IBC Moratorium Cannot Override MOFA Deemed Conveyance; Developer Has No Title After Selling Flats: Bombay High Court

The Court held that the moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code, 2016, does not operate as a bar against the Competent Authority performing its statutory duty under MOFA, because deemed conveyance proceedings do not constitute a suit, a recovery action, or a transfer of the corporate debtor's asset in any legally recognised sense.

The Court held that once a developer sells all flats and a society of flat purchasers is formed, the developer stands divested of title under Sections 4 and 11 of MOFA. Deemed conveyance proceedings only recognise the society’s existing title and do not transfer any asset of the corporate debtor. Allowing Section 14 IBC moratorium to halt such proceedings would enable developers to misuse insolvency proceedings to delay conveyance, defeating the purpose of the 2008 MOFA amendment.

Justice Sandeep V. Marne observed, “What must also be borne in mind is the fact that in most of the cases, there is virtual loss of right of the promoter in the land and building due to combined effect of provisions of Section 4 and Section 11 of MOFA. With sale of each flat in the building, there is dilution of title of the developer in the land…The moment all the flats in the building are sold, the developer is virtually divested of title in the land.”.

“…In many cases, the developers are corporate entities who undertake numerous projects over the period of time. If such developer-company fails to convey land in contravention of Section 11(1) of MOFA in respect of a building which is constructed a quarter of century ago but attracts CIRP from an unconnected financial creditor, the same would not suspend the statutory obligation under Section 11(1) imposed on such developer. Otherwise, errant developers would misuse the moratorium imposed on them under Section 14 of IBC to indefinitely delay conveyance under Section 11(1) of MOFA. The Courts must be alive to the ground reality that several buildings in cities like Mumbai, Pune etc are in the need of redevelopment. The normal life of a building in Mumbai Metropolitan Region is statutorily recognised as 30 years, after which it is incumbent for the owner of the building to a secure structural audit report certifying its stability. This is on account of peculiar weather conditions in MMR areas”, the Bench further noted.

Advocate Vishaki Bhatia appeared for the petitioner and A.I. Patel, Additional GP appeared for the respondent.

The Petitioner, Darshan Mandir Co-operative Housing Society, was formed by purchasers of flats constructed by Respondent No. 3, M/s. Darshan Enterprises, on a plot at Borivali (West), Mumbai.

The original developer failed to execute conveyance under Section 11(1) of MOFA. Respondent No. 4, M/s. Vas Infrastructure Ltd., subsequently claimed to have acquired the land from Respondent Nos. 2 and 3, apparently to exploit residual TDR.

The Petitioner filed an application before the Competent Authority for deemed conveyance. Canara Bank had by then initiated CIRP against Respondent No. 4, and the Interim Resolution Professional opposed the application. The Competent Authority, by order dated September 4, 2025, declined to adjudicate the application and granted liberty to refile after conclusion of CIRP.

Now, the Court, thus considering the relevant factual matrix, observed, “…several buildings in MMR areas are in need of redevelopment since the buildings have crossed their lifespans. The Society whose building becomes dangerous or dilapidated, but does not have a title in the land or building for undertaking redevelopment, uses the route under Section 11(3) of MOFA to secure conveyance in a swifter manner. However, if provisions of Section 14 of IBC are interpreted to mean that proceedings for deemed conveyance cannot be adjudicated by Competent Authority till resolution plan is approved by NCLT, the same would put Society's building, as well as lives of occupants therein, in danger. In a case where Society's building is in eminent need of redevelopment, but Society is unable to undertake redevelopment because of absence of conveyance and where deemed conveyance is denied on account of initiation of CIRP against the developer, the same would put the lives of occupants of the building in danger”.

“…While things may look slightly complicated in respect of multistory towers, one may take into consideration a simple illustration of a developer undertaking construction of four flats on a plot of land. When all four flats in the building are constructed and sold, the four flat purchasers acquire 25% right each in the land and the developer looses its title in the land…This concept is unknown to law. On the other hand, provisions of Sections 4 and 11 of MOFA ensure that the developer is divested of his right, title and interest in the land and the building which is statutorily required to be transferred/conveyed to the organisation of flat purchasers. Thus what is conveyed by the Competent Authority need not necessarily be the ‘asset’ of the promoter on account of operation of concept of divesting”, the Bench further noted.

The Court set aside the order, restored the application, and directed the Competent Authority to decide it on merits. Parties were directed to appear before the Competent Authority on July 1, 2026.

Cause Title: Darshan Mandir Co-operative Housing Society Limited v. District Deputy Registrar, Co-operative Society, Mumbai (4) and Others Writ Petition No. 16318 of 2025

Appearances:

Petitioner: Vishaki Bhatia, Advocate.

Respondent: A.I. Patel, Additional GP, P.V. Nelson Rajan, AGP, Mayur Khandeparkar, Subham Hundia and Roshan Gaud, Advocates instructed by Orbit Law Services.

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