Protecting Genuine Homebuyers Against Speculative Investment In Real Estate Insolvency Law

Introduction –

The Supreme Court's recent landmark judgment in Mansi Brar Fernandes v. Shubha Sharma, decided on 12th September 2025, clarified key legal principles distinguishing genuine homebuyers from speculative investors in real estate insolvency proceedings under the Insolvency and Bankruptcy Code, 2016. The Court stated, "Possession of a dwelling unit remains the sine qua non of a genuine homebuyer's intent," highlighting the legal recognition of bona fide homebuyers in the insolvency framework. This blog presents an overview of the case and its importance in real estate law.

Keywords: Real estate, genuine homebuyers, speculative investors, Insolvency, right to housing, CIRP.

Main Blog –

Before 2018, there was no specific legal framework to protect the interests of genuine homebuyers in insolvency situations. However, following the 2018 amendment, the definition of financial debt under the Insolvency and Bankruptcy Code was expanded to adequately include amounts raised from homebuyers or allottees in real estate projects. As a result, such amounts are to be treated as financial debt under section 5(8)(f) of the code, thereby conferring the status of financial creditors on homebuyers.

However, this amendment has come up with an unintended consequence, i.e., an increase in CIRP petitions being filed by speculative investors rather than genuine homebuyers. These investors often seek early exits or higher returns, which goes against the main goal of protecting bona fide homebuyers.

The real estate sector has long faced issues such as "delays, defaults, and a lack of accountability", leaving many families home less despite having invested their life savings and valuable time. The Court has repeatedly made it clear that the code is not meant to be a recovery tool or a bargaining chip for individual disputes. Instead, it is a collective process aimed at reviving viable projects and protecting the fundamental right to housing for genuine homebuyers.

To better achieve this objective, the NCLAT even introduced the innovative mechanism of reverse CIRP. This process allows promoters to fund and complete stalled projects under supervision, ensuring timely possession for homebuyers while balancing the interests of all stakeholders.

In the landmark Pioneer Urban Land case, although the constitutional validity of the 2018 amendment recognizing allottees as financial creditors was upheld, however, the case also distinguished between genuine homebuyers and speculative investors, which matters only at the stage of CIRP initiation thereby safeguarding the interests of bona fide buyers.

"Speculation" has been defined byP. Ramanatha Iyer as "a risky investment of money for the sake of and in expectation of unusually large profits". Identifying speculative investor depends on the facts and circumstances of each individual case, guided by the parties' intent and contextualization. However, in the case of Mansi Brar Fernandes v. Shubha Sharma, the court provided five indicative factors to identify, which allottees may be considered speculative investors:

1. "The nature and terms of the contract;
2. the number of units purchased;
3. the presence of assured returns or buyback clauses;
4. the stage of completion of the project at the time of investment; and
5. the existence of alternative arrangements in lieu of possession."

The indicators for identifying speculative investors are non-exhaustive and may include clauses such as the presence of buyback or refund options, insistence on a refund with high interest while refusing to accept possession, purchase of multiple units, particularly in significant numbers, special rights or preferential treatment granted to the allottee, deviation from the RERA Model Agreement, and agreements with unrealistic interest rates, among others. Such arrangements typically signal a transactional motive oriented towards profit rather than the genuine intention to acquire or use the property.

These factors are instrumental in distinguishing genuine homebuyers, who purchase units for personal use or as a long-term investment, from speculative investors whose involvement is primarily motivated by the prospect of assured returns or subsequent resale. Speculative activities in the real estate sector artificially boost demand and inflate property prices, ultimately harming the interests of genuine homebuyers. Unlike financial markets where speculation often enhance liquidity, speculation in residential housing undermines market stability, fairness and fundamental objectives of housing development.

For middle – class, speculative activities act as a "slow – poison" by eroding housing affordability and depriving them of genuine homeownership. These speculative investors often exploit market returns and have short – term gains by invoking the Code as a coercive recovery mechanism, which creates a "heads I win, tails you lose" scenario, where such parties benefit regardless of the outcome. Therefore, to curtail such scenarios, under Section 7 of the Code, once an allottee establishes a prima facie default by the developer, the burden shifts to the developer, here he can prove that the initiation of the CIRP is fraudulent, malicious, or motivated by speculative intent.

In Mansi Brar Fernandes Case, the agreement between the parties included a buyback clause along with provisions for profit-sharing beyond guaranteed returns. These terms made it evident that the parties did not intend actual possession of the property. The repeated use of the term "investment" and the availability of a risk-free exit option further confirmed that the appellants were not pursuing genuine homeownership but were motivated by speculative financial returns.

Since such risk-free arrangements unfairly favor speculative investors at the expense of legitimate homeowners and developers, the court ruled that a buyer cannot expect a refund with guaranteed profits while also refusing to take possession of the property.

In Conclusion, the Supreme Court ruled in Mansi Brar Fernandes that the appellants were speculative investors and that their claims were more like recovery actions than actual insolvency procedures. This important distinction helps prevent the misuse of the Code and preserves its primary objective of reviving viable real estate projects.

The ruling confirms that the right to housing is a fundamental right under Article 21 and not just a contractual entitlement. By doing thus, the Court reaffirmed the necessity of shielding legitimate purchasers from speculative exploitation and ensuring the legal framework upholds their fundamental right to shelter and dignity. This landmark decision represents a transformative step in protecting millions of Indian households, enhancing the legitimacy and fairness of housing construction in the nation, and striking a balance between economic realities and constitutional morality in the real estate industry.

References –

1. Mansi Brar Fernandes v. Shubha Sharma, 2025 SCC OnLine SC 1972
2. Pioneer Urban Land and Infrastructure Ltd v. Union of India, (2019) 8 SCC 416.
3. Madhubhai Amathalal Gandhi v. Union of India, (1997) 8 SCC 191.
4. Binani Industries Ltd v. Bank of Baroda, Civil Appeal No. 1234 of 2018.
5. Subha Sharma v. Mansi Brar Fernandes, Company Appeal (AT) (Insolvency) No. 83 of 2020, National Company Law Appellate Tribunal, dated November 17, 2020.
6. Manish Kumar v. Union of India, (2021) 5 SCC 123.
7. Winter Hills vs. Umang Realtech, (2020) 4 SCC 567.
8. Samatha v. State of Andhra Pradesh, (1997) 8 SCC 191.
9. Chameli Singh v. State of U.P., AIR 1996 SC 1050.
10. Insolvency and Bankruptcy Code, 2016 (IBC)
11. Insolvency and Bankruptcy Code Amendment Act, 2018
12. Real Estate (Regulation and Development) Act, 2016
13. P. Ramanatha Iyer's "Law Lexicon" (6th Edition) — Definition of speculation and speculative investors in trade or business

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.