IBC Moratorium Does Not Extend to Redevelopment Rights, Bombay HC Upholds Society’s Right to Appoint New Developer

On September 11, 2024, the Bombay High Court ruled in favor of Kher Nagar Sukhsadan Co-operative Housing Society, allowing the society to proceed with the redevelopment of its dilapidated building despite objections from AA Estates Pvt. Ltd. and its appointed Resolution Professional. The court held that the moratorium imposed under the Insolvency and Bankruptcy Code (IBC) on AA Estates’ assets does not extend to the redevelopment rights of the housing society, affirming the members' fundamental right to shelter.

The housing society had entered into a redevelopment agreement with AA Estates Pvt. Ltd. in 2005. However, due to delays and non-performance, the society terminated the agreement in 2019 after waiting for over a decade for redevelopment to commence. The society appointed Tristar Development LLP as the new developer. AA Estates, which was admitted into Corporate Insolvency Resolution Proceedings (CIRP) under the IBC in 2019, objected to the redevelopment, citing a moratorium on its assets.

The society petitioned the Bombay High Court for a declaration that the moratorium did not apply to the redevelopment of its property.

The primary issue was whether the moratorium imposed under Section 14 of the IBC on AA Estates' assets would prevent the housing society from proceeding with redevelopment under a new developer. AA Estates contended that the society’s property and redevelopment rights were part of its assets. The society argued that its members had terminated the development agreement with AA Estates and that the moratorium should not prevent them from appointing a new developer to carry out the redevelopment.

The court ruled that the moratorium imposed under the IBC did not apply to the redevelopment rights of the housing society. The court noted that AA Estates had failed to perform its obligations under the development agreement, and the agreement had been lawfully terminated by the society. Consequently, the redevelopment rights no longer formed part of AA Estates' assets subject to the moratorium. The court remarked, "Merely calling the Petitioner’s property a pending project would not constitute an asset of AA Estates."

The court emphasized that while AA Estates was undergoing insolvency proceedings, the society members could not be deprived of their fundamental right to shelter. The court cited previous decisions, including Manohar M. Ghatalia v. State of Maharashtra and Tagore Nagar Shree Ganesh Krupa Cooperative Housing Society Ltd v. State of Maharashtra, which established that developers who failed to perform their obligations had no vested rights in the redevelopment process.

The court dismissed the objections raised by the Resolution Professional (RP) of AA Estates, who had issued letters to government authorities blocking the society's redevelopment. The court found that the RP's actions were baseless, as AA Estates had no ongoing rights over the project once the development agreement was terminated.

The court directed the concerned government authorities, including the Municipal Corporation of Greater Bombay (MCGM) and MHADA, to process the society’s pending applications for redevelopment approvals in accordance with the law. The court ordered that these applications be decided within two months from the date of the judgment.

The Bombay High Court's decision affirmed the housing society’s right to proceed with redevelopment, rejecting the developer's claim that its insolvency moratorium extended to the project. The ruling underscored that society members cannot be denied their right to housing due to the failure of a developer undergoing insolvency proceedings.

Date of Decision: September 11, 2024

Kher Nagar Sukhsadan Co-operative Housing Society Ltd. vs. State of Maharashtra and Others