Summary
| Category | Data |
|---|---|
| Court | Supreme Court of India |
| Case Number | C.A. No.-014410-014410 – 2025 |
| Diary Number | 7272/2025 |
| Judge Name | HON’BLE MR. JUSTICE R. MAHADEVAN |
| Bench |
HON’BLE MRS. JUSTICE B.V. NAGARATHNA HON’BLE MR. JUSTICE R. MAHADEVAN |
| Precedent Value | Binding precedent |
| Overrules / Affirms |
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| Type of Law |
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| Questions of Law |
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| Ratio Decidendi | The Court held that a development agreement validly terminated for non-performance before the commencement of CIRP does not survive as an “asset” under Section 14 of the IBC. Only subsisting proprietary or possessory rights as on the insolvency date attract moratorium protection. Contractual terminations unrelated to insolvency cannot be set aside by the NCLT under Section 60(5)(c). High Courts retain Article 226 jurisdiction to direct statutory authorities to perform public-law duties even during moratorium, provided no conflict with the IBC’s objectives. No breach of natural justice occurred where no real prejudice was shown and the parties had notice and representation. |
| Judgments Relied Upon |
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| Logic / Jurisprudence / Authorities Relied Upon by the Court |
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| Facts as Summarised by the Court | AA Estates (Appellant) entered a 2005 development agreement (supplemented 2014) with a co-op housing society for slum redevelopment, failed to perform, CIRP admitted in 2022, society terminated agreements (2019, 2021) and appointed a new developer (Dec 2023). Bombay High Court ordered statutory authorities to grant redevelopment approvals in favour of the new developer. Appellant challenged validity of termination, moratorium bar and natural-justice compliance. |
Practical Impact
| Category | Impact |
|---|---|
| Binding On | All courts and tribunals (High Courts, NCLTs) |
| Persuasive For |
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| Follows |
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What’s New / What Lawyers Should Note
- Clarifies that a development agreement extinguished by valid pre-CIRP termination for default does not qualify as an “asset” under Section 14 IBC.
- Confirms moratorium protection extends only to subsisting proprietary or possessory rights as on the insolvency commencement date.
- Reaffirms that contractual terminations unrelated to insolvency cannot be set aside by NCLT under Section 60(5)(c).
- Confirms High Court’s Article 226 power to direct statutory authorities to process public-law applications even during moratorium, if no conflict with IBC mandates.
- Affirms flexible application of natural-justice principles: absence of actual prejudice defeats procedural-fairness challenges.
Summary of Legal Reasoning
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Validity of Termination
- Time-essence and material-breach clauses empowered the society to terminate the 2005 and 2014 agreements after prolonged default.
- Holdings in Gujarat Urja and Tata Consultancy restrict NCLT intervention to ipso facto insolvency terminations central to CIRP viability; here termination was for non-performance, not insolvency.
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Development Agreement as “Asset”
- Section 3(27) and Section 14 protect only enforceable proprietary/possessory interests existing on CIRP date.
- Sushil Kumar Agarwal and Associated Hotels principles distinguish mere licence or executory contract from property interest. No possession ever transferred; no vested right survived termination.
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Writ Jurisdiction During Moratorium
- Embassy Property confirms Article 226 public-law review survives IBC; High Court may direct authorities to perform statutory duties if no impediment to insolvency process.
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Natural Justice
- Notice and representation were afforded; no actual prejudice shown. Technical non-compliance where parties had full knowledge does not vitiate proceedings (Chadha; Canara Bank v. Debasis Das).
Arguments by the Parties
Appellants (AA Estates & Resolution Professional)
- Claimed valid subsisting development rights under registered agreements (2005, 2014) forming “assets” under Section 3(27), immune from extinguishment by moratorium.
- Argued termination was invalid (no resolution or document effecting termination); High Court denied fair hearing; contractual disputes reserved for arbitration; moratorium barred administrative approvals.
- Relied on Victory Iron Works for rights as assets; Alchemist ARCo for moratorium status quo; Empire Jute, Joshi Tech, Puna Hinda for arbitration override.
Respondent No. 1 (Co-op Housing Society)
- Building unsafe (C-1 category); developer failed timelines (24 months plus 40 months grace); 41 of 60 members never vacated; rent payments stopped.
- Lawfully terminated agreements by unanimous resolutions (09.06.2019, 02.12.2019, 06.11.2021) for persistent default; possession always with society.
- Appointed new developer (Respondent No. 8); statutory NOCs and approvals obtained; writ petition sought only procedural directions to authorities.
Respondent No. 8 (New Developer)
- Substantial progress since December 2023: demolition, transit rent, alternate accommodation agreements, ₹33.65 crore expenditure, commencement certificate and piling.
- Asserted no pre-CIRP subsisting agreement for appellants; moratorium inapplicable; High Court directions limited to processing approvals.
Factual Background
AA Estates (Appellant) entered a registered development agreement in 2005 (supplemented 2014) with Kher Nagar Sukhsadan Co-op Housing Society for slum redevelopment. The developer failed to complete within stipulated timelines; delays arose from Society members’ non-vacation and internal disputes. CIRP was initiated twice (2019, 2022); Society terminated the old agreements (2019 & 2021) and appointed a new developer in December 2023. The High Court directed municipal and housing authorities to process redevelopment approvals in favour of the new developer. AA Estates appealed challenging termination validity, moratorium bar, and procedural fairness.
Statutory Analysis
- Section 14, IBC: Moratorium prohibits suits, proceedings or transfer of “assets” by corporate debtor; only protects subsisting proprietary/possessory interests actually held on insolvency commencement date.
- Section 3(27), IBC: “Property” includes tangible/intangible assets and interests—must be legal/equitable rights vested or contingent but enforceable.
- Section 60(5)(c), IBC: NCLT may set aside ipso facto terminations only where based solely on insolvency and central to debtor’s corporate survival.
- Easements Act, Section 52: Distinguishes licence from proprietary right; mere development licence does not transfer possession.
- Constitution, Article 226: High Courts retain power of judicial review over administrative action despite IBC moratorium.
Alert Indicators
- ✔ Precedent Followed – Confirms limits of NCLT residuary jurisdiction and moratorium scope under Section 14 IBC.