East Bengaluru buyer answers
What happens to my flat if the builder goes insolvent?
Direct answer: If the builder is a company or LLP, the Insolvency and Bankruptcy Code treats the money you paid as financial debt, which makes you a financial creditor. Buyers in the same project can start insolvency together, vote through an authorised representative, and share in any resolution plan. Pending cases against the builder pause during the moratorium.
Disclosure: acre&key’s advice is free to buyers; we are an authorised sales partner for some projects and may be paid by the developer.
Verify with your lawyer: This page explains the Insolvency and Bankruptcy Code and the RERA Act as published, not legal advice. Insolvency cases turn on dates, orders and the resolution plan in front of the tribunal, so have your own lawyer read your agreement and the case papers before you file, vote or sign anything.
If you've paid for an under-construction flat, a builder in financial trouble is a real risk to plan for. A 2018 amendment to the Code changed where buyers stand. What follows uses the text of the Code as published by the Insolvency and Bankruptcy Board of India (IBBI), amended up to 5 June 2020. Check later amendments with your lawyer.
Am I a creditor of the builder?
Yes, if the builder is a corporate debtor. Section 5(8)(f) of the Code defines financial debt to include "any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing". The Explanation added in 2018 says "any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing", and it borrows the meanings of "allottee" and "real estate project" from sections 2(d) and 2(zn) of the RERA Act.
So the money you paid towards your flat counts as financial debt, and you are a financial creditor. That matters because financial creditors sit on the committee of creditors, which decides the builder's future. IBBI's compilation of section-wise case law lists the Supreme Court's 9 August 2019 judgment in Pioneer Urban Land and Infrastructure Ltd. v. Union of India, which upheld this treatment of allottees.
Can buyers start insolvency against the builder?
Yes, but not alone. Section 7(1) lets a financial creditor apply to the Adjudicating Authority (the National Company Law Tribunal) when a default has occurred. For allottees, the second proviso adds a threshold: the application "shall be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten per cent. of the total number of such allottees under the same real estate project, whichever is less".
Two points follow. The count is per project, so buyers in one phase can't simply add buyers from a different project of the same builder. And the threshold is whichever number is lower, so in a small project 10% of allottees can be fewer than 100 people. Before you join any group filing, confirm how the project is registered on Karnataka RERA, since a builder may register phases separately. Our guide to checking a project on the Karnataka RERA website shows where to look, and why one project can have several RERA numbers explains phases.
What happens once insolvency starts?
On the insolvency commencement date, section 14 requires the tribunal to declare a moratorium. It prohibits, among other things:
- "the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority";
- the builder transferring, encumbering or disposing of its assets;
- any action to foreclose, recover or enforce a security interest over the builder's property.
In plain terms, the builder can't sell off the land or unsold flats outside the process, and creditors, including banks, can't grab assets on their own. The same wording also covers proceedings before an "other authority", so ask your lawyer how a pending RERA complaint or order against the builder company is affected once the moratorium starts.
An insolvency professional then runs the company. Section 12 sets a 180-day period for the process, which the tribunal can extend, with a mandatory outer limit of 330 days that includes extensions and time taken in legal proceedings.
How do buyers vote when there are hundreds of us?
Through an authorised representative. Section 21(6A)(b) covers financial debt "owed to a class of creditors exceeding the number as may be specified". For such a class, the interim resolution professional names an insolvency professional to act as the class's authorised representative, and the tribunal appoints that person before the first meeting of the committee of creditors.
Section 25A sets the rules for that representative. They must circulate the agenda and minutes to the buyers they represent, must not act against their interest, and, under section 25A(3A), must cast the class's vote "in accordance with the decision taken by a vote of more than fifty per cent. of the voting share of the financial creditors he represents, who have cast their vote". If you don't vote, you don't count in that majority. Watch your email and the representative's notices closely once a case is admitted.
Do buyers get their flats or their money back?
