A speculative investment may be defined as an investment that carries a high LEVEL of RISK of LOSS.[1] Similarly, real estate speculation involves purchasing property relying on the market speculation of prices, with a hope of reselling it at a higher price. Such an investment is premised on predictions about the market value of property, compelling investors to purchase property gaping at price appreciation. In the ever evolving “homebuyer-jurisprudence”,  such investors are kept out of the ambit of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the ‘Code’), on the ground that an insolvency application of such nature is made with a malicious intent and runs against the objective of the Code, that is, resolution of a corporate person. In  Binani Industries Ltd Vs. Bank of Baroda & Another[2], it was observed that the objective of the Code is to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders, and if speculative investors are given entry under the Code, there will be hindrance in fulfilling the object, as investors will only think of their profits without weighing the pros and cons of investment to other stakeholders (genuine homebuyers). The observation so made seems to be a sound attempt at protecting the interests of entrepreneurs and stakeholders, however on delving deeper into the issue, it seems to be unfounded in light of the fact that such investments for financial returns are recognized under the concept of ‘time value of money’, and there is no reasonable differentiae to classify speculative investors as a separate class of creditors.


Investing Money for ‘Time Value’

The Black Law’s Dictionary (9th Edition) defines time value of money as “the price associated with the length of time that an investor must wait until an investment matures or the related income is earned”. In general parlance, it is the interest earned by an investor who invests his capital which constitutes time value of money. It is not res integra that an investor is a financial creditor. In the case of Anil Mahindroo Vs. Earth Iconic Infrastructure (P.) Ltd.[3]an MoU agreement was entered into for purchase of a flat in a project developed by an infrastructure company. The Appellant wanted committed return plan, in pursuance of which the respondent undertook to pay a particular amount each month as committed return till the end point of the project, but defaulted to pay the same. It was held that the appellant was an ‘investor’ and the amount due to him would come within the ambit of ‘financial debt’. In fact the position of law had already allowed homebuyers to invoke the Code in the capacity of ‘financial creditors’, before the amendment[4], as evident from the case of Nikhil Mehta And Sons vs Amr Infrastructure Ltd.[5]wherein it was observed by Hon’ble NCLAT that where the purchaser of the property had paid most of the amount, and the builder was ready to pay “monthly committed returns”, it was clear that the amount disbursed by appellants was “against the consideration of time value of money.” The landmark ruling of Pioneer Urban Land and Infrastructure Limited & Anr. Vs. Union of India & Ors.[6] rather restricted the arguments of creditor-allottees. The consideration of time value of money has been there on account of, for instance, assured returns. Yet the court ended up rendering certain observations that were completely out of  the discussion, stating that the real estate developer may, under Section 65of the Code, point out that the allottee has knocked the doors of NCLT as speculative investor and not a person who is genuinely interested in purchasing a flat/apartment. The judgement lays down a very bleak precedent as it overlooks the fact that such an investment fulfils all the requisites of ‘financial debt’, as the debt is disbursed against time value of money and falls under the definition of financial debt.

Non-Existence of Intelligible Differentia

Distinguishing allottee-creditors from homebuyers, merely on the ground that the former has not transacted with the builder on account of a need for a home, does not create an intelligible differentia between the classes of creditors. Any interpretation otherwise shall run contrary to the twin test of reasonableness, which has been laid down and relied upon by the Courts in catena of judgements, from the very inception: (i) The classification must be based on intelligible differentia distinguishing persons grouped together from these left out, and (ii) such distinguishing mark must have a rational relation to the object sought to be achieved. With respect to the first pre-condition, the ‘need for home’ is a personal and subjective requirement, and shall not constitute a legally valid criterion for intelligible differentia. Further, as far as the second pre-condition is concerned, the creditor-allottees purchase apartments subject to their requirements and it holds no relation with the object sought to be achieved. The Hon’ble Supreme Court in the matter of Swiss Ribbons Pvt. Ltd. vs Union Of India Writ Petition (Civil) No. 99 of 2018, has relied on the same dictum that similarly placed creditors shall only be divided as per the differentiae which shall have direct nexus with the object of the Code.

