HOMEBUYERS

Misery of homebuyers, problem of late filing of claims and their validity.
Introduction
Out of 5,258 proceedings of insolvency admitted by the NCLT between 1 st of January and
31st of March 2022, 1,051 were of the real estate developers, out of which almost a quarter
end up in liquidation. The data thus suggests at the huge quantum of grievance that exists in
the said sector, and inarguably, out of all the stakeholders, the homebuyers remain the most
vulnerable ones immediately after the workmen, and the quantum of investment of the
homebuyers accentuates their peril in case of default by the real estate developers. Though
the grievances of the homebuyers are redressable by the RERA and Consumer protection act,
there exists a third mechanism with the homebuyers to redress their problems, that is by
making use of the insolvency proceedings (pursuant to their recognition as financial creditor
under the 2018 amendment), although at least 10% or 100 homebuyers of a particular project
are needed to initiate insolvency proceedings against a real estate developer.
At the initiation of CIRP when a public notice is issued under section 15, claims of creditors
are invited, but it is a usual scenario in real estate cases that homebuyers are often unable to
take note of public announcement of CIRP owing to different factors. Further on in some
cases, homebuyers though being financial creditors and even in knowledge of both the
Resolution Professional and the debtor, are left out of the resolution plan. Hence, the situation
of filing late claims arises. In this piece we look at the validity of late claims and whether
they amount to extinguished claims.
Validity of late claims by homebuyers
The NCLT, Mumbai bench in March, 2023 in the case of Shankar Sawant & Anr Vs
Mr. Arun Kapoor, dealt with the grievance of the homebuyers where the Resolution
Professional, had denied them inclusion in the Resolution Plan on the grounds that their claim
has extinguished on the ground that the Resolution Plan has been approved by the members
of the Committee of Creditors (CoC) of the Corporate Debtor and presented to the tribunal
for approval.
However, the tribunal iterated that since the presented plan to the tribunal still awaits
adjudication, the claim of the petitioners is still acceptable, relying on the Supreme Court’s
Judgement in Court in Ghanshyam Sharma v. Edelweiss Asset Reconstruction Co. Ltd.
(2021), wherein, the court finalized the position holding that claims under resolution plan are
only frozen when the resolution plan is approved by the adjudicating authority, wherein
claims not part of the resolution plan stands extinguished.
In another recent case the NCLAT (New Delhi) in Puneet Kaur v. KV Developers (2022)
(hereinafter “puneet kaur”), tackling the question of extinguishment of claims upon expiry of
notice period, the tribunal opined that as long as the adjudicating authority has not approved
the Resolution Plan, the claims of creditors cannot be said to be extinguished. Even if a claim
is filed late and after the resolution plan being approved by the CoC, the finality of the same
is to be determined by the Adjudicating Authority.
The tribunal went on to iterate that in absence of inclusion of all the liabilities of the
Corporate Debtor in the Information Memorandum, a CIRP would not be legitimate and
complete. The whole idea of a resolution under the IBC is to take cognizance of the liabilities
that burden the entity going through the insolvency in order to effect just and fair payment to
the creditors in case of liquidation.
Inclusion of debt from homebuyers as a liability by the resolution professional, an

obligation or a discretion?
Although the Resolution Professional is not obligated to include homebuyers who have not
filed their claims in the list of creditors, Regulation 36 of the IBBI obligates the Resolution
Professional to include all the details of corporate debtor regarding assets and liabilities in the
information memorandum. It is the purpose of CIRP that all assets and liabilities of the
corporate be determined. Herein, it becomes obligatory upon the RP to include the
homebuyers as well in the information memorandum, given that the legitimate records of
liabilities towards the homebuyers (in terms of delivering possession against the money
taken) exists with the builder.
The ease with which such liabilities are skipped from a resolution plan might be evidentiary
of the foul objective of excluding homebuyers from the final list of creditors and reducing
immediate liabilities of the debtor upon liquidation. As the public notice of the CIRP is also
often not able to bring to the notice of homebuyers that a corporate debtor is going insolvent
owing to the logistical factors in play which were also discussed in puneet kaur wherein it
was acknowledged that since homebuyers reside in areas away from the one where the public
notice is being issued, it is very probable that the announcement of the insolvency is
unreceived & unnoticed by the homebuyers.
Dealing with this very problem it was directed in puneet kaur that inclusion of debt from
homebuyers as payment for possession of flats shall also be included in the information
memorandum and then consequently in resolution plan.
Conclusion
Given the quantum and proportion of the insolvency cases of real estate developers amongst
other class of businesses going through insolvency, we see a peculiar yet common problem in
resolution with regards to the bona fide claims of homebuyers. The current position of law
sees the homebuyers as financial creditors capable of initiating insolvency proceedings under
the Section 7 of IBC. However, keeping in mind the position and vulnerability of this class of
creditor, it is pertinent that their claims be accommodated justly and their incapability of
filing claims timely due to the reason of not being informed of the insolvency process be
taken cognizance of.
The issue of not including the homebuyers in the information memorandum leads to the
scenario of late claims in the first place. Hence, inclusion in the information memorandum
would lead to timely filing of claims by the homebuyers and the whole process would be
expedited. A more careful approach on the part of the Resolution Professional would go a
long way in expediting the process as a whole, since the prospective claims by the home-
buyers would be adjusted at the earliest.
Hence, is upon the resolution professional to include the debt from the homebuyers towards
the debtor in the information memorandum, so that when the resolution plan is being
prepared, cognizance of all the liabilities is dealt with.

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Misery of homebuyers, problem of late filing of claims and their validity.

Validity of late claims by homebuyers

Inclusion of debt from homebuyers as a liability by the resolution professional, an

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