A bench comprising Justice J. B. Pardiwala and R. Mahadevan of the Supreme Court (“Court”) delivered the judgment in Mansi Brar Fernandes v. Shubha Sharma, 2025 INSC 1110, on September 12, 2025. Differentiating a speculative investor from a genuine homebuyer, the Court issued a landmark ruling setting out the indicators to identify a speculative investor and clarifying its role in initiating insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (“IBC”/ “Code”). In doing so, the Court held that speculative investors cannot be allowed to misuse IBC to trigger the Corporate Insolvency Resolution Process (“CIRP”) as a recovery mechanism. Additionally, the Court reiterated key principles under IBC and issued a slew of directions for structural reforms in the framework for real estate insolvency resolution.

Brief Background:

The instant case involved four consolidated appeals arising from two National Company Law Appellate Tribunal (“NCLAT”) orders – Order dated November 17, 2020, in Company Appeal (AT) (Insolvency) No. 83 of 2020, and Order dated August 21, 2021, in Company Appeal (AT) (Insolvency) No. 1020 of 2019 (“NCLAT Orders”).

In CA(AT)(Ins) 83/2020, the Financial Creditor (“FC”), Mansi Brar, had entered into a memorandum of understanding (“MOU”) with the corporate debtor (“CD”) for a 12 (twelve) month period, paying INR 35,00,000 (Rupees thirty-five lakhs) for provisional allotment of apartments. However, the clauses of the MOU mandated the CD to buy back apartments at the end of the term and refund the amount paid together with the premium. A similar MOU was executed between FC Sunita Agarwal and the CD in CA(AT)(Ins) 1020/ 2019, whereby FC invested INR 25,00,000 (Rupees twenty-five lakhs) and was promised 25% (twenty-five percent) per annum returns after 24 (twenty-four) months, with a compulsory buy-back of the apartment by CD.

Drawing a distinction between the nature of these MOUs and a standard builder-buyer agreement, NCLAT set aside the admission of Section 7 applications by the National Company Law Tribunal (“NCLT”) in both matters. It was held that FCs were speculative investors who sought profit from lucrative agreements, and not allottees under Section 5(8)(f) of the IBC interested in possession of the units. Therefore, the amounts deposited by them could not be treated as ‘financial debt’, and they were not ‘financial creditors’ within the meaning of Section 7 of the IBC.

Aggrieved by these NCLAT Orders, appeals were filed before the Supreme Court.

Issues before the Court:

The central issue for consideration before the Court revolved around the concept of ‘speculative investors’ as allottees under clause (f) of Section 5(8) and their role in initiating insolvency proceedings under Section 7 of the Code.

Decision of the Court:

The Court affirmed the NCLAT’s findings, setting aside the admission of Section 7 applications in both cases. It upheld NCLAT’s decision of identifying the FCs as ‘speculative investors’ driven by profit motives. The Court further observed that the FCs had filed claims in the nature of recovery, not for insolvency resolution. Accordingly, it was held that IBC, being a remedial framework for the revival of companies, cannot be misused by allottees to recover debts.

The Court laid down criteria to identify an allottee as a speculative investor and passed a set of directions for institutional reforms to strengthen the insolvency resolution framework.

Speculative Investors under IBC and indicators for their identification:

The Court held that the determination of an allottee as a ‘speculative investor’ depends on multiple factors, including the terms of agreement, allotment letter, payment terms, conduct of allottee and the existence of an alternative option for possession. Reinforcing the distinction drawn between speculative investors and genuine homebuyers in Pioneer Urban Land and Infrastructure Limited v. Union of India, (2019) 8 SCC 416, the Court opined that delivery and possession of a unit remains sine qua non of a genuine homebuyer. The Court held that any allottee who has no intention to take possession of the unit and is interested in a refund or profit falls within the category of ‘speculative investor’.

Additionally, relying on previous decisions, the Court also laid down the following non-exhaustive indicators for identifying a ‘speculative investor’:

1. Agreement substituting possession with refund, buyback, or any special arrangement;

2. Special rights/ preferential treatment/ unusual privileges to allottee;

3. Refusal to accept possession, and insist on a refund with high interest;

4. Unrealistic interest rates and promises of 20-25% returns over short duration;

5. Purchase of multiple units would attract greater scrutiny; and

6. Deviation from the RERA Model Agreement to sell;

The Court was of the view that allowing such investors to trigger insolvency proceedings would frustrate the objective of revival, destabilise projects, and operate to the detriment of genuine homebuyers. It was noted that such investors already had alternative remedies to approach RERA, consumer authorities or civil courts.  However, the Court also levied a caveat to such identification – relevant only at the stage of initiation of the CIRP and shall not affect admission of claims.

Right to Shelter under Article 21 of the Indian Constitution:

Placing heavy reliance on the previous judgments of the Court, it was reiterated that the right to shelter of a homebuyer is enshrined as a fundamental right under Article 21 (Right to Life) of the Constitution of India, 1950. The Court underscored that the purchase of a home cannot be regarded merely as a commercial transaction. The State bears the responsibility of ensuring a framework that protects homebuyers from fraud and exploitation.

Directions for Structural Reforms:

With an aim to fortify the safeguards for bona fide homebuyers and secure stability of the real estate sector, the Court issued the following directions to authorities:

1. Filling up vacancies in NCLT/ NCLAT on a priority basis.

2. NCLT to record a prima facie finding on an applicant being a genuine homebuyer or speculative investor at the stage of admission of Section 7 IBC applications.

3. As a rule, resolution of real estate insolvency is to proceed in a project-wise manner, unless circumstances so necessitate.

4. Regulations to ensure representation of real estate allottees in COC.

5. Deposits from allottees of projects at the initial stage are to be put in an escrow account and disbursed in a phase-wise manner as per the progress of the project.

6. Union government to file a compliance report on measures adopted to improve NCLT/ NCLAT infrastructure.

7. Constitution of a committee for suggesting systemic reforms in the real estate sector.

8. State to ensure adequate infrastructure, resources and experts for RERA authorities.

9. Union Government to establish a fund for providing bridge financing to stressed real estate projects under CIRP.

10. Government to prioritise video-conferencing, e-filing, etc, to reduce caseload before NCLTs.

11. Constitution of a council by IBBI, in consultation with RERA, for framing structured guidelines on insolvency resolution in the real estate sector, including timelines for project-wise CIRP.

Please find attached a copy of the judgment here.

This update has been contributed by R. Sudhinder (Senior Partner) and Anushka Sharma (Associate).

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