Moratorium, Development Rights and Housing Redevelopment: Commentary on A A Estates Pvt. Ltd. v. Kher Nagar Sukhsadan CHS

Moratorium under IBC, Terminated Development Rights and Housing Redevelopment:
Commentary on A A Estates Private Limited v. Kher Nagar Sukhsadan Co‑operative Housing Society Ltd (2025 INSC 1366)

1. Introduction

The Supreme Court’s decision in A A Estates Private Limited v. Kher Nagar Sukhsadan Co‑operative Housing Society Ltd & Ors., 2025 INSC 1366 (decided on 28 November 2025), addresses a recurring and contentious intersection in Indian law: the overlap between corporate insolvency proceedings and stalled urban redevelopment projects, particularly involving vulnerable housing societies.

The case arises from a long‑delayed redevelopment of a cooperative housing society in Mumbai, where the original developer (A A Estates Pvt. Ltd., now a corporate debtor under the Insolvency and Bankruptcy Code, 2016) claimed that its “development rights” in the project constituted assets protected by the moratorium under Section 14 of the IBC. The Society, after terminating the development agreements due to alleged prolonged non‑performance, appointed a new developer and obtained High Court directions requiring statutory authorities (MHADA and municipal bodies) to process approvals in favour of the new developer. The corporate debtor and its Resolution Professional challenged these High Court directions before the Supreme Court.

The Supreme Court seized the opportunity to clarify crucial questions:

  • Can a terminated redevelopment agreement, where the developer never obtained possession or any proprietary interest, still be treated as an “asset” of the corporate debtor protected by the Section 14 moratorium?
  • What is the scope of the NCLT’s jurisdiction under Section 60(5)(c) of the IBC to interfere with the termination of such contracts?
  • Does the pendency of CIRP against a developer prevent a housing society and statutory authorities from moving ahead with redevelopment through another developer?
  • How should courts balance insolvency regime objectives with the fundamental right to dignified housing in slum/old building redevelopment?

The judgment firmly asserts that the IBC cannot become a shield for defaulting developers to stall socially vital redevelopment projects, and that only subsisting proprietary or possessory rights of the corporate debtor, not extinguished or inchoate contractual permissions, qualify as “assets” protected by the moratorium.

2. Factual Background

2.1 The original redevelopment arrangement

  • The property and parties: Respondent No. 1, Kher Nagar Sukhsadan Co‑operative Housing Society Ltd., consists of about 60 low‑income members occupying an old building (“Sukhsadan”) at Kher Nagar, Bandra (E), Mumbai. MHADA (Respondent No. 3) had leased the land and building to the Society for 99 years from 1 April 1980.
  • First Development Agreement (16.10.2005): The Society and Appellant No. 1 (A A Estates Pvt. Ltd., the developer) entered into a registered Development Agreement for demolition and redevelopment of the building.
    • Developer to demolish the existing structure and construct a new rehab building.
    • Society members to vacate; developer to pay transit rent and shifting charges.
    • Completion stipulated within 18 months + 6 months’ grace (total 24 months).
    • Developer to enjoy sale rights over surplus area (free sale component) after rehousing members.
    • The agreement expressly contemplated a licence‑type arrangement: possession primarily for the purpose of development; ownership remained with the Society/MHADA.
  • Power of Attorney (23.12.2005): In favour of the developer and its directors, to enable it to obtain approvals and implement redevelopment.

2.2 Supplementary arrangements and approvals

  • MHADA approvals:
    • Offer letter (24.08.2011) and NOC (05.01.2012), with conditions—e.g., plans to be submitted within six months, failing which NOC stood cancelled.
    • Developer claims to have paid substantial sums for additional buildable area (FSI) and infrastructure charges (over ₹4.02 crore to MHADA and about ₹52.7 lakh to MCGM), plus compensation/transit rent.
  • Supplementary Development Agreement (09.04.2014):
    • Revised completion period: 40 months from issue of commencement certificate (CC) by MCGM.
    • Transit rent increased to ₹35,000 per month for 24 months per member, with escalation if delays continued.
    • Hardship compensation enhanced dramatically—from ₹2.5 lakh to ₹35 lakh per member (payable in stages: 70% on handing over possession for redevelopment, balance on delivery of new flats).
    • One‑time brokerage and shifting charges of ₹1 lakh per member.
  • IOD and limited vacating:
    • Intimation of Disapproval (IOD) issued by MCGM on 04.09.2014.
    • By 2018, only 19 of 60 members had vacated; 41 remained. Rent to even those 19 was eventually stopped, leading many to re‑occupy unsafe premises.

