Redevelopment Rights Not 'Assets' Under IBC if Agreement Lawfully Terminated Before Insolvency: SC [Read Order]
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.
The Supreme Court has dismissed an appeal filed by a developer, which is undergoing corporate insolvency resolution, challenging a Bombay High Court order that permitted a housing society to appoint a new developer for a slum redevelopment project.
The bench of Justices J.B. Pardiwala and R. Mahadevan held that redevelopment rights under a development agreement do not constitute "assets" under the Insolvency and Bankruptcy Code (IBC) if the agreement was lawfully terminated before the insolvency proceedings began.
A A Estates Private Limited , the Appellant No. 1 is the Corporate Debtor, which is presently undergoing Corporate Insolvency Resolution Process under the provisions of the Insolvency and Bankruptcy Code, 2016 . Appellant No. 2, Mr. Harshad Shamkant Deshpande is the Resolution Professional appointed in respect of Appellant No. 1 in the said proceedings.
On 16.10.2005, Respondent No. 1 Society executed a registered Development Agreement with Appellant No. 1 for redevelopment of the subject project. Pursuant to the same, a Power of Attorney dated 23.12.2005 was also executed by Respondent No. 1 in favour of Appellant No. 1 and its directors.
After disputes and negotiations, a Supplementary Development Agreement dated 09.04.2014 was executed, under which Appellant No. 1 was required to complete redevelopment within 40 months from the receipt of the commencement certificate. Appellant No. 1 obtained approvals, including No Objection Certificate from Respondent No. 3, Intimation of Disapproval (IOD) and Plan sanctions from the Municipal Corporation, after paying substantial amounts of Rs. 4,02,20,590/- and Rs. 52,70,836/- towards infrastructure charges.
The questions before the High Court were essentially legal in nature – relating to the applicability of the moratorium under Section 14 of the IBC and the validity of termination of the redevelopment agreement – both turning upon undisputed documents. No complex factual adjudication was required. Even before this Court, the appellants have failed to point out any specific prejudice or material that they were prevented from placing before the High Court.
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In the present case, Appellant No. 1 – corporate debtor failed to take any meaningful steps towards fulfilling its obligations under the Development Agreement and Supplementary Agreements. Consequently, the slum dwellers and members of Respondent No. 1 Society – among the most vulnerable sections of society – continue to be deprived of their right to proper housing and rehabilitation. Such conduct cannot be permitted to take refuge under the moratorium provisions of Section 14 of the IBC. A clear distinction must, therefore, be maintained between corporate debtors who have acted bona fide and those who have merely secured development rights in form but never acted in substance.
The moratorium under Section 14 protects only existing, enforceable, and subsisting rights – not inchoate 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.
The court based its decision on the facts that the developer had entered into a development agreement with Kher Nagar Sukhsadan Co-operative Housing Society in 2005 but failed to perform its obligations for years, including paying transit rent and starting construction.
Due to this prolonged default, the society validly terminated the agreement in 2019, well before a Corporate Insolvency Resolution Process (CIRP) was initiated against the developer in 2022.
The court rejected the developer's arguments, finding that the society's termination was lawful and that since the developer never obtained physical possession of the property, no proprietary right survived to be protected by the IBC moratorium.
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.
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The Supreme Court affirmed the High Court's decision to direct statutory authorities to grant approvals to the new developer, pointing that the IBC cannot be used as a shield by a defaulting developer to indefinitely stall a slum redevelopment project, which is a social welfare initiative aimed at transforming unsafe tenements into dignified homes for vulnerable residents.
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