Supreme Court Warns Against Speculative Real Estate Investors
NEW DELHI: The Supreme Court has highlighted the misuse of insolvency proceedings in the real estate sector, particularly by speculative investors. These investors, according to the court, act like a 'slow poison' for the residential real estate market, as they are more interested in making quick profits rather than acquiring flats for genuine use.
A bench of Justices JB Pardiwala and R Mahadevan stated that 'trigger-happy' speculative investors often seek easy exits from projects, which can jeopardize the interests of genuine end-users. The court emphasized that such investors should not be allowed to misuse the Insolvency and Bankruptcy Code (IBC) to exploit systemic loopholes and prevent dishonest developers from being held accountable.
The court also ruled that insolvency proceedings should generally proceed on a project-wise basis rather than against the entire company. This approach is intended to minimize the impact on other projects of the firm. 'Strict adherence to IBC timelines and settled precedent is imperative to achieve two complementary objectives: (i) ensuring revival and completion of stalled projects for the benefit of genuine homebuyers; and (ii) curbing speculative activity which has functioned as a 'slow poison' for the residential real estate sector and, by extension, the Indian middle class,' the bench said.
The court further noted that speculative misuse of real estate agreements can artificially inflate demand, fuel asset bubbles, and prejudice genuine buyers. The government, it added, should intervene to restrict such practices. 'The State carries a constitutional obligation to create and strictly enforce a framework wherein no developer is permitted to defraud or exploit homebuyers. Ensuring timely project completion must be a cornerstone of India's urban policy. Equally, the State must proactively address the menace of a parallel cash economy and speculative practices in the real estate market, which artificially inflate housing costs and enable 'trigger-happy' investors seeking easy exits to jeopardise the interests of genuine end-users,' the Supreme Court stated.
The apex court rejected a plea by homebuyers seeking to invoke the IBC, ruling that they were not genuine homebuyers but speculative investors. This decision underscores the court's commitment to protecting the interests of genuine buyers and maintaining the integrity of the real estate market.
