Real Estate Insolvency – Landmark Judgement of Hon’ble Supreme Court of India shields genuine homebuyers

Hon’ble Supreme Court of India in its landmark judgment delivered on 12.09.2025 in the matter of Mansi Brar Fernandes vs Shubha Sharma and others, held that Right to Shelter as a Fundamental Right: Constitutional obligations of the state to protect Homebuyers to protect the interest of genuine homebuyers in Real Estate Entities insolvency.

Hon’ble Supreme Court of India has issued following directions to the concerned authorities, in the larger interests of bona fide homebuyers and the stability of the real estate sector, 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. This Court is cognizant of the fact that similar directions have been issued in the past, including in Pioneer Urban case (supra), but no effective step has been taken on the ground.
2. The Union Government shall, within three months, file a compliance report on measures taken to upgrade NCLT/NCLAT infrastructure nationwide. The recent closure of Chandigarh NCLT and portions of Delhi NCLT due to water seepage in the Courtrooms and Chambers of Members underscores the urgency of robust infrastructural support.
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. The Committee shall suggest commercially viable systemic reforms for cleansing and infusing credibility into the real estate sector. NITI Aayog/ NIUA shall provide research and secretarial support. The Committee shall submit its report within six months of its constitution.
4. States shall ensure that RERA 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. This would protect solvent projects and genuine homebuyers from collateral prejudice. 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 or expanding the SWAMIH Fund, to provide bridge financing for stressed projects undergoing CIRP, thereby preventing liquidation of viable projects and safeguarding homebuyer interests. SWAMIH Fund is a commendable initiative; however, being a large fund involving public money, every rupee must be utilised strictly for its intended purpose of last-mile financing. To prevent misuse, we direct that a comprehensive periodic performance audit by the CAG be carried out, with reports placed in the public domain in a form comprehensible even to laypersons.
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. This would prevent unnecessary admissions and reduce docket burden.
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 from today.

Suggestions for future reform:

(1) IBBI may consider introducing “Basel-like” early warning frameworks, drawing from comparative practices, such as, pre-bankruptcy mediation and preventive restructuring, requiring directors to initiate restructuring before defaults spiral out of control.

(2) The Union Government should undertake a consultative exercise to bring about uniformity in RERA Rules across States, to remove ambiguity and fill lacunae in what is otherwise a watershed legislation.

(3) Housing Boards, State-level Urban Development Authorities (e.g., DDA, GMADA, MHADA, CHB) and CPSUs should establish dedicated wings to revive and complete stalled projects under IBC mechanisms. This would instill faith in the sector, ensure affordable housing, and protect genuine homebuyers.       

(4) It is a matter of grave concern that despite funding hundreds of crores into various government-run think tanks and management institutions such as IIMs and IITs, India still requires a robust homegrown consulting industry. Collaboration with Indian think tanks and academic institutions should be strengthened to build indigenous capacity for sectoral restructuring. This has the potential to improve India’s ease of doing business and accelerate economic growth.

(5) The Union Government may also consider establishing a body corporate, on the lines of NARCL or otherwise, promoted by real estate/construction-focused PSUs or through Public-Private Partnerships, to identify, take over, and complete stalled projects under the IBC framework. Unsold inventory from such projects could be utilized towards affordable housing schemes like PMAY or for Government quarters, thereby addressing both the housing shortage and revival of sick projects.

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 homebuyers 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.

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.