured lenders. This is why buyer groups usually vote for a plan that completes the project.

Steps for Buyers of a Distressed Project

A stalled site, unpaid contractors and missed RERA deadlines are early signs of a builder in trouble. The steps below keep a buyer's position safe from that point:

1. Join or form the association of allottees for the project, and keep a common list of buyers and amounts paid
2. Check the Karnataka RERA portal for the project's completion date, extensions and complaints
3. Search the NCLT cause lists and the IBBI website for an application or a public announcement against the builder
4. File the claim on time with full payment proof once the announcement is made
5. Vote through the authorised representative at every stage, and read each plan for its completion timeline
6. Tell the home loan lender, and keep paying the EMI unless the bank agrees a change in writing

The home loan is a contract between the buyer and the bank, and it continues through the insolvency. A missed EMI hurts the buyer's credit record even when the flat is delayed. Our team can share the RERA status of any project listed on this site through the contact page.