Payal Priyadarshini Jena
In Mansi Brar Fernandes v. Shubha Sharma & Anr[1], the Hon’ble Supreme Court reiterated that the remedies under the Insolvency and Bankruptcy Code, 2016[2] (“Code”) are the last resort available to homebuyers, and such remedies should not be used as a debt recovery tool, while the Court further emphasised that Real Estate Regulatory Authority[3] (“RERA”) remains the primary forum for homebuyers to seek any kind of redressal.
The division bench, comprising Justice J.B. Pardiwala and Justice R. Mahadevan, while clarifying the scope of “allottees”, reaffirmed that a speculative investor has no right to file an application under Section 7[4] of the Code to initiate Corporate Insolvency Resolution Process (“CIRP”), against the Developer/Corporate Debtor.[5]
Purpose of IBC & Evolution of Homebuyer as financial creditor
The introduction of The Insolvency and Bankruptcy Code, 2016, was a significant economic legislation enacted to “consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit, and balance the interests of all the stakeholders.”[6]
Initially, the Code failed to recognise the right of homebuyers/allottees and did not provide any remedy for them within the framework. Later, to rectify this imbalance[7], the Parliament through the Insolvency and Bankruptcy Code (Second Amendment) Act of 2018[8] included “homebuyers/allottees” under the ambit of “Financial Creditor” under Section 5(7) of the Code, which empowers the homebuyers/allottees to initiate CIRP against the Developer/Corporate Debtor in case of default.[9]
Later, this amendment was highly misused and led to a new predicament: a surge in CIRP applications under Section 7 of the Code, which were often not filed by genuine homebuyers, but by speculative investors who are driven by profit margins and high return schemes.
By 2019, in Pioneer Urban Land and Infrastructure Ltd v. Union of India, the Supreme Court warned the speculative homebuyers/investors against the blanket use of the 2018 Amendment and held that “speculative investors have no right to file an application under Section 7 of the Code for recovery of returns or enforcement of investment contracts disguised as real estate allotment.”[10]
Minimum Threshold
Further, Parliament through the Insolvency and Bankruptcy (Amendment) Act, 2020 introduced a minimum threshold of homebuyers who could initiate CIRP under Section 7 of the Code. It requires at least 100 allottees or 10% of total allottees in the said project, whichever is lower, to jointly file an application to initiate a CIRP against the Corporate Debtor under Section 7 of the Code.[11] This amendment was later upheld by the Hon’ble Supreme Court in Manish Kumar v. Union of India, wherein the constitutionality of the Amendment of 2020 was affirmed, the Court held that this amendment aims to curb the filing of speculative applications and to protect the interests of genuine project promoters and homebuyers.[12]
Brief Fact of the Case
The appellants entered into a Memorandum of Understanding (MoU) with the Developer/Corporate Debtor, Gayatri Infra Planner Pvt. Ltd., which included a buyback clause which was exercisable solely at the discretion of the developer. If such clause was not utilised, then the possession of the property had to be delivered to the appellants.
Later, neither the buyback clause was utilised, nor was the possession of the property delivered to the appellants. Furthermore, the post-dated cheque for Rs. 1,00,00,000/-(Rupees One Crore only), which was previously issued by the developer to the appellant, Mansi Brar, was also dishonoured.[13]
Aggrieved by such actions, the appellant initiated a proceeding under Section 138[14] of the Negotiable Instruments Act,1881, and simultaneously filed an application under Section 7 of the Code to initiate a CIRP against the Developer/Corporate Debtor, claiming to be financial creditors under Section 5(7) of the Code.
Although the National Company Law Tribunal (“NCLT”) accepted the application, it was later overturned by the National Company Law Appellate Tribunal (“NCLAT”) and ruled that the appellants were speculative investors looking for financial profit only, rather than seeking actual possession of the property.
Dissatisfied with the NCLAT’s order, the appellants appealed to the Supreme Court and contended that they were bona fide homebuyers and qualified as financial creditors under Section 5(7) of the Code. Further, they contended that the mere presence of a buyback clause, exercisable solely at the Developer/Corporate Debtor’s discretion, does not in itself establish their commercial interest or qualify them as a speculative investor.
In contrast, the respondents argued that the appellants were driven by a profit-oriented mindset and have no interest in gaining actual possession of the property. The respondent largely relied on the proceedings initiated by the appellants under Section 138 of the Negotiable Instruments Act, 1881, to establish that the appellant’s primary motive and intention were to recover money and obtain financial benefit, rather than to seek possession of the property as a genuine allottee.[15]
Key Issue Raised
Whether the appellants are genuine buyers who come under the ambit of Section 7 of the Code to initiate a CIRP or not, and whether the homebuyer who entered into an agreement with the developer can be denied the right to initiate a CIRP based on the terms of that same agreement.
