Supreme Court clarifies on Fundamental Right under Article 21 of the Indian Constitution vis-à-vis Insolvency and Bankruptcy Code, 2016
by Mrs. Shikha Goenka Ginodia (Partner) and Mr. Gaurav Suryavanshi (Principal Associate)
In a landmark ruling aimed at safeguarding the interests of homebuyers, the Supreme Court of India in Mansi Brar Fernandes v. Shubha Sharma & Ors. (2025)1 has inter alia declared and affirmed that the right to housing is a fundamental right under Article 21 of the Constitution and the Government is constitutionally obligated to ensure the fulfilment of this right. The Apex Court has now not only clarified the distinction between genuine homebuyers and speculative investors under the Insolvency and Bankruptcy Code, 2016 (“IBC”), but also issued wide-ranging systemic directions, including the creation of a revival fund for stressed real estate projects.
A Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan emphasised that the primary objective of the IBC in the real estate context is the protection of genuine homebuyers and the revival of viable projects, not the liquidation of developers or the recovery of speculative investments.
FACTS OF THE CASE
The matter comprises of the following appeals:
- Appeal by Mansi Brar Fernandes – Challenged the NCLAT’s order which set aside admission of her Section 7 IBC petition, holding her to be a speculative investor.
- Appeal by Sunita Agarwal – Similar challenge against NCLAT’s order dismissing her Section 7 petition as speculative.
- Cross-appeals by Directors of the real estate project Gayatri Infra who contended that Fernandes’ petition was not maintainable owing to the 2019 Ordinance that mandated the threshold of 100 allottees or 10% allottees in the real estate project.
- Intervention by Homebuyers’ Society of Gayatri Life – Supporting the Appeal filed by Fernandes, claiming threshold compliance through collective affidavits of allottees.
While deciding the appeals, the following major contentions were dealt with by the Apex Court:
- Whether the appellant allottees, fall within the category of “speculative investors” so as to disentitle them from initiating proceedings under Section 7 of the IBC?
- Whether the threshold requirement introduced by the 2019 Ordinance applies retrospectively to petitions filed and reserved for orders prior to its enactment?
OBSERVATIONS OF THE COURT
The observations of the Apex Court are multi facet which are as under:
(i) Every allotee would not qualify as a Financial Creditor
The Apex Court once again emphasised that the IBC is not designed as a mechanism for debt recovery. It is a framework for resolution and revival in the collective interest of stakeholders. In the real estate sector, its purpose is to ensure completion of projects and delivery of homes. The 2018 amendment recognising homebuyers as financial creditors was intended to protect them, but misuse by speculative investors necessitated the corrective threshold introduced in 2019. By contrast, a speculative participant entering into a buy-back or assured-return scheme is not a genuine homebuyer but an investor seeking profit. Thus, speculative investors cannot be treated as financial creditors under Section 5(8)(f) IBC and cannot trigger insolvency under Section 7.
(ii) The distinction between genuine homebuyers and speculative investors
The Court drew a distinction between genuine homebuyers and speculative investors which involved that
- A genuine homebuyer is defined by the intent to take possession of the unit.
- By contrast, speculative investors treat real estate as a financial instrument, seeking quick exits or inflated returns.
- Buy-back or refund clauses substituting possession, exorbitant or guaranteed returns, acquisition of multiple units, deviation from RERA’s model agreement, and insistence on refund rather than possession.
- Purchase of multiple units, especially in double digits, shall invite greater scrutiny, though it is not conclusive. If the terms of the agreement provide for possession or refund in the event of failure to give possession alone, this factor may not be held against the allottee.
- Deviation from the RERA Model Agreement shall be a crucial indicator as to the nature of the transaction – the greater the departure, the greater the likelihood of speculation;
- Unrealistic interest rates and promises of 20 – 25% returns over a short duration are indicative of speculation.
Applying these principles, the Court concluded that the transaction executed by the allottees which provided for refund of monies, was effectively a buy-back arrangement designed for profit and both appellants, therefore, were correctly classified by the NCLAT as speculative investors.
