Homebuyers Can Invoke IBC Against Developer Despite Pending RERA Case Over Project Delay: NCLT Kochi

The National Company Law Tribunal (NCLT) at Kochi has held that homebuyers are not barred from invoking insolvency proceedings merely because complaints over project delays are pending before the Real Estate Regulatory Authority (RERA, as long as financial default and distress are established under the Insolvency and Bankruptcy Code.

Admitting a Section 7 application filed by 30 homebuyers representing 98 allottees of the Skywings Township project promoted by Alka Ventures, the tribunal initiated corporate insolvency resolution proceedings against Alka Ventures Private Limited for a default of ₹11.85 crore.

A coram of Judicial Member Vinay Goel and Technical Member Madhu Sinha clarified that parallel proceedings under RERA do not prevent homebuyers from approaching the insolvency court.

“Just because a matter is already pending before the Real Estate Regulatory Authority does not stop a homebuyer from filing a Section 7 petition under the Code. However, the homebuyer must prove that the builder is unable to pay its dues or complete the project, and that the Code is not being used simply to force the builder to finish construction or hand over the property,” the coram observed.

The dispute relates to the Skywings Township project, spread over 9.24 acres at Kakkanad in Kochi, which was launched in 2007 by SRK Constructions with a promised completion date of September 2009. Following delays triggered by the 2008 financial crisis, the project was taken over by Alka Ventures, which assured buyers that the King East and Queen East towers would be completed by 2015 and the entire project by 2018.

Despite these assurances, the project remained incomplete. In 2018, the Non-Resident Keralites Commission directed the developer to obtain occupancy certification by March 2020. The Real Estate Regulatory Authority later fixed a completion deadline of June 2023, which was extended twice, finally up to December 30, 2024. Homebuyers collectively paid Rs 36.83 crore towards the project, of which the petitioning allottees contributed Rs 11.85 crore.

Opposing the insolvency plea, Alka Ventures argued that its relationship with the buyers was purely contractual and governed by the Real Estate (Regulation and Development) Act, 2016. It contended that grievances relating to delayed construction were already under consideration before RERA and that the Insolvency and Bankruptcy Code was being misused by the allottees.

Rejecting these submissions, the NCLT noted that the insolvency law expressly recognises homebuyers as financial creditors. Referring to Section 5(8) of the Code, the tribunal observed that amounts raised from allottees in real estate projects are deemed to have the commercial effect of a borrowing.

It further held that repeated extensions of completion timelines without delivery amounted to persistent non-performance, which cumulatively satisfies the definition of “default” under the Code.

The tribunal relied on a recent Supreme Court ruling in Mansi Brar Fernandes v. Shubha Sharma, which held that while RERA is the appropriate forum for disputes concerning delay, non-completion or deficiencies, the insolvency law can be invoked by homebuyers where there is clear commercial inability on the part of the developer to complete the project or repay the amounts collected.

Holding that the objectives of RERA and the Insolvency and Bankruptcy Code are distinct, the NCLT concluded that pendency of proceedings before RERA cannot, by itself, bar a Section 7 insolvency application. The tribunal accordingly admitted the petition and initiated corporate insolvency resolution proceedings against Alka Ventures Private Limited.