Homebuyers at the Crossroads: When to Use RERA and When the IBC Becomes an Option

The Rise of IBC as a Homebuyer Weapon: And the Courts' Skepticism

When the Insolvency and Bankruptcy Code was amended in 2018, homebuyers were classified as financial creditors. This meant that when a real estate developer defaulted on delivering an apartment, the homebuyer could file a petition under Section 7 of the IBC against the developer in the National Company Law Tribunal (NCLT): effectively treating the apartment purchase as a financial debt and triggering insolvency proceedings against the developer.

For years, homebuyers had been trapped in a difficult position. The conventional remedy: filing a civil suit for specific performance or damages: was slow, uncertain, and did not give the buyer much leverage. RERA (the Real Estate Regulation and Development Act) was supposed to be the remedy, but RERA authorities were new, sometimes understaffed, and their orders were not always enforceable quickly. The IBC offered an alternative path: it was faster, it had a fixed timeline, and it gave the buyer a seat at the table (as a financial creditor) in the builder's insolvency proceedings. Within a few years, thousands of homebuyers began filing IBC petitions against defaulting developers.

But the Supreme Court has now pumped the brakes: not by denying homebuyers access to the IBC, but by clarifying conditions and hierarchy. The Mansi Brar Fernandes judgment recalibrates the relationship between RERA and IBC and imposes a critical test of "bona fide residential intent."

The Court's Core Holding: RERA First, IBC as Last Resort

The Supreme Court held that RERA is the primary, specialized forum designed for homebuyer-developer disputes. It is fast (typically 12-18 months for resolution), it is staffed with real estate professionals, it can grant a range of remedies (refund, specific performance, damages), and it is designed with the homebuyer's protection in mind. A homebuyer should first approach RERA because RERA is where the case will get expert attention and where a resolution is most likely to be swift and tailored to the buyer's needs.

The IBC, in contrast, is a proceeding of last resort: to be used when the builder's financial situation has deteriorated so severely that regulatory remedies through RERA are insufficient, or when the builder's assets are being dissipated and conventional remedies will not recover them. A homebuyer who files an IBC petition as a first move: bypassing RERA: is misusing the IBC.

The court also emphasized that IBC proceedings, once initiated, are cumbersome and result in corporate restructuring or liquidation that destroys the very thing the homebuyer wants: their house. If a developer is undergoing CIRP, the builder is likely not focused on delivering apartments; the builder is fighting for survival. An IBC petition, thus, may harm the homebuyer's own interests by delaying delivery even further.

The "Bona Fide Residential Intent" Test

The judgment introduces a critical threshold that applies specifically to homebuyers seeking to file IBC petitions. The question is: did the buyer genuinely intend to purchase this apartment for residential use, or did the buyer purchase it as an investment asset for capital appreciation or rental income?

This distinction matters because the IBC amendment that classified homebuyers as financial creditors was premised on the idea of protecting genuine homebuyers: people who needed a place to live and who relied on the developer to deliver. But if a buyer purchased an apartment as an investment vehicle, purely for speculative gain, the buyer is less in the category of "homebuyer" and more in the category of "investor." The amendment was not intended to arm investors with a tool to liquidate developers when their investment thesis turns sour.

The Mansi Brar Fernandes judgment holds that to file an IBC petition, a homebuyer must establish bona fide residential intent. How does a buyer do this? The court suggests looking at evidence such as:

First, the correspondence between the buyer and the developer at the time of purchase. Did the buyer ask about occupancy timelines, residential amenities, schooling facilities, neighbourhood character: the questions a genuine homebuyer asks? Or did the buyer ask only about the expected appreciation rate and rental potential?

Second, the buyer's actions post-purchase. Has the buyer moved into the apartment or attempted to move in? Has the buyer sought possession? Or has the buyer leased out the apartment to tenants immediately upon receiving possession?

Third, the buyer's financial profile. If the buyer owns multiple apartments in the same or other projects, the buyer may be characterized as an investor rather than a homebuyer. A genuine homebuyer typically owns one or two residential properties.

Fourth, any statements or representations made by the buyer. If the buyer has publicly stated that the purchase was an investment, or if sales communications show the buyer treating the purchase as a financial asset, this goes against bona fide intent.

"The intent to acquire a residential property for genuine habitation is the touchstone of homebuyer status. If the evidence shows that the buyer acquired the property primarily for financial gain or as an investment asset, the buyer may not qualify as a 'homebuyer' within the intent of the IBC amendment and may not have access to Section 7."

Parallel Proceedings and Forum Choice: What Homebuyers Can and Cannot Do

An important subsidiary holding in Mansi Brar Fernandes is that homebuyers are not barred from pursuing both RERA and IBC proceedings in parallel. If a homebuyer files a RERA complaint and then later files an IBC petition, courts will not dismiss the IBC petition solely on the ground that a parallel RERA proceeding is pending.

However, this does not mean that parallel proceedings are strategically advisable. Courts have warned against forum shopping and against using dual proceedings as a tactic to pressure the builder into a particular settlement. The smarter approach is to file in RERA first, allow that proceeding to run its course or reach a natural settlement point, and then assess whether an IBC petition is warranted based on the developer's financial position and the RERA outcome.

The Practical Implications: What Homebuyers Should Do

First, if your apartment is not delivered and the builder has defaulted, file a complaint with the relevant RERA authority immediately. RERA authorities now exist in virtually every state (Maharashtra RERA, UP RERA, Gujarat RERA, etc.) and are increasingly active. The RERA process is faster than conventional civil litigation and faster than initial NCLT admission in an IBC petition.

Second, document your bona fide residential intent. Keep correspondence, emails, and chats showing that you were excited about living in the apartment, that you asked about possession timelines, that you inquired about the residential amenities. If you have paid the builder out of your own savings (not as a financial investment), document that. All of this becomes important if you eventually need to file an IBC petition.

Third, do not purchase multiple apartments in the same or different projects unless you genuinely intend to live in them. If you are an investor, that is fine, but be candid about it: because if you later file an IBC petition, the courts will examine your intent and may find that you are an investor, not a homebuyer, and therefore ineligible for the IBC remedy.

Fourth, if RERA fails to deliver results within a reasonable period (say, 12-18 months), or if the RERA authority's order is ineffectual because the builder is financially unable to comply, then consult a lawyer about whether an IBC petition is appropriate. At that point, having already pursued RERA, you establish that you have exhausted the appropriate forum and are now resorting to the last resort.

The Investor Problem and the Missing Amendment

It is worth noting that the Supreme Court's judgment in Mansi Brar Fernandes sidesteps a deeper policy issue: the real estate sector has generated enormous levels of investor participation, often from buyers who have no intention of living in the properties they purchase. These investors have accumulated losses when market conditions sour. Some legislators and judges have suggested that the IBC amendment was not meant to be a wholesale bailout for real estate speculators, but the courts cannot easily distinguish between legitimate investor protection and illegitimate speculation without resort to the "bona fide intent" test.

Some commentators have argued that Parliament should amend the IBC to explicitly exclude non-residential investors or to set a threshold of number of properties before the financial creditor status applies. That amendment has not yet come to pass, leaving courts to police the boundary through fact-intensive inquiries into buyer intent.