Supreme Court: While considering an appeal revolving around the validity of termination of Development Agreement and Supplementary Agreement prior to the initiation of the second CIRP, the Division Bench of J.B. Pardiwala and R. Mahadevan*, JJ., noted that the Corporate Debtor (First Appellant) 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 Society, who are among the most vulnerable sections of society, continue to be deprived of their right to proper housing and rehabilitation. The Court held that 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 Court further held that 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.
Background:
In 2005, the Respondent Society executed a registered Development Agreement with the First Appellant redevelopment of the subject project. Pursuant to the same, a Power of Attorney was also executed in favour of First Appellant and its directors. After disputes and negotiations, a Supplementary Development Agreement in 2014 was executed, under which First Appellant was required to complete redevelopment within 40 months from the receipt of the commencement certificate.
However, due to disputes, redevelopment was stalled. In 2022, a 2nd CIRP was admitted against the First Appellant after the first CIRP of 2019 was set aside. In the meanwhile, the Respondent Society purported to terminate the Development Agreement with First Appellant.
Eventually the matter reached Bombay High Court whereby the Court allowed the petition filed by the Respondent Society.
Court’s Assessment:
Perusing the matter, the Court framed the following issues:
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Whether the termination of the Development Agreement dated 16-10-2005 and Supplementary Agreements dated 23-12-2005 and 09-04-2014 by Respondent Society prior to the initiation of the second CIRP was valid and effective in law.
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Whether the aforesaid Development Agreement and the Supplementary Agreements constitute “assets” or “property” of the corporate debtor so as to attract the protection of moratorium under Section 14 of the IBC.
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Whether the High Court was justified in allowing the writ petition filed by Respondent Society and directing the statutory authorities to process and grant approvals in favour of Respondent 8 for redevelopment of the subject project.
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Whether the proceedings before the High Court stood vitiated by violation of the principles of natural justice, as alleged by the appellants.
The Court noted that correspondence exchanged between the parties demonstrated that the Society repeatedly called upon the developer to fulfil its obligations. Notices of default and reminders were issued over several years, culminating in termination notices. These communications specifically cited persistent non-performance, failure to pay transit rent, and failure to commence redevelopment. The Court explained that in contract law, time is of the essence in a redevelopment agreement, whose object is timely rehabilitation of displaced members. Prolonged delay defeats the foundation of the contract and constitutes a material breach entitling the owner to terminate. The right to terminate for default was expressly reserved in the Development Agreement and the Supplementary Agreements.
The Court stated that termination in the present case was thus effected after due notice and prolonged default and could not be termed arbitrary or mala fide. The Society, being the owner of the property and guardian of the members’ welfare, cannot be compelled to indefinitely await performance from a defaulting developer. “The IBC is not intended to freeze urban welfare projects or protect commercial indolence at the cost of citizens awaiting rehabilitation”. The termination in the present case was not occasioned by the insolvency of the corporate debtor but by its persistent non-performance. Letters issued by the Society recorded that continuation of the agreement was conditional upon compliance by the developer, failing which the contract would stand cancelled. These defaults occurred well before initiation of the CIRP. Thus, the termination was based on legitimate grounds unrelated to insolvency. No subsisting contractual or proprietary right survived in favour of the corporate debtor on the date of initiation of the second CIRP. Consequently, the NCLT lacked jurisdiction under Section 60(5)(c) of the IBC to interfere with such termination.
The Court explained that the corporate debtor is entitled to the protection of Section 14 of the IBC. The object of Section 14 is to maintain the corporate debtor’s estate as a going concern and to preserve its assets so as to facilitate resolution. The term “property” under Section 3(27) of the IBC is defined in the widest terms to include money, goods, actionable claims, land and every description of movable or immovable, tangible or intangible property, and extends to deeds and instruments evidencing title or interest therein. However, for the purposes of Section 14, only such property or assets which form part of the corporate debtor’s estate as on the insolvency commencement date are protected. Mere expectant, contingent or uncrystallized contractual rights do not constitute “assets” within the meaning of the IBC.
The Court pointed out that the Development Agreement expressly stipulated that redevelopment of accommodation for the society members was a contractual obligation of the developer and did not create any proprietary right in its favour. Only upon full and proper performance would the developer earn a “free-sale” entitlement, which alone could be treated as an asset. As the developer failed to perform its obligations, no contingent or beneficial right ever crystallized in its favour. Furthermore, the moratorium under Section 14 does not revive terminated contracts or protect rights that have ceased to exist prior to insolvency. The protection is intended to preserve the existing value of the corporate debtor’s estate, not to resurrect lapsed or extinguished interests. Extending moratorium to such non-existent rights would defeat commercial certainty and the sanctity of lawful termination under general law.
