A A ESTATES PVT LTD, THROUGH RP VS  KHER NAGAR SUKHSADAN CO-OPERATIVE HOUSING SOCIETY LTD. & ORS. : CASE SUMMARY

The Supreme Court held in A A Estates Ltd, through RP Vs Kher Nagar Sukhsadan Co-operative Society Ltd. SLP (C) 10758 of 2025 held that the moratorium under Section 14 does not revive terminated contracts or protect rights that have ceased to exist prior to insolvency.

FACTS OF THE CASE

A A Estates Pvt. Ltd (Appellant)  and Maharashtra Housing & Area Development Authority entered into Lease Deed  dated 12.02.1996 in respect of land admeasuring 1890.31 sq.m. On 16.10.2005, Appellant entered into development agreement with Kher Nagar Sukhsadan Co-operative Housing Ltd. for redevelopment of the property. Redevelop process was halted as several members refused to vacate the premises. On the application of SBI, CIRP was initiated in respect of the Appellant vide order dated 06.12.2022. After initiation of CIRP, the Respondent No. 1  Society terminated the Development Agreement with Appellant  and appointed Respondent No. 8 as new developer. Respondent No. 1 Society filed Writ Petition before the Hon’ble High Court seeking interalia directions to Respondent 1 and 8 to grant permission for redevelopment of project.

FINDINGS OF THE SUPREME COURT

The Supreme Court framed the following issues.

(i) Whether the termination of the Development Agreement dated 16.10.2005 and Supplementary Agreements dated 23.12.2005 and 09.04.2014 by Respondent No. 1 Society prior to the initiation of the second CIRP was valid and effective in law.

The Supreme Court observed that in contract law, time is of the essence in a redevelopment agreement, whose object is timely rehabilitation of displaced members. Prolonged delay defeats the foundation of the contract and constitutes a material breach entitling the owner to terminate. The right to terminate for default was expressly reserved in the Development Agreement and the Supplementary Agreements. The termination was thus effected after due notice and prolonged default, and cannot be termed arbitrary or mala fide. The Society, being the owner of the property and guardian of the members’ welfare, cannot be compelled to indefinitely await performance from a defaulting developer. The IBC is not intended to freeze urban welfare projects or protect commercial indolence at the cost of citizens awaiting rehabilitation.

Relying on Gujarat Urja Vikas Nigam Ltd v. Amit Gupta and others, the Supreme Court observed that NCLT under Section 60 (5) jurisdiction can only set aside termination of contracts when termination is only on account of insolvency and such termination would inevitably result in the corporate death of the corporate debtor by depriving it of its sole or central contract essential to the success of the CIRP.

The termination in the present case was not occasioned by the insolvency of the corporate debtor but by its persistent nonperformance. Letters issued by the Society, including one dated 31.05.2019, record that continuation of the agreement was conditional upon compliance by the developer, failing which the contract would stand cancelled. These defaults occurred well before initiation of the CIRP. Thus, the termination was based on legitimate grounds unrelated to insolvency. The Supreme Court further noted that the Appellant had several other contracts. The Supreme Court concluded that No subsisting contractual or proprietary right survived in favour of the corporate debtor on the date of initiation of the second CIRP. Consequently, the NCLT lacked jurisdiction under Section 60(5)(c) of the IBC to interfere with such termination.

(ii) Whether the aforesaid Development Agreement and the Supplementary Agreements constitute “assets” or “property” of the corporate debtor so as to attract the protection of moratorium under Section 14 of the IBC.

The Supreme Court observed that  Development Agreement dated 16.10.2005 and the Supplementary Agreements dated 23.12.2005 and 09.04.2014 stood terminated by Respondent No. 1 Society on account of persistent default and failure of the developer to commence or complete the project. The termination was duly communicated through letters dated 09.06.2019, 02.12.2019 and 06.11.2021 – each preceding the initiation of the second CIRP on 06.12.2022. No subsisting challenge to such termination was pending when CIRP commenced. The Supreme Court observed that that the moratorium under Section 14 does not revive terminated contracts or protect rights that have ceased to exist prior to insolvency.The protection is intended to preserve the existing value of the corporate debtor’s estate, not to resurrect lapsed or extinguished interests. Extending moratorium to such non-existent rights would defeat commercial certainty and the sanctity of lawful termination under general law. The Supreme Court concluded that the Development Agreement dated 16.10.2005 and the Supplementary Agreements dated 23.12.2005 and 09.04.2014 do not constitute “assets” or “property” of the corporate debtor within the meaning of Section 14 of the IBC, as the same stood terminated prior to initiation of the second CIRP.

(iii) Whether the High Court was justified in allowing the writ petition filed by Respondent No. 1 Society and directing the statutory authorities to process and grant approvals in favour of Respondent No.8 for redevelopment of the subject project.

The Supreme Court observed that the jurisdiction under Article 226 is wide enough to ensure that statutory authorities perform their public duties and do not withhold approvals without legal justification. The High Court did not usurp the jurisdiction of the NCLT or interfere with any matter directly arising from the insolvency process. Its directions were confined to ensuring that the Society’s rights as owner of the land were not indefinitely suspended due to the pendency of CIRP proceedings against a developer who no longer had any subsisting contractual or proprietary interest in the project. The Supreme Court observed that the IBC does not oust the constitutional jurisdiction of the High Courts, particularly where intervention is sought against administrative or statutory inaction in the public law domain, provided such intervention does not obstruct or undermine the insolvency process.

 (iv) Whether the proceedings before the High Court stood vitiated by violation of the principles of natural justice, as alleged by the appellants

The Supreme Court observed that the writ petition filed by Respondent No. 1 Society was pending before the High Court for a considerable period prior to its final hearing. The record shows that the appellants were duly represented by counsel throughout and were aware of the proceedings. No application for adjournment or extension of time to file a reply was made. The proceedings on 03.09.2024 were conducted in the presence of the counsel for the Resolution Professional, whose submissions were duly recorded in the impugned judgment. In these circumstances, it cannot be said that the High Court acted in undue haste or deprived the appellants of a reasonable opportunity of being heard.

The Supreme Court noted that the questions before the High Court were essentially legal in nature – relating to the applicability of the moratorium under Section 14 of the IBC and the validity of termination of the redevelopment agreement – both turning upon undisputed documents. No complex factual adjudication was required. Even before this Court, the appellants have failed to point out any specific prejudice or material that they were prevented from placing before the High Court.

The Supreme Court held that the proceedings before the High Court were conducted in substantial compliance with the principles of natural justice. The appellants were duly represented, were not denied any reasonable opportunity of hearing, and have failed to establish any demonstrable prejudice.

The appeal was dismissed by the Hon’ble Supreme Court. 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. Its purpose is to revive viable entities and ensure equitable resolution of insolvency – not to extend protection to those who have persistently defaulted, abandoned performance, or frustrated projects of public significance.

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