SC Distinguishes Homebuyers From Speculative Investors & Affirms Housing As A Fundamental Right: Issues Comprehensive Guidelines

Summary:

[1]The Supreme Court’s decision on the IBC has brought clarity by distinguishing between genuine purchasers and speculative investors. The Court’s ruling establishes that if an individual’s primary intent is not to take possession of a home but to seek high financial returns through clauses like buy-backs, they cannot misuse the insolvency framework as a debt recovery tool. This ensures that the IBC’s purpose to revive viable projects is not compromised by investors looking for a quick exit. In a win for procedural fairness, the judgment also confirmed that new legal requirements cannot retroactively harm litigants who had already completed their part of the process before a change in law occurred. The Court emphasized the Right to Shelter as a fundamental right and issued several directions for systemic reforms in the real estate sector.

Facts:

• The appellant, Mansi Brar Fernandes, entered into a Memorandum of Understanding (MoU) with Gayatri Infra Planner Pvt. Ltd. (Corporate Debtor) to purchase four flats. She paid ₹35 lakhs, and the MoU included a buy-back clause at the developer’s discretion for ₹1 crore within 12 months.
• When the developer failed to deliver the flats or honour the buy-back, the post-dated cheques for ₹1 crore were dishonoured. The appellant then initiated Section 7 IBC proceedings and also filed a complaint under Section 138 of the Negotiable Instruments Act, 1881.
• The NCLT admitted the Section 7 application, but the NCLAT reversed the order, holding that Mansi Brar Fernandes was a “speculative investor” and not a genuine homebuyer.
• A similar case was filed by Sunita Agarwal, who had invested ₹25 lakhs with Antriksh Infratech Pvt. Ltd. and was promised a 25% annual return with a compulsory buyback clause. The NCLAT also set aside the admission of her Section 7 application, classifying her as a “speculative buyer”.
• Cross-appeals were filed by the Corporate Debtor’s directors, challenging the NCLAT’s finding that the 2019 IBC Ordinance, which introduced a threshold requirement for homebuyers to initiate CIRP, was inapplicable.

Issues:

1. Whether the appellants, Mansi Brar Fernandes and Sunita Agarwal, are “speculative investors” and are thus not entitled to initiate proceedings under Section 7 of the IBC.
2. Whether the IBC (Amendment) Ordinance, 2019, which introduced a threshold for allottees to file a Section 7 application, was applicable to the facts of the case.

Judgement:

• Difference between homebuyer and Speculative Investor –The Court distinguished between “speculative investors” (who make risky investments for unusually large profits without intending possession) and “genuine homebuyers,” emphasizing that intent to take possession is the “sine qua non” (essential condition) of a genuine homebuyer.
• Financial Derivatives Indicators: The Court characterized schemes with assured returns, compulsory buy-backs, or excessive exit options as “financial derivatives masquerading as housing contracts.” Key indicators of speculative intent include agreements that substitute possession with buy-back options, insistence on high-interest refunds while refusing possession, the purchase of multiple units, special rights or preferential treatment, significant deviations from the RERA Model Agreement, and unrealistic promises of returns of 20-25%. Both appellants’ MoUs were found to be speculative investment schemes rather than genuine homebuyer contracts
• IBC Amendment Applicability: Supreme Court applied the 2019 IBC Amendment retroactively using the “Actus Curiae Neminem Gravabit” principle, allowing appellant’s compliance during appeal to cure initial threshold defects. The judgment reasoned that since the order in the case was reserved before the Ordinance was promulgated, the appellant could not have been expected to comply with the new requirement.
• Right to Shelter as Fundamental Right and Regulatory Strengthening: Reaffirming housing as a fundamental human need rather than speculative commodity, the Court directed comprehensive reforms including adequate staffing and infrastructure for RERA authorities, thorough diligence before project approvals with strict judicial intervention for failures, mandatory registration of all residential real estate transactions upon 20% payment, and required affidavits for risky contracts (especially those deviating from RERA Model Agreement or including returns/buy-back clauses for allottees over 50 years).
• Systemic Framework and Resolution Mechanism: The Court established RERA as the primary forum for homebuyers’ grievances with IBC as a last resort, suggested project-specific resolution for real estate insolvency instead of entire corporate debtor resolution, and urged the Union Government to establish or expand revival funds like SWAMIH Fund for bridge financing of stressed projects.

Analysis:

Through this judgment, the Supreme Court aimed to ensure that the IBC is used for its intended purpose of reviving companies, not as a recovery tool for speculative investors. The Court’s directions sought to protect genuine homebuyers, whose right to shelter is a fundamental right, by strengthening RERA and reforming the real estate sector to deter speculative practices that artificially inflate costs and jeopardize projects. Ultimately, the ruling was designed to restore faith in the regulatory framework and ensure a stable and credible housing market.

[1] Mansi Brar Fernandes vs. Shubha Sharma and Anr..

Civil Appeal No. 3826 of 2020

Judgment Dated: September 12, 2025