The Supreme Court addressed four appeals arising from the National Company Law Appellate Tribunal (hereinafter referred to as “NCLAT”) orders, which reversed the admission of insolvency petitions filed by homebuyers under Section 7 of the Insolvency and Bankruptcy Code, 2016. The case scrutinises whether certain homebuyers qualify as genuine financial creditors entitled to initiate insolvency resolution against real estate companies or are speculative investors barred from such recourse. The judgment examines key legal principles concerning the status of homebuyers, legislative amendments introducing threshold requirements, and the wider constitutional right to shelter.
Brief Facts of the Case:
The case arose from agreements entered into by the principal appellants with corporate debtors involving buy-back clauses for residential flats and payments made accordingly. However, the promised possession or buy-back payments were not fulfilled. One appellant had paid Rs. 35 lakhs under a Memorandum of Understanding with a corporate debtor, which included a buy-back option exercisable solely by the debtor, but neither delivery of flats nor repayment was made. Insolvency proceedings were initiated and admitted by the National Company Law Tribunal (hereinafter referred to as “NCLT”) but later reversed by the NCLAT, branding the appellant a speculative investor. Similarly, another application against a different corporate debtor was initially admitted but later set aside for the same reason. The NCLAT also held that the threshold requirements introduced by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019, did not apply retroactively to these cases.
Contentions of the Appellant:
The counsel for appellants contended they were bona fide homebuyers and thus qualified as financial creditors under Section 5(8)(f) of the IBC. They argued that the presence of buy-back clauses did not convert their status into speculative investors since the option was at the developer’s discretion, not theirs. It was highlighted that despite repeated extensions and dishonoured cheques issued by the corporate debtor, the appellant intended to take possession rather than seek speculative profit. The appellants criticised the NCLAT’s decision for unfairly penalising genuine homebuyers and ignoring builders’ defaults. They also maintained that the legislative amendments introducing collective thresholds for filing insolvency petitions applied mandatorily and should not be circumvented by technical arguments.
Contentions of the Respondents:
The respondents, represented by the corporate debtors and their directors, argued that the appellants were speculative investors. They emphasised the lucrative buy-back clauses guaranteeing unusually high returns over short durations as evidence of speculative intent, distinguishing such transactions from genuine homebuyer agreements under RERA. The respondents contended that buyers seeking assured profits without intention to take possession could not trigger insolvency proceedings, which are designed for revival and resolution, not recovery of investment profits. They further submitted that the NCLAT rightly applied the legal principle barring speculative investors and correctly held the appellants’ petitions non-maintainable. The respondents also contested the applicability of the Ordinance and Amendment Act at the stage of these proceedings.
Observations of the Court:
The Court firmly held that the right to housing is a fundamental right under Article 21 of the Constitution, requiring the State to ensure timely possession of homes for genuine buyers and protect their life savings. It warned against treating homebuying as a mere speculative or commercial transaction, stating that "Housing is neither a luxury nor a commodity for speculation, it is a fundamental human need."
The judgment emphasised the problem of speculative investors misusing the Insolvency and Bankruptcy Code (IBC) by invoking insolvency proceedings for assured quick profits without intending to take possession. The Court elaborated that "Schemes of assured returns, compulsory buybacks, or excessive exit options are in truth financial derivatives masquerading as housing contracts… These arrangements enable ‘speculative investors’ to hold developers to ransom and derail genuine projects."
To protect the real estate sector and bona fide homebuyers, the Court upheld legislative thresholds requiring collective action by allottees to file insolvency petitions, but clarified that these procedural requirements should not prejudice parties where orders were reserved before their promulgation.
The Court issued broad directions for systemic reforms, including filling vacancies at NCLT/NCLAT benches, infrastructure upgrades, creating a government revival fund for stressed real estate projects, strengthening RERA authorities, and ensuring that insolvency proceedings protect genuine homebuyers while curbing speculative abuse.
The Decision of the court:
The Supreme Court upheld the NCLAT’s view that the appellants were speculative investors and could not initiate insolvency proceedings under Section 7 IBC, dismissing their appeals. It allowed them to seek alternative remedies elsewhere and clarified the applicability of Amendment Ordinance procedures. The Court also issued directions to strengthen homebuyer protections, improve NCLT/NCLAT infrastructure, and prevent misuse, reinforcing housing rights and insolvency process integrity.
Case Title: Mansi Brar Fernandes v. Shubha Sharma and Ors
Case No.: Civil Appeal No. 3826 of 2020
Citation: 2025 Latest Caselaw 873 SC
Coram: Justice J.B. Pardiwala, Justice R. Mahadevan
Counsel for the Appellant: Adv. Chandra Shekhar Yadav, AOR Awanish Sinha, Adv. Vineet Kumar, Adv. Harshita Gulati, AOR Anindita Mitra, AOR Akhil Anand, Sr. Adv. Saurabh Mishra, AOR Nupur Kumar, AOR Diksha Dadu
Counsel for the Respondents: AOR Nupur Kumar, AOR Kaustubh Shukla, Adv. Vineet Kumar, Adv. Harshita Gulati, Adv. Praveen Kumar Singh, Adv. Pushpanjali Singh, AOR Anindita Mitra, Adv. Vishal Sinha, ADV. Mantika Haryani, AOR Astha Sharma, Adv. Bhanu Mishra.
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