2.3 Long delays, disputes and termination

  • Building declared unsafe: Over time, the building was categorised as C‑1 (dangerous structure) under Section 264 of the MMC Act, 1949; repeated notices under Sections 353B, 354 and 354A of the MMC Act and by MHADA required demolition/redevelopment.
  • Society’s complaints: The Society alleged:
    • Near‑total failure to commence substantive redevelopment despite a lapse of almost two decades.
    • Erratic or non‑payment of transit rent, forcing members back into unsafe premises.
    • Non‑execution of Permanent Alternate Accommodation Agreements and lack of progress despite repeated communications.
  • Termination steps (pre‑CIRP):
    • Special General Body Meeting (09.06.2019): Society resolved to terminate the Development and Supplementary Agreements for persistent default.
    • Notices/communications: Termination conveyed by notice dated 02.12.2019; reiterated in further correspondence including a reply dated 06.11.2021.
    • Public notice (31.12.2019): Issued confirming termination.

2.4 CIRP episodes and appointment of new developer

  • First CIRP (14.11.2019):
    • CIRP was initiated against A A Estates but later set aside on 12.06.2020 upon settlement.
    • Developer still did not restart or meaningfully progress redevelopment after this relief.
  • Arbitration invoked (28.10.2021):
    • Developer invoked arbitration, implicitly recognising the Society’s termination.
  • Appointment of new developer (Respondent No. 8):
    • Society appointed Tri Star Development LLP (Respondent No. 8) as the new developer on 07.11.2021.
    • MHADA’s letter dated 18.11.2021 permitted redevelopment through the new developer.
  • Second (and subsisting) CIRP (06.12.2022):
    • At the instance of State Bank of India, CIRP was admitted against A A Estates for a debt of about ₹130 crores.
    • Appellant No. 2 was appointed as Resolution Professional (RP).
  • Fresh Development Agreement with new developer (10.12.2023):
    • Society executed a comprehensive Development Agreement and Power of Attorney in favour of Respondent No. 8.
    • Possession was handed over to Respondent No. 8; demolition commenced; transit rent and corpus paid; substantial work ensued, with about ₹33.65 crores allegedly invested and a commencement certificate obtained in April 2025.

2.5 High Court writ and impugned judgment

  • RP’s objections: After commencement of second CIRP, the RP wrote to MHADA and other authorities claiming that:
    • The old Development Agreements conferred valuable “development rights” which were assets of the corporate debtor under Section 3(27) IBC.
    • Moratorium under Section 14 barred any steps to alter these rights or permit redevelopment via a new developer.
  • Writ Petition No. 3893 of 2024:
    • Filed by the Society in the Bombay High Court against MHADA, municipal authorities, and the appellants.
    • Relief sought: primarily, writs of mandamus directing statutory authorities to grant necessary permissions and approvals to the Society and/or Respondent No. 8 for redevelopment under the fresh Development Agreement dated 10.12.2023, and to disregard objections by the erstwhile developer/RP.
  • Impugned Bombay High Court order (11.09.2024):
    • Rule made absolute in terms of the prayer clauses; authorities directed to grant approvals/permissions in accordance with law for redevelopment by Respondent No. 8.

2.6 Supreme Court proceedings

  • The developer and RP appealed to the Supreme Court, alleging:
    • Violation of natural justice by the High Court in deciding the matter without affording opportunity to file a reply.
    • Illegality in ignoring the moratorium and treating development rights as extinguished despite their alleged status as “assets” of the corporate debtor.
    • Improper invocation of writ jurisdiction in a contractual dispute subject to arbitration, bypassing NCLT and arbitral mechanisms.
  • Status quo order: On 15.04.2025, the Supreme Court directed status quo regarding the property and redevelopment works, prompting MHADA to revoke the commencement certificate in favour of Respondent No. 8.

