Speculative investors cannot trigger CIRP solely for recovery
Supreme Court Sets Precedent on Speculative Investors in Real Estate Sector
The Supreme Court reaffirmed the fundamental rights of genuine homebuyers while curbing the speculative misuse of the Insolvency and Bankruptcy Code (IBC), 2016, in the real estate sector. The case, titled Mansi Brar Fernandes v. Shubha Sharma, was presided over by Justices J.B. Pardiwala and R. Mahadevan, marking a significant precedent for the treatment of speculative investors under the IBC.
The Case: Understanding Speculative Investors vs. Genuine Homebuyers
The judgment arose from four appeals, primarily focusing on distinguishing speculative investors from genuine homebuyers in the context of IBC proceedings. The Supreme Court upheld the National Company Law Appellate Tribunal’s (NCLAT) decision, which had classified appellants Mansi Brar Fernandes and Sunita Agarwal as speculative investors, thereby disqualifying them from initiating proceedings under Section 7 of the IBC.
The Court emphasized that speculative investors, who enter into buy-back agreements or seek assured returns without the intent to take possession, cannot invoke the Corporate Insolvency Resolution Process (CIRP). This distinction is pivotal to safeguarding the interests of genuine homebuyers and ensuring the stability of the residential real estate sector.
Key Highlights: Ordinance Applicability and Fundamental Rights
A crucial aspect of the judgment was the applicability of the IBC Amendment Ordinance, 2019, which introduced threshold requirements for filing Section 7 applications by allottees. The Supreme Court clarified that this ordinance applies even to pending applications where orders were reserved post-promulgation. The Court stressed that procedural compliance should not prejudice litigants due to judicial delays.
Moreover, the judgment reinforced the Right to Shelter as a fundamental right under Article 21 of the Constitution, underscoring the State’s constitutional obligation to protect homebuyers. The Court highlighted the necessity of timely project completion and the prevention of speculative misuse to uphold the fundamental human need for housing.
Directions and Recommendations for the Real Estate Sector
In a comprehensive set of directions, the Supreme Court called for systemic reforms to bolster the real estate sector and protect genuine homebuyers. These include:
- 1. Filling vacancies in NCLT/NCLAT and enhancing RERA authorities.
- 2. Establishing a revival fund for stressed projects.
- 3. Ensuring project-specific CIRP to safeguard homebuyers.
- 4. Recommendations for reforms to cleanse and infuse credibility into the real estate sector.
Implications and Future Outlook
This judgment is poised to bring stability and confidence to India’s real estate market by deterring speculative practices and reinforcing the rights of genuine homebuyers. The directives issued aim to streamline insolvency proceedings, ensure timely project completion, and protect the fundamental right to shelter.
As India continues its rapid urbanization, this ruling sets a critical precedent in balancing the interests of investors, developers, and homebuyers, ultimately contributing to a more robust and transparent real estate ecosystem.
Mansi Brar Fernandes v. Shubha Sharma, (SC) : Law Finder Doc id # 2777731