Judgment
Relying on Pioneer Urban Land and Infrastructure Ltd v. Union of India, the Apex Court defined a speculative investor as one whose primary concern is financial gain, profit-making, and has no genuine intention to take possession of the property nor concern about the actual completion of the project.[16]
The Court, while upholding the NCLAT’s decision, observed that determining whether a homebuyer is a speculative investor or not requires a holistic review of the terms and conditions of the contract between the Developer and homebuyer, the letter of allotment, and the overall nature of the transaction.
Further, by introducing the “intention test”, the Court clarified that the presence of buyback clauses, high-return refunds, special rights, unusual privileges for allottees, etc., is an indicator of investment that also requires a holistic review.[17] Such a homebuyer/allottee has no right to initiate a CIRP under Section 7 of the Code.
The Court also held that these allottees/individuals are not barred from claiming their principal/invested amount or from invoking any other remedies available under law in force.
Furthermore, relying on the precedent established in Samatha v. State of A.P., the Court reiterated that the right to shelter and social, economic justice are an integral part of Article 21[18] of the Constitution. Simultaneously, the Court underscored the State’s obligation to safeguard the interest of genuine homebuyers, thereby establishing that acquisition of a home is not merely a commercial transaction but constitutes a fundamental aspect of the Right to Life under Article 21 of the Constitution of India.[19]
Observation/Conclusion
This judgment, while resolving the implicit conflict between RERA and Code legislation, clarifies that IBC remains the last resort of remedies available to homebuyers. The court thus, reestablished the primacy of RERA as the appropriate forum for addressing homebuyers’ grievances.
The Court introduced the “intention test”, which serves as a vital filter to distinguish genuine homebuyers from speculative investors. By linking the acquisition of a home to the Right to Life under Article 21, the judiciary successfully prioritises social justice for families over the commercial interests of investors, thereby ensuring the insolvency framework remains focused on genuine corporate resolution.
Reference
[1] Mansi Brar Fernandes v. Shubha Sharma, 2025 SCC OnLine SC 1972
[2] The Insolvency and Bankruptcy Code, 2016 (Act No. 31 of 2016)
[3] The Real Estate (Regulation and Development) Act,2016 (Act No. 16 of 2016)
[4] The Insolvency and Bankruptcy Code, 2016 (Act No. 31 of 2016), s.7
[5] REEDLAW 2025 SC 09550
[6] The Insolvency and Bankruptcy Code, 2016 (Act No. 31 of 2016)
[7] Mansi Brar Fernandes v. Shubha Sharma, 2025 SCC OnLine SC 1972
[8] The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 (Act No. 26 of 2018)
[9] The Insolvency and Bankruptcy Code, 2016 (Act No. 31 of 2016), s.5(7)
[10] Pioneer Urban Land and Infrastructure Ltd v. Union of India, (2019) 8 SCC 416
[11] The Insolvency and Bankruptcy Code (Amendment) Act, ( Act No. 1 of 2020)
[12] Manish Kumar v. Union of India and Anr., (2021) 5 SCC 1
[13] Yashsvi Rathore, “Homebuyers Vs. Speculative Investors: Supreme Court Reins in IBC Misuse in Mansi Brar Fernandes V. Shubha Sharma & Anr.”, IBC Laws, Nov 4, 2025, available at : https://ibclaw.in/homebuyers-vs-speculative-investors-supreme-court-reins-in-ibc-misuse-in-mansi-brar-fernandes-v-shubha-sharma-anr-by-yashsvi-rathore/
[14] The Negotiable Instrument Act, 1881 (Act No. 26 of 1881), s.138
[15] Mansi Brar Fernandes v. Shubha Sharma, 2025 SCC OnLine SC 1972.
[16] Pioneer Urban Land and Infrastructure Ltd v. Union of India, (2019) 8 SCC 416.
[17] Mansi Brar Fernandes v. Shubha Sharma, 2025 SCC OnLine SC 1972.
[18] The Constitution of India, art. 21.
[19] Samatha v. State of A.P., (1996) 2 SCC 549
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Author details: Payal Priyadarshini Jena | 4th Year Law Student | Xavier Law School, XIM University, Bhubaneswar, Odisha
