Supreme Court Affirms That Buy‑Back Contracts Make Investors “Speculative” and Bars Them From Triggering CIRP; Ordinance Held Applicable to Pending Petitions

A Bench of Justices J.B. Pardiwala and R. Mahadevan heard a cluster of appeals arising out of two National Company Law Appellate Tribunal (NCLAT) orders which had set aside admission orders under Section 7 of the Insolvency and Bankruptcy Code (IBC). The consolidated matters concerned whether individual allottees who entered into buy‑back or assured‑return agreements with developers could be treated as “financial creditors” entitled to initiate the corporate insolvency resolution process (CIRP), and whether the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 / Amendment Act, 2020 — which imposed a threshold for real‑estate allottees — applied to petitions pending at the time of promulgation.

The Court affirmed the NCLAT’s primary finding that the appellants — including Mansi Brar Fernandes and Sunita Agarwal — were “speculative investors” and were not entitled to invoke Section 7 IBC to commence CIRP. The Court also held that the Ordinance / Amendment Act was applicable to the facts of the case and set aside the NCLAT’s limited finding of inapplicability in respect of that issue. The judgment emphasised the remedial design of the Code and cautioned against its misuse by investors seeking short‑term profits. The Court, in its reasoning, observed: The Court further observed that “the IBC is not a recovery mechanism or a bargaining chip for individual disputes,” and restated that liquidation was a measure of last resort.

Background

The disputes arose from Section 7 petitions filed by individual allottees under agreements with developers that promised buy‑backs or assured returns. In Mansi Brar Fernandes v. Gayatri Infra Planner Pvt. Ltd., the appellant had paid Rs.35 lakh under an MoU for four flats which contained a discretionary buy‑back clause by the developer and a promise of substantial premium; post‑dated cheques issued by the developer were later dishonoured. The NCLT had admitted the Section 7 petition but the NCLAT set aside admission on the ground that the arrangement was speculative. A parallel petition by Sunita Agarwal involved a 25% per annum assured return under a buy‑back style agreement; the NCLT had admitted the matter ex parte but the NCLAT similarly reversed the admission.

The appellants challenged the NCLAT findings before the Supreme Court and, in the first set of appeals, contended that the Ordinance / Amendment Act — which required either 100 allottees or 10% of allottees to join to initiate CIRP against a real‑estate project — applied because their petitions were pending when the Ordinance was promulgated. The respondents and the NCLAT argued that the claimants were speculative investors and that Pioneer Urban and related precedents prevented misuse of the Code by such investors.

The Supreme Court reviewed the factual matrix and legal principles, relied on Pioneer Urban to distinguish genuine homebuyers from speculative investors, and set out non‑exhaustive indicators of speculation (assured returns/buy‑backs, refusal to take possession, multiple units, deviation from RERA model terms). The Court found on the facts that both Mansi Brar Fernandes and Sunita Agarwal sought risk‑free exits and were motivated by profit rather than possession, and therefore were speculative investors; it affirmed the NCLAT’s orders insofar as they set aside admission of the respective Section 7 petitions. The Court also held that where orders had been reserved before the Ordinance, parties should not be prejudiced by the act of the Court and accepted that the Ordinance applied to pending cases in the circumstances; accordingly it set aside the earlier NCLAT finding that the Ordinance did not apply. The Court granted liberty to the appellants to pursue alternate remedies (RERA, consumer fora, civil courts) and directed that the bar of limitation would not operate against them in such proceedings. The Court issued extensive sectoral directions to the Union, State authorities, NCLT/NCLAT, IBBI and RERAs to strengthen adjudicatory capacity, project‑wise treatment, escrow/escrow‑like safeguards, and other systemic reforms to protect bona fide homebuyers.

Case No.: 2025 INSC 1110 (Civil Appeals consolidated: C.A. No. 3826 of 2020; C.A. No. 540 of 2021; C.A. No. 5495 of 2025; C.A. No. 3903 of 2022) Case Title: Mansi Brar Fernandes v. Shubha Sharma and Anr. (with consolidated appeals including Sunita Agarwal and others) Appearances: For the Petitioner(s): [Senior counsel for appellants; specific names not specified in judgment text] For the Respondent(s): [Counsel for respondents / corporate debtor and IRP; specific names not specified in judgment text]