Supreme Court on Speculative Investors under the IBC: Protecting Genuine Homebuyers

Introduction

The Supreme Court of India, in Mansi Brar Fernandes v. Shubha Sharma & Ors., considered multiple appeals arising out of orders passed by the National Company Law Appellate Tribunal (NCLAT). The case centered on whether certain allottees in real estate projects qualified as genuine homebuyers under the Insolvency and Bankruptcy Code, 2016 (IBC), or were merely speculative investors seeking to misuse insolvency proceedings for financial gain.

Brief Facts

• The appellant, Mansi Brar Fernandes, entered into a Memorandum of Understanding with Gayatri Infra Planner Pvt. Ltd. for four flats. She paid ₹35 lakhs under an arrangement that included a buy-back clause. Despite extensions, the developer neither delivered the flats nor honoured post-dated cheques issued.
• She filed a Section 7 IBC petition before the NCLT, which was admitted. However, NCLAT reversed this, branding her a speculative investor.
• Similarly, in a separate case, Sunita Agarwal invested ₹25 lakhs in another housing project under a buy-back plan with assured returns of 25% per annum. The NCLT admitted her petition, but NCLAT reversed it, holding her to be a speculative investor.
• The cross-appeals also raised the issue of applicability of the 2019 IBC Amendment Ordinance, which introduced a threshold requirement of at least 100 allottees or 10% of the total allottees to jointly file a Section 7 petition.

Observations / Held

• The Court reiterated that the IBC is not intended to function as a debt recovery tool for investors but as a revival mechanism for distressed companies, with a focus on genuine homebuyers.
• It distinguished genuine allottees, who intend to take possession of homes, from speculative investors, who primarily seek assured returns or refunds.
• Factors such as buy-back clauses, abnormal returns, multiple unit purchases, and refusal to take possession are indicators of speculative intent.
• The Court affirmed the NCLAT’s finding that both Mansi Brar Fernandes and Sunita Agarwal were speculative investors and thus not entitled to invoke Section 7 IBC.
• On the Ordinance issue, the Court held that although the amendment was valid, its application must be assessed contextually. A litigant cannot be prejudiced due to judicial delay when orders are reserved before the legislative change.

Conclusion

The Supreme Court upheld the NCLAT’s orders branding the appellants as speculative investors, thereby disallowing their Section 7 IBC petitions. However, it clarified that such investors may still pursue remedies before consumer forums, RERA, or civil courts. Importantly, the Court emphasized the constitutional right to shelter under Article 21, stressing that housing cannot be reduced to a speculative commodity. The judgment directed systemic reforms, including strengthening NCLT/NCLAT capacity, empowering RERA, and ensuring project-specific insolvency resolutions, to safeguard genuine homebuyers and stabilize the real estate sector.

Authored by Ascend Legal Editorial Team. The opinions expressed are personal and do not constitute any legal advocacy.