The Insolvency and Bankruptcy Code, 2016 (IBC) recognizes homebuyers as financial creditors and grants them significant rights during the Corporate Insolvency Resolution Process (CIRP). However, an important question often arises:
Can a person who has defaulted on payment and whose allotment was cancelled before the builder entered insolvency still claim ownership of the flat during CIRP?
The National Company Law Appellate Tribunal (NCLAT) answered this question in Parveen Gakhar v. Adani Goodhomes Pvt. Ltd. & Anr. (Company Appeal (AT) (Insolvency) No. 228 of 2023), decided on 2 March 2023.
The Tribunal held that a purchaser who defaults on payment, ignores cancellation notices, and allows the allotment to be withdrawn before the commencement of insolvency proceedings cannot claim the status of an allottee under the IBC.
This judgment draws a clear distinction between genuine homebuyers and defaulting purchasers, reaffirming that insolvency law protects only those whose legal rights continue to exist on the insolvency commencement date.
Background of the Case
- Parveen Gakhar booked a residential flat in a project developed by Adani Goodhomes Pvt. Ltd.
- At the time of booking, she paid approximately ₹5.27 lakh as the initial booking amount.
- Under the agreed payment schedule, she was required to pay the remaining amount of approximately ₹21.84 lakh.
- However, despite repeated demand notices from the builder, she failed to clear the outstanding dues.
- Recognising the continued default, the builder issued a final notice in September 2018, clearly informing her that if the outstanding amount was not paid within 30 days, the builder would presume that she was no longer interested in the flat and would treat her application as withdrawn.
- Even after receiving this notice, the purchaser neither made the payment nor challenged the proposed cancellation.
- Several years later, in 2021, insolvency proceedings were initiated against the builder under the Insolvency and Bankruptcy Code.
- During the Corporate Insolvency Resolution Process (CIRP), the Resolution Professional treated the concerned flat as unsold inventory because the allotment had already been withdrawn before the commencement of insolvency.
- The purchaser challenged this decision before the NCLAT and sought a direction to compel the Resolution Professional to execute the sale in her favour.
The Legal Issue Before the NCLAT
The Tribunal was required to determine a crucial legal question:
Can a purchaser who failed to honour the payment obligations and whose allotment stood cancelled before the commencement of CIRP still claim the status of a homebuyer (allottee) and seek ownership of the property during insolvency proceedings?
The answer to this question would determine whether such a purchaser could prevent the Resolution Professional from treating the property as unsold inventory under the Resolution Plan.
What Did the Tribunal Observe?
The NCLAT examined the entire sequence of events. It noted that the builder had provided several opportunities to the purchaser to make the outstanding payment. The final notice issued in September 2018 clearly stated that failure to pay the balance amount within the prescribed period would result in withdrawal of the application.
The purchaser:
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- did not pay the outstanding amount;
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- did not seek any extension of time;
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- did not challenge the cancellation before any legal forum; and
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- remained inactive until insolvency proceedings commenced nearly three years later.
The Tribunal observed that once the builder lawfully withdrew the allotment before initiation of CIRP, the purchaser ceased to have any enforceable right over the flat.
Why Was the Flat Treated as Unsold?
- The Appellant argued that since she had already paid the booking amount, the Resolution Professional could not classify the flat as unsold. The Tribunal rejected this argument.
- It held that payment of an initial booking amount alone does not permanently reserve ownership of a property.
- A Builder-Buyer Agreement creates obligations for both parties.
- While the builder is required to construct and deliver the property, the purchaser is equally obligated to make payments in accordance with the agreed schedule.
- Where the purchaser repeatedly defaults and ignores notices despite sufficient opportunity, the builder is entitled to cancel the allotment in accordance with the contractual terms.
- Since the cancellation had already taken place before the commencement of CIRP, the Resolution Professional rightly treated the flat as part of the unsold inventory available for implementation of the Resolution Plan.
Can a Defaulting Buyer Still Be Treated as a Homebuyer?
This was the central issue before the Tribunal.
The NCLAT answered it in the negative.
The Tribunal held that a person cannot continue to claim the status of a homebuyer merely because an advance payment had once been made.