3. Issues Before the Supreme Court

The Court crystallised four core issues:

  1. Whether the termination of the Development Agreement (16.10.2005) and Supplementary Agreements (23.12.2005 and 09.04.2014) by the Society, prior to initiation of the second CIRP, was valid and effective in law.
  2. Whether these Development Agreements and Supplementary Agreements constituted “assets” or “property” of the corporate debtor so as to attract the protection of the moratorium under Section 14 of the IBC.
  3. Whether the Bombay High Court was justified in allowing the Society’s writ petition and directing statutory authorities to process and grant approvals in favour of the new developer (Respondent No. 8).
  4. Whether the High Court proceedings stood vitiated by a breach of the principles of natural justice as alleged by the appellants.

4. Summary of the Judgment

The Supreme Court dismissed the appeal and upheld the Bombay High Court’s judgment. The key holdings are:

  • Termination valid and pre‑CIRP: The Development Agreement and Supplementary Agreements were validly terminated by the Society due to the developer’s prolonged and inexcusable default, long before the second CIRP commenced. The Society, as owner, was entitled to revoke and appoint a new developer.
  • Development agreements not “assets” under Section 14:
    • The agreements conferred at best a contractual licence to develop; no proprietary or possessory interest ever vested in the corporate debtor.
    • Following termination, only a claim for damages survived, which is a monetary claim, not an “asset” in the sense of protected property.
    • Therefore, the Section 14 moratorium did not shield these terminated and non‑possessory rights.
  • High Court’s writ jurisdiction proper:
    • The writ related to public law duties of statutory authorities (MHADA, municipal bodies) to process redevelopment approvals.
    • It did not trench upon NCLT’s jurisdiction or contradict the moratorium, since no subsisting right of the corporate debtor was involved.
    • The High Court merely directed authorities to consider/ grant approvals in accordance with law, not to decide private contractual disputes.
  • No violation of natural justice:
    • The appellants were represented before the High Court, participated in the proceedings, and did not seek adjournment or time to file a reply.
    • No concrete prejudice was shown; the dispute turned on undisputed documents and clear legal issues.
    • Hence, principles of natural justice were substantially complied with.
  • Human rights emphasis:
    • The Court underscored that slum/old building redevelopment implicates fundamental rights under Articles 19(1)(e) and 21.
    • IBC cannot be allowed to become a mechanism to indefinitely stall rehabilitation of vulnerable households by defaulting developers.

5. Detailed Analysis

5.1 Validity of termination and nature of the developer’s rights

5.1.1 Contractual performance and default

The agreements imposed clear obligations on the developer: demolition, timely reconstruction, and continuous transit rent and hardship compensation to members. Time was explicitly stipulated (initially 24 months; later 40 months from CC in the Supplementary Agreement), and in redevelopment of unsafe housing, time is inherently of the essence because residents are exposed to risk and uncertainty.

On the facts, the Court accepted the Society’s narrative:

  • Almost two decades elapsed without meaningful progress.
  • Only 19 members vacated over a long period; rent to them was not consistently paid; 41 members never received rent.
  • Multiple statutory notices for demolition/redevelopment were issued due to the building’s dilapidated and dangerous condition.
  • Despite clearance of an earlier CIRP in 2020, the developer did not restart or meaningfully push construction.

The Society issued several communications and notices culminating in termination (09.06.2019 resolution; 02.12.2019 notice; 06.11.2021 communication; 31.12.2019 public notice). The Court treated these as a chain of termination measures, validly communicated and never revoked.

5.1.2 NCLT’s limited power to interfere with termination

The developer argued that the termination ought to be viewed through the lens of the IBC and that the NCLT’s jurisdiction under Section 60(5)(c) should have been invoked to protect these rights. The Court rejected this argument by applying two key precedents:

  • Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta (2021) 7 SCC 209:
    • NCLT’s power to restrain termination is limited to:
      1. where termination is solely on account of insolvency (e.g. ipso facto clauses), and
      2. where such termination would make corporate survival impossible by extinguishing the debtor’s sole or central revenue‑generating contract.
    • NCLT cannot prevent termination for non‑insolvency reasons (e.g. genuine performance defaults).
  • Tata Consultancy Services Ltd. v. Vishal Ghisulal Jain (SK Wheels) (2022) 2 SCC 583:
    • NCLT cannot invoke its residuary jurisdiction to block termination where termination is based on pre‑existing breaches and deficiencies unrelated to insolvency.
    • Even where a contract is important for CIRP, it can only be protected if termination is both insolvency‑linked and central to corporate survival.

