If you are a homebuyer in real estate, it is important to understand the “Buy-Back / Surrender” Arrangement under Corporate Insolvency Resolution Process.


In the case of a Corporate Insolvency Resolution Process (CIRP) of a real estate entity, there could be a particular category of homebuyers who may have entered into an arrangement with the developer/promoter in the name of “Buy Back / Surrender” arrangement through a special Memorandum of Understanding (MOU).

Such a clause provides an option to the allottees to cancel the allotment and surrender the unit/apartment so allotted, even before the stipulated period for the completion/delivery of the projects by the Corporate Debtor.

Whether such buyers are to be treated as homebuyers and included in the class of creditors is an important issue that needs clarity.

Illustrative Clause For “Buy-Back / Surrender”

An illustrative clause in the Agreement is given below:-

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“In case the Allottee wishes to cancel the Allotment and surrender the Apartment, then he can do so at the end of XXXX months from the date of this MoU (Buyback Date) and the Company agrees to accept the cancellation and surrender of the Apartment and agrees to pay compensation calculated @ Rs. XXX /- per sq. Ft. of Super Area of said Apartment amounting to Rs. _________ /- in addition to the principal amounts paid by Allottee.”
This option to cancel the Allotment and surrender the Apartment shall lapse after the Buy-back Date (i.e., XXXX months from the Date of MoU) if it is not exercised in the manner specified.”

Hence, an allottee can cancel the allotment/surrender the purchased unit within the stipulated period from the date of the MOU.

How should the cases wherein the corporate debtor has entered into a Memorandum of Understanding (“MOU”) with some home buyers/allottees, referred to as the ‘Buy Back Scheme/ Surrender Scheme’ be treated by the IRP / RP?
What would be the status/classification/categorization of a person who has exercised the option provided under the ‘Buy Back Scheme/Surrender Scheme’?

A) Relevant Case Laws:

Anuj Jain – Interim Resolution Professional for Jaypee Infratech Ltd. vs Axis Bank Ltd. and Ors (2020):

The Hon’ble Supreme Court while analyzing the definition of a financial creditor, as provided under the Code, observed that:
“…what is intended by the expression “financial creditor” is a person who has direct engagement in the functioning of the corporate debtor; who is involved right from the beginning while assessing the viability of the corporate debtor; who would engage in the restructuring of the loan as well as in reorganization of corporate debtor’s business when there is financial stress.”

Ankit Goyat vs. Sunita Agarwal and Anr. (2019):

The Hon’ble National Company Law Appellate Tribunal (NCLAT) observed that:
“where the allottee gets assured returns even if such allottee chooses not to retain the apartment, then, that such agreement to sell is only a camouflage of actually financing the construction of the flat.”

Mrs. Nidhi Rekhan vs. M/s. Samyak Projects Private Limited (2020):

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The Hon’ble National Company Law Appellate Tribunal (NCLAT) observed that:
“the fact that after one year of booking the flats, the first party (the allottee) can cancel or rescind the agreement and take back a refund along with assured interest, the depositor cannot be considered a person who is genuinely interested in purchasing of flats/apartments and cannot, therefore, get the status of financial creditor being an allottee in accordance with Explanation (i) of section 5(8) of IBC. Such an allottee comes into the project as a speculative investor, who for no reason cancels the allotment”

B) Legal Position:

If an allottee has availed of the option provided under the buy-back/surrender scheme, it is clear that he/she is not interested in seeking possession of the allotted unit. And therefore, where the option of buy-back/surrender is exercised, the alleged consideration of an agreement, which is like an investment, would disentitle the person to be categorized as a ‘home buyer’. The person cannot be considered a homebuyer and shall not be represented by the ‘Authorised Representative’ of the homebuyers.

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The claimant might be considered as an unsecured financial creditor or other creditors of the Corporate Debtor, depending upon the exact terms and conditions of the MOU / Agreement and whether there is any provision for assured interest payable in the event of buyback/surrender.

Suppose despite having entered into an MOU / Agreement, the allottees have not exercised the option of buy-back/surrender. In that case, it can be said that they comply with the main apartment buyer agreement, and hence, such allottees will be granted the status of a homebuyer/allottee / financial creditor in a class.


The IRP / RP should carefully verify the claims received from the homebuyers/allottees and check whether the case falls in the category of ‘financial creditors in a class.’ If not, it will have to be determined whether it is to be treated as a part of ‘unsecured financial creditors’ or ‘other creditors’, depending upon the terms provided in the agreement between the corporate debtor and that claimant.

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