SC issues directions to Committee of Creditors to protect interests of homebuyers

Supreme Court issues directions to Committee of Creditors for safeguard interests of homebuyers in Insolvency proceedings

In a recent judgment, Supreme Court has issued directions to Committee of Creditors for safeguard interests of homebuyers in Insolvency proceedings against the Builder/Real Estate developer Corporate Debtor

ABCAUS Case Law Citation:
4994 (2026) (01) abcaus.in SC

In the instant case, the Corporate Debtor (the developer) had availed financial assistance for the purpose of developing a residential -cum- commercial project (the real estate project).

The appellant was a registered co-operative body representing hundreds of unit holders of the real estate project developed by the Corporate Debtor.

On the loan accounts of the developer being classified as Non-Performing Assets (NPA), the financial creditor filed a petition under Section 7 of the IBC before the NCLT, seeking initiation of the CIRP against the Corporate Debtor.

The NCLT dismissed the Section 7 petition of the financial creditors, holding that the facts of the case did not warrant initiation of the CIRP as the IBC was being invoked as a recovery mechanism rather than as a tool for insolvency resolution. The NCLT further noted that the project was viable and substantially complete, and that insolvency proceedings would adversely affect the interests of homebuyers and other stakeholders.

However, the NCLAT directed admission of the Section 7 petition, thereby initiating CIRP against the Corporate Debtor. The NCLAT, rejected the intervention application of the appellant holding that the Society lacked locus standi as it was not a party to the financial transaction forming the subject matter of the appeal.

The Hon’ble Supreme Court held that a society or Resident Welfare Association (RWA), not being a creditor in its own right and not recognised as an authorised representative of allottees under the IBC, has no locus standi to intervene in proceedings arising out a Section 7 petition.

The Hon’ble Supreme Court observed that while the commercial wisdom of the Committee of Creditors is paramount and is not ordinarily amenable to judicial review, the width of powers vested in the CoC carries with it a corresponding duty of responsibility. Any extraordinary or non-routine decision taken by the CoC must, therefore, be supported by cogent reasons duly recorded in writing.

Therefore while dismissing the appeal of the society, the Hon’ble Supreme Court with a view to advancing transparency, ensuring accountability, and safeguarding the interests of homebuyers, issued the following directions:

(i) The Information Memorandum shall mandatorily disclose comprehensive and complete details of all allottees; and

(ii) Where the Committee of Creditors, upon due consideration, finds it not viable to approve handover of possession in terms of Regulation 4E of the CIRP Regulations, it shall mandatorily record cogent and specific reasons in writing for such decision.

(iii) Any recommendation for liquidation by the Committee of Creditors shall be accompanied by a reasoned justification recorded in writing evidencing proper application of mind and due consideration of all viable alternatives, in consonance with the objective of the Code.

The Hon’ble Supreme Court clarified that the above directions shall operate prospectively and shall be complied with forthwith.

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