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30 September 2025

Guarding Homes, Not Profits: Supreme Court On Speculative Buyers Under IBC Regime

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Anhad Law

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The concept of the speculative buyer in the context of the Insolvency and Bankruptcy Code, 2016 ("IBC") is not new, it was first recognised in the landmark judgement...
India Insolvency/Bankruptcy/Re-Structuring
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The concept of the speculative buyer in the context of the Insolvency and Bankruptcy Code, 2016 (“IBC”) is not new, it was first recognised in the landmark judgement Pioneer Urban Land and Infrastructure Ltd. v. Union of India1 and although the concept was crucial, it perhaps got overshadowed by the recognition of homebuyers as financial creditors in the aforementioned judgement. In the said case, the Supreme Court clarified that homebuyers who invest their monies in search of a home are to be treated as financial creditors. Yet, while conferring this protection, the Apex Court also drew attention to a different category of participants, pertaining to those who enter into real estate projects with the intent to not secure a roof over their head, but to rather earn assured/higher profits on their investment. These speculative buyers have emerged as a concern within the insolvency framework, as they are often quick to initiate CIRP proceedings against developers, typically in cases involving project delays, thereby placing the entire project at risk. Their primary objective is not to secure possession of a home, but to extract profits from their investment, even if such action undermines or derails the project altogether.

The recent decision in Mansi Brar Fernandes v. Shubha Sharma & Anr. (2025 INSC 1110) offers perhaps the clearest judicial articulation of the distinction between end-users and speculative buyers. The Supreme Court examined homebuyers who had entered into agreements that lacked possession timelines but were replete with clauses for buy-backs, post-dated cheques, and returns as high as twenty-five percent (25%) per annum. These transactions resembled financial derivatives disguised as housing contracts. Upon analysis, the Court concluded that such arrangements did not reflect a genuine intent to acquire a dwelling. Rather, they constituted risk-free investment schemes structured to guarantee high profits irrespective of the project's outcome.

Accordingly, the Court held that the appellants were speculative investors and, as such, disentitled from invoking insolvency proceedings under Section 7 of the IBC.

The judgment emphasised that possession of a dwelling unit remains the sine qua non of a genuine homebuyer's intent. Where an allottee does not seek possession but pursues refunds or assured returns, the nature of the claim has been characterised as speculative. The Supreme Court observed that such practices may create systemic concerns within the housing sector. While speculation in financial markets can sometimes contribute to liquidity, speculation in real estate has the potential to inflate demand, affect pricing structures, and disadvantage genuine homebuyers whose primary interest is timely possession. Insolvency proceedings initiated in pursuit of such investment recoveries may, in turn, disrupt project completion and run counter to the IBC's emphasis on resolution rather than recovery.

Indeed, soon after the Pioneer judgment, there was a noticeable surge in petitions filed not by genuine homebuyers but by speculative investors. To curb this misuse, the legislature introduced the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019, later enacted as an amendment, which imposed a qualification for homebuyers seeking to initiate CIRP against the developer. Under this provision, a Section 7 petition against a developer could be filed only if supported by at least 10% of the allottees in the project or a minimum of 100 allottees, whichever was less. The Supreme Court in Mansi Brar Fernandes also examined this requirement, specifically addressing its retrospective applicability. The Court noted that the amendment expressly provided that any petition filed but still pending admission at the time of its enactment must be brought into compliance within thirty days, failing which it would be deemed withdrawn, unless the same was already reserved for orders, in that case the Petitioners can't be held liable.

Anhad Law's Perspective

The ruling is both welcome and challenging. It rightly shields the IBC from being reduced to a recovery mechanism for investors chasing quick profits. The protection of genuine homebuyers, who often struggle under the twin burden of EMIs and rent, must remain at the centre of the IBC's remedial framework. Yet, the Court itself acknowledged that identifying speculation is not straightforward. The reality of India's housing market complicates the picture, brokers and investors line up at project launches to secure units, often reselling them at premiums even before construction begins, also non-resident Indians frequently invest with no intention of occupying. More often than not, such NRIs or brokers are connected with other like-minded individuals, making it relatively easy for them to cross the 10% threshold of allottees required to initiate CIRP, that said, the qualification introduced by the 2019 amendment has proved to be an effective safeguard, filtering out many speculative claims and ensuring that only genuine homebuyers can sustain insolvency proceedings. Furthermore, given the fact that developers themselves draft agreements embedding buy-back or assured return clauses that buyers may accept without fully grasping their consequences. In such circumstances, the boundary between genuine homebuyer and speculative investor becomes porous, leaving scope for both under-inclusion and misuse.

The risk, moreover, is twofold. On one hand, speculative misuse clogs the insolvency system and unfairly pressures developers. On the other, there is a danger that developers will seize upon the label of “speculative buyer” to resist legitimate petitions, portraying even bona fide homebuyers as investors simply because their contracts contained terms drafted by the builders themselves. Courts and tribunals must therefore tread carefully, applying the principles laid down by the Supreme Court with sensitivity to context and with full awareness of the unequal bargaining power between builder and buyer.

The judgment also reflects a broader constitutional vision that housing is not a commodity for gambling but a facet of the right to shelter under Article 21. The Court's language is instructive, it describes speculative activity as a “slow poison” for the sector, while reaffirming that the IBC must serve the larger purpose of project revival and delivery of homes, not merely the recovery of investments. Therefore in support of the aforementioned vision, the Supreme Court through this judgement has taken the initiative to state a series of suggestive measures aimed at strengthening both the IBC and the authorities responsible for its effective implementation.

Ultimately, the Mansi Brar Fernandes judgment fortifies the safeguards for bona fide homebuyers while narrowing the door for those seeking windfall profits. It recognises that speculation, if left unchecked, undermines not only the objectives of the IBC but also the very social purpose of housing. Yet it also leaves space for nuanced application, ensuring that the principle is not weaponised against the very class it seeks to protect. For the legal community and the real estate sector alike, the task ahead lies in ensuring that the IBC continues to serve its twin aims, revival over ruin, and protection of genuine stakeholders over speculative profiteering.

Footnote

1. Pioneer Urban Land and Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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