SC bats for protection of homebuyers: ‘Plight of tax-paying citizens paints disheartening picture’

The bench of Justices J B Pardiwala and R Mahadevan said housing is a facet of the Fundamental Right to Life under Article 21.

The court also suggested the creation of a corporate body on the lines of NARCL, promoted by real estate and construction-focused PSUs or formed via public-private partnership, to identify, take over and complete stalled projects under the Insolvency and Bankruptcy Code (IBC).

“Unsold inventory from such projects could be utilised towards affordable housing schemes like PMAY or for government quarters, addressing both the housing shortage and revival of sick projects,” the court said.

The court said this while dismissing a challenge to two orders by the National Company Law Appellate Tribunal (NCLAT) that rejected the claims of speculative buyers in IBC proceedings.

Writing for the bench, Justice Mahadevan said: “Such speculative arrangements artificially inflate demand, fuel asset bubbles and prejudice genuine buyers.”

The bench also delved into the issues facing the housing industry.

“With India rapidly industrialising and the rural-to-urban mobility proceeding at a lightning pace, the demand for housing has risen sharply. Yet, the plight of tax-paying middle-class citizens paints a disheartening picture. Having invested their lifelong savings in pursuit of a home, many are compelled to shoulder a double burden — servicing EMIs on one hand, and paying rent on the other — only to find their ‘dream home’ reduced to an unfinished building.”

“It is imperative that the life savings of a common person culminate in timely possession of their promised home. Article 21 would mandate nothing less,” the court said.

In its judgement, the bench also issued a series of guidelines to strengthen the real estate sector and protect home buyers.

The bench directed that a committee chaired by a retired High Court Judge, with representatives from the Ministry of law, Ministry of Housing, domain experts in Real Estate, Finance and IBC from the National Institute of Urban Affairs (NIUA), HUDCO’s Human Settlement Management Institute (HSMI), IIMs, National Law Universities, and NITI Aayog, as well as two eminent industry representatives be constituted within three months to “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.”

The SC also rued the lack of a homegrown consulting industry in the country. “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.”

It said that the Insolvency and Bankruptcy Board of India (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.”

The court said: “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. Housing Boards, State-level Urban Development Authorities… and CPSUs should establish dedicated wings to revive and complete stalled projects under IBC mechanisms.”

The bench said that while some of its suggestions are policy matters 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,” it said.