Supreme Court Calls for IBC Overhaul and Revival Fund for Stressed Real Estate Projects

The Supreme Court has urged major reforms in the Insolvency and Bankruptcy Code (IBC) and the establishment of a revival fund to support stressed real estate projects. It emphasized that the Right to Housing is a fundamental right and called for comprehensive measures to protect homebuyers and the economy.

Insolvency And Bankruptcy CodeReal EstateSupreme CourtRevival FundHomebuyersReal Estate MaharashtraSep 12, 2025

Supreme Court Calls for IBC Overhaul and Revival Fund for Stressed Real Estate Projects

Real Estate Maharashtra:The Supreme Court has suggested significant reforms in the Insolvency and Bankruptcy Code (IBC) to restore faith in the regulatory and insolvency framework. The court also urged the government to establish a revival fund to provide financing for stressed real estate projects undergoing insolvency proceedings.

The apex court emphasized that the Right to Housing is not merely a contractual entitlement but a facet of the fundamental Right to Life under Article 21 of the Indian Constitution. The government, it said, cannot remain a “mute spectator” and is constitutionally obliged to protect the interests of homebuyers and the economy at large.

A bench of Justice J.B. Pardiwala and Justice R. Mahadevan stated that insolvency reforms are necessary 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 Union Government has been directed to consider establishing a revival fund under the National Asset Reconstruction Company or expanding the Special Window for Affordable and Mid-Income Housing Fund to provide bridge financing for stressed projects undergoing Corporate Insolvency Resolution Process (CIRP). This is aimed at preventing the liquidation of viable projects and safeguarding homebuyer interests. The court also directed that a comprehensive periodic performance audit by the Comptroller and Auditor General (CAG) be carried out, with reports placed in the public domain in a form comprehensible even to laypersons.

According to the judgment, every residential real estate transaction for new housing projects shall be registered with local revenue authorities upon payment of at least 20% of the property cost by the buyer or allottee. To protect senior citizens and bona fide homebuyers, contracts that significantly deviate from the Model RERA Agreement to Sell, or that incorporate returns/buyback clauses where the allottee is over the age of 50, must be supported by an affidavit sworn before the competent Revenue Authority, certifying that the allottee understands the attendant risks.

In projects at nascent stages, such as where land is yet to be acquired or construction has not commenced, proceeds from allottees shall be placed in an escrow account and disbursed in phases aligned with project progress, as per a RERA-sanctioned Standard Operating Procedure (SOP). Every RERA shall devise such SOPs within six months from the date of the judgment.

The court highlighted that this issue is not merely about houses or apartments but also concerns the banking sector, allied industries, and employment for a large populace. Genuine homebuyers represent the backbone of India's urban future, and their protection lies at the intersection of constitutional obligation and economic policy.

The top court asked the government to fill vacancies in the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) on a war footing. The Centre has been directed to file a compliance report within three months on measures taken to upgrade the infrastructure of these tribunals nationwide. The recent closure of the Chandigarh tribunal and portions of the Delhi tribunal due to water seepage in courtrooms and chambers underscores the urgency of robust infrastructural support.

Within three months, a committee chaired by a retired high court judge shall be constituted, with representatives from the Ministry of Law, Ministry of Housing, domain experts in real estate, finance, and insolvency, as well as two eminent industry representatives to suggest commercially viable systemic reforms for cleansing and infusing credibility into the real estate sector. NITI Aayog and the National Institute of Urban Affairs shall provide research and secretarial support, and the committee is to submit its report within six months of its constitution.

Since real estate is the second-largest sector in insolvency proceedings, the Insolvency and Bankruptcy Board of India (IBBI), in consultation with real estate authorities, shall constitute a council to frame specific guidelines for insolvency proceedings in real estate, including timelines for project-wise insolvency and safeguards for allottees. Resolution of real estate insolvency should, as a rule, proceed on a project-specific basis rather than the entire corporate debtor, unless circumstances justify otherwise. This would protect solvent projects and genuine homebuyers from collateral prejudice. The insolvency board shall also devise a mechanism to enable the handover of possession to willing allottees where substantial units in a project are completed.

Among future reforms, the top court suggested that IBBI may consider introducing “Basel-like” early warning frameworks, drawing from comparative practices such as pre-bankruptcy mediation and preventive restructuring, requiring directors to initiate restructuring before defaults spiral out of control. The Union Government should undertake a consultative exercise to bring about uniformity in RERA Rules across states, to remove ambiguity and fill lacunae in what is otherwise a watershed legislation.

Housing boards, state-level Urban Development Authorities like DDA and CPSUs should establish dedicated wings to revive and complete stalled projects under IBC mechanisms. Collaboration with Indian think tanks and academic institutions should be strengthened to build indigenous capacity for sectoral restructuring. This has the potential to improve India’s ease of doing business and accelerate economic growth.

In addition, the Centre may consider establishing a body corporate, on the lines of NARCL or otherwise, promoted by real estate or construction-focused public sector units or through public-private partnerships, to identify, take over, and complete stalled projects under the insolvency framework. Unsold inventory from such projects could be utilized towards affordable housing schemes like Pradhan Mantri Awas Yojana or for government quarters, thereby addressing both the housing shortage and the revival of sick projects.

Frequently Asked Questions

What is the main reason for the Supreme Court's call for IBC reforms?

The main reason is 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 also emphasized the constitutional obligation to protect the interests of homebuyers and the economy.

What is the proposed revival fund for?

The proposed revival fund is to provide financing for stressed real estate projects undergoing insolvency proceedings, preventing the liquidation of viable projects and safeguarding homebuyer interests.

What are the key measures suggested for protecting homebuyers?

Key measures include registering every residential real estate transaction with local revenue authorities, placing proceeds from allottees in an escrow account, and ensuring contracts are supported by an affidavit certifying that the allottee understands the risks.

What is the role of the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) in this context?

The court has directed the government to fill vacancies in these tribunals on a war footing and upgrade their infrastructure to ensure effective handling of insolvency cases.

What future reforms are suggested by the court for the real estate sector?

Future reforms include introducing ‘Basel-like’ early warning frameworks, bringing uniformity in RERA Rules across states, and establishing a body corporate to identify, take over, and complete stalled projects under the insolvency framework.