IBC Proceedings Not Legal Device To Stall Redevelopment Or Obstruct Legitimate Rights Of Slum Dwellers & Housing Societies: Supreme Court

The Supreme Court remarked that the invocation of the insolvency proceedings or the moratorium under the Insolvency and Bankruptcy Code, 2016 (IBC) cannot become a legal device to stall redevelopment or to obstruct the legitimate rights of slum dwellers and cooperative housing societies.

The Court was hearing a Civil Appeal preferred by an estate company, challenging the Judgment of the Bombay High Court in a Writ Petition.

The two-Judge Bench of Justice J.B. Pardiwala and Justice R. Mahadevan observed, “When such projects are delayed or abandoned, it is the residents – often living in hazardous or temporary conditions – who suffer the greatest hardship. In this context, the invocation of insolvency proceedings or the moratorium under the Insolvency and Bankruptcy Code, 2016 cannot become a legal device to indefinitely stall redevelopment or to obstruct the legitimate rights of slum dwellers and cooperative housing societies. The Code was never intended to be used as a shield for non-performance at the cost of human rehabilitation.”

The Bench said that slum redevelopment projects are not mere commercial ventures but social welfare initiatives aimed at transforming unsafe tenements into dignified homes.

Senior Advocate Dhruv Mehta represented the Appellants, while AOR Anshuman Srivastava represented the Respondents.

Court’s Observations

The Supreme Court in view of the facts of the case, noted, “This case highlights the larger human dimension underlying urban redevelopment – the right of citizens to live with dignity in safe and habitable dwellings. … The role of a developer in such projects carries a public character; it entails a responsibility to fulfil the collective aspirations of hundreds of families awaiting rehabilitation and cannot be viewed solely through a profit-driven lens.”

The Court said that the conduct of the Appellants does not inspire equity and the record discloses persistent defaults in payment of transit rent, repeated delays, and failure to commence redevelopment despite multiple extensions.

“The Society, acting in the collective interest of its members, lawfully terminated the agreement and appointed a new developer who has since made substantial progress. The invocation of Section 14 of the IBC to obstruct rehabilitation of residents was a misconceived attempt to shield inaction under the guise of moratorium protection”, it added.

The Court reiterated that a defaulting developer cannot invoke the moratorium under Section 14 of the IBC to perpetuate inaction or defeat the legitimate rights of residents and the rights of a developer are purely contingent upon due performance, and no subsisting ‘asset’ or ‘proprietary right’ survives once termination has lawfully occurred.

“These repeated defaults and prolonged inaction reveal a consistent lack of bona fides on the part of the appellants. The High Court’s intervention in the present case was therefore not only legally sustainable but also necessary to safeguard the rights of the residents and to ensure that the appellants did not misuse the pendency of insolvency proceedings to indefinitely stall redevelopment”, it observed.

The Court remarked that the slum dwellers and members of the Respondent Society – among the most vulnerable sections of society – continue to be deprived of their right to proper housing and rehabilitation and such conduct cannot be permitted to take refuge under the moratorium provisions of Section 14 of the IBC.

“A clear distinction must, therefore, be maintained between corporate debtors who have acted bona fide and those who have merely secured development rights in form but never acted in substance”, it emphasised.

The Court further noted that the moratorium under Section 14 protects only existing, enforceable, and subsisting rights – not inchoate or forfeited rights arising from default or non-performance.

“Development rights of a defaulting developer who neither secured possession nor undertook any redevelopment activity cannot be elevated to the status of an “asset” or “property” within the meaning of Section 3(27) of the IBC”, it added.

The Court also observed that the Courts while dealing with disputes arising from slum redevelopment, must adopt a purposive and welfare-oriented approach, ensuring that the statutory objective of insolvency resolution does not defeat the social purpose of urban renewal.

“The balance of equities must tilt in favour of the residents who have waited for years for a roof over their heads. The law cannot countenance a situation where insolvency protection becomes an instrument to perpetuate displacement or to defer the promise of dignified housing guaranteed under Articles 19(1)(e) and 21 of the Constitution”, it said.

Conclusion

Furthermore, the Court remarked that 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 and 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.

“Urban redevelopment projects, particularly those involving cooperative housing societies, are exercises in social rejuvenation that seek to restore dignity, safety, and belonging to citizens. The law must, therefore, balance commercial rights with human realities and ensure that economic revival does not eclipse the constitutional promise of dignified living”, it concluded.

Accordingly, the Apex Court dismissed the Appeal and upheld the impugned Judgment.

Cause Title- A A Estates Private Limited and Another v. Kher Nagar Sukhsadan Co-Operative Housing Society Ltd. & Ors. (Neutral Citation: 2025 INSC 1366)

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