Answering issues concerning High Court’s impugned judgment, the Court explained that jurisdiction under Article 226 is wide enough to ensure that statutory authorities perform their public duties and do not withhold approvals without legal justification. The High Court did not usurp the jurisdiction of the NCLT or interfere with any matter directly arising from the insolvency process. Its directions were confined to ensuring that the Society’s rights as owner of the land were not indefinitely suspended due to the pendency of CIRP proceedings against a developer who no longer had any subsisting contractual or proprietary interest in the project. Thus, the Court held that High Court was justified in entertaining the writ petition and issuing directions to the statutory authorities to process and consider the redevelopment proposal of Respondent 8 in accordance with law. These directions did not encroach upon the jurisdiction of the NCLT nor offend the moratorium under Section 14 of the IBC.
The Court pointed out that the First Appellant’s conduct did not inspire equity. The record disclosed persistent defaults in payment of transit rent, repeated delays, and failure to commence redevelopment despite multiple extensions. The Society, acting in the collective interest of its members, lawfully terminated the agreement and appointed a new developer who has since made substantial progress. The invocation of Section 14 of the IBC to obstruct rehabilitation of residents was a misconceived attempt to shield inaction under the guise of moratorium protection. Thus, the High Court’s intervention in the present case was therefore not only legally sustainable but also necessary to safeguard the rights of the residents and to ensure that the appellants did not misuse the pendency of insolvency proceedings to indefinitely stall redevelopment.
In its concluding remarks, the Court observed that the present case highlighted the larger human dimension underlying urban redevelopment — the right of citizens to live with dignity in safe and habitable dwellings. Slum redevelopment projects are not mere commercial ventures but social welfare initiatives aimed at transforming unsafe tenements into dignified homes. The role of a developer in such projects carries a public character; it entails a responsibility to fulfil the collective aspirations of hundreds of families awaiting rehabilitation and cannot be viewed solely through a profit-driven lens. When such projects are delayed or abandoned, it is the residents — often living in hazardous or temporary conditions — who suffer the greatest hardship. In this context, the invocation of insolvency proceedings or the moratorium under the Insolvency and Bankruptcy Code, 2016 cannot become a legal device to indefinitely stall redevelopment or to obstruct the legitimate rights of slum dwellers and cooperative housing societies. The IBC was never intended to be used as a shield for non-performance at the cost of human rehabilitation.
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.
[A A Estates (P) Ltd. v. Kher Nagar Sukhsadan Coop. Housing Society Ltd., 2025 SCC OnLine SC 2579, decided on 28-11-2025]
*Judgment by Justice R. Mahadevan
Advocates who appeared in this case:
Mr. Dhruv Mehta, Sr. Adv., Mr. Kartikeya Sharma, Adv., Mr. Vipin Kumar Jai, AOR, For Petitioner(s)
Mr. Anshuman Srivastava, AOR, Mr. Aaditya Aniruddha Pande, AOR, Mr. Chirag M. Shroff, AOR, Mrs. Suchitra Atul Chitale, AOR, Mr. Shashwat Singh, AOR, Mr. Aaditya Aniruddha Pande, AOR, Mr. Siddharth Dharmadhikari, Adv., Mr. Shrirang B. Varma, Adv., Mr. Bharat Bagla, Adv., Mr. Sourav Singh, Adv., Mr. Aditya Krishna, Adv., Mr. Adarsh Dubey, Adv., Ms. Chitransha Singh Sikarwar, Adv., Mr. Chirag M. Shroff, AOR, Mr. Dhananjay Kataria, Adv., Mr. Anshuman Srivastava, AOR, Mr. Aaditya Aniruddha Pande, AOR, Mr. Chirag M. Shroff, AOR, Mrs. Suchitra Atul Chitale, AOR, Mr. Shashwat Singh, AOR, Mr. Shashwat Singh, AOR, Mr. R. Ilam Paridi, Adv., Mr. R. Vishnu Kumar, Adv., Mr. Saurav Beniwal, Adv., Mr. Aman Kumar, Adv., Mr. Sidhant Verma, Adv., For Respondent(s)