Resolving Conflicts: IBC vs. RERA in Real Estate Insolvency

Posted on Dec 15, 2025 in Law

IBC and RERA: Harmonizing Real Estate Regulation and Insolvency

Introduction to Real Estate Legislation

The real estate sector in India historically suffered from delayed projects, insolvency of developers, diversion of funds, and lack of accountability. To address these issues, two major legislations were introduced in 2016:

  • The Insolvency and Bankruptcy Code, 2016 (IBC): A comprehensive mechanism for resolving insolvency of corporate persons through time-bound processes.
  • The Real Estate (Regulation and Development) Act, 2016 (RERA): A consumer-welfare legislation aimed at regulating real estate projects, ensuring transparency, and protecting homebuyers.

Since both laws operate in the same sector, interactions and conflicts between them became inevitable—especially where a developer goes insolvent, and homebuyers seek remedies under RERA while creditors proceed under IBC. Understanding the relationship between these statutes is crucial because they determine the rights of homebuyers, the priority of claims, and the functioning of real estate companies.

Objectives and Scope of IBC and RERA

Insolvency and Bankruptcy Code, 2016 (IBC)

Objective:

  • Time-bound insolvency resolution.
  • Maximize value of assets.
  • Promote credit markets.
  • Balance interests of all stakeholders.

IBC creates the Corporate Insolvency Resolution Process (CIRP) for corporate debtors. Once admitted, a moratorium is imposed under Section 14, preventing individual actions against the corporate debtor.

Real Estate Regulation and Development Act, 2016 (RERA)

Objective:

  • Protect homebuyers (allottees).
  • Regulate builders.
  • Ensure timely completion, quality, and accountability.
  • Provide speedy dispute resolution through RERA adjudicating authorities.

RERA is a special consumer-centric statute.

Key Legal Provisions Creating the Interface

The interface between the two statutes is defined by several key provisions:

  • IBC Amendment (2018): Homebuyers classified as Financial Creditors (Section 5(8)(f)).
  • Section 7 IBC: Homebuyers can initiate CIRP against the builder.
  • Section 14 IBC: Moratorium halts all individual proceedings, including RERA complaints.
  • Section 88 and 89, RERA: RERA is in addition to other laws, and it overrides inconsistencies with other laws.
  • Section 238 IBC: IBC overrides all laws to the extent of inconsistency.

This creates an apparent tension between RERA and IBC.

Analyzing the IBC-RERA Relationship

The relationship between IBC and RERA is complementary, overlapping, and sometimes conflicting. The Supreme Court has clarified that both statutes are intended to co-exist harmoniously, but where a direct conflict exists, IBC prevails.

We analyze the relationship under the following heads:

Complementary Nature of Both Statutes

Both laws operate in different spheres with distinct objectives:

  • RERA: Regulates the real estate sector and protects homebuyers.
  • IBC: Provides an insolvency and resolution mechanism for defaulting companies.

Thus, RERA governs the performance of builder obligations, while IBC governs financial distress and resolution of the entire corporate entity. Both address different aspects of the same problem.

Homebuyers Classified as Financial Creditors

A major intersection is created through the 2018 IBC Amendment, which classified homebuyers as Financial Creditors.

Implications:

  • They can file Section 7 IBC applications.
  • They get representation on the Committee of Creditors (CoC) through an authorized representative.
  • They can influence the Resolution Plan.

This strengthened the position of homebuyers beyond RERA.

The Moratorium Under Section 14 of IBC

Once CIRP is admitted, Section 14 imposes a moratorium prohibiting:

  • Suits,
  • Proceedings,
  • Recovery actions, and
  • Enforcement of security interests.

This includes proceedings under RERA, the Consumer Protection Act, and Civil courts. Thus, RERA claims cannot continue after CIRP is admitted. This is one of the biggest points of conflict.

