A Strategic Framework for Taxpayers, NRIs, and Professionals Navigating RERA, NCLT, and Risk Exposure
Introduction
The Real Estate (Regulation and Development) Act, 2016 (RERA) was enacted to bring transparency, legal enforceability, and buyer protection in a previously unregulated sector. But RERA is not a guarantee. It is a regulatory umbrella available only when projects and stakeholders comply with it.
For individual taxpayers, salaried professionals, and NRIs investing in Indian real estate, the assumption that “someone else is checking compliance” can lead to irreversible damage. Across jurisdictions, failed or non-RERA-registered projects are not only defaulting on timelines—they are collapsing entirely, leaving buyers caught in insolvency proceedings before the National Company Law Tribunal (NCLT).
When that happens, tax-saving expectations, possession timelines, refund hopes, and even legal remedies under RERA fall apart.
This post identifies the precise compliance touchpoints that must be verified before any property booking and outlines how failed projects shift from RERA redressal to NCLT liquidation, and what that means for the taxpayer.
The Missed Compliance That Becomes a Litigation Trap
When buyers invest in a project not registered under RERA, they are left without:
-
The ability to enforce possession timelines
-
The right to claim interest or refund under Section 18 of RERA
-
Any structured access to escrow disclosures, layout plans, or statutory approvals
The legal vacuum left by non-registration leads to a migration of disputes from RERA Tribunals to civil courts, and increasingly, to the NCLT under the Insolvency and Bankruptcy Code (IBC), 2016.
Transition from RERA to NCLT: What Happens When a Builder Fails
A growing number of stalled or fraudulent real estate projects are being dragged to the NCLT by aggrieved homebuyers, banks, or financial creditors. This shift bypasses RERA entirely.
Key Legal Developments:
-
Homebuyers are recognised as financial creditors under Section 5(8)(f) of the IBC (Supreme Court: Pioneer Urban Land and Infrastructure Ltd. v. Union of India).
-
A group of 100 or more allottees, or 10% of total allottees (whichever is less), can file for insolvency against a defaulting builder using Form G.
-
The builder can be taken into corporate insolvency resolution process (CIRP) under Section 7 of the IBC.
-
Buyers must file Form CA with supporting documents to participate in the CIRP and submit claims under Form C or Form F depending on classification.
In several cases, after the admission of insolvency, the builder’s company is liquidated, or the project is transferred to another developer under a resolution plan. But in both outcomes, homebuyers rarely recover the full investment, and timelines are extended by years.
Legal Forms and Procedures: When Real Estate Projects Collapse
| Form | Purpose | Applicable To |
|---|---|---|
| Form G | Public announcement of insolvency | Filed by IRP post-admission |
| Form C | Submission of claims by financial creditors (homebuyers) | Buyers individually |
| Form F | Consolidated claim submission by authorized representative | When 10% buyers act jointly |
| Form CA | Expression of interest in the CIRP process | Prospective resolution applicants |
| Form 12 (under RERA) | Complaint against promoter | RERA Tribunal filing |
Consequences of NCLT Proceedings on Taxpayers and Buyers
Once a project enters CIRP or liquidation, the following complications arise for taxpayers:
-
Section 80C and Section 24(b) benefits become uncertain due to indefinite possession timelines.
-
Section 54/54F exemptions (for capital gains rollover) may be denied for non-completion.
-
GST paid may be unrecoverable if the builder becomes insolvent and no input credit or output reconciliation occurs.
-
Any payment made outside escrow is untraceable and unsecured.
Strategic Compliance Points Buyers Must Validate Before Investing
1. RERA Registration Verification
-
Check project registration number on State RERA portal
-
Download layout plans, approvals, and quarterly progress updates
2. Escrow Fund Compliance
-
Verify that 70% of project collections are deposited in a project-specific escrow
-
Ask for escrow account number, banker confirmation, and fund utilization certifications
3. Title and Approval Chain
-
Demand:
-
Clear title certificate
-
Encumbrance certificate
-
Building plan sanction
-
Commencement certificate
-
Environment and fire NOCs (if applicable)
-
4. Agreement for Sale
-
Insist on registered, RERA-prescribed agreement before paying more than 10% of cost
-
Verify clause for possession date, penalty, refund, carpet area, and dispute resolution
5. GST & Tax Eligibility
-
Builder must be GST-registered
-
Tax invoices must include valid GSTIN
-
Ensure eligibility for deduction under Section 80C and 24(b)
-
Plan Section 54/54F exemptions only if OC is likely within stipulated timeline
Summary Table: RERA vs NCLT Path
| Feature | RERA-Compliant Project | Non-Compliant Project (leading to NCLT) |
|---|---|---|
| Possession enforcement | Yes (via Form 12 to RERA) | No (subject to CIRP outcome) |
| Refund with interest | Yes under Section 18 | Unlikely post liquidation |
| Escrow protection | Mandatory | Rarely followed |
| Tax benefit validity | High (if completed) | Questionable |
| Legal clarity | High | Complicated & delayed |
| Buyer legal status | Protected consumer | Financial creditor under IBC |
Closing Note
For a taxpayer, investing in a non-compliant or unregistered project is not merely a financial mistake—it is a complete surrender of legal protection. The promise of future possession or tax deduction collapses the moment the project shifts from RERA jurisdiction to NCLT proceedings.
Compliance is not post-investment paperwork—it is the firewall before commitment.
Real estate due diligence must now be seen not just as a legal formality, but as a critical tax, financial, and regulatory strategy. Tax professionals and advisors should treat every property investment as a multi-layered risk assessment, not just an asset transaction.
