Speculative participants driven by profit Motives cannot be Permitted to Misuse IBC Provisions: SC Directs Center to Create Revival Fund for Stressed Real Estate Projects [Read Order]
The Union Government shall consider establishing a revival fund under NARCL or expanding the SWAMIH Fund, to provide bridge financing for stressed projects undergoing CIRP
The Supreme Court in a recent ruling held that speculative participants driven by profit motives cannot be permitted to misuse Insolvency Bankruptcy Code (IBC), 2016 provisions and directed the Union Government to create a revival fund to provide financing for stressed real estate projects undergoing insolvency proceedings.
The appellant, Mansi Brar Fernandes in her capacity as a homebuyer / financial creditor. The NCLAT reversed the admission of the application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 by the appellant – Mansi Brar Fernandes, holding that she was a “speculative investor” and not a genuine homebuyer / financial creditor.
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Following this, by its second impugned order dated 12.08.2021, the NCLAT set aside the admission of the Section 7 application filed by the appellant, Sunita Agarwal, holding that she too fell within the category of “speculative buyer” who sought to profit from a lucrative agreement. The directors of the Corporate Debtor, in their cross-appeals, have further challenged the first impugned order on the limited ground of non-applicability of the Ordinance / Amendment Act to the facts of the present case.
The appellant (Mansi Brar Fernandes) and Respondent No. 2 (Gayatri Infra Planner Pvt. Ltd) had entered into a Memorandum of Understanding (MoU) which was a buy back agreement for four flats in Gayatri Life at Plot No. 1F, Sector 16, Greater Noida (West), Uttar Pradesh. She paid a sum of Rs.35,00,000/- via cheque towards part consideration, and the MoU included a buy-back clause exercisable solely at the discretion of the Corporate Debtor. If the buy-back option was not exercised, the appellant was entitled to receive possession of the flats without payment of any additional amount.
Despite the MoU having been extended twice (first on 07.04.2017 and second on 07.10.2017), neither flats were delivered, nor payment made; and post-dated cheques worth Rs.1 crore handed over by the Corporate Debtor, were returned dishonoured upon presentation. The appellant thereafter initiated section 7 IBC proceedings in the capacity as an allottee / Financial Creditor, before the National Company Law Tribunal, New Delhi , besides initiating the proceedings under Section 138 of the Negotiable Instruments Act, 1881 .
The NCLT issued notice to the Corporate Debtor and after detailed arguments, admitted the application vide order dated 02.01.2020. Challenging the same, Respondent No. 1 preferred an appeal before the NCLAT, which allowed the appeal and set aside the CIRP proceedings initiated by the appellant against the Corporate Debtor, by the first impugned order.
The appellants in C.A. No. 540 of 2021 and C.A. No. 5495 of 2025 assail the first impugned order dated 17.11.2020 passed by the NCLAT on the limited ground of non-compliance with the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019, promulgated on 28.12.2019. The appellants stated that the Section 7 petition under the IBC filed by Respondent No. 1 (Mansi Brar Fernandes) on 02.01.2020, was reserved on 04.12.2019, i.e., prior to the promulgation of the Ordinance.
As on 28.12.2019, the application was still pending consideration. Consequently, the Ordinance and the subsequent Amendment Act squarely applied to the proceedings. It was urged that the failure of Respondent No. 1 to satisfy the threshold requirement mandated under the Ordinance is fatal to the maintainability of the petition.
The Court has, in a catena of decisions, consistently held and reaffirmed that the Right to Shelter is an integral part of the right to life under Article 21 of the Constitution. This recognition casts a corresponding duty on the State to ensure access to adequate housing, particularly for weaker sections. Indeed, various welfare schemes such as the Pradhan Mantri Awas Yojana (PMAY) have been initiated by the Government to provide affordable housing.
“A home is not merely a roof over one’s head; it is a reflection of one’s hopes and dreams – a safe space for a family, a refuge from the worries of the world. With India rapidly industrialising and the rural-to-urban mobility proceeding at lightening pace, the demand for housing has risen sharply. “, the court viewed.
The Court reiterated that while investors are integral to any industry and their interests warrant protection, speculative participants driven purely by profit motives cannot be permitted to misuse the Insolvency and Bankruptcy Code, which is a remedial framework conceived for revival and the protection of sick companies and, in the case of real estate, genuine homebuyers. Such investors have alternative remedies under consumer law or RERA and even recourse to
Civil Courts in appropriate cases.
To admit speculative claims into insolvency proceedings would dilute the intelligible differentia underlying the legislative scheme, destabilize the residential real estate sector, and erode the social purpose embedded in housing as a fundamental right.
“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.” A two judge Bench of Justice JB Pardiwala and Justice R Mahadevan said.
Resolution of real estate insolvency should, as a rule, proceed on a projectspecific basis rather than the entire corporate debtor, unless circumstances justify otherwise. This would protect solvent projects and genuine homebuyers from collateral prejudice. IBBI shall also devise a mechanism to enable handover of possession to willing allottees where substantial units in a project are complete.
The Union Government shall consider establishing a revival fund under NARCL or expanding the SWAMIH Fund, to provide bridge financing for stressed projects undergoing CIRP, thereby preventing liquidation of viable projects and safeguarding homebuyer interests. SWAMIH Fund is a commendable initiative; however, being a large fund involving public money, every rupee must be utilised strictly for its intended purpose of last-mile financing.
The bench observed that the right to housing is not merely a contractual entitlement but a facet of the fundamental right to life under Article 21. Genuine homebuyers represent the backbone of India’s urban future, and their protection lies at the intersection of constitutional obligation and economic policy. Through these directions, this Court seeks 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 upheld the findings of the NCLAT holding the appellants (Mansi Brar Fernandes and Sunita Agarwal) to be speculative investors are affirmed. Consequently, both the impugned orders setting aside the admission of the Section 7 applications by the NCLT, also stand affirmed. However, the appellants are at liberty to pursue their remedies before the appropriate forum in accordance with law, and in such event, the bar of limitation shall not apply.
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