Case Note & Summary
The Petitioner, Kher Nagar Sukhsadan Co-operative Housing Society Ltd., owned a building on land leased from MHADA. In 2005, it entered into a Development Agreement with AA Estates Private Limited (part of the RNA Group) for redevelopment. AA Estates failed to complete the project within 24 months as agreed, and after 14 years of inaction, the society terminated the agreement in 2019. Meanwhile, the building was declared C-1 (unfit for habitation) by the BMC. The society then appointed Tristar Development LLP as its new developer after complying with Section 79A of the Maharashtra Cooperative Societies Act. However, AA Estates was admitted into CIRP under the IBC, and the Resolution Professional (RP) wrote to MHADA and other authorities directing them not to process the society's redevelopment proposals, claiming a moratorium. The society filed a writ petition seeking directions to the authorities to process its redevelopment plans. The court held that the redevelopment rights of the society's property do not constitute assets of AA Estates and thus are not subject to the moratorium. The RP's letters were declared ex-facie illegal. The court allowed the petition, directing the respondents to process the society's redevelopment proposals without reference to the RP's letters, and granted liberty to the society to approach the court if any further obstruction occurs.
Headnote
A) Insolvency and Bankruptcy Code - Moratorium - Scope of Moratorium - Section 14 of IBC - The moratorium under Section 14 of the IBC applies only to the assets of the corporate debtor and does not extend to properties owned by third parties, such as a cooperative housing society. The court held that the redevelopment rights of the petitioner's property do not form part of the assets of AA Estates, and the letters issued by the Resolution Professional to MHADA and other authorities directing them not to process the society's redevelopment proposals were ex-facie illegal and contrary to the CIRP records. (Paras 21-22)
B) Cooperative Housing Society - Redevelopment - Termination of Development Agreement - Sections 79A of Maharashtra Cooperative Societies Act, 1960 - A cooperative housing society is entitled to terminate a development agreement with a defaulting developer and appoint a new developer after following due process under Section 79A of the MCSA. The court noted that the petitioner had validly terminated the agreement with AA Estates due to its failure to perform for over 14 years, and the termination was not challenged successfully in arbitration. (Paras 9-10, 14)
C) Insolvency and Bankruptcy Code - Resolution Professional - Powers - Section 25 of IBC - A Resolution Professional cannot issue directions to third parties or authorities that interfere with the rights of third parties not related to the corporate debtor's assets. The court held that the RP's letters to MHADA were illegal as the development rights were not assets of AA Estates, and the Expression of Interest issued by the RP did not even claim such rights. (Paras 22, 24)
Issue of Consideration
Whether the redevelopment rights of a cooperative housing society's property can be treated as an asset of the corporate debtor (AA Estates) under the moratorium provisions of the Insolvency and Bankruptcy Code, 2016, thereby preventing the society from redeveloping its building.
Final Decision
The court allowed the writ petition. It held that the redevelopment rights of the Petitioner's property do not form part of the assets of AA Estates and are not subject to the moratorium. The letters dated 11th April 2023 and 19th August 2023 issued by the Resolution Professional were declared ex-facie illegal and contrary to the CIRP records. The court directed Respondent Nos. 2 to 5 to process and grant permissions for redevelopment of the Petitioner's building without reference to the said letters. The court also granted liberty to the Petitioner to approach the court if any further obstruction occurs.
Law Points
- Development rights do not constitute property of corporate debtor under IBC
- Moratorium under IBC does not extend to property of third parties
- Termination of development agreement valid and not affected by CIRP
- Letters by Resolution Professional interfering with third-party rights are ex-facie illegal
Case Details
2024 LawText (BOM) (9) 123
WRIT PETITION NO. 3893 OF 2024
Pradeep Sancheti (Senior Advocate) with Rohil Bandekar i/b Tejas Shah for Petitioners; Akshay Shinde for Respondent Nos. 2 & 5; Aditi Bhat with Deeksha Jani, Niket Jani i/b Jani & Parikh for Respondent No. 7; Satchit Bhogle with Joshila Borges for Respondent No. 9; Milind More (Addl GP) for Respondent-State
Kher Nagar Sukhsadan Co-operative Housing Society Ltd.
