Supreme Court rules that development rights of defaulting developers don't qualify as "assets" protected under IBC moratorium - valid termination before CIRP extinguishes rights, allowing housing societies to appoint new developers for public welfare projects.
(i) WHETHER THE TERMINATION OF THE DEVELOPMENT AGREEMENT AND SUPPLEMENTARY AGREEMENTS BY THE SOCIETY PRIOR TO THE INITIATION OF THE SECOND CIRP WAS VALID AND EFFECTIVE IN LAW?
(ii) WHETHER THE DEVELOPMENT AGREEMENT AND SUPPLEMENTARY AGREEMENTS CONSTITUTE "ASSETS" OR "PROPERTY" OF THE CORPORATE DEBTOR SO AS TO ATTRACT THE PROTECTION OF MORATORIUM UNDER SECTION 14 OF THE IBC?
(iii) WHETHER THE HIGH COURT WAS JUSTIFIED IN ALLOWING THE WRIT PETITION AND DIRECTING STATUTORY AUTHORITIES TO GRANT APPROVALS IN FAVOUR OF THE NEW DEVELOPER?
(iv) WHETHER THE PROCEEDINGS BEFORE THE HIGH COURT STOOD VITIATED BY VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE?
(i) The termination of the Development Agreement and Supplementary Agreements by Respondent No. 1 Society was valid, lawful, and effective in law, having been carried out after due notice and in consequence of prolonged and inexcusable default by the developer.
(ii) The aforesaid Development Agreement and the Supplementary Agreements do not constitute "assets" or "property" of the corporate debtor within the meaning of Section 14 of the IBC. The said agreements stood validly terminated prior to the initiation of the second CIRP, and hence, no subsisting or enforceable right survived in favour of the corporate debtor.
(iii) The High Court was justified in entertaining the writ petition and directing the statutory authorities to process and grant approvals in favour of Respondent No. 8, subject to compliance with law. Such directions were procedural in nature, did not encroach upon the jurisdiction of the NCLT, and did not contravene the moratorium under Section 14 of the IBC.
(iv) The proceedings before the High Court were conducted in substantial compliance with the principles of natural justice. The appellants were afforded a fair opportunity of hearing, and no real prejudice or failure of justice has been demonstrated.
Original Agreement: Society executed Development Agreement with A A Estates for redevelopment
Supplementary Agreement: Parties executed Supplementary Development Agreement extending completion period to 40 months
First Termination: Society passed resolution terminating agreement due to developer's defaults
Public Notice: Society issued public notice confirming termination of development agreement
New Developer Appointed: Society appointed Respondent No. 8 as new developer for the project
Second CIRP: CIRP initiated against A A Estates at instance of State Bank of India
Fresh Agreement: Society executed fresh Development Agreement with new developer
High Court Order: Bombay High Court directed authorities to grant approvals to new developer
Supreme Court Ruling: "Defaulting developer loses development rights protection under IBC moratorium" - upheld High Court order
| Legal Provision | What It Means | Application in This Case |
|---|---|---|
| Section 14 IBC Moratorium Protection |
Prohibits legal proceedings and recovery of property during CIRP | Does not protect rights extinguished before CIRP initiation |
| Section 3(27) IBC Definition of "Property" |
Includes all legal or equitable interests in property | Development rights of defaulting developer don't qualify as "property" |
| Article 226 Constitution Writ Jurisdiction |
High Court's power to issue writs and directions | Available despite IBC moratorium for administrative inaction |
| Section 60(5) IBC NCLT Jurisdiction |
Adjudicating authority's power over insolvency matters | Cannot interfere with valid contractual terminations |
Legal protection during CIRP that prohibits legal proceedings against corporate debtor and protects its assets from recovery. Does not revive extinguished rights or protect defaulting parties.
Contractual rights granted to developer to undertake redevelopment. These may or may not constitute "assets" depending on whether they create proprietary interests.
Process initiated under IBC to resolve corporate debtor's insolvency through resolution plan or liquidation. Moratorium operates during this period.
Legal principle that invalid portions of contract can be severed while preserving valid remainder. Applied here to separate termination validity from IBC protection.
"The moratorium under Section 14 protects only existing, enforceable, and subsisting rights – not include or forfeited rights arising from default or non-performance. Development rights of a defaulting developer who neither secured possession nor undertook any redevelopment activity cannot be elevated to the status of an 'asset' or 'property' within the meaning of Section 3(27) of the IBC."
This judgment establishes that IBC moratorium cannot be used as a shield by defaulting developers to protect rights that were validly terminated before CIRP initiation. The Court emphasized that urban redevelopment projects serve important public welfare objectives and cannot be indefinitely stalled using insolvency proceedings.
This content is for informational purposes only and does not constitute legal advice. Consult a qualified legal professional for specific legal guidance. The information provided is based on judicial interpretation and may be subject to changes in law.
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This analysis decodes a complex IBC judgment to help housing societies understand their rights when developers default on redevelopment projects.