When Your Builder Goes Insolvent: A Bengaluru Homebuyer's Rights at the NCLT

The nightmare scenario for a Bengaluru buyer is not a delayed flat but a builder who runs out of money altogether, with the project half built and the company heading to a tribunal. For years, buyers caught in this situation were treated almost as an afterthought, ranking behind banks and other lenders in the queue for whatever remained. A change in the insolvency law rewrote that position, giving homebuyers a real seat at the table. This guide explains what happens when a builder becomes insolvent, why buyers now count as creditors, and the practical steps a buyer can take to protect their claim.

The short answer. Under the insolvency law, homebuyers who have paid towards a flat are treated as financial creditors, which means they can be part of the committee that decides the builder's fate and can, jointly, take a defaulting builder to the tribunal. A single buyer cannot file alone; the law requires at least 100 allottees or 10 percent of the project, whichever is lower. To claim, you file a set form with the resolution professional. Insolvency overrides parallel proceedings, so timing and coordination matter.

What does it mean when your builder becomes insolvent?

Insolvency here means a formal process before the National Company Law Tribunal in which a company that cannot pay its debts is put under a resolution process, and its management is replaced by a professional. When a builder enters this corporate insolvency resolution process, a moratorium freezes claims and proceedings against the company, an appointed resolution professional takes control, and a committee of creditors is formed to decide whether the company can be revived through a resolution plan or must be liquidated. For a homebuyer this is a different world from a delayed possession dispute, because the question is no longer just when your flat will be finished but whether the entity that owes it to you survives at all, and where you stand among everyone else the builder owes. The moratorium in particular has an effect buyers should understand early. Because it freezes proceedings against the company, you cannot separately pursue the builder in other forums while the process runs, and enforcement of an earlier order can be stayed. This is not meant to punish buyers; it exists to hold the company's assets together so a coherent resolution can be attempted. But it does mean that once insolvency starts, the arena shifts almost entirely to the tribunal, and a buyer's energy is better spent engaging that process than continuing to fight on a track that is now paused.

Are homebuyers really treated as creditors?

Yes. A 2018 amendment to the insolvency law explicitly recognised homebuyers who have paid against the allotment of a unit as financial creditors, a major shift in their standing. Before that change, buyers were in an ambiguous and weak position, often ranking behind banks with little say in the outcome. As financial creditors, homebuyers can be represented on the committee of creditors, the body that votes on the resolution plan, which means the people who financed the project have a voice in deciding its future. This does not put buyers first in every respect, and the interplay with other creditors remains complex, but the recognition transformed homebuyers from bystanders into participants with legal rights inside the process.

Can you take a builder to the tribunal on your own?

No, a single homebuyer cannot start insolvency proceedings alone; the law requires a group. A 2020 amendment set a threshold so that an application to trigger the process against a builder must be brought by at least 100 allottees of the same project, or 10 percent of the total allottees, whichever is the lower number. This was designed to prevent a single disgruntled buyer from pushing a whole company into insolvency, and it means that acting collectively is not just helpful but a legal precondition. For a buyer facing a stalled project, the practical implication is to find and organise with other allottees early, because your ability to use this remedy at all depends on reaching that threshold together. Buyer groups and associations often form for exactly this purpose. Organising also serves you well beyond simply meeting the number. A coordinated group can share the cost of legal representation, speak with one voice on the committee of creditors, and avoid the situation where scattered buyers work at cross purposes or are picked off individually with side offers. The threshold, in other words, nudges buyers towards the collective action that also happens to give them the most leverage, so treat the requirement not as a hurdle but as a prompt to build the alliance you would want anyway.

How do you claim your money or your flat in insolvency?

Once a builder is in the process, you protect your position by filing a claim with the resolution professional using the prescribed form for allottees. When the corporate insolvency process begins, the resolution professional invites claims, and homebuyers submit theirs on the designated claim form, setting out what they paid and what they are owed. Filing on time and correctly is essential, because your claim is how you are counted among the creditors and represented in the process; a buyer who does not file risks being left out of the reckoning. Keep every payment record, your agreement and your allotment documents ready, since these substantiate the claim. Whether you ultimately receive the flat, a refund, or a share of a revival plan depends on the resolution that the committee approves, but filing the claim is the non negotiable first step to being in that conversation at all. Watch the public announcements closely once the process starts, because the window to submit claims is time bound and easy to miss if you are not looking for it. The resolution professional typically publishes a notice inviting claims with a deadline, and a group that is already organised can make sure every allottee files within it rather than discovering the process only after their share of attention has moved on to whoever spoke up in time.

RERA or the insolvency route, and what happens to a RERA order?

The insolvency law generally overrides parallel real estate regulator proceedings, so once the tribunal process begins, a RERA case is paused by the moratorium. This creates a genuine strategic question for a buyer: the real estate regulator can order a refund or push a specific project to completion, while insolvency deals with the whole company and everyone it owes. Importantly, a buyer who has already won a refund order from the regulator is still treated as an allottee for insolvency purposes and must meet the same collective threshold to trigger the process, rather than acting alone on the strength of that order. Because the two systems interact in ways that can help or hinder depending on the facts, this is the point at which specific legal advice earns its cost, since choosing and sequencing the right forum can materially affect what a buyer recovers.

What can a buyer realistically expect?

Set expectations honestly: insolvency is a route to a fair process, not a guarantee of getting your flat or your full money back quickly. Resolution can take a long time, outcomes vary, and buyers may receive a completed flat under a revival plan, a partial recovery, or a share of liquidation proceeds, depending on the assets and the plan approved. Reforms have continued to refine how real estate insolvency is handled, including moves towards resolving distressed projects on a project by project basis and strengthening homebuyer safeguards, which is encouraging but still evolving. The realistic posture for a buyer is to treat insolvency as a serious, collective, and often slow legal remedy of last resort, to organise early with fellow allottees, to file claims properly, and to take advice rather than navigate a company insolvency alone. It also helps to keep perspective on what success looks like. In many resolved cases the best realistic outcome is a new developer taking over and completing the project under a plan the creditors approve, which delivers the flat late but real. That is a genuinely better result than the pre reform era, even if it falls short of the on time home the buyer originally paid for, and framing your expectations around a workable resolution rather than perfect restitution will keep you engaged through what can be a long process.

Your builder insolvency checklist for Bengaluru

Work through these seven steps if your builder is in financial distress.

1. Preserve every payment record, your agreement and your allotment documents in one place.
2. Connect with other allottees early, since collective action is a legal precondition.
3. Know that triggering insolvency needs at least 100 allottees or 10 percent of the project.
4. If the builder is already in insolvency, file your claim with the resolution professional on time.
5. Use the prescribed claim form for allottees and support it with your documents.
6. Understand that insolvency pauses your real estate regulator case through a moratorium.
7. Take specific legal advice on whether the regulator or insolvency route serves you better.

The takeaway for a Bengaluru buyer

The recognition of homebuyers as financial creditors was a hard won and important shift, turning buyers from the weakest voice in a builder's collapse into recognised participants with a claim and a seat. But rights on paper only help buyers who use them, and the mechanics reward those who act together, act early and act on advice. If your builder is sliding towards insolvency, the worst thing you can do is wait alone. Organise with other buyers, keep your paperwork airtight, file your claim when the time comes, and get proper counsel on the route. The process is slow and the outcomes uncertain, but a buyer who engages it properly is far better placed than one who hopes the problem resolves itself.

Last updated 2026-09-10. PropNewz Team.