NEW DELHI: The Supreme Court has emphasized the misuse of insolvency proceedings in the real estate sector, driven by speculative investors who negatively impact genuine homebuyers. The court described these investors as a “slow poison” to the residential real estate industry, motivated more by profit than by acquiring property.
A bench comprising Justices JB Pardiwala and R Mahadevan expressed concern that “trigger-happy” investors often seek quick exits from projects, undermining the interests of legitimate purchasers. It stated that such entities should not exploit the Insolvency and Bankruptcy Code (IBC) or enable dishonest developers to take advantage of existing loopholes. The court ruled that insolvency processes should occur on a project-by-project basis rather than against the entire company, to avoid negatively impacting other projects.
The bench emphasized the need for strict adherence to IBC timelines and established precedents to achieve two critical goals: (i) to facilitate the revival and completion of stalled projects for genuine homebuyers and (ii) to curb speculative behaviors that harm the residential real estate sector and, consequently, the Indian middle class. They pointed out that speculative actions inflate demand and create asset bubbles, harming authentic buyers, and called for government intervention to limit such activities.
The Supreme Court reinforced that the state has a constitutional duty to develop and enforce a regulatory framework to prevent developers from defrauding or exploiting homebuyers. Ensuring timely project completion should be a fundamental aspect of India’s urban policy. Moreover, the state must actively tackle the issues of a parallel cash economy and speculative practices in real estate, which distort housing prices and threaten the interests of real end-users.
In its decision, the Supreme Court dismissed the application from homebuyers to invoke the IBC, clarifying that they are not genuine homebuyers but speculative investors.
