A Single Bench of The Bombay High Court has, in a recent judgment of Anudan Properties Pvt. Ltd vs. MMR Slum Rehabilitation Authority and Ors.1 set a revolutionary precedent in Slum Rehabilitation Law. The judgment is yet another piece of jurisprudence, that vocalizes and emphasizes the triumph of welfare legislations over Insolvency Laws. The judgment in Anudan read with the judgment of the Bombay High Court in Rajan Garg, Resolution, Professional of Truly Creative Developers Pvt. Ltd. vs. CEO, SRA2 , strongly indicates the growing consciousness of the court in upholding the rights of vulnerable citizens while preventing misuse of the provisions of the Insolvency and Bankruptcy Code, 2016. The Courts have steered clear from bankrupt developers taking shelter of the provisions of the IBC to wriggle out of their obligations under a Slum Scheme.
Brief Facts :
- The Petitioner Company is the LOI Holder of a Slum scheme situated in Thane. The Scheme comprised of 2 rehabilitation buildings and 3 free sale buildings.
- The company had raised finance to the tune of Rs.79,90,00,000/- for completion of the slum scheme. However, the company defaulted in completing the project and failed to repay the creditors.
- The Creditors filed a petition under section 7 of the IBC against the company before the NCLT, Mumbai.
- The company was admitted into insolvency, wherein the slum society filed their claims which were approximately Rs.6,95,14,150/-.
- Subsequently, KGK Realty (India) Limited submitted a resolution plan which was accepted and approved by the Committee of Creditors as well as the NCLT.
- On taking over the Petitioner Company, the new management made an application to the SRA for a revised LOI as per UDCPR 2020.
- While there were ongoing disputes between the new management of the Petitioner Company and the Slum society, the Petitioner company paid an amount of approximately Rs.4,83,00,000/- to the slum society.
- However, the rent amounts remained pending and the slum society initiated proceedings under section 13(2) of the Slum Act. They also held a General Body meeting to appoint one M/s Siddhivinayak Construction to be the new developer of the slum scheme.
- The CEO, SRA passed an order under section 13(2) of the Slum Act, terminating the appointment of the Petitioner Company as the developer of the slum scheme and for appointment of the new developer to the LOI.
- The Petitioner Company went into appeal against this order before the AGRC, however no stay was granted. Hence the present writ was filed before the Bombay High Court.
The Petitioner's case
The Petitioner's assailed the order of the CEO SRA under section 13(2) of the Slum Act on the grounds that (i) the delay in the project was not attributable to the Petitioner; (ii) the SRA had issued a revised LOI as late as June 2024 which stipulated a time of 72 months for implementation of the scheme (iii) the society was entitled to an amount of Rs. 2.5 cr in rental dues which was taken care of in the Resolution Plan approved by the NCLT (ii) Rs. 4.83 Crores was deposited by the Petitioner towards transit rent.
The Respondents case
The SRA's case was that : (i) SRA was not even party before NCLT ; (ii) Section 238 of the IBC will not affect the provisions and powers of the Slum Act as both acts are different in their objective and implementation and nature. (iii) The bar under Section 231 will not applicable to SRA. (iv) The petitioner is under obligation to pay rent to slum dwellers which is a contractual obligation and based on such terms the petitioner was granted permission for development and for completion of rehabilitation scheme. (v) The indemnity and affidavits submitted by the petitioner are towards future liability out of default on the part of the petitioner (vi) delay in payment of transit rent is evident.
Primary Issue
Does the approval of a resolution plan under Section 31 of the IBC override or nullify the corporate debtor's obligations and liabilities under the Slum Act and the Slum Rehabilitation Scheme?
Observations
The Petitioner sought to contend that the Order under section 13(2) passed by the Respondents adversely affect the rights arising under Section 31 of the Insolvency and Bankruptcy Code, 2016 ("IBC"), which confers statutory finality upon a resolution plan approved by the National Company Law Tribunal ("NCLT"). They submitted that once approved the resolution plan operates in rem and binds the entire world, including all stakeholders (including creditors, State authorities, and regulatory bodies) and all claims which are not part of resolution plan stand extinguished and no proceedings in respect of such past dues could be continued. In the present case, since the payment to slum dwellers was duly incorporated as part of the resolution plan, any claims raised prior to the approval of the resolution plan stand extinguished and cannot be enforced subsequently
The Slum societies also relied upon the decision of the Bombay High court in Rajan Garg (supra) which held that – "The provisions of the IBC cannot be interpreted in a manner that defeats the objective of slum redevelopment and allied welfare statutes. The judgment further held that The Section 14 moratorium under the IBC applies only to transactions and contractual enforcement, but statutory obligations such as payment of transit rent cannot be overridden by insolvency proceedings.
Interestingly, the Respondents argued that the judgment in Ghanashyam Mishra and Sons Private Limited Through The Authorised Signatory (supra), does not help the petitioner as powers of SRA under Slum Act, 1971 cannot be curtailed by mere NCLT and/or because of approval of resolution plan.
While attempting to give a harmonious interpretation to the provisions of the IBC and the Slum Act, the court observed that – "The IBC does not provide that once a resolution plan is approved, the corporate debtor becomes immune from all statutory or regulatory obligations. What the IBC prohibits is the institution or continuation of proceedings for recovery of past dues after the resolution plan is approved. It does not extinguish statutory duties, especially where public interest or regulatory compliance is involved. The court further observed – "A conflict between the two statutes would arise only if exercising powers under the Slum Act results in undoing or frustrating the resolution plan approved under the IBC."
While upholding the order of the SRA, the bench further observed that – “The legal consequence of the developer's removal — which is a non-monetary regulatory action — Is that the corporate debtor loses its role in the project and the chance to earn profits from the free-sale component. However, this consequence flows directly from the breach of obligations by the developer. This is not in the nature of a “claim” or “debt” as contemplated under the IBC. Instead, it is a regulatory forfeiture, which arises when a statutory authority determines that the developer has failed to fulfil its public obligations. The IBC does not grant immunity to a corporate debtor from such regulatory actions unless they are shown to be mala fide or merely intended to recover money.”
CONCLUSION:
The Bombay High Court has while dismissing the Petition of the Petitioner upheld the Order of the SRA under section 13(2) of the Slum Act holding that- “Merely because a developer has undergone Corporate Insolvency Resolution Process (CIRP) does not mean that it is exempt from the consequences under the Slum Act.”
The verdict has made it clear that mere approval of a resolution plan by the NCLT does not absolve the developers from performing their statutory obligations under Slum Rehabilitation Law. The primacy of public interest over private resolution has been once again re-emphasized by the courts! Needless to add that this will definitely discourage resolution of Real Estate companies having a slum scheme as their primary asset, thus pushing them into liquidation.
Footnotes
1. WRIT PETITION NO.2065 OF 2025
2. (2024 SCC OnLine Bom 1060
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