Supreme Court Issues Directives to Protect Homebuyers and Strengthen NCLT and RERA

The Supreme Court has issued a series of directives to improve the functioning of the National Company Law Tribunal (NCLT), National Company Law Appellate Tribunal (NCLAT), and real estate regulatory authorities, aiming to protect homebuyers and deter speculative misuse of the Insolvency and Bankruptcy Code (IBC).

Real EstateHomebuyersNcltReraIbcReal Estate MumbaiSep 13, 2025

Supreme Court Issues Directives to Protect Homebuyers and Strengthen NCLT and RERA

Real Estate Mumbai:The Supreme Court on Friday issued a slew of directions to enhance the functioning of the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT), as well as the real estate regulatory authorities, in the case of Mansi Brar Fernandes v Shubha Sharma and Anr.

A Bench of Justices JB Pardiwala and R Mahadevan stated that these directions aim 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 emphasized the constitutional obligation of the government to protect the interests of homebuyers and the broader economy. Justice Pardiwala and Justice Mahadevan highlighted the plight of tax-paying middle-class citizens, who often invest their lifelong savings in pursuit of a home, only to face the double burden of servicing EMIs and paying rent when their “dream home” remains an unfinished building.

The Court was addressing 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, speculative participants driven purely by profit motives cannot misuse the IBC. The IBC is designed to revive sick companies and protect genuine homebuyers, but individual investors have alternative remedies under consumer law, the Real Estate (Regulation and Development) Act, and civil courts.

The Court noted that despite robust demand, the real estate sector has been plagued by delays, defaults, and lack of accountability, leaving countless families without possession of homes. 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.

NCLT/NCLAT and RERA Infrastructure

The Court ordered that vacancies in NCLT and NCLAT shall be filled on a war footing. It suggested the constitution of dedicated IBC benches with additional strength, utilizing the services of retired judges on an ad hoc basis until regular appointments are made. The Court acknowledged that similar directions have been issued in the past but noted the lack of effective steps on the ground. 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 the Chandigarh NCLT and portions of the Delhi NCLT due to water seepage underscores the urgency of robust infrastructural support. The government was also directed to prioritize e-filing, video-conferencing, and dedicated case management systems for IBC matters due to the heavy caseload before NCLTs.

Regarding real estate regulatory authorities, the Court directed that States 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 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

Committee to Suggest Reforms

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 a RERA-sanctioned SOP. Every RERA shall devise such SOPs within six months from today.

The Court also said that 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. 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.

Conclusion

These directions by the Supreme Court are aimed at restoring faith in the regulatory and insolvency framework, deterring speculative misuse, and ensuring that the “dream home” of India’s citizens does not turn into a lifelong nightmare. The implementation of these directives is crucial for the well-being of homebuyers and the overall health of the real estate sector.

Frequently Asked Questions

What are the main objectives of the Supreme Court's directives?

The main objectives are 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.

Why is the IBC not a recovery mechanism for individual disputes?

The IBC is a collective mechanism intended to revive viable projects and safeguard the fundamental right to shelter of genuine homebuyers, not a recovery mechanism or bargaining chip for individual disputes.

What steps are being taken to strengthen NCLT and NCLAT?

Vacancies in NCLT and NCLAT shall be filled on a war footing, dedicated IBC benches with additional strength will be constituted, and the use of retired judges on an ad hoc basis will be considered. The Union government is also directed to file a compliance report within three months.

What is the role of RERA authorities in the new guidelines?

RERA authorities must conduct thorough diligence before granting approval to any project. They must also devise specific SOPs for escrow accounts and project progress monitoring within six months.

How will the Committee suggest reforms for the real estate sector?

The Committee, chaired by a retired High Court Judge, will suggest commercially viable systemic reforms to cleanse and infuse credibility into the real estate sector. It will submit its report within six months of its constitution.