SUPREME COURT HOLDS RESIDENTS WELFARE ASSOCIATION OR HOMEBUYERS’ SOCIETY CAN’T INTERVENE IN INSOLVENCY PETITION AGAINST BUILDER

The Supreme Court of India recently delivered a Judgment in the case titled Elegna Co-operative Housing and Commercial Society Ltd. v. Edelweiss Asset Reconstruction Company Limited & Anr. (Civil Appeal No. 10261 of 2025), decided by Two Judge Bench comprising of Justice R. Mahadevan and Justice J.B. Pardiwala on January 15, 2026. This Judgment, arising from appeals challenging a decision by the National Company Law Appellate Tribunal (NCLAT) dated July 1, 2025, addresses two critical issues at the intersection of real estate development, insolvency law and homebuyer protection: the permissibility of admitting a real estate developer into the Corporate Insolvency Resolution Process (CIRP) and the standing of homebuyer societies to intervene in insolvency proceedings.
Factual Background
The dispute originates from the “Takshashila Elegna” project, a residential-cum-commercial development in Ahmedabad comprising four towers with 279 units (259 residential and 20 commercial). In July 2018, the developer, Takshashila Heights India Private Limited, secured financial assistance of Rs. 70 crores from ECL Finance Limited through two term loan facilities, Rs. 40 crores and Rs. 30 crores respectively. These loans were secured by mortgages on project assets and personal guarantees from the developer’s promoters.
The developer made its final payment in September 2021, after which the loan accounts were classified as Non-Performing Assets (NPA) by December 2021. In May 2022, the original lender transferred its rights to Edelweiss Asset Reconstruction Company Limited (EARCL), an asset reconstruction company. EARCL subsequently issued demand notices totaling over Rs. 57 crores and initiated recovery proceedings under the SARFAESI Act and before the Debts Recovery Tribunal.
Following commercial negotiations, the parties executed a Restructuring-cum-One Time Settlement Agreement on May 23, 2023, fixing the liability at Rs. 55 crores payable in eight installments. The developer paid Rs. 5.5 crores as the first installment but struggled with subsequent payments. EARCL refused to issue a “No Objection Certificate” for the sale of unsold units, which obstructed the developer’s ability to generate funds for repayment. Consequently, EARCL revoked the restructuring arrangement on December 29, 2023, claiming default and filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking admission of the developer into CIRP.
Contentions of the Parties
The Developer contended that the project was substantially complete with 189 units sold, 80 units handed over to allottees and sufficient unrealized inventory to discharge outstanding liabilities. It argued that EARCL’s conduct was abusive, using the IBC as a recovery mechanism rather than a tool for corporate rehabilitation. The Developer highlighted the manufactured nature of default, resulting from EARCL’s refusal to issue the required NOC and emphasized that viable projects should not be forced into insolvency.
EARCL asserted that the admission inquiry under Section 7 is limited to establishing the existence of a financial debt and the occurrence of default. Once these twin conditions are satisfied, admission is mandatory, leaving no discretion for considering project viability or alleged creditor misconduct.
The Elegna Co-operative Housing and Commercial Society, representing 189 confirmed unit holders, sought intervention in the NCLAT proceedings, arguing that the outcome directly affected the proprietary and contractual rights of homebuyers. The society contended that homebuyers are financial creditors under the IBC and entitled to participate in such proceedings.
Court’s Decision
The Supreme Court affirmed EARCL’s right to seek admission of the developer into CIRP while strictly rejecting the homebuyer society’s intervention application. On the question of CIRP admission, the Court held that once default is established, admission is mandatory, citing precedents like Innoventive Industries Ltd. v. ICICI Bank and E.S. Krishnamurthy v. Bharath Hi-Tech Builders Pvt. Ltd. The Court clarified that Vidarbha Industries, often cited to permit discretion, represents a narrow exception confined to cases where the corporate debtor possesses an adjudicated claim exceeding its outstanding debt, a condition absent here.
The Court reasoned that considerations such as project viability, completion status or alleged creditor misconduct cannot prevent admission at the threshold stage. However, it explicitly deprecated (though did not prohibit) the parallel pursuit of recovery proceedings under SARFAESI and before the DRT simultaneously with CIRP initiation.
Regarding the homebuyer society’s intervention, the Court held that the right to participate in insolvency proceedings is strictly statutory and arises only where the Code explicitly confers it. While individual allottees are recognized as financial creditors, a maintenance society, not being itself a creditor and lacking statutory authorization as an “authorized representative,” cannot intervene at the pre-admission stage. The Court emphasized that proceedings under Section 7 remain bipartite, involving only the financial creditor and corporate debtor, until admission transforms them into collective proceedings (in rem).
Conclusion
This Judgment crystallizes the settled principle that insolvency admission is a threshold question confined to debt and default, with no room for discretionary consideration of collateral factors. However, the Court simultaneously acknowledged the vulnerability of homebuyers in real estate insolvencies and issued prospective directions to protect their interests. It mandated that the Committee of Creditors furnish written reasons for refusing possession handovers to allottees and recommend liquidation decisions. This Judgment reinforces that while homebuyers cannot participate directly through societies before admission, their statutory protections through the authorized representative mechanism post-admission must be scrupulously observed.

SUSHILA RAM VARMA
ADVOCATE AND CHIEF LEGAL CONSULTANT
THE INDIAN LAWYER AND ALIED SERVICES
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