(iii) Applicability of the 2019 Ordinance2
Under the Ordinance, for allottees investing in a real estate project (i.e., homebuyers) to file an application under Section 7 of the IBC, the application must be made jointly by not less than 100 allottees or not less than 10% of the total number of allottees, whichever is less, in the same project.
The Court held that the threshold introduced by the 2019 Ordinance was mandatory. However, since Fernandes’ petition had already been reserved for orders before the Ordinance came into effect, and thus the compliance was impossible. Applying the doctrines of actus curiae neminem gravabit and lex non cogit ad impossibilia, the Court held that subsequent compliance, as required by the 2019 Ordinance, was sufficient, as the provision was procedural and no prejudice was caused to the developer.
Hence, though the threshold requirement introduced by the 2019 Ordinance is mandatory, petitions reserved for orders prior to its enactment cannot be dismissed for impossibility of compliance, and subsequent compliance suffices.
(iv) The Right to Housing as a Fundamental Right
One of the most important facets of the judgement is that the Court declared that the right to housing is not merely a contractual entitlement but a facet of the fundamental right to life under Article 21. Housing cannot be reduced to a commodity of speculation but must be regarded as a basic human need. The Bench remarked:
“Before parting, we observe that the right to housing is not merely a contractual entitlement but a facet of the fundamental right to life under Article 21”
The Court emphasised that speculative misuse of the IBC destabilises the real estate market, burdens families with rent and EMIs, and erodes the constitutional promise of secure housing.
(v) Directions for Revival and Reform
The Court issued several judicial directions to the Union Government and State authorities. It ordered that a copy of the judgment be circulated by the Registry to the Cabinet Secretary and Chief Secretaries of all States for immediate follow-up action.
It directed:
“The Union Government shall consider establishing a revival fund under the NARCL or expanding the SWAMIH Fund to provide bridge financing for stressed projects undergoing CIRP proceedings, thereby preventing liquidation of viable projects and safeguarding home buyer interest.
To prevent misuse, we direct that a comprehensive periodic performance audit by CAG be carried out, with reports placed in the public domain in a form comprehensible even to laypersons.”
The Court stressed that the government cannot remain a silent spectator, observing:
“While this is a matter of policy falling within the exclusive domain of the Government, it cannot remain a silent spectator. The Government is constitutionally obliged to protect the interests of home buyers and the economy at large. It is not merely about houses or apartments; the banking sector, allied industries, and employment for a large populace are also at stake.”
The Apex Court also directed that:
- Vacancies in NCLT/NCLAT to be urgently filled; ad hoc judges to be appointed until then.
- Union Government to upgrade tribunal infrastructure within 3 months.
- A Committee headed by a retired High Court judge to propose systemic reforms in real estate insolvency.
- RERA authorities to be strengthened; projects to be approved only after rigorous diligence.
- IBBI to frame real estate-specific insolvency guidelines, including project-wise CIRP.
- Prima facie judicial determination at admission stage on whether an applicant is a genuine homebuyer or speculative investor.
- Contracts deviating from RERA model, especially for allottees above 50 years, to be supported by affidavits acknowledging risk.
Concluding its directions, the Court held:
“Genuine homebuyers represent the backbone of India’s urban future, and their protection lies at the intersection of constitutional obligation and economic policy. Through these directions, this Court seeks to restore faith in the regulatory and insolvency framework, deter speculative misuse, and ensure that the “dream home” of India’s citizens does not turn into a lifelong nightmare”
CONCLUSION
To sum up, the Apex Court has settled several positions of the law. This judgment represents a stepping stone in insolvency jurisprudence. By excluding speculative investors while affirming the right to housing as a constitutional entitlement, the Supreme Court has balanced the need for commercial discipline with social justice for homebuyers investing hard earned monies in real estate. Its directions to the Union Government ensure a path of reform, ensuring that viable projects are saved from liquidation and that homebuyers’ faith in the regulatory and insolvency framework is restored. The right to housing is now a fundamental right under Article 21, and speculative misuse of the IBC undermines this constitutional guarantee. The IBC must be treated as a last-resort mechanism for the revival of projects, not as a recovery tool for speculative participants
Footnotes
1 CIVIL APPEAL NO. 3826 OF 2020
2 Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019