Applying these principles, the Court held:

  • Termination of A A Estates’ redevelopment contract was due to chronic non‑performance, not due to insolvency or any ipso facto clause.
  • The redevelopment contract was not demonstrated to be the sole or life‑sustaining asset of the corporate debtor. The company had multiple projects; the RP’s own documentation did not clearly list this project as a core, indispensable asset.
  • Therefore, even conceptually, NCLT could not have set aside such termination under Section 60(5)(c).

5.1.3 Licence vs. proprietary right: a crucial classification

The Court turned to the intrinsic nature of the developer’s rights. The Development Agreement, read as a whole, granted A A Estates a right to enter and use the land for redevelopment, conditioned upon fulfilling obligations (demolition, reconstruction, rent, compensation). Ownership remained with the Society; members never fully vacated; no exclusive possession was delivered.

To classify the right, the Court relied on:

  • Associated Hotels of India Ltd. v. R.N. Kapoor, AIR 1959 SC 1262:
    • If a document only confers a right to use property under certain terms while possession and control remain with the owner, it creates a licence, not a lease.
    • A licence does not create any estate or interest in the property; legal possession remains with the owner.
  • Qudrat Ullah v. Municipal Board, Bareilly (1974) 1 SCC 202:
    • Where exclusive possession is not transferred, the arrangement is typically a licence rather than a lease.

On this basis, the Court held that:

  • The developer had only a contractual licence to enter and develop; no estate in land or “interest in property” was created in its favour.
  • Legal and actual possession remained with the Society and its members; the developer never occupied the land within the meaning of Section 14(1)(d) IBC.

Thus, the termination extinguished a licence‑based contractual right, leaving only a possible claim for damages—not a proprietary asset.

5.2 Do terminated development agreements form “assets” under Section 14 IBC?

5.2.1 Scope of “property” and “assets” under IBC

Section 14 IBC imposes a moratorium that bars, inter alia:

  • Institution or continuation of suits/ proceedings against the corporate debtor.
  • Transfer or disposal of assets of the corporate debtor.
  • Actions to recover any property occupied by the corporate debtor (Section 14(1)(d)).

Section 3(27) defines “property” broadly, including all types of movable/immovable, tangible/intangible interests. However, the Court emphasised that:

  • For Section 14, the property must be part of the corporate debtor’s estate on the insolvency commencement date.
  • Terminated, unexercised, or contingent contractual permissions that never ripened into enforceable proprietary or possessory rights are not “assets” in this sense.

5.2.2 Development agreements: when do they create enforceable property interests?

The Court referred to Sushil Kumar Agarwal v. Meenakshi Sadhu (2019) 2 SCC 241, which recognises that “development agreements” are a broad genus, with varying legal effects:

  • Pure construction contracts: no interest in land passes to contractor—only a service contract.
  • Agreements where the developer acquires a share in land or constructed area, sometimes with possession and third‑party rights: such arrangements may create enforceable proprietary interests.
  • Hybrid or conditional agreements: rights only crystallise upon performance of certain obligations (e.g. after eviction of occupants, obtaining approvals, completing critical milestones).

Sushil Kumar Agarwal emphasises a case‑by‑case assessment: the extent of rights created depends on the text of the agreement and the developer’s performance (or lack thereof).

Applying this to A A Estates:

  • The agreements were heavily conditional: the developer’s “free sale” area and economic benefits would accrue after fulfilment of obligations—demolition, reconstruction, payment of rents/compensation, housing members.
  • No conveyance of land or building (even pro tanto) was executed in favour of the developer.
  • No actual possession or occupation of the entire property ever passed to the developer.

Given this, the Court found that:

  • The developer’s so‑called “development rights” had not matured into proprietary or possessory interests.
  • Thus, they were at best executory, contingent contractual rights—particularly after lawful termination.

5.2.3 Rajendra K. Bhutta and the “occupied by” requirement

The appellants relied on Rajendra K. Bhutta v. MHADA (2020) 13 SCC 208, where the Supreme Court had protected a developer’s occupation of property during moratorium by restraining MHADA from terminating a joint development agreement and taking back possession.

In Bhutta:

  • The developer was actually in possession of the land under a subsisting joint development agreement.
  • Termination and repossession were initiated by MHADA during moratorium.
  • The Court held Section 14(1)(d) barred recovery of property “occupied by” the debtor during CIRP.

