Tagore Nagar Shree Ganesh Krupa Co-operative Housing Society Ltd. Vs State of Maharashtra & Ors. (Bombay High Court)
Summary: The Bombay High Court considered a writ petition involving a housing society whose redevelopment project had been obstructed after its former developer, AA Estates Private Limited, entered the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016. The Court observed that similar disputes were repeatedly arising where developers defaulted on their redevelopment obligations, accumulated transit rent arrears and subsequently invoked the insolvency moratorium under Section 14 of the IBC to prevent societies from proceeding with alternative developers. The Court expressed serious concern about the resulting hardship to residents who had vacated their homes in anticipation of redevelopment.
In the present dispute, the society had entered into a Development Agreement with AA Estates on 12 October 2009. Following defaults, it terminated the agreement on 16 May 2022 and subsequently appointed Respondent No. 7, Truearth, under a fresh Development Agreement. MHADA had declared the existing structure dangerous and dilapidated, requiring the residents to vacate. Truearth was paying transit rent to the displaced members. However, MHADA withheld redevelopment permissions after the Resolution Professional of AA Estates objected, asserting that the project constituted an asset of the corporate debtor and was protected by the statutory moratorium.
The Court found the Resolution Professional’s position prima facie unsustainable. It observed that AA Estates was not the owner of the property and that its potential rights in the free-sale component were conditional upon fulfilling obligations under the Development Agreement, particularly timely payment of transit rent and completion of construction. The Court reasoned that failure to perform these obligations could result in failure of consideration, preventing the developer from asserting vested rights independently of its contractual responsibilities. It also rejected the proposition that the uncertain outcome of CIRP should leave residents indefinitely without redeveloped homes or financial support for alternative accommodation.
The Court referred to its earlier decision in Nagesh Madhava Surana & Ors v State of Maharashtra & Ors, concerning the collapse of Govinda Tower and involving the same developer, AA Estates. It observed that the legal and equitable considerations were substantially identical. In that earlier matter, the Court had examined the applicability of Section 14 of the IBC, the nature of development rights and the Supreme Court’s decision in Rajendra K Bhutta v Maharashtra Housing & Area Development Authority. The Court found no material distinction warranting a different approach in the present proceedings.
Finding a sufficient prima facie case, balance of convenience in favour of the petitioners and a likelihood of irretrievable prejudice to society members, the Bombay High Court granted ad interim relief in terms of prayer clauses (a) and (b). It directed the concerned authorities to grant the necessary redevelopment permissions and approvals in accordance with law and to revalidate or extend the earlier NOC, subject to Truearth not claiming equities against AA Estates. Rule was made returnable in the normal course. The Court also noted that the Resolution Professional could seek appropriate relief concerning any premium paid to MHADA through legally permissible proceedings.
Cases Discussed
- Nagesh Madhava Surana & Ors v State of Maharashtra & Ors., 2023 SCC OnLine Bom 2849 (Bombay High Court) — Earlier redevelopment dispute involving AA Estates; relied upon regarding conditional development rights, the IBC moratorium and the rights of affected residents.
- Rajendra K. Bhutta v Maharashtra Housing and Area Development Authority, (2020) 13 SCC 208 (Supreme Court) — Considered regarding the scope of protection under Section 14(1)(d) of the IBC.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. Rule. Appearing respondents waive service.
2. This is by no means an isolated case. We are seeing this again and again. A developer company undertakes redevelopment. It commits default. It falls into arrears of transit rent. It then has accumulated debt. It finds itself in a Corporate Insolvency Resolution Process (“CIRP”) under the Insolvency and Bankruptcy Code 2016 (“IBC”). When the society in question or in a given case the owner, terminates the Development Agreement and this often happens before the developer is in CIRP, as has happened in this particular case, the developer then comes forward and says that there is a moratorium under Section 14 of the IBC and therefore no further redevelopment can take place.
3. We think we must take a step back and look at the utter monstrosity and inequity buried in such a submission. The Resolution Professional (“RP”) of the company in CIRP is in no position to pay transit rent to those who are affected. He is no position to carry on the re-development. In the present case, the Development Agreement (“DA”) is of 12th October 2009 with Respondent No 8 AA Estates Private Limited (“AA Estates”), about which we will have something to say a little later. There were the usual defaults. The Petitioner Society terminated the DAon 16th May 2022 and entered into a DA with another developer Respondent No 7 (“Truearth”). The Maharashtra Housing and Area Development Authority (“MHADA”) in the meantime found that the structure was dangerous and dilapidated and required that it be vacated. The society members did in fact vacate the premises. They took up alternative accommodation elsewhere. Truearth is providing transit rent to these persons. MHADA has not issued the development permissions because the RP of AA Estates now objects and says that this project is “an asset” of AA Estates and that since there is a CIRP, a moratorium under Section 14 of the IBC will not allow a further redevelopment.
