The growing convergence between RERA, Consumer Law and Insolvency Law

The Indian real estate disputes regime rarely fits into a single legal category. As far as Real Estate projects are concerned, Real Estate (Regulation and Development) Act, 2016 (RERA), the Consumer Protection Act, 2019 (CPA), and the Insolvency and Bankruptcy Code, 2016 (IBC), comes into play.

RERA regulates projects to protect the interest of consumers in the real estate sector and to establish an adjudicating mechanism for speedy dispute redressal. The Consumer Protection Act was enacted for the protection of the interests of consumers and for the said purpose, to establish authorities for the timely and effective administration and settlement of consumers' disputes. The IBC was enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for the maximisation of the value of assets of such persons.

The convergence is not incidental. RERA maintains remedies available under other laws, and in case of conflict, RERA takes precedence. The CPA serves as an additional remedy rather than the only option. The IBC introduces a unique trail by treating money collected from real estate buyers as financial debt, which allows homebuyers to file their claim under Section 7 against a developer in default.

The most immediate effect of this overlap is the choice of forum. A homebuyer can seek remedies under RERA for interest, refunds, compensation, or specific project directions. Homebuyers can also present its case to a consumer commission as a claim of deficient service. Although the relief options under RERA and the Consumer Protection Act are similar, the CPA is more rigid. RERA is more focused on projects and regulation, while CPA proceedings aim to address consumer harm. The IBC serves a different purpose as it is not intended as a recovery channel and provides a holistic resolution, which can also be project-based. The Supreme Court, recently emphasised that courts and tribunals should be vigilant about whether the claimant is a genuine allottee or a speculative investor while allowing the homebuyer to choose the remedial methods.

The Supreme Court has clarified that these remedies complement each other and RERA does not prevent a consumer from filing a complaint if a homebuyer chose to remedial method under the CPA.  Simultaneously, the approaching the tribunals under the IBC is also permissible.

The Supreme Court upheld the amendment that classifies real estate allottees as financial creditors. This judgment matters not just because it recognised homebuyers within the IBC, but also because it called for a harmonious interpretation of RERA and the IBC.  The Supreme Court has also ruled that an allottee who obtained a RERA decree cannot be placed in a separate and inferior category under IBC just because they already pursued a remedy RERA.    

The convergence of RERA, the CPA, and the IBC reflects the evolving legal identity of homebuyers in India. They may be considered as consumers, allottees or financial creditors based the relief sought and on the forum. The Courts generally favour a harmonious interpretation that allows for parallel remedies. In this sense, there is no complete prohibition on pursuing remedies under RERA or the CPA beside the IBC, so long as the separate purposes and outcomes of each recourse are considered.  Accordingly, such convergence is inevitable and raises no concerns, provided it serves the objective of ensuring speedy access to justice.

About the author: Himanshu Dubey is a Partner at S&A Law Offices.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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