INTRODUCTION
The Insolvency and Bankruptcy Code 2016 was initially established to reform the mechanism of resolution of financial distress, consolidating diverse insolvency laws, etc. The main concern was on reviving the ailing companies and protecting the interests of creditors. As the law is evolving and developing, the government is keeping a close watch on the outcome of the proceedings in the courts of law, and it has been seen that it is quick in plugging the loopholes.
However, the entry of homebuyers as financial creditors marked a fundamental change in the insolvency landscape, especially in real estate insolvencies. Unlike traditional financial creditors, homebuyers use their investments primarily for housing, not just for financial gain. Their inclusion brought a large and varied group of stakeholders into the Committee of Creditors (CoC). This raised complex questions about representation, fairness, and justice within a process driven mainly by economic concerns.
Given this situation, the Supreme Court has paid more attention to the unique challenges faced by homebuyers, particularly in stalled real estate projects that affect thousands of people. This judicial involvement raises an important question: has the Supreme Court subtly changed the role of the CoC? It appears to shift from group acting with unlimited commercial freedom to one that has a greater duty to protect stakeholders in real estate insolvency cases. The developing legal framework indicates that when many homebuyer interests are involved, the CoC’s responsibility may no longer be just economic in nature.
LEGAL POSITION OF HOMEBUYERS UNDER IBC
The Supreme Court has recognised that homebuyers can initiate the process of insolvency, but this wasn’t an easy process for them. The battle in the Supreme Court was started by treating them as investors, which falls under financial debt. The battle started with the case of Nikhil Mehta & Sons (HUF) v AMR Infrastructures Ltd.,[1] where the judgment concluded by involving homebuyers as investors under sale purchasing agreement with a fixed return plan, which qualifies as financial debt under section 5(8)(f), making them financial creditors, also held investments similar to loans. This financial creditor’s entitlement gave homebuyers representation and voting rights in the Committee of Creditors (CoC). This amendment aimed to align the insolvency framework with economic reality, acknowledging that advances paid by homebuyers’ finances real estate projects.
Later on, the home buyers took a different approach. They went to court as “operational creditors” to start insolvency proceedings under Section 9.[2] However, their hopes were dashed in the cases of Mukesh Kumar v. AMR Infrastructures Ltd.[3] and Rubina Chadha v. AMR Infrastructure Ltd.[4] They left without clear answers, and their chances of getting justice from the defaulting developers remained unclear. These challenges continue to shape the evolving discourse on the CoC’s responsibility in real estate insolvency.
Doctrine of Commercial Wisdom: The Doctrine of Commercial Wisdom is a key principle in insolvency law. It acknowledges the expertise and importance of financial creditors in deciding how to handle stressed assets. According to the Insolvency and Bankruptcy Code, 2016 (IBC), this doctrine states that the Committee of Creditors (CoC) has the financial knowledge and interest needed to decide the best way to maximise the value of the corporate debtor’s assets.[5]
This doctrine stems from the understanding that financial creditors, who have provided credit to the corporate debtor, possess both a financial interest and the business know-how to make informed choices. They can decide whether to revive the company or liquidate its assets. The Supreme Court of India has consistently maintained that courts should limit their interference in these commercial decisions. This approach helps uphold the integrity of the creditor-driven resolution process laid out in the Code. CoC’s decisions must follow the legal framework set by the IBC and its rules. If a decision violates specific provisions of the Code, such as: Violating the mandatory voting threshold under Section 30(4) of the IBC, approving a resolution plan that does not meet the minimum requirements listed in Section 30(2), Ignoring the distribution method required under the waterfall in Section 53, not considering the interests of all stakeholders as the Code mandates.[6]
In these situations, the Adjudicating Authority (NCLT) or appellate tribunals may step in to ensure compliance with the law. While proving arbitrariness or bad faith is challenging, courts can intervene when: Decisions are made without any reasonable basis or evidence, There is proof of fraud, collusion, or corrupt practices ,The decision stems from malice or improper motives ,The CoC acts in a way that misuses the legal process.[7] However, simply disagreeing with the decision’s commercial reasoning or suggesting an alternative course of action that seems better does not justify court involvement.
SUPREME COURT’S SHIFT IN REAL ESTATE INSOLVENCY
While the doctrine of Commercial Wisdom is the backbone of Insolvency laws, the Supreme Court has redefined its application in the real estate sector involving homebuyers. The court has given the distinction between conventional corporate debtors and the financial contribution of thousands of homebuyers in real estate. These financial contributions are tied to livelihood and shelter rather than purely to commercial returns. The Supreme Court has adopted a more sensitive stakeholder approach to this matter.