That depends on the resolution plan. Under section 30(4), the committee of creditors may approve a resolution plan "by a vote of not less than sixty-six per cent. of voting share of the financial creditors", after looking at its feasibility, viability and the proposed manner of distribution. A plan might complete the project and hand over flats, bring in a new developer, or pay creditors from asset sales. The Code doesn't promise any one outcome, which is why the buyers' vote counts.
If no plan is approved, the company can go into liquidation, where assets are sold and the money is distributed rather than the project being completed. Ask your lawyer how your claim would rank in that case.
Does RERA still protect me during insolvency?
Both laws claim to override others. Section 89 of the RERA Act says its provisions apply "notwithstanding anything inconsistent therewith contained in any other law for the time being in force", and section 238 of the Code has a similar override clause. How the two fit together in a given case is a legal question for your lawyer and the tribunal, not a rule of thumb.
What RERA does give you before trouble starts is visibility. The 70% rule for the project bank account, the quarterly updates and the registration validity are all public. Our pages on the 70% project account rule, what happens if a project's registration lapses and how to file a RERA complaint cover each.
What should I do if my builder is heading towards insolvency?
- Collect your papers: allotment letter, agreement for sale, every payment receipt and bank statement, and the home loan file. These prove the amount you are owed.
- Check the project's RERA page for its registration status and recent updates.
- Find the other buyers in your project. A joint filing has to meet the 100-allottee or 10% threshold, so you'll need to be organised.
- Talk to your lawyer before filing a claim or joining a petition, and before you stop paying EMIs. Your home loan is a separate contract with your bank; see how home loans for under-construction flats work.
- If a case is admitted, file your claim with the resolution professional in the form and time asked, then vote on every resolution.
If your loan is on a subvention plan, read the risks of subvention schemes too.
Frequently asked questions
Are homebuyers financial creditors under the IBC?
Yes. The Explanation to section 5(8)(f) of the Insolvency and Bankruptcy Code deems money raised from an allottee under a real estate project to have the commercial effect of a borrowing, so allottees are financial creditors.
How many flat buyers are needed to file insolvency against a builder?
Under the second proviso to section 7(1), at least 100 allottees of the same real estate project or 10% of that project's allottees, whichever is less, must file jointly.
Can I continue my RERA complaint after the builder goes into insolvency?
Section 14 bars the continuation of proceedings against the corporate debtor before any court, tribunal or other authority during the moratorium. Ask your lawyer how this applies to your RERA case.
Who votes for homebuyers in the committee of creditors?
An insolvency professional appointed as authorised representative under section 21(6A)(b). Under section 25A(3A), they vote as more than 50% of the voting share of buyers who cast their vote decide.
How long does a builder's insolvency process take?
Section 12 sets 180 days, extendable by the tribunal, with a mandatory limit of 330 days including extensions and time in legal proceedings.
References
- Insolvency and Bankruptcy Code, 2016 (amended up to 05-06-2020), ss. 5(8)(f) and Explanation, 7(1) provisos, 12, 14, 21(6A), 25A, 30(4), 33, 53, 238. IBBI. https://ibbi.gov.in/uploads/legalframwork/bb54a1ddf9a7cd75ab18b566a83c6370.pdf, accessed 17 Oct 2026.
- IBBI, Section-wise jurisprudence on IBC up to 31.12.2024 (Pioneer Urban Land and Infrastructure Ltd. v. Union of India, SC, 09.08.2019). https://ibbi.gov.in/uploads/legalframwork/a786149521b2ff157278f13e4ad5ff4d.pdf, accessed 17 Oct 2026.
- Real Estate (Regulation and Development) Act, 2016, ss. 2(d), 2(zn), 89. https://rera.karnataka.gov.in/resources/staticpage/Real_Estate_Act.pdf, accessed 17 Oct 2026.
This page explains public rules and processes. It isn't legal or tax advice. acre&key gives buyers advice for free. We are an authorised sales partner for some projects and may be paid by the developer.