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 authority |
| Overrules / Affirms | Affirms existing precedent |
| Type of Law | Writ jurisdiction (public law) & Insolvency (IBC) |
| Questions of Law |
|
| Ratio Decidendi | The Court held that a development agreement validly terminated for non-performance before the insolvency commencement date ceases to exist as an “asset” or proprietary right under Section 14 of the IBC. Only subsisting, enforceable rights as on the CIRP date attract moratorium protection; lapsed or extinguished rights do not. The NCLT cannot set aside such terminations under Section 60(5)(c) if the contract was breached independently of insolvency and not central to the debtor’s corporate survival. High Courts retain writ power to correct public-law administrative inaction, provided they do not obstruct the insolvency process. |
| Judgments Relied Upon |
|
| Logic / Jurisprudence / Authorities Relied Upon by the Court | The Court applied principles restricting NCLT’s Section 60(5)(c) jurisdiction to ipso facto terminations central to CIRP; distinguished licence-type development agreements from proprietary interests (per Easements Act and Associated Hotels/Qudrat Ullah); reaffirmed that Section 14 moratorium protects only existing assets; and held that writ jurisdiction under Article 226 remains available to enforce public-law duties of authorities even during moratorium. |
| Facts as Summarised by the Court | A housing society executed development agreements with a corporate debtor in 2005 and 2014, which stalled due to non-vacation and defaults. CIRP was admitted against the developer in December 2022. The society lawfully terminated the agreements before that date, appointed a new developer in December 2023, and obtained municipal approvals. The High Court directed statutory authorities to grant redevelopment permissions; the Supreme Court upheld that pre-CIRP termination was valid, moratorium inapplicable, and writ relief permissible. |
Practical Impact
| Category | Impact |
|---|---|
| Binding On | All subordinate courts |
| Persuasive For | Other High Courts |
| Overrules | |
| Distinguishes | Victory Iron Works Ltd v. Jitendra Lohia (2023) |
| Follows |
|
What’s New / What Lawyers Should Note
- Clarifies that development agreements terminated for breach before CIRP do not survive as “assets” under Section 14 moratorium.
- Confirms NCLT cannot revive or set aside such contract terminations under Section 60(5)(c) unless ipso facto termination triggers corporate death.
- Affirms High Courts retain Article 226 jurisdiction to direct statutory authorities on public-law duties, even during IBC moratorium, so long as insolvency process isn’t impeded.
- Differentiates between licence-style development permissions (non-proprietary) and proprietary interests that can be “assets.”
- Holds that absence of actual prejudice defeats natural justice objections where parties were represented and required documents on record.
Summary of Legal Reasoning
- Contractual Breach & Termination: The original 2005 development agreement and 2014 supplementary agreement required completion within fixed timelines and payment of rent/compensation to society members. The corporate debtor defaulted for years, justifying society’s termination notices of June 2019, December 2019 and November 2021 under express contractual rights.
- Termination before CIRP: All terminations occurred before the December 2022 insolvency commencement date. No revival of agreements occurred after the first CIRP was vacated in 2020.
- Moratorium Scope (Section 14 IBC): Section 14 protects only existing, enforceable assets or property as defined in Section 3(27). Terminated contracts and uncrystallized licenses are not protected assets.
- NCLT Jurisdiction Limits: Under Section 60(5)(c), NCLT may only set aside ipso facto terminations that arise solely from insolvency and are central to the debtor’s survival (Gujarat Urja; Tata). The present terminations were for non-payment and non-performance, independent of insolvency, and did not imperil the company’s corporate life.
- Licence vs. Proprietary Interest: The agreements granted a mere licence to redevelop. No exclusive possession or ownership incidents transferred, so Section 14(1)(d) did not apply (Associated Hotels; Qudrat Ullah).
- Writ Jurisdiction: The High Court rightly exercised Article 226 power to direct municipal and housing authorities to process the society’s redevelopment proposal, since public-law approvals do not “arise out of or relate to” insolvency (Embassy Property).
- Natural Justice: The society’s petition was served in advance; the corporate debtor’s counsel was present and had full opportunity. No actual prejudice was shown by the expedited hearing.
Arguments by the Parties
Petitioners (Corporate Debtor & Resolution Professional)
- Pre-CIRP termination of agreements was invalid; development rights constituted “assets” under Section 3(27) IBC.
- Section 14 moratorium barred termination and fresh appointments during CIRP.
- High Court breached natural justice by denying time to file reply.
- Private contractual disputes must go to arbitration; writ jurisdiction is inappropriate.
Respondent No. 1 (Housing Society)
- Developer’s persistent defaults justified valid unilateral termination pre-CIRP.
- Agreements never conferred possession; no proprietary interest; Section 14 inapplicable.
- Writ petition was a public-law remedy to enforce statutory approvals, not a contract dispute.
Respondent No. 8 (New Developer)
- Holds valid fresh agreement executed post-termination; substantial progress (demolition, transit rent, piling).
- No subsisting rights in corporate debtor; agreements terminated before moratorium.
Factual Background
The cooperative housing society entered into redevelopment agreements with the corporate debtor in 2005 and 2014, obliging the developer to complete reconstruction, pay rent and compensation to 60 members, and obtain approvals. The developer failed to perform for nearly two decades. CIRP was initiated against it in December 2022. Prior to that, the society lawfully terminated the agreements (2019–2021) and in December 2023 appointed a new developer, securing municipal permissions. The High Court directed statutory authorities to grant redevelopment approvals; the corporate debtor’s appeal was dismissed by the Supreme Court.
Statutory Analysis
- Section 14, IBC (Moratorium): Prohibits suits, asset transfers, recoveries and enforcement actions on the insolvency commencement date, but only in respect of existing “assets” or “property.”
- Section 3(27), IBC (Property): Broad definition including actionable claims and rights, but courts confine moratorium to subsisting proprietary or possessory interests.
- Section 60(5)(c), IBC (NCLT Jurisdiction): Residuary jurisdiction to rectify terminations arising solely from insolvency and central to corporate survival; not to revive general contractual breaches.
- Section 52, Easements Act: Defines licence as right to use without creating an interest; non-proprietary.
- Article 226, Constitution: High Court’s writ power for public-law remedies remains intact, even during moratorium.
Procedural Innovations
- Reaffirms that High Courts may issue procedural directives to administrative authorities for public-law approvals during CIRP, without impeding the insolvent estate.
- Clarifies limits of NCLT’s residuary jurisdiction vis-à-vis private contractual disputes terminated pre-insolvency.
Alert Indicators
- ✔ Precedent Followed