Distinguishing Speculative Investors from Genuine Homebuyers: The Supreme Court’s Intervention in the Real Estate Sector

Introduction

The Supreme Court’s decision in Mansi Brar Fernandes v. Shubha Sharma & Ors. (2025 INSC 1110) represents a pivotal moment in the jurisprudence under the Insolvency and Bankruptcy Code, 2016 (IBC). The judgment directly addresses the distinction between genuine homebuyers, who seek possession of residential property as an exercise of their constitutional right to shelter, and speculative investors, who enter real estate transactions primarily for assured financial returns. By clarifying the scope of Section 7 of the IBC and reinforcing the fundamental right to housing under Article 21 of the Constitution, the Court has fundamentally altered the way real estate disputes will be adjudicated in insolvency proceedings. This pronouncement has immediate consequences for the real estate sector, which has historically been plagued by project delays, financial defaults, and a rising tide of speculative claims. It also signifies a doctrinal shift towards a more nuanced understanding of the rights and obligations of parties in real estate contracts, balancing economic efficiency with constitutional morality. 

Background of the Dispute

The case arose out of agreements executed between homebuyers and real estate developers which contained buy-back clauses and assured return arrangements. The appellants, having advanced significant sums, sought to invoke insolvency proceedings under Section 7 IBC when the developers defaulted on either refunding the promised amounts or delivering the flats. While the National Company Law Tribunal (NCLT) admitted such petitions, the National Company Law Appellate Tribunal (NCLAT) reversed these orders, classifying the appellants as “speculative investors” rather than financial creditors. The Supreme Court was therefore tasked with determining whether such transactions confer upon the allottees the status of financial creditors under Section 5(8)(f) of the IBC and whether they were entitled to initiate the Corporate Insolvency Resolution Process (CIRP). 

The Conceptual Framework: Genuine Homebuyers and Speculative Investors

A significant contribution of this judgment lies in its articulation of the conceptual framework distinguishing a genuine homebuyer from a speculative investor. Drawing upon the precedent in Pioneer Urban Land and Infrastructure Ltd v. Union of India (2019) 8 SCC 416, the Court reaffirmed that while allottees of real estate projects are recognised as financial creditors, this status cannot be exploited by investors who never intended to occupy the property. The Court noted that a genuine homebuyer’s transaction is characterized by the expectation of possession, adherence to the model form agreements under the Real Estate (Regulation and Development) Act, 2016 (RERA), and a bona fide intent to secure a residence. Conversely, speculative investors are identified by contracts containing buy-back clauses, post-dated cheques, or promises of exorbitant returns that effectively transform the arrangement into a financial derivative masquerading as a housing transaction. By identifying clear indicators such as refusal to accept possession, insistence on high-interest refunds, multiple unit purchases with unusual privileges, and deviation from RERA model agreements, the Court has provided an intelligible differentia to guide tribunals in future disputes.

Judicial Reasoning

The Supreme Court affirmed the findings of the NCLAT that the appellants in these appeals were speculative investors. In the case of Mansi Brar Fernandes, the Court observed that the Memorandum of Understanding (MoU) was structured as a buy-back arrangement with post-dated cheques, where possession was never genuinely contemplated. Similarly, in the appeal concerning Sunita Agarwal, the Court found that the contract promised a return of 25% per annum with a compulsory buy-back clause, thereby establishing speculation rather than genuine homebuying intent. The Court underscored that the IBC cannot be utilised as a debt recovery mechanism. Its object is the revival and resolution of distressed projects, not the enforcement of speculative agreements. However, the Court clarified that while such investors cannot invoke Section 7 IBC, they are not barred from filing claims for the principal amount invested or pursuing remedies before RERA, consumer fora, or civil courts. It also held that the bar of limitation would not apply in such proceedings.

The Court further corrected the NCLAT’s error regarding the applicability of the IBC (Amendment) Ordinance, 2019. Applying the doctrine of actus curiae neminem gravabit, it held that since the NCLT had already reserved orders before the Ordinance was promulgated, the appellant could not be prejudiced by a subsequent legislative change. The appellant’s later compliance with the 10%/100 threshold requirement cured the defect 

Implications for Real Estate Law

This ruling has far-reaching implications for the real estate sector. By filtering speculative claims at the admission stage of Section 7 petitions, the Court has ensured that insolvency proceedings are reserved for bona fide cases where genuine homebuyers are aggrieved by delays or non-delivery. This reduces the risk of developers being driven into insolvency by a handful of speculative investors and safeguards the viability of ongoing projects.

The Court also emphasised that insolvency proceedings in the real estate sector must proceed on a project-specific basis wherever possible, thereby preventing the liquidation of otherwise solvent ventures. Furthermore, it called for systemic reforms including the strengthening of RERA authorities, creation of escrow accounts to safeguard buyers’ funds, and improved representation of homebuyers in the Committee of Creditors (CoC). By issuing directions to the Union Government and the Insolvency and Bankruptcy Board of India (IBBI), the Court ensured that the structural deficiencies in the adjudicatory framework are addressed. The judgment therefore functions not merely as dispute resolution but as institutional reform. 

Constitutional Dimension: The Right to Shelter

A distinctive feature of the judgment is its reinforcement of the right to shelter as a fundamental right under Article 21. The Court reiterated that a home is not merely a commercial commodity but a site of dignity, security, and personal development. Drawing upon precedents such as Chameli Singh v. State of U.P. (1996) 2 SCC 549 and Shantistar Builders v. Narayan Totame (1990) 1 SCC 520, the Court underscored that the State has a constitutional obligation to ensure that homebuyers are not defrauded by speculative practices. By affirming that speculative activity undermines the very purpose of housing, the Court elevated the issue from a contractual dispute to one of constitutional significance. This doctrinal move embeds housing rights firmly within the broader matrix of social and economic justice. 

A Transformative Change in the Law

The judgment represents a watershed moment in Indian insolvency and real estate law. It provides a principled distinction between speculative investors and genuine homebuyers, thereby insulating the insolvency framework from misuse. For developers, it creates certainty that only genuine claims can result in insolvency proceedings. For financial institutions, it reduces the risk of disruption by opportunistic litigation, thereby strengthening credit flow to the sector. For homebuyers, it reaffirms their centrality to the insolvency process and fortifies their constitutional right to shelter. The judgment also aligns Indian law with comparative global experiences, where unchecked speculation in housing markets has led to crises. By proactively curbing such activity, the Court has positioned the Indian judiciary as a guardian of both economic stability and constitutional rights. 

Conclusion

The Supreme Court’s ruling in Mansi Brar Fernandes v. Shubha Sharma is more than an adjudication of individual rights; it is a comprehensive legal framework for balancing contractual freedom, economic realities, and constitutional obligations. By reinforcing the distinction between genuine homebuyers and speculative investors, the Court has ensured that the IBC remains a tool for revival and resolution rather than recovery.The decision signals a great change in the law by embedding the principle that housing is not a speculative instrument but a fundamental right. In doing so, it secures the interests of millions of Indian families, strengthens the credibility of the real estate sector, and advances the constitutional promise of dignity, shelter, and justice. 

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