4. This is incorrect at two levels. First, prima facie, we believe it is incorrect in law because the AA Estates was never the owner of the property. It had contingent or conditional rights in regard to a free sale and these were dependent upon it fulfilling its obligations under the DA, viz., to provide transit rent in a timely fashion and not to be in arrears and to construct and complete the construction of the redeveloped building on a prescribed time schedule. If it has failed in these two obligations, then there is a complete failure of consideration, and no rights accrue to it. The entire argument of the RP is predicated on a false assumption that there are vested rights in the free sale component which can be delinked from obligations under the DA. This is an inconceivable position in law.
5. The second argument that militates against AA Estates is one that is purely in equity. What we have been told is 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 of a successful resolution plan, these society members cannot hope to see their redeveloped homes. They can receive no transit rent. They must remain where they are. The IBC, we are told, and the corporate fortunes or misfortunes of AA Estates must prevail over the basic and fundamental rights of society members. Because AA Estate is trying to revive itself, society members must be without shelter and forced either into penury or, at the very least, to pay from their own pockets that which AA Estates was bound to pay and failed to pay.
6. As an even more absurd alternative, it is solemnly suggested that Truearth will continue paying transit rent but without any assurance that it will ever receive any benefits for the consideration that it is actually and financially bearing and paying.
7. This, we are sorry to say, is by no means an isolated case. In a city like ours there is precisely this widespread perversion of every concept of justice, equity and law. It is solemnly being argued that a statutory provision meant to protect or meant to revive the fortunes of companies can come at the cost of residents of the city and of persons who have without homes, shelter and without financial means to acquire temporary alternate accommodation. We will not accept this under any circumstances. Corporate resuscitation will not be permitted at the cost of individual city residents’ rights to have a redeveloped home and to receive transit rent.
8. The Government itself is alive to this situation. It has taken policy decisions in that regard. We need not visit those at this stage.
9. AA Estates itself is no stranger to this either. It has taken precisely this argument in an even more dramatic scenario, that of the collapse of an entire building called Govinda Tower many decades ago in 1998. AA Estates was before us as a Respondent in Interim Application (L) No 26072 of 2022 that we disposed of by our order and judgment dated 13th December 2023, reported as Nagesh Madhava Surana & Ors v State of Maharashtra & Ors.’ We dealt with precisely these submissions including the question of vested rights if any in AA Estates, Section 14 of the IBC and the consideration of justice and equity inter alia from paragraph 43 onwards. Even there it was argued that possession could not be resumed because of a particular judgment of the Supreme Court.’ We addressed that question as well.
10. This case is on an identical footing. There is no material distinction at all. The only perhaps difference there was that the Interim Application sought leave of this Court to appoint a developer because there AA Estates had been appointed pursuant to an order of a Court on certain consent terms. Otherwise, there is no material distinction.
11. It is for this reason that we have issued Rule and we now proceed on a finding that there is a sufficient prima facie case, that the balance of convenience favours the Petitioners and that irretrievable prejudice will undoubtedly be caused to the members of the society if relief is not immediately granted, to grant interim relief. We note that in the Petition itself there is no specific prayer for interim relief. But that is always in the discretion of the Court in the facts and circumstances of the case. What is sought in prayer clauses (a) and (b) is this:
“a. issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ, order, direction directing the Respondent Nos. 1 to 6 to grant the Petitioner and/or the Respondent No. 7 necessary permissions and / approvals in accordance with law for redevelopment of the Petitioner Society in furtherance of the Development Agreement dated 21st January 2023 within such period as the Hon’ble Court deems fit;
b. issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ, order, direction directing the said Respondent Nos. 1 to 6 to revalidate and extend the NOC dated 26th December 2013 in favour of the Petitioner and/or Respondent No.7;”
12. There are also, and even in this law is well settled, those cases where an interim relief that is a substantial replication of a final relief can be granted if the circumstances so warrant. In other words, there is no prohibition on a Court and especially not on a Writ Court in fashioning an appropriate interim relief where the surrounding circumstances urgently demand it.
13. There will, therefore, be an ad interim order in terms of both prayer clauses (a) and (b) but this will be subject to Respondent No 7 not being entitled to claim any equities as against Respondent No 8.
14. Rule is returnable in the normal course.
15. At this stage on behalf of the RP there is a submission that premium has been paid to MHADA and this may be in written. This is a remarkable submission where one Respondent seeks relief against another Respondent in a Petition filed by someone else. It is open to the RP to find a method by which such an order can legitimately be sought from a writ court.
Notes:-
1 2023 SCC OnLine Born 2849.2
2 Rajendra K Bhutta v Maharashtra Housing & Area Development Authority, (2020) 13 SCC 208.
