Homebuyer Threshold explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Writ Petition (C) No. 26 of 2020, decided on 19 January 2021, tested the constitutional validity of the 2020 amendments. The Court upheld the numerical threshold on allottee applications, Explanation II to Section 11, and the new Section 32A.
The amendment challenged
The amendments primarily affected section 7(1), which governs initiation of a CIRP by financial creditors. They stipulated that allottees under a real estate project must file jointly with either:
- at least 100 allottees; or
- at least 10% of the total number of allottees,
whichever is less. The petitioners contended that the homebuyer threshold was arbitrary and discriminatory compared with the treatment of other financial creditors, who face no such requirement.
The Court's reasoning
| Ground | Finding |
|---|---|
| Public interest | The amendments aimed to prevent a flood of insolvency applications that could overwhelm the system |
| Vested rights | Vested rights may be affected by retrospective laws, provided the change aligns with public interest; the legislative intent was not irrational or capricious |
| Discrimination | The differentiation was justified by the unique context of real estate transactions |
| Classification | The provisos satisfied the litmus test of reasonable classification in furtherance of the objects of the Code; this was not a case of no intelligible differentia |
The homebuyer threshold looks unequal only if allottees are compared with banks. Compare them with each other and the design makes sense.
A project has hundreds or thousands of allottees, all with claims arising from the same facts. A single dissatisfied buyer can trigger a CIRP whose moratorium halts construction for every other buyer in the project. The remedy would then be worse for the majority than the delay complained of.
The threshold makes the trigger collective, which is what the underlying grievance already is. It is the same logic that runs through the class representation mechanism for creditors in a class.
The two other provisions upheld
- Explanation II in section 11, inserted by section 4 of the 2020 Amendment Act with effect from 28 December 2019, was held constitutionally valid.
- Section 32A, inserted by the 2020 Amendment Act, stipulating liability for prior offences of the erstwhile management of the corporate debtor, was held constitutionally valid — described as apparently important to new management to make a clean break with the past and start on a clean slate.
Section 32A and the clean slate
Section 32A is the criminal-law counterpart of the extinguishment of claims in Ghanashyam Mishra. A resolution applicant taking over a company acquires an entity that may have committed offences under its previous management, with the exposure of prosecution, attachment and confiscation of its assets.
If that liability travelled with the company, no acquirer could safely price a resolution plan. Section 32A severs it, in defined circumstances, so that the corporate debtor's criminal legacy does not follow it into new hands — which is why the Court linked it directly to starting on a clean slate.
Where this sits with the earlier case law
- Col. Vinod Awasthy showed that a flat purchaser was outside the definitions before June 2018.
- The 6 June 2018 Explanation deemed an allottee's payment to have the commercial effect of borrowing, making homebuyers financial creditors.
- The March 2020 amendment introduced the homebuyer threshold, upheld here.
- Ajay Walia held that an allottee who has subrogated rights to a lender under a tripartite agreement is not a financial creditor at all.
- Harisharan Hi-Tech Industries held that commercial and industrial allottees are outside the deeming fiction.
Common mistakes
- Filing a single-allottee section 7 petition against a developer.
- Reading "100 or 10%" as requiring the higher of the two — it is whichever is less.
- Treating the homebuyer threshold as discriminatory merely because banks face no equivalent.
- Assuming a resolution applicant inherits the erstwhile management's criminal liability.