Home buyer claims as financial debt upheld, with insolvency law prevailing over RERA in case of conflict.

The SC upheld the constitutional validity of the amendments treating home buyers and allottees as financial creditors, holding that the classification is based on an intelligible differentia and is neither manifestly arbitrary nor an unreasonable restriction on trade. It further held that the Insolvency and Bankruptcy Code and the Real Estate (Regulation and Development) Act operate in different fields, with RERA providing project-level consumer protections and the insolvency code governing collective revival and value maximisation; both remedies coexist, but the insolvency code prevails in case of inconsistency. Section 5(8)(f), read with the 2018 explanation, was treated as clarificatory, confirming that advances from home buyers had from the inception of the Code the commercial effect of a borrowing.

---

---

Issues: (i) Whether the amendments deeming home buyers/allottees to be financial creditors under the insolvency regime were constitutionally valid under Articles 14, 19(1)(g), 19(6) and 300-A. (ii) Whether the Insolvency and Bankruptcy Code, 2016 and the Real Estate (Regulation and Development) Act, 2016 operate in separate fields or whether they are to be harmoniously construed, and which statute prevails in case of conflict. (iii) Whether Section 5(8)(f) of the Insolvency and Bankruptcy Code, 2016, read with the explanation inserted in 2018, covered home buyers/allottees even prior to the amendment and whether the deeming fiction was merely clarificatory.

Issue (i): Whether the amendments deeming home buyers/allottees to be financial creditors under the insolvency regime were constitutionally valid under Articles 14, 19(1)(g), 19(6) and 300-A.

Analysis: The classification was held to rest on an intelligible differentia. Home buyers fund the real estate project in advance, have a direct stake in its completion, and are unlike ordinary operational creditors who supply goods or services. The legislative response was treated as an economic experiment entitled to deference, and the court held that the amendment did not amount to manifest arbitrariness or an unreasonable restriction on trade. The challenge under Article 300-A also failed because there was no deprivation of property without authority of valid law.

Conclusion: The constitutional challenge failed and the amendments were upheld.

Issue (ii): Whether the Insolvency and Bankruptcy Code, 2016 and the Real Estate (Regulation and Development) Act, 2016 operate in separate fields or whether they are to be harmoniously construed, and which statute prevails in case of conflict.

Analysis: The two enactments were held to be aimed at different objects. RERA protects the individual allottee through project regulation, disclosure, refunds and compensation, while the insolvency code is a collective proceeding for corporate revival and value maximisation. Both remedies were treated as concurrent. RERA was also read as supplementary and not exclusive, and the later code with its overriding clause was held to prevail in the event of inconsistency.

Conclusion: The statutes were held to coexist, with the Insolvency and Bankruptcy Code, 2016 prevailing in case of conflict.

Issue (iii): Whether Section 5(8)(f) of the Insolvency and Bankruptcy Code, 2016, read with the explanation inserted in 2018, covered home buyers/allottees even prior to the amendment and whether the deeming fiction was merely clarificatory.

Analysis: Section 5(8)(f) was treated as a residuary catch-all provision. Advances paid by allottees were held to be amounts raised under a transaction having the commercial effect of a borrowing, because the project was financed by such advances and the allottee expected an equivalent in the form of a flat or refund with interest. The explanation was construed as removing doubt rather than enlarging the provision, and the use of deeming language was held to confirm the existing legal position.

Conclusion: Home buyers/allottees were held to have been financial creditors under Section 5(8)(f) from the inception of the Code, and the 2018 explanation was clarificatory.

Final Conclusion: The challenge to the amendment failed, the two statutes were held to operate concurrently subject to the overriding effect of the insolvency code in case of inconsistency, and home buyers were affirmed as financial creditors for insolvency purposes.

Ratio Decidendi: Amounts advanced by home buyers to finance an under-construction real estate project are money raised under a transaction having the commercial effect of a borrowing, so home buyers fall within the financial creditor framework and may invoke the insolvency process.

---