Vacancies In NCLT Or NCLAT Shall Be Filled On A War Footing: Supreme Court Issues Directions In Interest Of Bonafide Homebuyers
The Supreme Court observed that the Government is constitutionally obliged to protect the interests of homebuyers.
Justice J.B. Pardiwala, Justice R. Mahadevan, Supreme Court
The Supreme Court in its recent Judgment, has issued certain directions in the larger interests of bona fide homebuyers and the stability of the real estate sector.
A batch of four Civil Appeals were filed before the Court, arising out of the final Judgment passed by the National Company Law Appellate Tribunal (NCLAT).
The two-Judge Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan issued the following directions to the concerned authorities, which demand coordinated action by all stakeholders –
(1) Vacancies in NCLT / NCLAT shall be filled on a war footing. Dedicated IBC benches with additional strength should be constituted. Services of retired judges may be utilized on ad hoc basis until regular appointments are made.
(2) The Union Government shall, within three months, file a compliance report on measures taken to upgrade NCLT/NCLAT infrastructure nationwide.
(3) Within three months, a Committee chaired by a retired High Court Judge shall be constituted, with representatives from the Ministry of law, Ministry of Housing, domain experts in Real Estate, Finance and IBC from NIUA, HUDCO’s HSMI, IIMs, NLUs, and NITI Aayog, as well as two eminent industry representatives.
(4) States shall ensure that RERA (Real Estate Regulatory Authority) authorities are adequately staffed with infrastructure, experts, and resources. At least one member of every RERA must be a legal expert or consumer advocate with proven expertise in real estate field. RERAs must conduct thorough diligence before granting approval to any project. Failure to do so, resulting in miscarriage of justice, shall amount to an error unpardonable in law and may invite strict intervention by this Court.
(5) Since real estate is the second largest sector in IBC proceedings, IBBI, in consultation with RERA authorities, shall constitute a council to frame specific guidelines for insolvency proceedings in real estate, including timelines for project-wise CIRP, and safeguards for allottees.
(6) Resolution of real estate insolvency should, as a rule, proceed on a project specific basis rather than the entire corporate debtor, unless circumstances justify otherwise. IBBI shall also devise a mechanism to enable handover of possession to willing allottees where substantial units in a project are complete.
(7) The Union Government shall consider establishing a revival fund under NARCL (National Asset Reconstruction Company Ltd.) or expanding the SWAMIH (Special Window for Affordable and Mid-Income Housing) Fund, to provide bridge financing for stressed projects undergoing CIRP, thereby preventing liquidation of viable projects and safeguarding homebuyer interests.
(8) Regulations shall ensure meaningful representation of allottees in the CoC through authorized representatives, with safeguards against conflicts of interest.
(9) At the admission stage of Section 7 Petitions filed by allottees, NCLTs must record a prima facie finding on whether the applicant is a genuine homebuyer or speculative investor.
(10) The Government shall prioritize e-filing, video-conferencing, and dedicated case management systems for IBC matters, in view of the heavy caseload before NCLTs.
(11) Every residential real estate transaction for new housing projects shall be registered with local revenue authorities upon payment of at least 20% of the property cost by buyer/allottee. Further, to protect senior citizens and bona fide homebuyers, contracts that significantly deviate from the Model RERA Agreement to Sell, or that incorporate returns/buyback clauses where the allottee is over the age of 50, must be supported by an affidavit sworn before the competent Revenue Authority, certifying that the allottee understands the attendant risks.
(12) In projects at nascent stages, such as where land is yet to be acquired or construction has not commenced, proceeds from allottees shall be placed in an escrow account and disbursed in phases aligned with project progress, as per a RERA-sanctioned SOP. Every RERA shall devise such SOPs within six months.
Court’s Observations
The Court reiterated that while investors are integral to any industry and their interests warrant protection, speculative participants driven purely by profit motives cannot be permitted to misuse the Insolvency and Bankruptcy Code, which is a remedial framework conceived for revival and the protection of sick companies and, in the case of real estate, genuine homebuyers.
“Such investors have alternative remedies under consumer law or RERA and even recourse to Civil Courts in appropriate cases. To admit speculative claims into insolvency proceedings would dilute the intelligible differentia underlying the legislative scheme, destabilize the residential real estate sector, and erode the social purpose embedded in housing as a fundamental right”, it said.
The Court observed that the Government is constitutionally obliged to protect the interests of homebuyers and the economy at large and it is not merely about houses or apartments; the banking sector, allied industries, and employment for a large populace are also at stake.
“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. 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”, it concluded.
Accordingly, the Apex Court disposed of the Appeals, affirmed the NCLAT’s findings, and directed the Registry to circulate a copy of the Judgment to the Cabinet Secretary to Government of India as well as to the Chief Secretaries of all States, who shall take necessary steps at the earliest.
Cause Title- Mansi Brar Fernandes v. Shubha Sharma and Anr. (Neutral Citation: 2025 INSC 1110)
Appearance:
Senior Advocate Saurabh Mishra, AORs Awanish Sinha, Anindita Mitra, Akhil Anand, Nupur Kumar, Kaustubh Shukla, Astha Sharma, Advocates Chandra Shekhar Yadav, Vineet Kumar, Harshita Gulati, Diksha Dadu, Pushpanjali Singh, Praveen Kumar Singh, Vishal Sinha, Mantika Haryani, and Bhanu Mishra.
