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by sayum
16 February 2026 8:46 AM
"Where possession was never contemplated, and investment was structured solely for high returns through buy-back clauses, the applicant cannot be called a 'homebuyer'—such person is a speculative investor disentitled to invoke Section 7 of the IBC" – Supreme Court of India comprising Justice R. Mahadevan and Justice J.B. Pardiwala, delivered a seminal judgment delineating the boundary between genuine homebuyers and speculative investors under the Insolvency and Bankruptcy Code, 2016 (IBC). The Court held that contracts resembling financial investments with assured returns and buy-back options cannot be the basis to trigger Corporate Insolvency Resolution Process (CIRP) under Section 7, and affirmed that such applicants do not qualify as financial creditors.
The Court rejected the appeals of Mansi Brar Fernandes and Sunita Agarwal, who had claimed to be homebuyers but had entered into agreements that included guaranteed returns, buyback rights, and no demonstrable intent to take possession of the property.
“IBC Is a Forum for Revival, Not a Weapon for Recovery: Misuse by Speculative Investors Threatens the Integrity of the Code” – Apex Court Issues Structural Guidelines for Real Estate Sector Insolvency
"The Code is not a debt recovery mechanism, nor a platform for speculative exits. Housing is not a commodity for manipulation—it is a constitutional necessity tied to human dignity" – Supreme Court
The ruling comes amid a backdrop of rising litigation under Section 7 IBC by individual allottees posing as homebuyers but whose contracts often contain structured returns, exorbitant interest, and buyback options. The Supreme Court upheld the National Company Law Appellate Tribunal’s (NCLAT) finding that both Fernandes and Agarwal were speculative investors, and not genuine stakeholders entitled to initiate CIRP.
Delivering a unified judgment in Civil Appeal No. 3826 of 2020 and connected matters, the Supreme Court addressed the core question: Can a real estate allottee who enters into a financially engineered agreement with the developer—featuring clauses for buy-back and assured return—be treated as a financial creditor for purposes of Section 7 IBC?
In holding that they cannot, the Court reasserted the real purpose of the IBC, which is to revive distressed companies, not to serve as a recovery forum for investors cloaked as homebuyers.
The Court also reversed, to a limited extent, the NCLAT's interpretation regarding the applicability of the IBC (Amendment) Ordinance, 2019, holding that compliance with the threshold criteria under the amended Section 7 was procedurally required, but failure to consider the amendment due to a reserved order was a judicial error for which the litigant could not be penalised.
The appeal by Mansi Brar Fernandes arose from a Memorandum of Understanding (MoU) entered into with Gayatri Infra Planner Pvt. Ltd., where she paid ₹35 lakhs towards four flats in a Noida-based housing project. The agreement included a buy-back clause at the discretion of the builder, offering her a return of ₹1 crore within 12 months, failing which she would be given possession without paying any further amount.
However, no possession was offered, and post-dated cheques issued by the builder bounced, leading Fernandes to file a Section 7 IBC application before the NCLT, which was admitted on 2 January 2020.
The corporate debtor’s directors challenged the admission before the NCLAT, which allowed the appeal on the basis that the appellant was a speculative investor, not a financial creditor. The same conclusion was reached in a connected appeal involving Sunita Agarwal and Antriksh Infratech Pvt. Ltd., where similar assured returns and profit-sharing clauses were present.
The Court dealt with two primary legal issues:
First, whether the appellants were speculative investors, and thus disentitled from initiating CIRP under Section 7 IBC.
Second, whether the IBC Amendment Ordinance of 2019, which imposed a threshold requirement of 10% or 100 homebuyers, was applicable in the appellants' cases.
On the first issue, the Court ruled with clarity and finality: “Possession of the dwelling unit remains the sine qua non of a genuine homebuyer’s intent. Where contracts replace possession with buy-back rights and assured financial returns, the transaction bears the classic signature of speculative investment.”
Referring to its decision in Pioneer Urban Land and Infrastructure Ltd v. Union of India (2019) 8 SCC 416, the Court reasserted:
“Schemes of assured returns and compulsory buybacks are in truth financial derivatives masquerading as housing contracts.”
In defining what constitutes a speculative investor, the Court laid out a fact-sensitive test, stressing on:
Presence of buy-back/refund clauses
Demand for high interest instead of possession
Absence of builder-buyer agreement
Multiple unit purchases with disproportionate privileges
Promises of excessive returns (20–25%)
The Court held: “These indicators are not exhaustive, but where they coalesce—as in these cases—they unmistakably reveal that the applicant never intended to reside in the property. Such applications are attempts to weaponize IBC for recovery, not revival.”
Application of the Ordinance – Judicial Delay Cannot Prejudice Litigants
In addressing the second issue, the Supreme Court set aside the NCLAT’s finding that the IBC Amendment Ordinance of 2019 was inapplicable. Though the Section 7 application was filed before the ordinance was promulgated on 28 December 2019, the order was passed after it, on 2 January 2020. The Court ruled:
“Once orders are reserved, parties cannot be expected to comply with legislative changes until pronouncement. This situation is governed by the principle of Actus Curiae Neminem Gravabit – an act of the court shall prejudice no one.”
The Court further invoked the maxim “lex non cogit ad impossibilia”, stating:
“To expect compliance with the Ordinance before judgment was delivered—after arguments were closed—would be demanding the impossible.”
Thus, while the threshold criteria under the amended Section 7 IBC did apply, the Court held that the appellants’ subsequent compliance during appeal cured the procedural lapse.
Right to Shelter is a Constitutional Mandate under Article 21
The Court took the opportunity to deliver a powerful reaffirmation of the right to shelter as a fundamental right under Article 21, holding that:
“Housing is not a mere commercial transaction. It is a constitutional necessity—a reflection of dignity, security, and human development. The State has a duty to shield genuine homebuyers from the unscrupulous designs of developers and the speculative greed of investors.”
Describing the home as “a sanctuary of stability”, the Court warned against the commodification of housing and directed that RERA authorities, IBBI, and the Central Government ensure a regulatory environment that discourages speculation and upholds the rights of the real end-user.
Directions Issued by the Supreme Court for Structural Reform
The Court issued binding directions to fill institutional gaps:
“NCLT and NCLAT benches must be strengthened. RERA must be empowered, not reduced to a paper tiger. Projects must be handled on a project-wise basis, not through blanket CIRP orders. The Government must consider establishing a revival fund and frame SOPs for project financing, escrow mechanisms, and buyer protection.”
The Court also directed the Union Government to file a compliance report within three months, and to constitute a High-Level Committee under a retired High Court judge for real estate sector reform.
The judgment concludes with an emphatic message:
“Speculative investors cannot hijack the IBC. The Code is not a refuge for profiteers but a safety net for the distressed. Where litigation arises from structured financial instruments disguised as housing contracts, such actors must seek recourse elsewhere—not through insolvency.”
The Court summed up:
“Like in Kesavananda Bharati, where the petitioner lost but the nation won, this judgment reorients the IBC’s soul towards revival, not recovery; towards shelter, not speculation.”
“The findings of the NCLAT holding the appellants to be speculative investors are affirmed. Consequently, both the impugned orders setting aside the admission of the Section 7 applications stand affirmed. However, the appellants are at liberty to pursue remedies before the appropriate forum, and limitation shall not bar them.”
“The finding of the NCLAT that the Ordinance / Amendment Act was inapplicable is set aside. The Ordinance applied, but procedural failure caused by Court’s delay must not prejudice litigants.”
Date of Decision: September 12, 2025