Overriding Effect of IBC (Section 238)

IBC contains a non-obstante clause:

“IBC shall have effect, notwithstanding anything inconsistent in any other law.”

Thus, where there is a conflict between RERA’s regulatory authority and IBC’s resolution mechanism, IBC prevails. However, this does not mean RERA is ineffective.

The Continuing Role of RERA During CIRP

Even after the initiation of insolvency under IBC:

  • RERA continues to regulate the project.
  • Compliance with RERA is required for ongoing real estate projects.
  • The Resolution Professional must maintain RERA registrations, disclosures, etc.

Thus, RERA is not completely overridden; only inconsistent parts yield to IBC.

Parallel Remedies Before IBC Admission

Before admission under Section 7 IBC, homebuyers can pursue both RERA and Consumer Fora. RERA proceedings and IBC applications can operate simultaneously. However, once CIRP is admitted, RERA remedies cannot proceed further due to the moratorium.

RERA Orders Convert to Claims in CIRP

If a homebuyer has a RERA compensation order or a refund order, once CIRP begins, these orders get converted into “claims” to be filed before the Resolution Professional. They cannot be directly enforced. This creates a practical limitation but maintains uniformity in insolvency processes.

Special Protection for Real Estate Allottees

The Supreme Court has recognized that homebuyers are a vulnerable class. They require dual protection: regulatory and insolvency. Both statutes aim at consumer protection in different ways. Thus, both statutes are not adversarial but complementary.

Important Judicial Precedents (Case Laws)

  1. Pioneer Urban Land & Infrastructure v. Union of India (2019 SC)

    This is the landmark case defining the relationship between IBC and RERA.

    Key rulings:

    • IBC and RERA must be read harmoniously.
    • Both statutes operate in different fields.
    • Classifying homebuyers as financial creditors is valid and constitutional.
    • If conflict arises, IBC overrides RERA due to Section 238.
    • RERA authorities cannot interfere during the moratorium.

    This case settled the debate.

  2. Embassy Property Developments v. State of Karnataka (2020 SC)

    Clarified that regulatory authorities (like RERA) operate within their domain, but insolvency matters lie exclusively with NCLT/NCLAT.

  3. Bikram Chatterji v. Union of India (Amrapali Case) (2019 SC)

    The Supreme Court directed the protection of homebuyers, accountability of builders, and completion of stalled projects through government agencies. This illustrates the simultaneous use of RERA, IBC, and the Supreme Court’s Article 142 powers.

  4. NBCC v. Jaypee Infratech Homebuyers Cases

    Recognized homebuyers’ voting rights in the CoC and their crucial role in the resolution process.

Points of Conflict and Resolution

Points of conflict:

  • RERA allows individual action; IBC freezes all actions.
  • RERA focuses on the completion of the project; IBC focuses on the revival of the company.
  • RERA orders cannot be executed after CIRP begins.
  • Multiple RERA orders may disrupt the unified insolvency process.

Resolution:

Courts have consistently held that RERA and IBC supplement each other. In case of direct conflict, IBC prevails.

The Harmonious Construction Approach

Courts interpret both statutes to ensure:

  • Consumer welfare,
  • Completion of projects,
  • Protection of creditors, and
  • Prevention of misuse (including builder harassment).

RERA ensures regulation; IBC ensures rescue or liquidation.

Conclusion

The relationship between IBC and RERA reflects an attempt by the legislature to balance consumer protection, builder accountability, insolvency resolution, and systemic economic stability. Although both statutes operate in distinct domains, their overlap in real estate creates unavoidable friction. The Supreme Court, especially in Pioneer Urban, establishes that:

  • Both laws are complementary.
  • They operate simultaneously.
  • Where conflict arises, IBC prevails due to Section 238.

Thus, IBC provides an umbrella insolvency framework, while RERA continues to regulate and protect homebuyers, ensuring transparency and discipline in the real estate sector. Together, they create a comprehensive system balancing regulatory oversight and insolvency resolution.