In a landmark ruling with wide-ranging implications for the real estate sector, the Supreme Court of India has drawn a clear distinction between speculative investors, whom it described as ‘slow poison’, and genuine homebuyers. The court said speculative investors should not be allowed to misuse the Insolvency and Bankruptcy Code as a recovery tool to seek lucrative returns without any intention of owning a home.
It observed that such investors harm the residential real estate sector and, by extension, the Indian middle class. The court also stressed that the state has a constitutional duty to establish and strictly enforce a framework preventing developers from defrauding or exploiting homebuyers, adding that ensuring timely project completion must be the cornerstone of India’s urban policy.
A bench of Justices JB Pardiwala and R Mahadevan, while disposing of a batch of four appeals, upheld the decisions of the National Company Law Appellate Tribunal (NCLAT) that had set aside the initiation of Corporate Insolvency Resolution Process (CIRP) against two builders based on petitions filed by two allottees, Mansi Brar Fernandes and Sunita Agarwal.
Speculative investors are like ‘slow poison’
Affirming NCLAT’s ruling that termed the appellants in the case as ‘speculative investors’, the Supreme Court said speculative investors could destabilize India’s residential real estate sector.
It said that strict adherance to IBC timelines and settled precedent is imperative to realise two complimentary objective: 1) ensuring revival and completion of stalled projects for the benefit of genuine homebuyers; and ii) curbing speculative activity which has functioned as a ‘slow poison’ for the residential real estate sector and by extension, the Indian middle class.
It noted that the problem of speculative misuse of real estate agreements has long been recognised. Such speculative arrangements artificially inflate demand, fuel asset bubbles, and prejudice genuine buyers. Unlike financial markets – where speculation may sometimes serve a liquidity function – speculation in residential housing undermines stability, fairness, and the very object of housing development, the order said.
“Schemes of assured returns, compulsory buybacks, or excessive exit options are in truth financial derivatives masquerading as housing contracts. These arrangements enable developers, on the one hand, to mislead gullible individuals, and seasoned investors, on the other, to ‘jump ship’ when the market turns or to hold developers to ransom by invoking the IBC as a coercive recovery mechanism, thereby creating a situation of ‘heads I win, tails you lose’, it said.
What remedies has the Supreme Court proposed?
The bench noted that “…the plight of tax-paying middle-class citizens paints a disheartening picture. Having invested their lifelong savings in pursuit of a home, many are compelled to shoulder a double burden – servicing EMIs on one hand, and paying rent on the other – only to find their ‘dream home’ reduced to an unfinished building,”
For such individuals, a stable roof over their family’s head is all they desire. The anxiety of not having a home despite paying a fortune is bound to take a serious toll on health, productivity, and dignity.
“Thus, it would be thoroughly erroneous to treat home-buying as a mere commercial transaction, or worse, to reduce housing to the status of speculative instruments such as stocks, debentures, futures, or options through creative contractual devices. Housing is neither a luxury nor a commodity for speculation – it is a fundamental human need. The right to secure, peaceful, and timely possession of one’s home is therefore a facet of the fundamental right to shelter…”
The Supreme Court observed that the government cannot remain a “silent spectator”, the bench said the government is constitutionally obliged to protect the interests of homebuyers and the economy at large.
The State carries a constitutional obligation to create and strictly enforce a framework wherein no developer is permitted to defraud or exploit homebuyers. Ensuring timely project completion must be a cornerstone of India’s urban policy.
Equally, the State must proactively address the menace of a parallel cash economy and speculative practices in the real estate market, which artificially inflate housing costs and enable “trigger-happy” investors seeking easy exits to jeopardize the interests of genuine end-users
The bench said the Centre may also consider establishing a body corporate, on the lines of National Asset Reconstruction Company Ltd (NARCL) or otherwise, promoted by real estate/construction-focused PSUs or through public-private partnerships, to identify, take over and complete stalled projects under the Insolvency and Bankruptcy Code, 2016, framework.
“The Union government shall consider establishing a revival fund under NARCL or expanding the SWAMIH (Special Window for Affordable and Mid-Income Housing) Fund, to provide bridge financing for stressed projects undergoing CIRP (Corporate Insolvency Resolution Process), thereby preventing liquidation of viable projects and safeguarding homebuyer interests,” it said.
The bench said the SWAMIH fund was 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.
To prevent misuse, it directed that a comprehensive periodic performance audit by the CAG be carried out, with reports placed in the public domain in a form comprehensible even to laypersons.
“Unsold inventory from such projects could be utilised towards affordable housing schemes like PMAY (Pradhan Mantri Awas Yojana) or for government quarters, thereby addressing both the housing shortage and revival of sick projects,” it said.
RERA authorities should not be reduced to ‘toothless tigers’
The top court also said it was imperative that RERA authorities were not reduced to “toothless tigers” and they must be equipped with adequate infrastructure, empowered tribunals, and effective enforcement mechanisms so that their orders were implemented swiftly, in letter and spirit.
It is imperative that RERA authorities are not reduced to toothless tigers. They must be equipped with adequate infrastructure, empowered tribunals, and effective enforcement mechanisms so that their orders are implemented swiftly, in letter and spirit. Only then can the constitutional promise of the Right to Shelter under Article 21 be meaningfully realized for homebuyers, it noted.
Supreme Court passes a slew of directions to concerned authorities
The bench directed that vacancies in NCLT/NCLAT be filled on a war footing, and dedicated IBC benches with additional strength should be constituted.
“Services of retired judges may be utilised on an ad hoc basis until regular appointments are made. This court is cognizant of the fact that similar directions have been issued in the past… but no effective step has been taken on the ground,” it said.
It asked the Centre to file within three months a compliance report on measures taken to upgrade NCLT/NCLAT infrastructure nationwide.
The bench directed states to ensure RERA authorities are adequately staffed with infrastructure, experts and resources.
It said that within three months, a committee chaired by a retired high court judge should be constituted, with representatives from the Ministry of Law, Housing and domain experts in real estate and finance and others to suggest commercially viable systemic reforms for cleansing and infusing credibility into the real estate sector.
Residential real estate transaction for new housing projects should be registered
“Every residential real estate transaction for new housing projects shall be registered with local revenue authorities upon payment of at least 20 per cent of the property cost by buyer/allottee,” it said.
The bench said, “In projects at nascent stages, such as where land is yet to be acquired or construction has not commenced, proceeds from allottees shall be placed in an escrow account and disbursed in phases aligned with project progress, as per a RERA-sanctioned SOP. Every RERA shall devise such SOPs within six months from today.”
It said that resolution of real estate insolvency should, as a rule, proceed on a project specific 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 Supreme Court said that housing boards, state-level urban development authorities (e.g., DDA, GMADA, MHADA, CHB) and CPSUs should establish dedicated wings to revive and complete stalled projects under IBC mechanisms. “This would instill faith in the sector, ensure affordable housing, and protect genuine homebuyers,” it noted.
Outlining suggestions for future reform, the bench said the Centre should undertake a consultative exercise to bring about uniformity in RERA rules across states.
“Before parting, we observe 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,” the bench added.