In contrast, in A A Estates:

  • The developer never obtained actual possession or occupation of the rehab property.
  • Termination occurred before initiation of the second CIRP.
  • Therefore, there was no “recovery” of property from the corporate debtor during moratorium.

The Court thus confined Bhutta to cases where:

  1. The developer actually occupies the property, and
  2. Termination or recovery is attempted during moratorium.

Neither condition was satisfied here.

5.2.4 Distinguishing Victory Iron Works

The appellants further invoked VICTORY IRON WORKS LTD. v. JITENDRA LOHIA (2023) 7 SCC 227, where development rights were treated as assets falling within Sections 18(f) and 25(2)(a) IBC and subject to the Resolution Professional’s obligation to take custody and control.

The Court distinguished Victory Iron Works on facts:

  • That case involved a composite arrangement including financial assistance, shareholding, sale certificates, and possession—rights that collectively approximated ownership.
  • Here, by contrast, A A Estates:
    • Never obtained possession.
    • No shareholding or proprietary transfer was executed.
    • Agreements had been terminated for non‑performance before the second CIRP.

Therefore, the Court held that Victory Iron Works does not establish a general rule that all development agreements automatically constitute “assets” of the corporate debtor, particularly when terminated and non‑possessory.

5.2.5 Result: No “asset”, no moratorium protection

The net conclusion:

  • On the insolvency commencement date (06.12.2022), the corporate debtor had no subsisting proprietary, possessory, or enforceable contractual right in the redevelopment project—only a possible unsecured damages claim.
  • Section 14 IBC protects existing assets/property, not extinguished or purely expectant rights.
  • Consequently, the moratorium did not prevent the Society from:
    • appointing a new developer (Respondent No. 8), or
    • seeking statutory approvals for redevelopment.

5.3 High Court’s writ jurisdiction in the shadow of CIRP

5.3.1 Embassy Property and separation of jurisdictions

The core question: could the Bombay High Court issue a writ of mandamus to MHADA and municipal bodies to process redevelopment approvals while CIRP was pending?

The Court relied significantly on Embassy Property Developments Pvt. Ltd. v. State of Karnataka (2020) 13 SCC 308, which held:

  • NCLT is a creature of statute with limited, subject‑matter‑specific jurisdiction.
  • It lacks power to exercise judicial review over administrative/public law decisions (e.g. grant/refusal of mining leases).
  • Public law decisions of governmental and statutory bodies remain subject to writ jurisdiction of High Courts under Article 226.

Accordingly:

  • The Society’s writ petition was primarily against statutory authorities (MHADA, MCGM, etc.), to compel performance of public duties—processing a redevelopment proposal under applicable statutes and regulations.
  • This lies squarely within the High Court’s writ jurisdiction.

5.3.2 Nature and limits of the relief granted

Crucially, the High Court:

  • Did not direct the authorities to grant approvals automatically or to decide specific private rights.
  • Only directed them to grant necessary permissions and approvals “in accordance with law” based on the Society’s new Development Agreement.
  • Did not adjudicate the merits of the developer’s contractual disputes (e.g. breach, damages) or rights under arbitration agreements.

The Supreme Court found this approach consistent with prior decisions like:

  • Embassy Property (public law domain), and
  • Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss ARC (2021) 9 SCC 657 (which, though on a different point, reaffirms that IBC must be read harmoniously with other legal frameworks and does not confer a universal override on High Court’s constitutional jurisdiction).

Given the Court’s finding that:

  • The developer’s rights had already been extinguished pre‑CIRP, and
  • No asset of the corporate debtor was being interfered with,

the High Court’s directions did not undermine the insolvency process; instead, they prevented administrative paralysis and protected the residents’ rehabilitation interests.

5.4 Alleged violation of natural justice

5.4.1 The complaint

The appellants argued:

  • The High Court heard the writ petition on 02.09.2024 and reserved it for orders the next day, without giving them adequate time to file a reply.
  • This “undue haste” prejudiced them and breached audi alteram partem.

5.4.2 The Court’s response: substance over form

The Supreme Court, invoking the flexible nature of natural justice principles as elucidated in:

held:

  • The test is whether a party had a reasonable opportunity and suffered real prejudice, not whether every procedural formality was followed to the letter.
  • The appellants were served in advance, represented by counsel, and their submissions were recorded in the impugned judgment.
  • No request for adjournment or extended time to file a reply was made; no explanation was given as to what material they were prevented from placing on record.
  • The writ did not seek substantive relief against them; it sought directions against statutory authorities.
  • The issues were predominantly legal, resolved on undisputed documents.

