Supreme Court Pushes for IBC Overhaul and Revival Fund for Stressed Real Estate Projects
The Supreme Court of India has called for major reforms in the Insolvency and Bankruptcy Code (IBC) to restore faith in the regulatory framework. It has also urged the government to establish a revival fund to provide financing for distressed real estate projects.
IbcReal EstateSupreme CourtInsolvencyHomebuyersReal Estate NewsSep 12, 2025
The 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 is constitutionally obliged to protect the interests of homebuyers and the economy at large, and cannot remain a 'mute spectator' in this matter.
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 will prevent the liquidation of viable projects and safeguard homebuyer interests.
To prevent misuse, the court 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. Every residential real estate transaction for new housing projects must be registered with local revenue authorities upon payment of at least 20% of the property cost by the buyer or allottee. Further, 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 order.
The court emphasized that this issue is not merely about houses or apartments but also involves 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 has also asked the government to fill vacancies in the National Company Law Tribunal and National Company Law Appellate Tribunal on a war footing.
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 shall 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 revival of sick projects.
Frequently Asked Questions
What is the main reason for the Supreme Court's push for IBC reforms?
The Supreme Court is pushing for IBC reforms 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.
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 is the role of the Comptroller and Auditor General (CAG) in this context?
The CAG is directed to conduct a comprehensive periodic performance audit of the revival fund and place reports in the public domain in a form comprehensible to laypersons.
What are the key measures to protect senior citizens and bona fide homebuyers?
Contracts that significantly deviate from the Model RERA Agreement to Sell or incorporate returns/buyback clauses for allottees 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.
What is the significance of project-specific insolvency in real estate?
Project-specific insolvency in real estate is significant because it protects solvent projects and genuine homebuyers from collateral prejudice, ensuring that only the specific distressed project is addressed.
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