The National Company Law Appellate Tribunal, New Delhi, in Shailendra Agarwal v. Asit Upadhyaya decided in the latter half of April 2025, held that the continued failure of a developer to hand over possession or complete refund to homebuyers constitutes a continuing default under the Insolvency and Bankruptcy Code, 2016. The Tribunal clarified that homebuyers holding recovery certificates from consumer forums or the Real Estate Regulatory Authority remain financial creditors under the IBC until possession is actually delivered or refunds are fully completed.
Background
The matter involved homebuyers who had obtained recovery certificates against a real estate developer but had not received either possession of their flats or refund of their payments. The developer contested the maintainability of a Section 7 application filed by the homebuyers, arguing that the underlying default had already been adjudicated by a consumer forum and that the recovery certificate had crystallised the obligation into a fixed claim, thereby altering its character from a financial debt to a decretal amount.
The question before the NCLAT was whether homebuyers with recovery certificates retained their status as financial creditors under Section 5(8) of the IBC, and whether their claims remained actionable as financial debts for the purposes of initiating corporate insolvency resolution proceedings.
Key Holdings
The NCLAT addressed the intersection of consumer law remedies and IBC proceedings:
Continuing default doctrine: The Tribunal held that a developer's failure to deliver possession or complete a refund constitutes a continuing default. The issuance of a recovery certificate does not extinguish the underlying financial debt or convert it into a different category of obligation.
Financial creditor status preserved: Homebuyers who have amounts raised from them bearing the commercial effect of a borrowing -- as recognised by the IBC's inclusive definition of financial debt -- retain their financial creditor status irrespective of whether they have obtained recovery certificates from other forums.
No estoppel from parallel proceedings: The fact that homebuyers pursued remedies before consumer forums or RERA authorities does not estop them from subsequently invoking IBC proceedings. These remedies operate in parallel, and the election of one does not preclude the other.
Recovery certificate as evidence of default: Rather than undermining the Section 7 application, the existence of a recovery certificate strengthens the homebuyer's case by providing adjudicated evidence of the developer's default.
Implications for Practitioners
This ruling is significant for the thousands of delayed real estate projects across India where homebuyers hold unfulfilled recovery certificates. Practitioners advising homebuyer groups should note that the continuing default framework means the limitation clock does not start running from the date of the recovery certificate. As long as possession remains undelivered and refunds incomplete, the default persists and Section 7 applications remain maintainable.
For developers and their counsel, this ruling effectively means that recovery certificates obtained by homebuyers do not provide insulation against IBC proceedings. The defence strategy of arguing that the consumer forum adjudication has exhausted the homebuyer's remedies is now foreclosed by this NCLAT authority.
Resolution professionals handling real estate insolvency cases should factor in the potential for additional Section 7 applications from homebuyers who hold recovery certificates but have not yet been admitted as financial creditors in ongoing proceedings.