Supreme Court – Insolvency Code cannot be invoked to revive terminated development agreements
On 1.4.1980, the respondent no.3 MHADA had entered into lease deed of the plot and the building Kher Nagar Sukh Sadan at Bandra.
On 16.10.2005, Respondent no.1 Society executed registered Development Agreement with Appellant no.1 for redevelopment of the project. On 23.12.2005, the Power of Attorney was also executed.
On 9.4.2014, the Supplementary Agreement was executed to complete redevelopment in 40 months from the commencement certificate.
The Developer obtained approvals and sanctions after paying substantial amounts for infrastructure charges.
However, the redevelopment was stalled as remaining 41 members did not vacate the premises. The Society blamed the Developer for the delay and the Developer incurred expenses on repairs of existing building.
The first CIRP initiated against the appellant no.1 was set-aside on 12.6.2020 as per settlement of the parties.
On 7.11.2021, the respondent no.1 society appointed new developer respondent no.8 and terminated the agreement of appellant no.1.
On 6.12.2022, second CIRP of SBI was admitted against the Developer and the appellant no.2 was appointed as Resolution Professional.
On 10.12.2023, the Society executed fresh Development Agreement with respondent no.8. The Society also sought approvals from MHADA. This was done inspite of express objections of the Resolution Professional.
However, owing to the moratorium and pendency of second CIRP the authorities revoked the permission already granted.
In all four issues were framed by the Supreme Court
Whether termination of the Agreements dated 16.10.2005, 23.12.2005 and 9.4.2012 by the Society prior to initiation of second CIRP was valid and effective in law;
Whether the said agreements constitute “assets” or “property” of the appellant no.1 Corporate Debtor to attract the protection of section 14 IBC moratorium.
HELD that the developer is granted only a limited licence to enter and use the land for redevelopment. No estate, proprietary right or transferable interest was created, ownership and legal possession always remained with the Society. Consequently, the so-called “development rights” of the corporate debtor constitute, at best, a contractual permission and not an “interest in property” within the meaning of Section 14(1)(d) of the IBC.
The agreements of the appellant were terminated before the initiation of second CIRP on 6.12.2022. No subsisting challenge to such termination was pending when CIRP commenced. On such termination, the old Developer – Corporate Debtor was left, at best, with a claim for damages, which is a mere unsecured monetary claim and not a proprietary right capable of protection under Section 14 of the IBC.
The protection of Section 14 IBC is intended to preserve the existing value of the corporate debtor’s estate and not to resurrect lapsed or extinguished interests or extinguished interests. Extending moratorium to such non-existing rights would defeat commercial certainty and sanctity of lawful termination under the general law.
This case highlights the larger human dimension underlying urban redevelopment – the right of citizens to live with dignity in safe and habitable dwellings. Slum redevelopment projects are not mere commercial ventures but social welfare initiatives aimed at transforming unsafe tenements into dignified homes. The role of a developer in such projects carries a public character; it entails a responsibility to fulfil the collective aspirations of hundreds of families awaiting rehabilitation and cannot be viewed solely through a profit-driven lens.
23.1. When such projects are delayed or abandoned, it is the residents – often living in hazardous or temporary conditions – who suffer the greatest hardship. In this context, the invocation of insolvency proceedings or the moratorium under the Insolvency and Bankruptcy Code, 2016 cannot become a legal device to indefinitely stall redevelopment or to obstruct the legitimate rights of slum 53 dwellers and cooperative housing societies. The Code was never intended to be used as a shield for non-performance at the cost of human rehabilitation. 23.2. Courts, while dealing with disputes arising from slum redevelopment, must therefore adopt a purposive and welfare-oriented approach, ensuring that the statutory objective of insolvency resolution does not defeat the social purpose of urban renewal. The balance of equities must tilt in favour of the residents who have waited for years for a roof over their heads. The law cannot countenance a situation where insolvency protection becomes an instrument to perpetuate displacement or to defer the promise of dignified housing guaranteed under Articles 19(1)(e) and 21 of the Constitution.
23.3. The IBC was never designed to serve as a refuge for corporate debtors who, by their conduct, display no bona
fide intention to fulfil contractual or statutory obligations. Its purpose is to revive viable entities and ensure equitable resolution of insolvency – not to extend protection to those who have persistently defaulted, abandoned performance, or frustrated projects of public significance. Urban redevelopment projects, particularly those involving cooperative housing societies, are exercises in social rejuvenation that seek to restore dignity, safety, and belonging to citizens. The law must, therefore, balance commercial rights with human realities and ensure that economic revival does not eclipse the constitutional promise of dignified living.
