On 11th September 2024, in a significant ruling, the Bombay High Court has granted relief to Kher Nagar Sukhsadan Co-operative Housing Society Ltd. (“Petitioner“), paving the way for the redevelopment of their dilapidated building, which had been stalled due to objections raised by AA Estates Private Limited (“AA Estates“) and its Resolution Professional (RP) during its Corporate Insolvency Resolution Process (“CIRP”).
The court addressed a long-standing dispute involving the redevelopment of a building categorized as “C-1” (unfit for habitation) and affected by the moratorium imposed on AA Estates under the Insolvency and Bankruptcy Code, 2019.
Facts
The Kher Nagar Sukhsadan Society, located in Bandra East, Mumbai, had entered into a Development Agreement with AA Estates in 2005, granting the latter redevelopment rights over the building. However, despite the initial agreement and a supplemental agreement in 2014, AA Estates failed to make any significant progress. Notices issued by the Municipal Corporation of Greater Bombay in 2017 declared the building as hazardous, and the society members were forced to live in unsafe conditions.
After waiting for over a decade and account of AA Estates inaction, the Petitioner terminated the agreement with AA Estates in 2019 and subsequently appointed Tristar Development LLP (“Tristar“) as their new developer. Tristar took steps and obtained various permissions/approvals towards the redevelopment of the Petitioner’s building. During this timelines, AA Estates, which was undergoing CIRP raised objections, claiming the redevelopment rights over the building and citing the moratorium under the IBC.
The moratorium on AA Estates was imposed twice. The first moratorium came into effect on 14th November 2019, when the NCLT initiated CIRP against AA Estates. During this period, the Interim Resolution Professional (IRP) informed the Petitioner that no coercive actions could be taken against AA Estates. However, this order was vacated on 12th June 2020 by the NCLT. After this, a second moratorium was imposed on 6th December 2022 when the NCLT reappointed a Resolution Professional for AA Estates. Following the second moratorium, the RP issued letters in April and August 2023, instructing authorities not to process any redevelopment permissions for the Petitioner’s property, claiming that AA Estates had an interest in the project.
The Bombay High Court’s findings
The court observed that AA Estates had consistently failed to meet its obligations, including redevelopment work, and had no legal ground to continue objecting to the redevelopment. Citing the precedents of Manohar M. Ghatalia & Ors. v. State of Maharashtra[] and Tagore Nagar Shree Ganesh Krupa Cooperative Housing Society Ltd. v. State of Maharashtra[], the court held that the development rights did not form part of the assets of AA Estates under the CIRP.
The court also pointed out that no material distinction existed between the present case and the cited precedents. Both cases established that the developer (in both cases, AA Estates)
had failed to fulfill its obligations under a redevelopment agreement and therefore could not claim any vested rights in the property or hinder redevelopment.
The Court emphasized that the members of the Petitioner society had a fundamental right to safe and habitable housing and could not be deprived of their rights due to the CIRP proceedings of AA Estates. The court found the RP’s letters, which attempted to halt the redevelopment, illegal and inconsistent with the record.
The Court directed the MCGM and MHADA to process and grant all pending permissions for the redevelopment within two months, thereby allowing Tristar Development LLP to proceed with the project. The court also formally recognized Tristar as the appointed developer and dismissed any claims or objections raised by AA Estates or its Resolution Professional regarding the redevelopment. Furthermore, the court concluded that the redevelopment rights of the society’s property did not fall within the scope of AA Estates’ assets under the CIRP, and the moratorium did not apply to these rights.
Conclusion
This judgment brings much-needed relief to the members of the Petitioner Society, who had been living in dilapidated conditions for years. The judgment reinforces the right of housing societies to terminate agreements with developers who fail to fulfil their obligations and seek alternative solutions, even when the developer is undergoing insolvency proceedings. The case is a reminder of the judiciary’s role in balancing the interests of insolvent companies and the fundamental rights of citizens.
– Ankita Mishra, Associate, Solomon & Co.
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