Bombay High Court Holds Redevelopment Rights of Society Not Part Of Moratorium Process; Issues Writ Of Mandamus For Redevelopment, Upholding Right to Shelter
The Bombay High Court division bench of Justices Kamal Khata and M.S. Sonak has held that if the developer fails to meet its obligations under the Development Agreement, such as paying transit rent and completing construction within the specified time frame, there is a complete failure of consideration, and no rights accrue to it. The court awarded a writ of mandamus for permissions and approvals for redevelopment. It observed that the uncertain outcome of a Corporate Insolvency Resolution Process (CIRP) shouldn't deprive individuals of their basic right to shelter.
Brief Facts:
The petitioner, Kher Nagar Sukhsadan Co-operative Housing Society, is the owner of a building which was declared unfit for habitation (C-1 category). In 2005, it entered into a Development Agreement with AA Estates Private Limited for the redevelopment of the property. Under the Development Agreement, AA Estates was to complete the redevelopment work within 24 months. The AA Estates failed to commence the redevelopment for 14 years. On account of its continuing failure, the Petitioner terminated the agreement on 09.06.2019.
In the meantime, AA Estates was admitted into the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 by an order dated 14.11.2019 passed by NCLT. The Interim Resolution Professional (IRP) informed the petitioner through his letter dated 24.12.2019 that a moratorium was applicable to AA Estates' assets and that, therefore, no coercive action should be taken against AA Estates. On 12.06.2020, the NCLT vacated the order initiating CIRP against AA Estates.
AA Estates addressed a letter dated 8.07.2020 requesting the Petitioner to recall its termination notice dated 2.12.2019 and hand over vacant peaceful possession of the property to enable them to redevelop it. The Petitioner did not do that. Therefore, by a letter dated 28.10.2021, AA Estates disputed the termination notice. In response, the Petitioner confirmed the termination of AA Estates as its developers by letter dated 6.11.2021.
By an order dated 6.12.2022, the NCLT appointed Resolution Professional (RP) for AA Estates. The RP addressed the letters dated 11.04.2023 and 19.08.2023 to the respondents nos. 2 to 5, i.e., MHADA calling upon them not to entertain any proposal and approval for redevelopment of the Petitioner's property on the ground that:
- moratorium is effective till the date of completion of CIRP of AA Estates and;
- AA Estates has purchased premium and FSI for the said property.
Because of these letters issued by RP, the Respondents refused to issue any further permissions for redevelopment to the Petitioner. Thus, the Petition was filed.
Observations:
The court noted that the redevelopment rights of the Petitioner were not part of AA Estates' assets and thus outside the scope of the moratorium. It held that the letters issued by the RP were ex-facie illegal and contrary to the CIRP's records.
The court concurred with the decisions in Manohar M Ghatalia & Ors v State of Maharashtra & Ors and Tagore Nagar Shree Ganesh Krupa Cooperative Housing Society Ltd v State of Maharashtra & Ors., which held that if the developer (here, AA Estates) failed to meet its obligations—such as paying transit rent and completing the construction within the specified timeline—there is a complete failure of consideration, and no rights accrue to it. Consequently, no vested rights in the free sale component can be separated from the obligations under the Development Agreement.
The court observed that:
“....while AA Estates grinds its way through a CIRP, the result of which may be entirely uncertain and might well result in an order of liquidation rather than a successful resolution plan, these society members cannot be deprived of their basic and fundamental rights to shelter.”
The court made the rule absolute and granted the Petitioner the following reliefs:
- A writ of mandamus directing Respondents, namely the State of Maharashtra, Maharashtra Housing & Area Development Board, MHADA, Building Proposal Department, Chief Executive Officer and Municipal Corporation of Greater Bombay to grant the Petitioner and Tristar Development LLP (the Petitioner's Developer) all the necessary permissions and approvals for the redevelopment of the Petitioner Society, as per the Development Agreement dated 10.12.2023, within a period deemed appropriate by the Court.
- A writ of mandamus directing the said Respondent to recognize Tristar Development LLP as the Developer appointed by the Petitioner Society and to disregard any claims or objections raised by AA Estates Private Limited and the RP appointed for AA Estates.
Case Title: Kher Nagar Sukhsadan Co-operative Housing Society Ltd. v. State of Maharashtra & Ors.
Case Number: Writ Petition No. 3893 of 2024
Counsel for the Petitioner: Mr. Pradeep Sancheti, Senior Advocate with Rohil Bandekar i/b Tejas Shah.
Counsel for the Respondents: Mr. Akshay Shinde (Respondent Nos. 2 & 5), Ms. Aditi Bhat (Respondent No. 7), Mr. Satchit Bhogle (Respondent No. 9), Mr. Milind More, Addl GP (State) i/b Jani & Parikh.
Date of Judgment: 11.10.2024