The Supreme Court of India has ruled that development rights validly terminated prior to the initiation of the Corporate Insolvency Resolution Process (CIRP) do not constitute “assets” of the Corporate Debtor protected under the moratorium provisions of Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC).
In a significant judgment delivered on November 28, 2025, a Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan dismissed the appeal filed by A A Estates Private Limited (Corporate Debtor), holding that the IBC cannot be used to “indefinitely stall redevelopment” or obstruct the legitimate rights of cooperative housing societies and slum dwellers.
The Supreme Court upheld the decision of the Bombay High Court which had directed statutory authorities to process redevelopment permissions for the Kher Nagar Sukhsadan Co-operative Housing Society Ltd. through a new developer. The Apex Court clarified that since the development agreement with A A Estates was validly terminated before the commencement of the second CIRP, the Corporate Debtor possessed no subsisting rights that could be protected under the IBC moratorium.
Factual Matrix
The dispute pertains to the redevelopment of “Kher Nagar Sukh Sadan” in Bandra (East), Mumbai.
- 1996: A Lease Deed was executed between the Society and MHADA.
- 2005: The Society entered into a Development Agreement with A A Estates Pvt. Ltd. (Appellant No. 1) to demolish and reconstruct the building. The project was to be completed within 24 months.
- 2014: Due to delays, a Supplementary Development Agreement was executed, extending the timeline to 40 months from the commencement certificate.
- Delays: Despite payments made by the developer for approvals and some transit rent, the project remained stalled for nearly two decades. The Society alleged that 41 out of 60 members never received rent.
- Termination: The Society terminated the agreements via notices in June and December 2019 due to persistent default.
- Insolvency: A second CIRP was initiated against the Corporate Debtor on December 6, 2022.
- New Developer: In December 2023, the Society appointed Respondent No. 8 (Tri Star Development LLP) as the new developer.
- Writ Petition: The Society approached the Bombay High Court seeking directions for approvals for the new developer, which were granted on September 11, 2024. The Appellants challenged this order.
Contentions of the Parties
Arguments by the Appellants (Resolution Professional):
- Asset Protection: They argued that the development rights arising from the 2005 and 2014 agreements were “assets” of the Corporate Debtor under Section 3(27) of the IBC and were protected by the Section 14 moratorium.
- Invalid Termination: They contended the termination was unilateral and invalid, and the rights were “valuable assets” essential for the Corporate Debtor’s revival.
- Natural Justice: They alleged the High Court passed the impugned order in undue haste without affording them an opportunity to file a reply.
- Reliance: The appellants relied on the Supreme Court’s decision in Victory Iron Works Ltd v. Jitendra Lohia regarding development rights as assets.
Arguments by the Respondents (Society):
- Prior Termination: The Society argued the agreements were terminated in 2019, long before the second CIRP in 2022. Thus, no asset existed at the time of insolvency commencement.
- No Possession: Relying on Rajendra K. Bhutta v. MHADA, they argued that Section 14(1)(d) applies only to property “occupied” by the Corporate Debtor. In this case, possession always remained with the Society.
- Humanitarian Grounds: Counsel highlighted that 60 low-income families had been waiting for rehabilitation for 20 years, with the building declared dangerous.
Court’s Analysis and Observations
1. Validity of Termination
The Court observed that the termination was based on “prolonged and inexcusable default” unrelated to insolvency. Citing Gujarat Urja Vikas Nigam Ltd v. Amit Gupta and Tata Consultancy Services Ltd v. SK Wheels Pvt. Ltd., the Bench noted that the NCLT’s jurisdiction under Section 60(5)(c) of the IBC cannot be invoked to interfere with valid contractual terminations based on grounds independent of insolvency, unless such termination leads to the “corporate death” of the debtor.
The Court held:
“The termination in the present case was not occasioned by the insolvency of the corporate debtor but by its persistent non-performance… It was a lawful termination for non-performance, falling outside the jurisdiction of the NCLT.”
2. Development Rights as ‘Assets’
The Court rejected the Appellant’s reliance on Victory Iron Works, distinguishing it on facts. It clarified that “not every executory or conditional contract amounts to an asset.” Referring to Sushil Kumar Agarwal v. Meenakshi Sadhu, the Court held that the developer held only a limited license to enter the land, which did not create any proprietary or possessory right.
“The Development Agreement… stood terminated prior to initiation of the second CIRP. No proprietary, possessory, or enforceable right subsisted in favour of the corporate debtor on the insolvency commencement date.”
3. Moratorium and Occupation
Relying on Rajendra K. Bhutta, the Court reiterated that Section 14(1)(d) protects recovery of property only when it is “occupied by” the Corporate Debtor. Since A A Estates never obtained physical possession, the moratorium did not apply.
4. High Court’s Jurisdiction
The Supreme Court affirmed the High Court’s power under Article 226 to direct statutory authorities to perform their duties. It stated that such directions did not encroach upon the NCLT’s jurisdiction as they pertained to ensuring the Society’s rights were not suspended indefinitely.
5. Social Welfare and IBC
Justice Mahadevan, writing for the Bench, emphasized the human dimension of the case:
“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… The law cannot countenance a situation where insolvency protection becomes an instrument to perpetuate displacement.”
Decision
The Supreme Court dismissed the appeal, holding the following:
- The termination of the agreements by the Society was valid and effective prior to the CIRP.
- The terminated agreements do not constitute “assets” under the IBC.
- The High Court was justified in directing authorities to process approvals for the new developer.
- The proceedings did not violate principles of natural justice.
The Court directed compliance with the High Court’s order within two months. The Appellants were granted liberty to pursue remedies regarding expenses incurred “in the manner known to law.”