Where a purchaser:
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- fails to make the agreed payments,
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- ignores repeated demand notices,
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- allows the allotment to be cancelled, and
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- takes no legal action before commencement of insolvency,
Such a person ceases to be an allottee for the purposes of the Insolvency and Bankruptcy Code.
The protections available to homebuyers under the IBC are intended for persons who possess existing legal rights on the insolvency commencement date.
They do not revive contractual rights that have already come to an end.
The Importance of Timing
- An important aspect of the judgment is the timing of the cancellation.
- The builder cancelled the allotment in 2018.
- The Corporate Insolvency Resolution Process commenced only in 2021.
- Therefore, by the time insolvency proceedings began, the purchaser no longer possessed any subsisting contractual right in respect of the flat.
- The Tribunal held that rights which had already been extinguished before CIRP could not be revived merely because insolvency proceedings had subsequently commenced.
Impact on the Insolvency Resolution Process
- The Tribunal also considered the larger objective of the Insolvency and Bankruptcy Code.
- The purpose of CIRP is to maximize the value of the corporate debtor’s assets and facilitate an effective resolution.
- If purchasers whose allotments had already been cancelled before insolvency were permitted to reclaim units during CIRP, it would create uncertainty for Resolution Applicants and adversely affect the implementation of approved resolution plans.
- The judgment therefore protects the integrity and certainty of the insolvency resolution process.
Legal Principle Established
The NCLAT settled an important legal principle:
A purchaser whose allotment has been validly cancelled before the commencement of insolvency proceedings cannot claim the status of an allottee under the Insolvency and Bankruptcy Code.
Merely paying a booking amount does not create perpetual rights over the property.
Homebuyer protections under the IBC are available only to persons whose contractual and legal rights continue to subsist on the insolvency commencement date.
The NCLAT’s Final Decision
After examining the facts and the legal position, the National Company Law Appellate Tribunal dismissed the appeal filed by Parveen Gakhar.
The Tribunal refused to direct the Resolution Professional to register the flat in favour of the Appellant.
However, recognising that the Appellant had paid an initial booking amount, the Tribunal directed that the earnest money deposited by her be refunded within two weeks.
Accordingly:
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- the purchaser did not receive the flat;
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- the Resolution Professional was permitted to treat the property as unsold inventory under the Resolution Plan; and
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- the earnest money was ordered to be refunded.
Practical Lessons for Homebuyers
This judgment provides several practical lessons for purchasers of real estate.
1. Paying the Booking Amount Is Not Enough
- A booking amount only initiates the transaction.
- Ownership rights continue only if the purchaser fulfils the contractual payment obligations.
2. Never Ignore Demand Notices
- Demand notices and cancellation notices issued by the builder should be taken seriously.
- Failure to respond may result in permanent loss of allotment.
3. Challenge Cancellation Immediately
- If a purchaser believes that cancellation is illegal or arbitrary, legal proceedings should be initiated without delay.
- Waiting until insolvency proceedings commence may permanently extinguish available remedies.
4. Insolvency Law Protects Existing Rights
- The Insolvency and Bankruptcy Code protects genuine allottees whose rights exist when CIRP begins.
- It does not revive contractual rights that have already been terminated.
Why This Judgment Matters
This decision is significant because it balances the interests of genuine homebuyers with the objectives of the Insolvency and Bankruptcy Code.
While Indian courts have consistently recognised homebuyers as financial creditors, this judgment clarifies that such protection is available only to those who continue to hold valid contractual rights.
The ruling also reinforces the principle that contractual obligations bind both parties.
A purchaser who fails to comply with agreed payment obligations cannot seek equitable relief merely because the builder subsequently enters insolvency.
Conclusion
- The judgment in Parveen Gakhar v. Adani Goodhomes Pvt. Ltd. serves as an important reminder that the protections available under the Insolvency and Bankruptcy Code are not unconditional.
- A purchaser who defaults on payment, ignores repeated notices, and allows the allotment to be cancelled before commencement of CIRP cannot later revive those rights during insolvency proceedings.
- The NCLAT has reaffirmed that insolvency law protects existing legal rights—not rights that have already been extinguished by contractual default.