State of Maharashtra & Ors.
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Nature of Litigation
Writ petition seeking directions to authorities to process redevelopment proposals of a cooperative housing society despite letters from Resolution Professional of erstwhile developer claiming moratorium under IBC.
Remedy Sought
The Petitioner sought a writ of mandamus directing Respondent Nos. 2 to 5 (MHADA and its officers) to process and grant permissions for redevelopment of the Petitioner's building, and to quash the letters dated 11th April 2023 and 19th August 2023 issued by the Resolution Professional.
Filing Reason
The Petitioner's building was declared C-1 (unfit for habitation) by BMC, but MHADA and other authorities refused to process redevelopment proposals due to letters from the Resolution Professional of AA Estates (erstwhile developer) claiming that a moratorium under IBC applied to the property.
Previous Decisions
The Development Agreement with AA Estates was terminated by the Petitioner on 9th June 2019. AA Estates was admitted into CIRP on 14th November 2019, but the order was vacated on 12th June 2020. Subsequently, on 6th December 2022, NCLT again appointed a Resolution Professional for AA Estates. The Petitioner appointed Tristar Development LLP as new developer after following due process under Section 79A of MCSA. AA Estates initiated arbitration but obtained no favourable orders.
Issues
Whether the redevelopment rights of the Petitioner's property constitute an asset of AA Estates (corporate debtor) and are thus subject to moratorium under Section 14 of IBC.
Whether the letters issued by the Resolution Professional to MHADA and other authorities directing them not to process the Petitioner's redevelopment proposals are legal and valid.
Whether the Petitioner is entitled to proceed with redevelopment of its building despite the CIRP of AA Estates.
Submissions/Arguments
Petitioner (Mr. Sancheti, Senior Advocate): The case is covered by the judgments in Manohar M Ghatalia and Tagore Nagar Shree Ganesh Krupa Cooperative Housing Society Ltd. The redevelopment rights are not assets of AA Estates, and the RP's letters are illegal. The petition should be allowed.
Respondent No. 9 (RP) (Mr. Bhogle): No material to distinguish the facts from the cited cases; submitted to the orders of the Court.
Ratio Decidendi
The redevelopment rights of a cooperative housing society's property do not constitute assets of the corporate debtor (developer) under the IBC. Therefore, the moratorium under Section 14 of the IBC does not apply to such rights, and a Resolution Professional cannot issue directions to third parties or authorities that interfere with the society's right to redevelop its own property. The termination of the development agreement with the defaulting developer is valid and not affected by the CIRP.
Judgment Excerpts
Based on the above-narrated facts, the redevelopment rights of the Petitioner’s property do not form a property of AA Estates and, thus, a part of the moratorium process.
Merely calling the Petitioner’s property a pending project would not constitute an asset of AA Estates. Thus, we hold that the letters issued by the RP are ex-facie illegal and contrary to the CIRP's records.
We concur with the principles established in Manohar Ghatalia (supra) and Tagore Nagar Shree Ganesh Krupa (supra).
Procedural History
The Petitioner filed a writ petition in the Bombay High Court on an unspecified date. The petition was reserved for judgment on 3rd September 2024 and pronounced on 11th September 2024. The court heard arguments from the Petitioner, Respondent Nos. 2 & 5, Respondent No. 7, Respondent No. 9, and the State. Rule was made returnable forthwith by consent of parties.
Acts & Sections
- Insolvency and Bankruptcy Code, 2016: Section 14, Section 25
- Maharashtra Cooperative Societies Act, 1960: Section 79A
- Mumbai Municipal Corporation Act, 1888: Section 353(b), 354, 354A
