The Supreme Court on Friday emphasized that insolvency protection under the Insolvency and Bankruptcy Code (IBC) cannot be used to obstruct redevelopment projects, reinforcing that residents’ right to dignified and safe housing takes precedence over a defaulting developer’s claims.

A bench of Justices JB Pardiwala and R Mahadevan dismissed an appeal by AA Estates Private Limited, which is undergoing Corporate Insolvency Resolution Process (CIRP), against a September 2024 Bombay High Court order permitting the redevelopment of Kher Nagar Sukhsadan Co-operative Housing Society in Bandra (East), Mumbai. The High Court had cleared the way for Tristar Development LLP to take over the project after years of inaction and alleged obstruction by AA Estates and its Resolution Professional (RP).

Human-Centric Approach Over Commercial Interests

The top court stressed that redevelopment of unsafe tenements is a “human-centered welfare initiative”, not merely a commercial venture. Insolvency provisions cannot be weaponized to delay or deny projects affecting hundreds of families.

“The law must balance commercial rights with human realities. Slum redevelopment projects are social welfare initiatives aimed at transforming unsafe tenements into dignified homes… insolvency proceedings cannot become a legal device to indefinitely stall redevelopment or obstruct the legitimate rights of slum dwellers and cooperative housing societies,” the bench observed.

The court noted that the IBC is intended to revive viable entities, not to shield developers who demonstrate no bona fide intent to fulfill obligations.

Background of the Case

• The Kher Nagar Sukhsadan Society entered a redevelopment agreement with AA Estates in 2005, followed by a supplemental agreement in 2014.
• By 2017, there was little progress, prompting the Municipal Corporation of Greater Mumbai (MCGM) to declare the structure unsafe.
• The society terminated AA Estates’ contract in 2019 and appointed Tristar Development LLP as the new developer.
• AA Estates, undergoing CIRP, repeatedly invoked moratorium provisions under Section 14 of IBC to stall approvals.

Supreme Court’s Findings

• AA Estates failed to fulfill its obligations and cannot claim vested rights over redevelopment.
• Development rights are not assets of the corporate debtor under CIRP and were validly terminated before the second insolvency process.
• Authorities may process pending approvals within two months, formally recognizing Tristar as the developer.
• The court clarified that statutory authorities’ actions do not violate Section 14 moratorium or infringe on NCLT powers.

The bench concluded:

“Urban redevelopment projects… seek to restore dignity, safety, and belonging to citizens. The law must ensure that economic revival does not eclipse the constitutional promise of dignified living.”

This landmark judgment reinforces that economic protections under IBC cannot be misused to compromise citizens’ fundamental rights, and provides a clear precedent for redevelopment projects across India.