Therefore, the Court held:

  • There was substantial compliance with natural justice.
  • The complaint was more technical than substantive; no real prejudice was shown.

5.5 Human rights and policy dimension: housing and misuse of IBC

A striking feature of the judgment is its explicit emphasis on the human dimension of urban redevelopment and the constitutional right to dignified housing.

The Court underscored:

  • Residents were low‑income individuals (tailors, drivers, stenographers) living in a building declared dangerous.
  • Repeated delays and inaction by the developer had left them in acute insecurity for nearly two decades.
  • IBS’s moratorium provisions cannot be weaponised to perpetuate displacement or defer safe, permanent housing.

The Court drew attention to:

  • Earlier similar cases involving the same developer—Govind Tower/Manohar M. Ghatalia and Tagore Nagar Shree Ganesh Krupa CHS—where A A Estates had similarly defaulted and then sought shelter under the IBC.
  • In those cases, both the Bombay High Court and the Supreme Court had refused to let the moratorium stall redevelopment.

Concluding remarks (paras 23–23.3) emphasise that:

  • Slum/old building redevelopment is not a mere commercial transaction; it is a social welfare project tied to Articles 19(1)(e) and 21 (right to reside and settle, and right to life with dignity).
  • IBC’s purpose is to resolve viable insolvencies, not to shield delinquent conduct or allow corporate debtors to capture the fate of hundreds of families.
  • Court must adopt a purposive and welfare‑oriented approach in redevelopment disputes, balancing commercial interests with human realities.

6. Precedents and Their Influence

Key precedents shaping the Court’s reasoning include:

6.1 Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta (2021) 7 SCC 209

  • Held that NCLT’s jurisdiction under Section 60(5)(c) IBC extends to disputes “arising from or relating to” insolvency, but only in limited situations.
  • NCLT may restrain termination of a contract only if:
    • Termination is solely due to insolvency (ipso facto), and
    • The contract is central to corporate survival (its loss would make “corporate death” certain).
  • Applied here to limit any assumed NCLT power to revive the terminated redevelopment agreements.

6.2 Tata Consultancy Services Ltd. v. Vishal Ghisulal Jain (2022) 2 SCC 583

  • Clarified that NCLT’s residuary powers cannot prevent termination based on performance defaults independent of insolvency.
  • Even integral contracts can only be protected where the reasons for termination are insolvency‑related.
  • Reaffirmed here to reject any broad claim that NCLT could have saved the A A Estates contract from termination.

6.3 Rajendra K. Bhutta v. MHADA (2020) 13 SCC 208

  • Held that Section 14(1)(d) prohibits owners from recovering property “occupied by” the corporate debtor during moratorium.
  • Dependence on actual occupation/possession; property cannot be taken back while CIRP is ongoing.
  • Distinguished here because A A Estates never occupied the property, and termination pre‑dated the second CIRP.

6.4 VICTORY IRON WORKS LTD. v. JITENDRA LOHIA (2023) 7 SCC 227

  • Treated certain development rights and associated interests (including financial contributions, possession, quasi‑ownership incidents) as “assets” forming part of insolvency estate.
  • Distinguished on facts: A A Estates lacked the bundle of proprietary interests present in Victory Iron Works; its rights were purely contractual and had been terminated.

6.5 Sushil Kumar Agarwal v. Meenakshi Sadhu (2019) 2 SCC 241

  • Explained the diverse nature of development agreements and the conditions under which they create enforceable proprietary interests versus mere construction contracts/licences.
  • Used here to characterise A A Estates’ agreements as conditional, non‑proprietary, licence‑based arrangements that never matured into transferable assets.

6.6 Associated Hotels, Qudrat Ullah: Licence vs lease

  • Provided the doctrinal basis for classifying the developer’s rights as a licence (no estate or interest in property) rather than a lease or property right.

6.7 Embassy Property Developments (2020) 13 SCC 308

  • Drew a clear demarcation between NCLT’s insolvency jurisdiction and High Courts’ writ jurisdiction over public law decisions.
  • Relied upon to affirm the Bombay High Court’s competence to direct MHADA/MCGM on administrative approvals.

