This Supreme Court judgment clarifies that validly terminated contracts do not constitute “assets” of a corporate debtor under the IBC, and its moratorium does not revive extinguished rights. It reaffirms that NCLT cannot interfere with terminations based on pre-existing, non-insolvency-related defaults. Furthermore, High Courts retain constitutional jurisdiction to direct statutory authorities, even during moratorium.
Facts Of The Case:
Procedural History:
The case originated from Writ Petition No. 3893 of 2024 filed by Kher Nagar Sukhsadan Co-operative Housing Society before the Bombay High Court. The Society sought mandamus directions against statutory authorities including MHADA and the Municipal Corporation to grant redevelopment approvals in favor of its newly appointed developer, Respondent No. 8, and to disregard objections raised by the Resolution Professional of AA Estates. The High Court heard the matter on September 2, 2024, with the appellants represented by counsel, and reserved judgment the following day. On September 11, 2024, the High Court delivered its impugned judgment, making the rule absolute and directing the authorities to grant necessary permissions for redevelopment within two months, finding that the developer’s rights stood validly terminated prior to CIRP.Aggrieved by this decision, AA Estates and its Resolution Professional filed Special Leave Petition (C) No. 10758 of 2025 before the Supreme Court, challenging the High Court’s judgment on grounds of natural justice violations, moratorium protection, and erroneous findings regarding termination validity. The Supreme Court granted leave on April 15, 2025, converting the SLP into Civil Appeal No. ______ of 2025, and simultaneously directed parties to maintain status quo regarding the subject property and redevelopment work. This interim order led MHADA to revoke the commencement certificate already granted to Respondent No. 8, who had meanwhile demolished the old structure and commenced piling work. The Supreme Court thereafter heard extensive arguments from all parties, including Respondent No. 8, and delivered the present judgment on November 28, 2025, dismissing the appeal and upholding the High Court’s directions while clarifying the inapplicability of IBC moratorium to validly terminated contracts.
READ ALSO:Model Litigant?: Supreme Court Slams State Agency for Derailing 3-Year Arbitration Process
Court Observation:
The Supreme Court made several significant observations regarding the interplay between the Insolvency and Bankruptcy Code and contractual rights in redevelopment projects. The Court observed that the moratorium under Section 14 of the IBC protects only existing, enforceable, and subsisting rights, not inchoate or forfeited rights arising from default or non-performance. It emphasized that once a contract stands lawfully terminated, it ceases to exist and cannot be treated as an asset or property of the corporate debtor, and the moratorium does not have the effect of reviving or re-creating contractual rights that have been extinguished before insolvency. The Court further observed that the NCLT’s jurisdiction under Section 60(5)(c) cannot be invoked where termination occurs on grounds unrelated to insolvency, and intervention is justified only where termination would make certain the corporate death of the debtor.The Court also observed that development rights of a defaulting developer who neither secured possession nor undertook any redevelopment activity cannot be elevated to the status of an asset within the meaning of Section 3(27) of the IBC. It clarified that mere expectant, contingent or uncrystallized contractual rights do not constitute assets under the Code. The Court observed that the High Court’s constitutional jurisdiction under Article 226 remains available even during moratorium, particularly where intervention is sought against administrative or statutory inaction in the public law domain, provided such intervention does not obstruct the insolvency process. Significantly, the Court observed that slum redevelopment projects are not mere commercial ventures but social welfare initiatives carrying a public character, and the IBC was never designed to serve as a refuge for corporate debtors who display no bona fide intentionto fulfill contractual obligations. The Court emphasized that urban redevelopment projects involving cooperative housing societies are exercises in social rejuvenation seeking to restore dignity and safety to citizens, and the law must balance commercial rights with human realities to ensure economic revival does not eclipse the constitutional promise of dignified living.<｜end▁of▁thinking｜>The Supreme Court made significant observations clarifying the limits of IBC protection for defaulting developers. The Court observed that the moratorium under Section 14 of the IBC protects only existing, enforceable, and subsisting rights, not inchoate or forfeited rights arising from default or non-performance. It emphasized that once a contract stands lawfully terminated, it ceases to exist and cannot be treated as an asset of the corporate debtor, and the moratorium does not revive extinguished rights. The Court further observed that the NCLT’s jurisdiction under Section 60(5)(c) cannot be invoked where termination occurs on grounds unrelated to insolvency, with intervention justified only where termination would cause the corporate death of the debtor.The Court also observed that development rights of a defaulting developer who never secured possession or undertook redevelopment activity cannot be elevated to asset status under Section 3(27) of the IBC. It clarified that High Courts retain constitutional jurisdiction underArticle 226 even during moratorium for matters involving administrative or statutory inaction in the public law domain. Significantly, the Court observed that slum redevelopment projects are social welfare initiatives with public character, not mere commercial ventures, and the IBC was never designed as a refuge for corporate debtors lacking bona fide intention to fulfill obligations. The Court emphasized that urban redevelopment involving cooperative housing societies seeks to restore dignity and safety to citizens, requiring the law to balance commercial rights with human realities so economic revival does not eclipse the constitutional promise of dignified living under Articles 19(1)(e) and 21.
Final Decision & Judgement:
The Supreme Court dismissed the appeal, upholding the Bombay High Court’s judgment in its entirety. The Court conclusively held that the termination of the Development Agreement dated October 16, 2005, and Supplementary Agreements dated December 23, 2005, and April 9, 2014, by Respondent No. 1 Society was valid, lawful, and effective, having been carried out after due notice and in consequence of prolonged and inexcusable default by the developer. It further held that these agreements did not constitute assets or property of the corporate debtor within the meaning of Section 14 of the IBC, as they stood validly terminated prior to the initiation of the second CIRP, leaving no subsisting or enforceable right in favor of the corporate debtor.The Court affirmed that the High Court was justified in entertaining the writ petition and directing statutory authorities to process and grant approvals in favor of Respondent No. 8, finding such directions procedural in nature that neither encroached upon NCLT jurisdiction nor contravened the IBC moratorium. It also rejected the appellants’ natural justice challenge, holding that proceedings were conducted with substantial compliance and no prejudice was demonstrated. The Court directed compliance with the High Court’s directions within two months while granting liberty to the appellants to pursue remedies regarding amounts allegedly expended, through appropriate legal proceedings. Emphasizing the larger human dimension of urban redevelopment, the Court observed that slum redevelopment projects carry public character and the IBC cannot become a device to indefinitely stall rehabilitation of residents awaiting dignified housing. All pending applications were disposed of with no order as to costs.