Initiating Insolvency Proceedings with Malicious Intention

The though the ‘malicious intention’ may be carved taking into account other factors such as in the case of Shubha Sharma, Suspended Board of Director Vs. Mansi Brar Fernandes,[7]the Hon’ble NCLAT observed that if the agreement is buy back agreement, and the allottee is resorting to coercive measures to get the amount back, then such an allottee would be regarded as speculative investor who is not genuinely interested in purchasing the apartments. However, in the present legal parlance, the argument that speculative investors trying to misuse the Code holds little to no value in light of the amendment in Section 7(1) introducing a minimum threshold of 100 or 10% of homebuyers, whichever is lower, to initiate proceedings against a defaulting developer. On an appeal preferred before the Supreme Court challenging the correctness of the NCLAT decision, there has been an ad-interim direction to the effect that the finding that the appellant is a speculative investor is confined to the facts of the present case and shall not be treated as a precedent in any other case for the present. However, the position of speculative investors qua creditors is yet to be settled upon.


The reason given by Courts hereof is more in tandem with the interpretation of consumer forums when denying a claim of an allottee on the ground that they are not consumers, but investors with commercial purposes.[8] In Pramod Kumar Arora Vs. DLF Homes Panchkula (P) Ltd.[9]the National Consumer Disputes Redressal Commission held that “it is crystal clear that that the complainants are investors. The case of the complainant does not fall within the ambit of explanation appended to Section 2(1)(d)(ii) which lays down that ‘commercial purpose’ does not include use by a person of goods bought and used by him and services availed by him exclusively for the purpose of earning his livelihood by means of self-employment’. While it may be true for the purpose of Consumer Protection Act as it explicitly excludes persons who purchase goods or avail services for commercial purpose from the ambit of the Act, the same does not hold true for the Code, which is based on a purely commercial understanding of transactions. In fact, an agreement to provide assured returns is one of the selling points for builders for selling the apartments and the same is time value of money consideration. It is in this vein that all investors, irrespective of them being speculative or not, shall be construed as ‘creditors’ under the Code.


While the fate of the speculative investors is dependent on the what the Hon’ble Supreme Court decides in the matter of Mansi Brar Fernandes Vs. Shubha Sharma & Anr.[10]in view of the aforesaid, keeping speculative investors out of the ambit of the Code seems to be more of an attempt to restore ‘defaulters paradise’ by allowing real estate developers to introduce nonpareil deals only to default on them. Moreover, an investment made by an allottee is of financial nature, and till it fulfils all the requirements under the Code, such an investor should not be ceased from being a creditor merely because he has not transacted on account of ‘need for a home’.


[1] As defined in the Cambridge Dictionary, available at https://dictionary.cambridge.org/dictionary/english/speculative-investment

[2] Binani Industries Ltd Vs. Bank of Baroda & Another, [2018]150SCL703

[3]Anil Mahindroo Vs. Earth Iconic Infrastructure (P.) Ltd, (2017) 147 SCL 248 (NCLAT)

[4]The Insolvency and Bankruptcy (Amendment) Ordinance, 2018, which came into force on 6th June 2018 amended Section 5 (8) (f) of the Code to bring homebuyers within the purview of “Financial Creditors” as defined under the Code.

[5]Nikhil Mehta And Sons vs Amr Infrastructure Ltd., 2017 SCC OnLine  NCLAT 859

[6]Pioneer Urban Land and Infrastructure Limited &Anr. Vs. Union of India &Ors.,(2019) SCC Online SC 1005 – The Hon’ble Supreme Court upheld the constitutional validity of Insolvency Code (Second Amendment) Act of 2018.

[7] Shubha Sharma, Suspended Board of Director Vs. Mansi Brar Fernandes, I(2021)BC1

[8]Pg.390, ‘Insolvency & Bankruptcy Code, Law and Practice’, Akaant Kumar Mittal

[9]Pramod Kumar Arora Vs. DLF Homes Panchkula (P) Ltd., 2015, SCC OnLine NCDRC 3098

[10]Mansi Brar Fernandes Vs. Shubha Sharma &Anr., C.A.3826/2020

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