The court’s decision in the case titled Pioneer Urban Land and Infrastructure Ltd. v. Union of India. Has confirmed that Section 5(8) (f) of the Insolvency & Bankruptcy Code, 2016 is constitutional.[8] This ruling is a big victory for homebuyers, as it now allows them to use the Code and gives them an equal position in the committee of creditors as banks and other financial institutions. This development is expected to discourage dishonest real estate companies and developers who have taken a lot of money from buyers but failed to complete their projects.
Another such landmark case was Jaypee Kensington Boulevard Apartments v NBCC India Ltd,[9] in which the Supreme Court clarified that the CoC’s commercial judgment is not final when it leads to clear unfairness for homebuyers. The Court closely examined the resolution plan for its feasibility, fairness, and the real chances for homebuyers to obtain their homes. It noted that approving a plan that only focuses on maximising financial recovery while leaving homebuyers without any options would go against the intent of the IBC.
These decisions show a subtle but important change. The Supreme Court has not discarded the doctrine of commercial wisdom; instead, it has reshaped its boundaries in real estate bankruptcies. The Committee of Creditors now needs to use its discretion more carefully, especially when working with large groups of stakeholders like homebuyers, whose interests go beyond just balance sheets.
FROM CREDITOR CONTROL TO CREDITOR RESPONSIBILITY: THE CHANGING ROLE OF THE COC
The emerging legal trends show that in real estate insolvency cases, the Committee of Creditors (CoC) has a role that goes beyond just maximising financial value. It now has an additional duty to ensure:
- Fair treatment of homebuyers, acknowledging their roles as both creditors and consumers.
- The viability and completion of projects, rather than just paper agreements.
- Transparency and accountability in decision-making processes.
The Supreme Court’s approach indicates a change from prioritising creditor power to emphasizing creditor responsibility. While the CoC still plays a leading role in commercial decisions, this role is now balanced with the larger goals of justice, protecting stakeholders, and practical economic considerations. [10]
CONCLUSION
The Supreme Court has not directly changed the Insolvency and Bankruptcy Code, nor has it weakened the idea of commercial wisdom. However, through purposeful interpretation, it has adjusted the CoC’s responsibility in real estate insolvency cases that involve homebuyers. By recognising the special position of homebuyers and insisting on fairness alongside practicality, the Court has made sure that insolvency resolution does not become a tool for injustice. So, in response to the main question, yes, the Supreme Court has redefined the CoC’s responsibility. It has done this not by limiting its powers, but by requiring that those powers be used with greater care when the lives and homes of thousands are at risk.
Author’s Name: Manisha Nandkumar Dhayrikar (ILS Law College, Pune)
References:
[1] Nikhil Mehta and Sons (HUF) v AMR Infrastructures Ltd (2017) Company Petition (IB) No 07(PB)/2017
[2] Insolvency and Bankruptcy Code 2016, s 9
[3] Mukesh Kumar v AMR Infrastructures Ltd Company Petition (IB) No 06(PB)/2017
[4] Rubina Chadha v AMR Infrastructures Ltd Company Petition (IB) No 09(PB)/2017
[5] ‘Commercial Wisdom of the Committee of Creditors Consisting of Homebuyers’ (SCC Online Blog, 27 November 2024) <https://www.scconline.com/blog/post/2024/11/27/commercial-wisdom-of-the-committee-of-creditors-consisting-of-homebuyers/> accessed 23 January 2026
[6] ‘Role and Responsibilities of the Committee of Creditors’ (AM Legals) <https://amlegals.com/role-and-responsibilities-of-the-committee-of-creditors/> accessed 23 January 2026
[7] ‘Creditor Rights and Committee of Creditors (CoC) Under IBC 2016’ (Maheshwari & Co, 12 March 2025) https://www.maheshwariandco.com/blog/creditor-rights-and-committee/ accessed 23 January 2026
[8] Pioneer Urban Land and Infrastructure Ltd. v Union of India (2019) 8 SCC 416
[9] Jaypee Kensington Boulevard Apartments v NBCC India Ltd (2021) 2 SCC 1
[10] K. Sushrutha Reddy & K. Gowtham Satya Krishna Karthikeya, ‘The Evolution of Home Buyers Role in India’s Insolvency Framework’ (IBC Law) <https://ibclaw.in/the-evolution-of-home-buyers-role-in-indias-insolvency-framework-by-k-sushrutha-reddy-k-gowtham-satya-krishna-karthikeya/> accessed January 23, 2026
