Abhiyan Developers Pvt. Ltd. v. Shreepati Build Infra Investment Ltd. | A Landmark Ruling on Homebuyers’ Rights Under the Insolvency and Bankruptcy Code
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, in its judgment dated 10 January 2024, delivered an important ruling on the rights of homebuyers under the Insolvency and Bankruptcy Code, 2016 (IBC). The decision in Abhiyan Developers Private Limited v. Shreepati Build Infra Investment Limited settles a recurring legal issue:
Can a homebuyer become a financial creditor merely because the developer temporarily treats the booking amount as a loan?
The Tribunal answered this question in the negative, holding that the true nature of the transaction—not the label assigned by the builder—determines the legal relationship between the parties.
The judgment also reinforces the mandatory requirement introduced by the 2019 amendment to the IBC that a single homebuyer cannot independently initiate insolvency proceedings against a real estate developer.
Background of the Dispute
- The dispute arose from a real estate project where the appellant had invested approximately ₹3.5 crore for booking two residential flats.
- However, the project never commenced as expected.
- Facing prolonged delays, the developer issued a letter in 2015 informing the buyer that the booking amount would be temporarily transferred to a “Loan Account” until the necessary approvals for the project were obtained.
- The developer also assured the buyer that the booked flats would be allotted once the project was ready.
- Years later, the buyer initiated insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code, claiming to be a financial creditor rather than a homebuyer.
- This distinction became crucial because financial creditors can independently initiate insolvency proceedings, whereas homebuyers are subject to additional statutory requirements.
The Core Legal Question
The Tribunal was required to decide two important issues:
First, whether a homebuyer loses the status of an allottee simply because the builder temporarily converts the booking amount into a loan account.
Second, whether a single homebuyer can continue insolvency proceedings after the 2019 amendment to the Insolvency and Bankruptcy Code introduced a minimum threshold requirement for real estate allottees.
Was the Buyer Really a Financial Creditor?
The appellant argued that once the booking amount was shifted to a loan account, the original builder-buyer relationship came to an end.
According to the appellant, the transaction had transformed into a loan arrangement, making the appellant a financial creditor similar to a bank or lending institution.
If accepted, this argument would have allowed the appellant to independently initiate insolvency proceedings under Section 7 of the IBC.
NCLAT Examines the Real Nature of the Transaction
The Tribunal carefully examined the builder’s letter and the surrounding circumstances.
It found that the transfer of funds into a loan account was expressly described as temporary until the required project approvals were obtained.
More importantly, the developer had never cancelled the allotment.
Instead, the builder repeatedly assured the buyer that the booked flats would be delivered after completion of the project.
Another significant factor considered by the Tribunal was that no loan interest was ever paid to the appellant.
Ordinarily, a genuine loan arrangement involves payment of interest and repayment obligations.
In this case, neither existed.
The Tribunal therefore concluded that the so-called loan account was merely an accounting arrangement and did not alter the fundamental nature of the transaction.
The relationship between the parties remained that of a promoter and an allottee.
Original Purpose of the Transaction Determines Legal Status
One of the most important legal principles emerging from this judgment is that the original purpose of a transaction prevails over its subsequent description.
The Tribunal held that a buyer who books a residential apartment does not cease to be an allottee merely because the promoter temporarily redesignates the deposited amount as a loan.
The underlying objective of the transaction remained acquisition of residential flats.
Therefore, the appellant continued to fall within the definition of an “allottee” under the Real Estate (Regulation and Development) Act, 2016.
The Impact of the 2019 Amendment to the Insolvency Code
The second issue proved decisive.
The Insolvency and Bankruptcy Code was amended in 2019 to prevent isolated insolvency proceedings by individual homebuyers.
Under the amended Section 7, an insolvency application by homebuyers can only be filed jointly by:
- At least 100 allottees, or
- 10% of the total allottees of the project, whichever is lower.
The amendment also introduced a transitional provision requiring pending applications filed by individual homebuyers to comply with this new threshold within the prescribed period.
Failure to satisfy this requirement results in the application being deemed withdrawn.
Why the Appeal Failed
Since the Tribunal concluded that the appellant remained an allottee, the statutory threshold became applicable.
The appellant had filed the insolvency application individually and did not join hands with the minimum number of homebuyers required under the amended law.
Consequently, the insolvency application could not be maintained.
The Tribunal agreed with the findings of the Adjudicating Authority and dismissed the appeal.
Key Legal Principles Established
The judgment settles several important principles governing insolvency proceedings involving real estate projects.
1. Substance Prevails Over Form
A temporary accounting treatment cannot alter the legal character of a transaction.
If the original intention was purchase of a flat, the buyer continues to remain an allottee.
2. Temporary Loan Arrangements Do Not Change Legal Rights
Merely calling the deposited money a “loan” does not transform a homebuyer into an independent financial creditor.
The surrounding facts and contractual relationship remain decisive.
3. Homebuyer Threshold Under IBC Is Mandatory
The minimum threshold introduced by the 2019 amendment is compulsory.
Individual allottees cannot bypass this statutory requirement by attempting to classify themselves as financial creditors.
4. Builder’s Internal Accounting Cannot Defeat Statutory Protection
Developers cannot unilaterally change the legal status of homebuyers through internal bookkeeping or unilateral correspondence.
The rights of allottees continue to be governed by the original transaction.
Relevant Statutory Provisions
The Tribunal examined several important provisions while deciding the appeal, including:
- Section 7 of the Insolvency and Bankruptcy Code, 2016 governing initiation of the Corporate Insolvency Resolution Process.
- First, Second and Third Provisos to Section 7, introducing the threshold requirement for homebuyers.
- Sections 5(7) and 5(8) defining financial creditor and financial debt.
- Section 2(d) of the Real Estate (Regulation and Development) Act, 2016, defining an allottee.
Why This Judgment Matters
The ruling has significant implications for both homebuyers and real estate developers.
For homebuyers, it confirms that developers cannot alter their legal status simply by issuing unilateral communications or changing accounting entries.
At the same time, the judgment serves as an important reminder that insolvency proceedings initiated by homebuyers must comply with the statutory threshold prescribed under the Insolvency and Bankruptcy Code.
For developers, the decision reinforces that the courts will examine the true commercial substance of transactions rather than relying on labels assigned by the parties.
Conclusion
The decision in Abhiyan Developers Private Limited v. Shreepati Build Infra Investment Limited strengthens legal certainty in real estate insolvency disputes.
By holding that the original nature of a builder-buyer transaction cannot be changed through a temporary accounting arrangement, the NCLAT has protected the statutory rights of homebuyers under RERA and the Insolvency and Bankruptcy Code.
Equally important, the judgment reiterates that the collective filing requirement introduced by the 2019 amendment is mandatory and cannot be circumvented through creative legal classifications. The ruling serves as an important precedent for future insolvency disputes involving delayed real estate projects and clarifies the legal distinction between an allottee and a financial creditor under Indian insolvency law.