Supreme Court Issues Directions to Protect Homebuyers and Strengthen NCLT
The Supreme Court has issued a series of directives aimed at improving the functioning of the National Company Law Tribunal (NCLT), National Company Law Appellate Tribunal (NCLAT), and real estate regulatory authorities to protect homebuyers and deter speculative misuse.
HomebuyersReal EstateNcltReraInsolvencyReal EstateSep 13, 2025
A Bench of Justices JB Pardiwala and R Mahadevan emphasized the constitutional obligation of the government to protect the interests of homebuyers and the economy at large. They noted that the banking sector, allied industries, and employment for a large populace are also at stake. The Court highlighted the plight of tax-paying middle-class citizens who have invested their lifelong savings in pursuit of a home, only to find themselves burdened with EMIs and rent while their “dream home” remains an unfinished building.
The Court was dealing with a case involving two real estate companies against whom insolvency proceedings had been initiated. In the judgment delivered on September 12, the Court stressed 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 Insolvency and Bankruptcy Code (IBC). The IBC is a remedial framework intended for the revival and protection of sick companies and genuine homebuyers. The Court emphasized that individual investors or homebuyers have alternative remedies under consumer law, the Real Estate (Regulation and Development) Act, and even recourse to Civil Courts in appropriate cases.
Despite robust demand, the real estate sector has been plagued by delays, defaults, and lack of accountability, leaving countless families without possession of homes despite having invested their life savings. In this context, the Court has consistently reiterated that the IBC is not a recovery mechanism or a bargaining chip for individual disputes but a collective mechanism intended to revive viable projects and safeguard the fundamental right to shelter of genuine homebuyers.
To achieve these goals, the Court called for fortified safeguards for bona fide homebuyers to insulate the real estate market from speculation and artificial inflation and to ensure speedy and time-bound adjudication as mandated by the Code. The directions issued by the Court include:
NCLT/NCLAT and RERA Infrastructure
The Court ordered that vacancies in NCLT and NCLAT shall be filled on a war footing. It suggested that dedicated IBC benches with additional strength should be constituted, and services of retired judges may be utilized on an ad hoc basis until regular appointments are made. The Court noted that similar directions have been issued in the past but no effective steps have been taken on the ground. Therefore, it directed the Union government to file a compliance report within three months on measures taken to upgrade NCLT/NCLAT infrastructure nationwide.
The recent closure of Chandigarh NCLT and portions of Delhi NCLT due to water seepage in the Courtrooms and Chambers of Members underscores the urgency of robust infrastructural support. The government shall prioritize e-filing, video-conferencing, and dedicated case management systems for IBC matters in view of the heavy caseload before NCLTs.
With regard to real estate regulatory authorities, the Court directed that States shall ensure they are adequately staffed with infrastructure, experts, and resources. At least one member of every RERA must be a legal expert or consumer advocate with proven expertise in the real estate field. RERAs must conduct thorough diligence before granting approval to any project. Failure to do so, resulting in a miscarriage of justice, shall amount to an error unpardonable in law and may invite strict intervention by the Court.
Reforms in the Real Estate Sector
The Court directed that 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 IBC from the National Institute of Urban Affairs (NIUA), HUDCO’s HSMI, IIMs, NLUs, and NITI Aayog, as well as two eminent industry representatives. The Committee shall suggest commercially viable systemic reforms for cleansing and infusing credibility into the real estate sector. NITI Aayog/NIUA shall provide research and secretarial support. The Committee shall submit its report within six months of its constitution.
Guidelines for Insolvency Proceedings in Real Estate
The Court directed that since real estate is the second largest sector in IBC proceedings, IBBI in consultation with RERA authorities shall 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, as a rule, proceed on a project-specific basis rather than the entire corporate debtor, unless circumstances justify otherwise.
The Court further directed that at the admission stage of Section 7 petitions filed by allottees, NCLTs must record a prima facie finding on whether the applicant is a genuine homebuyer or a speculative investor. This would prevent unnecessary admissions and reduce docket burden.
Directions to Protect Homebuyers
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/allottee. 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 RERA-sanctioned SOP. Every RERA shall devise such SOPs within six months from today.
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. The Union government may also consider establishing a body corporate, on the lines of National Asset Reconstruction Company Limited (NARCL) or otherwise, promoted by real estate/ construction-focused PSUs or through Public-Private Partnerships, to identify, take over, and complete stalled projects under the IBC framework. Unsold inventory from such projects could be utilized towards affordable housing schemes like PMAY or for Government quarters, thereby addressing both the housing shortage and revival of sick projects.
The Union government shall consider establishing a revival fund under NARCL or expanding the Special Window for Affordable and Mid-Income Housing (SWAMIH) Fund to provide bridge financing for stressed projects undergoing CIRP to prevent liquidation of viable projects and safeguard homebuyer interests. SWAMIH Fund is a commendable initiative; however, being a large fund involving public money, every rupee must be utilized strictly for its intended purpose of last-mile financing. To prevent misuse, the Court directed that a comprehensive periodic performance audit by the CAG be carried out, with reports placed in the public domain in a form comprehensible even to laypersons.
Frequently Asked Questions
What are the main directives issued by the Supreme Court to protect homebuyers?
The Supreme Court issued directives to improve the functioning of NCLT, NCLAT, and RERA. These include filling vacancies in NCLT and NCLAT, constituting dedicated IBC benches, ensuring RERA is adequately staffed, and establishing a committee to suggest reforms in the real estate sector.
Why is the Insolvency and Bankruptcy Code (IBC) important for the real estate sector?
The IBC is a remedial framework intended for the revival and protection of sick companies and genuine homebuyers. It is not a recovery mechanism or a bargaining chip for individual disputes but a collective mechanism to revive viable projects and safeguard the fundamental right to shelter.
What is the role of RERA in the real estate sector?
RERA (Real Estate Regulatory Authority) is responsible for ensuring transparency, accountability, and consumer protection in the real estate sector. RERAs must conduct thorough diligence before granting approval to any project and are required to have at least one legal expert or consumer advocate as a member.
How will the establishment of a revival fund help in the real estate sector?
The revival fund, under NARCL or SWAMIH, will provide bridge financing for stressed projects undergoing CIRP to prevent liquidation of viable projects and safeguard homebuyer interests. This will help in completing stalled projects and addressing the housing shortage.
What measures are being taken to ensure the proper use of funds in the SWAMIH Fund?
The Court directed that a comprehensive periodic performance audit by the CAG be carried out, with reports placed in the public domain in a form comprehensible even to laypersons. This will ensure that every rupee is utilized strictly for its intended purpose of last-mile financing.
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