6.8 Natural justice precedents

  • Union of India v. W.N. Chadha and Canara Bank v. Debasis Das:
    • Clarified that natural justice is context‑sensitive and primarily aimed at preventing real prejudice, not insisting on inflexible rituals.
    • Applied here to reject the developer’s procedural challenge.

6.9 Prior litigation involving A A Estates

  • A A Estates Pvt. Ltd. v. Bhavana Manohar Ghatalia (Govind Tower case) and A A Estates Pvt. Ltd. v. Tagore Nagar Shree Ganesh Krupa CHS:
    • In both, courts rejected attempts by the same developer to invoke IBC moratorium to stall redevelopment after chronic default.
    • The Court noted the pattern and the appellants’ suppression of these decisions, citing G. Narayanaswamy Reddy v. State of Karnataka (1991) 3 SCC 261 on suppression disentitling parties to discretionary relief.

7. Complex Concepts Simplified

7.1 Moratorium under Section 14 IBC

When CIRP starts, Section 14 declares a “moratorium” period where:

  • No new or continuing suits/ proceedings against the debtor are allowed.
  • Debtor cannot transfer or dispose of its assets.
  • Secured creditors cannot enforce security interests.
  • Owners/lessors cannot recover property occupied by the debtor.

Purpose: create a calm period, preserve the debtor’s assets, and allow a resolution plan to emerge.

7.2 “Assets” and “property” in insolvency

Although IBC has a very broad definition of property (Section 3(27)), not everything a corporate debtor touches is an “asset” protected by moratorium:

  • The right must be subsisting and enforceable on the insolvency commencement date.
  • Mere expectations or rights under contracts that have been lawfully terminated are not “assets” in this sense.
  • After termination, the debtor may have only a claim for damages—this is a claim, not an interest in property.

7.3 Licence vs lease (development context)

  • Licence:
    • Right to use property for a particular purpose.
    • Ownership and legal possession remain with owner.
    • No estate/interest in land; typically non‑transferable.
  • Lease:
    • Transfer of a right to enjoy immovable property for a period in consideration of rent/premium.
    • Creates a legal interest in the property.
    • Tenant/lessee usually has exclusive possession.

In redevelopment, many “development agreements” only create a licence: they allow the developer to enter, demolish, construct, and sell in terms of the contract, but legal possession and title remain with the society/owner. Only if the agreement and conduct of parties clearly show transfer of interest (possession, saleable rights, third‑party conveyances) will a proprietary interest arise.

7.4 Section 60(5)(c) IBC and NCLT’s “residuary” jurisdiction

Section 60(5)(c) gives NCLT jurisdiction over “any question of law or facts, arising out of or in relation to” the insolvency resolution/liquidation of a corporate debtor. But:

  • It does not convert NCLT into a general civil court or a constitutional court.
  • It cannot be used to set aside every contract termination; only those:
    • linked to insolvency (e.g. ipso facto), and
    • whose loss would kill the corporate debtor’s viability.

7.5 “Corporate death” and centrality of contracts

The notion of “corporate death” (from Gujarat Urja and TCS) means:

  • If losing a particular contract will inevitably destroy the business (e.g. it is the only revenue source), NCLT might protect it.
  • If the debtor has multiple projects and no one contract is indispensable, NCLT will be reluctant to restrain termination, especially when termination is for genuine default.

7.6 Writ of mandamus

A writ of mandamus directs a public authority to perform a public or statutory duty it has failed or refused to perform. In this case:

  • The Society asked the High Court to direct MHADA/MCGM to process redevelopment approvals.
  • The High Court did not determine private contractual rights but compelled public bodies to act “in accordance with law”.

7.7 Natural justice

Natural justice mainly means:

  • Right to a fair hearing (audi alteram partem): parties should have a reasonable chance to present their case.
  • No bias (nemo judex in causa sua).

Courts examine whether:

  • The party had notice and representation.
  • They could argue their case.
  • Any alleged irregularity actually caused prejudice.

