IBC Resolution Plan Does Not Extinguish Statutory Duties in Slum Rehabilitation: Upholding SRA’s Section 13(2) Power

Introduction

This case arises from Writ Petition No. 2065 of 2025 (and connected WPST No. 6431 of 2025) before the Bombay High Court, challenging the Mumbai Metropolitan Region Slum Rehabilitation Authority’s (“SRA”) exercise of power under Section 13(2) of the Maharashtra Slum Areas (Improvement, Clearance and Redevelopment) Act, 1971 (“Slum Act”). The developer, Anudan Properties Pvt. Ltd., after undergoing Corporate Insolvency Resolution Process (“CIRP”) under the Insolvency and Bankruptcy Code, 2016 (“IBC”), obtained approval of a resolution plan from the National Company Law Tribunal (“NCLT”) in March 2023. Thereafter, SRA terminated its appointment for alleged delay in project completion and non‑payment of transit rent to eligible slum dwellers. The developer contended (i) that the approved resolution plan extinguished all pre‑CIRP liabilities—including transit rent dues—and (ii) that SRA’s action conflicted with the IBC’s moratorium and binding effect of a resolution plan. Respondents (slum society, financial creditor, SRA and its grievance committee) argued that SRA’s removal of a defaulting developer is a regulatory, non‑monetary measure in public interest, independent of IBC adjudication.

Summary of the Judgment

The Division Bench of Amit Borkar, J., held that:

Approval of a resolution plan under the IBC binds financial and contractual claims but does not extinguish independent statutory duties imposed by welfare legislation such as the Slum Act.
Section 13(2) of the Slum Act empowers SRA to remove a developer for non‑performance—delay or non‑payment of transit rent—in order to secure timely rehabilitation of slum dwellers.
Transit rent is a statutory obligation, not merely a private contractual term, and continues post‑resolution as an ongoing duty.
Although pre‑CIRP monetary claims (transit rent arrears beyond ₹2.50 crore) are extinguished under the approved plan, SRA may consider non‑payment of transit rent as evidence of non‑performance and invoke Section 13(2).
The SRA followed principles of natural justice, gave the developer notice and hearings, and recorded reasoned findings. No mala fide or jurisdictional error was found.
A limited procedural lapse was noted: after CIRP approval, the developer deserved a final, time‑bound opportunity to regularize dues and present a completion plan before formal replacement. Accordingly, the order stands with a direction to grant a two‑week window for such a proposal.

Analysis

1. Precedents Cited

Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss ARC, (2021) 9 SCC 657 – Establishes that approved resolution plans extinguish pre‑CIRP monetary claims and bind all stakeholders, but do not automatically erase factual defaults or public‑law duties.
Rajan Garg (RP) v. Chief Executive Officer, SRA, 2024 SCC OnLine Bom 1060 – Affirms that the IBC cannot be used to frustrate slum rehabilitation schemes; statutory powers of SRA survive moratorium.
Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531 – Confirms the “clean slate” principle for financial claims but notes exceptions for regulatory and public‑law obligations.
Yash Developers v. Harihar Krupa CHS Ltd., (2024) 9 SCC 606 – Recognizes SRA’s power to replace a developer for unreasonable delay in implementing slum projects.
Noida SEZ Authority v. Manish Agarwal, 2024 SCC OnLine SC 3123 – Holds that statutory authorities cannot disregard an NCLT‑approved resolution plan where plan provisions and regulatory duties align; but does not preclude independent statutory action.

2. Legal Reasoning

The Court reconciled the IBC and Slum Act through a purposive construction:

Distinct Objects: IBC aims at timely debt resolution and revival of corporate debtors; Slum Act is a welfare statute to protect slum dwellers’ housing rights.
Non‑Obstante Clause: Section 238 IBC overrides inconsistent laws, but only where irreconcilable conflict exists. Here, SRA’s regulatory action is not a “claim” for recovery but a public‑law measure to secure scheme completion.
Extinguishment Limited to Monetary Claims: The “clean slate” principle bars enforcement of pre‑CIRP debts not in the plan. Transit rent arrears beyond ₹2.50 crore are extinguished as monetary claims, but the factual default remains relevant for Section 13(2) action.
Statutory Duty vs. Contractual Obligation: Transit rent obligations and project‑completion timelines derive from statutory scheme conditions (LoI, UDCPR, SRA circulars), not mere private contracts; they survive a resolution plan if performance is ongoing.
Scope of Section 13(2): Empowers SRA to remove developers for non‑performance (delay or non‑payment of transit rent), then appoint a new developer or acquire land for sab seafar.
Procedure & Natural Justice: Notice, detailed show‑cause, hearings, and reasoned order by CEO SRA satisfy fair‑play; minor clerical corrections in the final order did not require fresh hearing.
Balance of Interests: While financial creditors accepted a haircut under the resolution plan, slum dwellers endured real hardship. Public interest in housing rehabilitation justifies statutory intervention despite CIRP approval.

3. Impact

This Judgment clarifies critical points at the IBC–Slum Act interface:

Statutory duties under welfare legislation (e.g., slum rehabilitation, environmental protection, labour welfare) continue post‑IBC resolution and may attract non‑monetary regulatory consequences.
IBC’s “clean slate” principle is confined to financial claims; it does not override independent public-law obligations or powers to replace or penalize defaulting entities.
Regulatory authorities can invoke statutory powers to protect beneficiaries even where a debtor has emerged from CIRP, so long as the action is not a disguised recovery of money.
Resolution applicants must proactively address statutory compliance and public‑law obligations during CIRP or risk administrative action post‑approval.
Future slum‑rehabilitation schemes will require clear coordination between resolution professionals, creditors, SRA and slum societies to ensure both financial revival and social welfare objectives.

Complex Concepts Simplified

“Clean Slate” under IBC: Once the NCLT approves a resolution plan, any unpaid debts arising before the CIRP date cannot be enforced as money demands by creditors. However, it does not magically erase regulatory duties or factual defaults.
Section 13(2) Slum Act: If a slum‑rehabilitation developer fails to perform, SRA can remove it and bring in a new developer to complete the work, ensuring slum dwellers get timely housing.
Transit Rent: A monthly payment to displaced slum families, mandated by the rehabilitation scheme, until permanent flats are handed over. It is a mandatory welfare measure, not a voluntary contract term.
Non‑Obstante Clause: Words in a statute (“notwithstanding anything inconsistent…”) giving it overriding effect over other laws—operative only where actual conflict exists.

Conclusion

This Judgment underscores that insolvency relief under the IBC, while vital for corporate revival, cannot nullify public‑law obligations imposed by welfare statutes like the Slum Act. The SRA’s exercise of Section 13(2) to remove a defaulting developer—despite CIRP closure—not only falls within its statutory powers but safeguards the constitutional right to housing and dignity of slum dwellers. Resolution applicants and insolvency professionals must, therefore, not lose sight of independent regulatory duties when structuring and implementing resolution plans. The future co‑ordination between insolvency authorities and welfare regulators will be essential to harmonize economic revival with social justice.