SC: Cannot use insolvency to deny dignified housing
SC emphasized that insolvency protection cannot hinder redevelopment projects, affirming residents' rights to safe housing over developer defaults.
Insolvency protection cannot become an instrument to perpetuate displacement or defer the constitutional promise of dignified housing, the Supreme Court underlined on Friday, stressing that the Insolvency and Bankruptcy Code (IBC) was never intended to shield developers who default, abandon performance or frustrate projects of public significance. Economic revival, the court held, cannot eclipse the fundamental right of citizens to live in safe and habitable conditions.
A bench of justices JB Pardiwala and R Mahadevan dismissed an appeal filed by AA Estates Private Limited, currently undergoing Corporate Insolvency Resolution Process (CIRP), challenging a September 2024 judgment of the Bombay High Court that had cleared the way for the redevelopment of the dilapidated Kher Nagar Sukhsadan Co-operative Housing Society in Bandra (East), Mumbai.
The high court had permitted the society’s plea and directed authorities to process redevelopment permissions in favour of the newly appointed developer, Tristar Development LLP, after years of delay and alleged obstruction by AA Estates and its Resolution Professional (RP).
Calling redevelopment of unsafe habitation a “human-centered welfare initiative” rather than a mere commercial transaction, the top court held that the invocation of insolvency proceedings or a moratorium under IBC cannot be weaponised to stall projects impacting hundreds of families.
“The law must balance commercial rights with human realities,” noted the bench, adding that the Code was designed to revive viable entities, not to protect developers who display no bona fide intent to fulfil obligations.
Issuing strong remarks on the human consequences of stalled redevelopment, the bench said: “Slum redevelopment projects are not mere commercial ventures but social welfare initiatives aimed at transforming unsafe tenements into dignified homes… insolvency proceedings cannot become a legal device to indefinitely stall redevelopment or obstruct the legitimate rights of slum dwellers and cooperative housing societies… The law cannot countenance a situation where insolvency protection becomes an instrument to perpetuate displacement or defer the promise of dignified housing guaranteed under Articles 19(1)(e) and 21 of the Constitution.”
The bench further noted: “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… The balance of equities must tilt in favour of residents who have waited for years for a roof over their heads.”
The Kher Nagar Sukhsadan Society had entered into a redevelopment agreement with AA Estates in 2005, followed by a supplemental agreement in 2014. However, even by 2017, no meaningful progress was made, and the Municipal Corporation of Greater Mumbai (MCGM) issued notices declaring the structure unsafe and hazardous for occupancy, forcing residents to continue living under dangerous conditions.
Following prolonged inaction, the society terminated the agreement in 2019 and appointed Tristar Development LLP as the new developer. Tristar began obtaining necessary permissions, but AA Estates, undergoing CIRP, raised objections and wrote to authorities asking them not to process permissions by invoking moratorium provisions under Section 14 of the IBC. The moratoriums were in effect during November 2019-June 2020 and again from December 2022, during which the RP repeatedly attempted to halt redevelopment.
The Supreme Court agreed with the high court that AA Estates had failed to fulfil its obligations, and thus could not claim vested rights over redevelopment or obstruct permissions. Citing some judicial precedents, the court held that the development rights did not constitute assets of the corporate debtor under CIRP and were validly terminated before initiation of the second insolvency process.
The bench upheld the direction to authorities to process pending approvals within two months, formally recognising Tristar as the developer and dismissing objections raised by AA Estates and its RP. It also clarified that statutory authorities’ directions did not violate the moratorium under Section 14 of IBC or encroach upon the NCLT’s powers.
“Urban redevelopment projects… seek to restore dignity, safety, and belonging to citizens. The law must ensure that economic revival does not eclipse the constitutional promise of dignified living,” declared the bench, while dismissing the appeal.