8. Impact and Future Implications

8.1 For insolvency and restructuring practice

  • Clear limits on Section 14 protection:
    • Section 14 protects only subsisting, enforceable, proprietary or possessory rights.
    • Terminated contracts, mere licences, or inchoate development expectations are not “assets” for moratorium purposes.
  • Due diligence by Resolution Professionals and CoCs:
    • RPs must distinguish between:
      • Genuine assets (subsisting development rights with possession/ownership incidents), and
      • Terminated or purely contractual permissions.
    • Information memoranda must accurately reflect status of such projects; inflated portrayal as “assets” can mislead CoCs.
  • Guarding against misuse of IBC:
    • Corporate debtors cannot use IBC as a shield to freeze urban renewal projects after years of non‑performance.
    • Courts will scrutinize whether CIRP is being invoked in good faith, or as a tactic to hold societies “hostage”.

8.2 For urban redevelopment and real estate law

  • Empowerment of societies against defaulting developers:
    • Societies can lawfully terminate and move to a new developer after chronic defaults, and such action will not be automatically blocked by later insolvency of the old developer.
    • Termination, if pre‑CIRP and for genuine default, will not be invalidated or suspended by moratorium.
  • Project continuity over developer continuity:
    • Court prioritises completion of the project and rehabilitation of residents over preserving the old developer’s participation, especially after termination.
  • Contract drafting implications:
    • Parties should clearly define:
      • When and how “development rights” vest.
      • Conditions tied to possession, sale rights, and transfer of title.
      • Consequences of prolonged delay and default.
    • Societies may prefer contracts that keep legal possession and title firmly with them until major obligations are fulfilled, reducing risk of moratorium‑based stalling.

8.3 For High Courts & NCLT: jurisdictional harmony

  • Writ jurisdiction preserved:
    • High Courts retain the power to direct statutory authorities in redevelopment matters, even when one stakeholder is under CIRP.
    • IBC does not create an exclusive field that ousts Article 226 on public law issues.
  • NCLT’s role remains circumscribed:
    • NCLT can adjudicate insolvency‑related disputes, but cannot sit in judicial review over public authorities or resurrect lawfully terminated contracts not central to corporate survival.

8.4 For housing rights and social policy

  • Affirmation of housing as a constitutional priority:
    • The judgment reinforces that right to safe and dignified housing is part of Article 21.
    • Slum and old building redevelopment cannot be subordinated indefinitely to corporate rescue when the developer has repeatedly failed in its obligations.
  • Signal to developers:
    • Urban redevelopment responsibilities carry a quasi‑public character; protracted non‑performance will not be protected by insolvency law.
    • Developers must plan finances, timelines, and compliance carefully, or risk lawful termination and replacement.

9. Conclusion: Key Takeaways

The decision in A A Estates Pvt. Ltd. v. Kher Nagar Sukhsadan CHS establishes and consolidates several important legal propositions:

  1. Moratorium is not a cure‑all: Section 14 IBC shields only subsisting, enforceable proprietary or possessory rights of the corporate debtor. It does not revive lawfully terminated contracts or protect mere licences or expectations.
  2. Termination for default stands: Where a redevelopment agreement is terminated before CIRP, for genuine and prolonged non‑performance, such termination will generally not be interfered with by NCLT or protected by moratorium—especially if the contract is not central to corporate survival.
  3. Development agreements are heterogeneous: They must be analysed on their own terms. Some may create proprietary rights; others only contractual licences. Classification depends on possession, transfer of title/interest, and performance.
  4. High Courts retain public law oversight: NCLT’s jurisdiction does not displace Article 226. High Courts may direct statutory authorities to process redevelopment approvals even during CIRP, where no subsisting asset of the corporate debtor is involved.
  5. Human rights lens in insolvency‑redevelopment overlap: The Court firmly situates slum/old building redevelopment within the framework of Articles 19(1)(e) and 21, signalling that insolvency law cannot be used to stall the rehabilitation of vulnerable residents.
  6. Developers cannot weaponise IBC: The Code’s purpose is value maximisation and rescue of viable businesses, not a refuge for repeated default and inaction on socially significant projects.

In sum, the judgment offers a clear and balanced roadmap for future cases at the intersection of IBC and urban redevelopment: protect genuine insolvency resolution, but not at the expense of timely housing rehabilitation and not by extending moratorium to extinguished or non‑proprietary development rights. It reinforces contractual accountability while preserving the primacy of fundamental housing rights in the redevelopment context.

Case Details

Year: 2025
Court: Supreme Court Of India

Judge(s)

Justice R Mahadevan

Advocates

VIPIN KUMAR JAI

Comments