Builder missing or bankrupt? What homebuyers can do about the home loan, RERA and the IBC

Your loan agreement is with the bank, and it stands on its own. If the builder disappears or stops work, the EMIs are still due. Skipping them will hit your CIBIL score, and a damaged score makes it hard to get any loan or credit card later. Pay if you can, and if you can’t, speak to the bank before you miss a date. The legal fight against the builder can run alongside your payments.

Pull out the agreement signed by you, the builder and the bank. Many buyers took a subvention or “no EMI till possession” scheme, where the builder promised to pay the interest. If he has stopped, he has broken the contract, and that matters in any case you file later. Then inform your bank in writing that the builder has disappeared. Ask for a moratorium, a restructuring of the loan or a temporary pause on EMIs while the matter is sorted out. Banks are more willing to listen when there is a paper trail.

If the builder has taken your money and run, file a police complaint for cheating and criminal breach of trust. Keep copies of the allotment letter, agreement, payment receipts and bank statements ready, because the police will ask for them. Then file a complaint with your state’s RERA authority, such as WBRERA in West Bengal. You can ask for a refund of the principal with interest, or for the project to be completed through someone else. RERA is meant for exactly this kind of project abandonment.

You can approach the Consumer Disputes Redressal Commission for deficiency of service and ask for your money back. If the bank starts recovery action against you, one route is to apply before the Debt Recovery Tribunal to make the builder a party to the dispute. That puts the builder’s failure to deliver at the centre of the case, instead of leaving you alone against the lender. A lawyer who handles real estate disputes can tell you which forum fits your case best.

When a builder goes bankrupt, the law is on your side more than most people think. Under Section 5(8)(f) of the Insolvency and Bankruptcy Code, homebuyers are treated as financial creditors. That means they can start insolvency proceedings against the developer by filing a petition under Section 7. There is a condition, though. The petition must be filed jointly by at least 100 allottees or 10 per cent of all allottees in the project, whichever is lower. One buyer acting alone will not get far.

Once the National Company Law Tribunal admits the petition, an Interim Resolution Professional takes charge and puts out a public notice asking creditors to submit claims. Homebuyers do this through Form CA under Regulation 8A of the IBBI regulations. Attach the allotment letter, registered sale agreement, payment receipts and other records. The professional then forms a Committee of Creditors, where homebuyers are represented by an Authorised Representative who votes on their behalf on how the project is to be revived or resolved.

Legal experts say buyers are far more likely to get the flat than get their cash back during insolvency. The framework, including reverse CIRP and recent amendments, leans towards finishing stalled projects and handing over homes. The picture changes if the company is liquidated. In that case homebuyers rank behind secured creditors such as banks, and recoveries have been very low. For most buyers, the goal is to keep the project alive and get a workable resolution plan approved.

Do not go it alone. Form or join an association of affected buyers, so your voice carries weight in the Committee of Creditors. Track updates from the NCLT and the resolution professional on any plans received, and stay in touch with the Authorised Representative. Buyers should make sure that points like possession timelines and financial settlements are properly raised in the committee. One more thing worth knowing: homebuyers are one class of creditor, and a plan cannot treat you differently based on how much of the price you have paid.

Most of this pain can be reduced before the first cheque is written. Check that the project is registered with RERA and read everything on the portal, including title deeds, approvals, disclosures, encumbrances, pending litigation and the payment plan. Look at the builder’s track record too, and ask whether his earlier projects were delivered on time. A small amount of legal and financial checking up front is cheaper than years of EMIs on a flat you cannot enter.

This is general information based on views shared by legal experts, not legal advice. Please consult a qualified lawyer about your own case.