The Hon’ble Supreme Court recently reiterated in Mansi Brar Fernandes v. Shubha Sharma & Ors.¹that the Real Estate (Regulation and Development) Act, 2016 (“RERA”) remains the primary forum for redressal of homebuyer grievances wherein transactions are “speculative” in nature. The Court further observed that the Insolvency and Bankruptcy Code, 2016 (“IBC”) is a highly misunderstood legislation and, by contrast, is a remedial mechanism of last resort, intended only for genuine cases of insolvency.

Brief Facts:
In the present case, the appellants had filed applications under Section 7 of the IBC based on certain investment agreements containing buy-back and assured return clauses, seeking insolvency proceedings against real estate developers. However, the NCLAT had reversed admission orders for the said applications. Relying on Pioneer Urban Land and Infrastructure Ltd. v. Union of India² the tribunal classified the appellants as “speculative investors,” ineligible to invoke CIRP. Aggrieved, the appellants challenged the findings before the Supreme Court.

Interplay Between IBC & RERA:
Both the IBC and the RERA offer redressal forums to allottees in a systematic manner. However, it has been observed that investors, under the guise of homebuyers, often tend to exploit the remedies offered by the two forums to their relative advantage. This defeats the object of the IBC, which is set to revive corporate debtors or, in this case, real estate developers.

Whilst the landmark ruling in Pioneer Urban upheld the 2018 Amendment to the IBC, affirming that allottees of real estate projects qualify as “financial creditors” under Section 5(8)(f), offering protection and empowering aggrieved homebuyers, it opened extensive floodgates by granting reliefs to homebuyers under RERA, IBC and the Consumer Protection Act, resulting in the overlapping of forums. It is pertinent to mention that the second proviso to Section 7 of the IBC is a legislative safeguard designed to insulate viable projects from disruption by isolated or profit-driven claims.

In order to recalibrate the injustice stated above, the Supreme Court’s decision in Mansi Brar serves as a paramount step taken in regulating the imbalance created through the 2018 Amendment by safeguarding the interests of genuine homebuyers while curbing “speculative” misuse through investors.

The “Speculative Investor Test”:
A speculative allottee is one who seeks short term gains through devices like buy-back clauses and post-dated cheques (PDCs) with no genuine intent to obtain possession or use the property for residential purposes. It is imperative that resolution professionals single out speculative investors and reject their application to shelter the residential real estate sector from slow poisoning, which drives corporate debtors into insolvency even before completion of projects. The IBC is not a recovery mechanism for investors who do not qualify as genuine stakeholders affected by insolvency.³

The determination of whether an allottee is a speculative investor must be fact-specific and guided by the intent of the parties. Certain indicative factors, including but not limited to the presence of buyback or assured return clauses and primarily the refusal to accept possession coupled with demand for refund, can be utilised to alienate speculative transactions.

Therefore, where possession is substituted with profit-oriented arrangements, the transaction assumes a speculative character. Claims must be in the nature of insolvency resolution for homebuyers to truly take advantage of the proviso of Section 7 of the IBC. Hence, the IBC cannot be used for unjust enrichment at the prejudice of genuine homebuyers.

Constitutional Safeguards:
The Court in Mansi Brar, took a step further by remarking that housing is not a speculative commodity but a fundamental human need, which is protected by virtue of Article 21 of the Constitution. Therefore, the housing sector cannot be merely used for commercial transactions. The IBC, being a remedial framework, cannot entertain speculative participants, driven purely by profits, and it also cannot be used to crush the constitutional mandate provided to homebuyers under Article 21.

Conclusion:
The Supreme Court’s ruling in Mansi Brar provides a much-needed clarification that restores equilibrium between RERA and IBC. The Court has rightfully observed that the IBC is not a recovery tool but a collective mechanism for revival, and speculative claims must be redirected to appropriate forums such as RERA or civil courts. The judgment pertinently seals the virtual loophole introduced by Pioneer Urban, placing RERA as the primary forum, thereby, balancing the mandates of the two acts without creating conflicting scenarios.

By - Gurdev Singh Tung and Isra Mukhtar