IBC Proceedings vs RERA Recovery: Karnataka High Court on Auction of Project Property
Background and Procedural History
The Karnataka High Court in M. Govind Reddy Vs State of Karnataka, Writ Petition No. 23165 Of 2026 (GM-RES), decided on 11/08/2026, examined whether the pendency of a Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC) automatically prohibits recovery and auction proceedings initiated under the Real Estate (Regulation and Development) Act, 2016 (RERA).
The petitioners approached the High Court seeking:
- Quashing of Public Auction Notice dated 06.06.2026 bearing No. MSC/RERA/CR/32/23-24 issued by the Special Tahsildar (respondent No.3), which was issued to enforce a Recovery Certificate under
Section 41of RERA. - A writ of mandamus directing respondent Nos. 2–4 not to enforce any order, award or Recovery Certificate issued against respondent No.5, described as the Corporate Debtor.
- Any other appropriate relief.
The auction notice in question was a direct consequence of a valid and subsisting RERA Recovery Certificate issued against respondent No.5, a developer with whom the petitioners had entered into a Joint Development Agreement (JDA) for development of their land.
Subsequently, by order dated 04.06.2025, respondent No.5 had been admitted into CIRP under the IBC, and proceedings were pending before the National Company Law Tribunal (NCLT), in C.P. (IB) No.88/2025.
The key issue:
Whether the initiation and continuation of CIRP under the IBC, along with the moratorium under Section 14, and the overriding clause under Section 238, automatically render further steps in RERA recovery (specifically the auction notice) impermissible, or whether such questions are within the exclusive remit of the NCLT.
Petitioners’ Contentions
Claim of ownership and JDA
The petitioners asserted:
- They are the absolute owners of the subject property.
- They executed a Joint Development Agreement with respondent No.5 for development of the property.
- On commencement of CIRP, the rights and interests of respondent No.5 under the JDA form part of the insolvency estate being managed under the IBC framework.
The argument was that:
- Any step to auction the project property or rights associated with it would directly impact the assets and rights of the corporate debtor.
- Therefore, such action should be controlled exclusively by the NCLT and the
Resolution Professional, not by revenue authorities executing RERA Recovery Certificates.
IBC moratorium and overriding effect
The petitioners relied heavily on the overriding character of the IBC:
- They argued that
Section 238of the IBC gives the Code primacy over conflicting provisions in any other law, including RERA. - They contended that after admission of CIRP, no independent recovery proceedings—including actions based on RERA Recovery Certificates—can continue if those proceedings deal with assets, rights, or development interests of the corporate debtor.
According to the petitioners, permitting the RERA-based auction to proceed would:
- Create parallel recovery proceedings outside the insolvency regime.
- Undermine the objective of CIRP, which is to preserve the corporate debtor as a going concern and ensure a collective resolution mechanism for creditors.
Case law cited by the petitioners
The petitioners placed reliance on:
Vishal Chelani & Ors. Vs. Debashis Nanda [Civil Appeal No.3806 of 2023]
They specifically referred to paragraph 12, where the Supreme Court discussed the status of allottees as financial creditors and emphasised that:- Orders/decrees crystallising their claims do not alter their status.
Section 238of IBC contains a non obstante clause, giving overriding effect to IBC provisions.- IBC provisions obtain primacy and cannot be treated as subordinate to the RERA Act.
On this basis, counsel argued that:
- IBC proceedings must prevail if there is any inconsistency with RERA processes.
- Once CIRP begins, all proceedings which affect the corporate debtor’s assets or rights must conform to the IBC regime.