Protecting Genuine Homebuyers: Supreme Court Ruling on IBC Misuse
The Supreme Court has ruled that speculative investors cannot misuse the Insolvency Bankruptcy Code (IBC) provisions. The court directed the Union Government to create a revival fund for stressed real estate projects.
Supreme CourtIbcReal EstateHomebuyersInsolvencyReal EstateSep 13, 2025
The case involved Mansi Brar Fernandes, who, in her capacity as a homebuyer/financial creditor, filed an application under Section 7 of the IBC. The National Company Law Appellate Tribunal (NCLAT) reversed the admission of this application, holding that she was a “speculative investor” rather than a genuine homebuyer or financial creditor.
In a similar case, the NCLAT set aside the Section 7 application filed by Sunita Agarwal, also categorizing her as a “speculative buyer” seeking to profit from a lucrative agreement. The directors of the Corporate Debtor, Gayatri Infra Planner Pvt. Ltd., challenged the first impugned order on the grounds of non-applicability of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019, to the facts of the case.
Mansi Brar Fernandes and Gayatri Infra Planner Pvt. Ltd. had entered into a Memorandum of Understanding (MoU) for the purchase of four flats in Gayatri Life, Greater Noida. She paid Rs. 35,00,000 as part consideration, and the MoU included a buy-back clause exercisable at the discretion of the Corporate Debtor. Despite the MoU being extended twice, neither the flats were delivered, nor were payments made. Post-dated cheques worth Rs. 1 crore handed over by the Corporate Debtor were returned dishonored upon presentation. Fernandes then initiated Section 7 IBC proceedings and proceedings under Section 138 of the Negotiable Instruments Act, 1881.
The National Company Law Tribunal (NCLT) admitted the application, but this decision was challenged and set aside by the NCLAT. The appellants in C.A. No. 540 of 2021 and C.A. No. 5495 of 2025 argued that the Section 7 petition under the IBC, filed by Fernandes, was reserved on 04.12.2019, prior to the promulgation of the Ordinance. They contended that the failure to meet the threshold requirement mandated under the Ordinance was fatal to the maintainability of the petition.
The Supreme Court has consistently held that the Right to Shelter is an integral part of the right to life under Article 21 of the Constitution. This recognition casts a duty on the State to ensure access to adequate housing, particularly for weaker sections. The Court emphasized that while investors are integral to any industry and their interests warrant protection, speculative participants driven purely by profit motives cannot be permitted to misuse the IBC, which is a remedial framework for the revival and protection of sick companies and genuine homebuyers.
The Court noted that such investors have alternative remedies under consumer law or RERA, and even recourse to Civil Courts in appropriate cases. Admitting speculative claims into insolvency proceedings would dilute the legislative scheme, destabilize the residential real estate sector, and erode the social purpose embedded in housing as a fundamental right.
The Court directed the Insolvency and Bankruptcy Board of India (IBBI), in consultation with RERA authorities, to constitute a council to frame specific guidelines for insolvency proceedings in real estate, including timelines for project-wise CIRP and safeguards for allottees. Resolution of real estate insolvency should proceed on a project-specific basis to protect solvent projects and genuine homebuyers from collateral prejudice. The IBBI shall also devise a mechanism to enable the handover of possession to willing allottees where substantial units in a project are complete.
The Union Government is advised to consider establishing a revival fund under NARCL or expanding the SWAMIH Fund to provide bridge financing for stressed projects undergoing CIRP, thereby preventing liquidation of viable projects and safeguarding homebuyer interests. The SWAMIH Fund is a commendable initiative, but as a large fund involving public money, every rupee must be utilized strictly for its intended purpose of last-mile financing.
The bench observed that the right to housing is not merely a contractual entitlement but a facet of the fundamental right to life under Article 21. Genuine homebuyers represent the backbone of India’s urban future, and their protection lies at the intersection of constitutional obligation and economic policy. Through these directions, the Court seeks to restore faith in the regulatory and insolvency framework, deter speculative misuse, and ensure that the “dream home” of India’s citizens does not turn into a lifelong nightmare.
The court upheld the NCLAT’s findings, holding the appellants (Mansi Brar Fernandes and Sunita Agarwal) to be speculative investors. Consequently, the impugned orders setting aside the admission of the Section 7 applications by the NCLT are affirmed. However, the appellants are free to pursue their remedies before the appropriate forum in accordance with the law, and in such an event, the bar of limitation shall not apply.
Frequently Asked Questions
What is the Insolvency Bankruptcy Code (IBC)?
The Insolvency Bankruptcy Code (IBC) is a law in India that provides a time-bound process for resolving insolvency and bankruptcy. It aims to protect the interests of homebuyers, financial creditors, and operational creditors while ensuring the revival of sick companies.
Who is considered a speculative investor in the context of IBC?
A speculative investor is someone who buys property or enters into agreements primarily to profit from them, rather than for genuine residential or investment purposes. Such investors are not considered genuine homebuyers or financial creditors under the IBC.
What is the significance of the Supreme Court's ruling?
The Supreme Court's ruling ensures that the IBC is not misused by speculative investors and protects the interests of genuine homebuyers and financial creditors. It also directs the Union Government to establish a revival fund for stressed real estate projects.
What is the role of the IBBI in this context?
The Insolvency and Bankruptcy Board of India (IBBI) is directed to frame specific guidelines for insolvency proceedings in real estate, including timelines for project-wise CIRP and safeguards for allottees.
What are the alternative remedies available to speculative investors?
Speculative investors have alternative remedies under consumer law, RERA, and Civil Courts in appropriate cases. These remedies ensure that their interests are protected without misusing the IBC.
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