Supreme Court: Insolvency Cannot Be Used to Deny Citizens Dignified Housing

The Supreme Court has delivered a significant judgment affirming that the Insolvency and Bankruptcy Code (IBC), 2016 cannot be misused as a shield by defaulting developers to obstruct redevelopment projects. The ruling underscores that insolvency protection cannot supersede the constitutional right of residents to live in safe and habitable conditions.

Background of the Dispute: Redevelopment of Kher Nagar Sukhsadan Society

The case arose from the redevelopment of the Kher Nagar Sukhsadan Co-operative Housing Society in Bandra (East), Mumbai. The society had entered into a redevelopment agreement with AA Estates Private Limited in 2005, followed by a supplementary agreement in 2014.

Despite more than a decade passing, no substantial redevelopment work had commenced. In 2017, the Municipal Corporation of Greater Mumbai (MCGM) issued notices declaring the structure unsafe for habitation, forcing residents to continue living in hazardous conditions.

After continued delay, the society terminated the agreement with AA Estates in 2019 and appointed Tristar Development LLP as the new developer.

Developer’s Obstruction Using Insolvency Proceedings

AA Estates, which had entered the Corporate Insolvency Resolution Process (CIRP), attempted to block redevelopment by invoking the moratorium under:

  • Section 14, Insolvency and Bankruptcy Code (IBC), 2016
    The moratorium prohibits certain actions against the corporate debtor during CIRP.

The Resolution Professional (RP) wrote to authorities insisting that no permissions should be granted to the new developer. Moratorium periods existed from:

  • November 2019 – June 2020

  • December 2022 onwards

During these periods, the RP made multiple attempts to halt redevelopment.

High Court’s Intervention and Supreme Court Appeal

The Bombay High Court (September 2024) allowed the society's plea for redevelopment and directed authorities to process permissions in favour of Tristar Development LLP.

AA Estates challenged this before the Supreme Court.

Supreme Court’s Observations on Human-Centric Redevelopment

A bench of Justices JB Pardiwala and R Mahadevan strongly criticised the misuse of insolvency law:

  • IBC was never intended to serve as a refuge for developers who default or abandon projects.

  • Insolvency proceedings cannot be weaponised to stall projects of public significance.

  • Commercial rights must be balanced with human realities.

  • Slum redevelopment and rehabilitation projects are not commercial ventures alone but social welfare initiatives.

The Court emphasised that when unsafe dwellings threaten life and dignity, insolvency protections cannot override the rights of residents.

Constitutional Provisions Involved

  1. Article 21 – Right to Life and Dignity
    The Court reiterated that dignified housing is an integral component of Article 21.

  2. Article 19(1)(e) – Right to Reside and Settle
    Citizens have the right to reside in safe and habitable environments.

The Court observed that delaying redevelopment indefinitely violates the constitutional promise of dignified living.

Statutory Provisions Relevant to the Judgment

Insolvency and Bankruptcy Code, 2016

  • Section 14 – Moratorium
    The Court held that the moratorium cannot be invoked to obstruct statutory authorities from processing redevelopment permissions.

  • Section 18 & 36 – Scope of Assets of Corporate Debtor
    Development rights that lapsed or were terminated prior to insolvency do not form part of the corporate debtor’s assets.

  • Section 238 – Non-Obstante Clause
    Even though IBC overrides other laws, it cannot override constitutional guarantees.

Maharashtra Co-operative Societies Act, 1960

Societies have the right to replace a defaulting developer.

Maharashtra Housing and Area Development Act (MHADA Act)

Recognises the need for safe, secure housing and empowers authorities to take measures for redevelopment.

Key Judicial Precedents Cited or Relevant

  1. Embassy Property Developments Pvt Ltd. v. State of Karnataka (2019)
    Held that IBC does not override statutory processes unrelated to insolvency of the corporate debtor.

  2. Pioneer Urban Land & Infrastructure Ltd v. Union of India (2019)
    Reaffirmed the rights of homebuyers and emphasised the bona fide intent required from developers.

  3. Chitra Sharma v. Union of India (2018)
    Protection of homebuyers under IBC cannot come at the cost of violating their fundamental rights.

  4. DLF Homes Panchkula v. D.S. Dhanda (2019)
    Court prioritised homebuyers’ rights over commercial interests in delayed construction cases.

  5. Olga Tellis v. Bombay Municipal Corporation (1985)
    Recognised the right to livelihood and dignified residence under Article 21.

Supreme Court’s Key Findings

  • AA Estates made no progress even after 12 years and therefore cannot claim vested rights.

  • Development rights do not remain with a developer whose contract has been validly terminated.

  • Insolvency cannot deprive residents of their right to dignified living.

  • Authorities must process redevelopment permissions within two months.

  • The moratorium under Section 14 does not restrict statutory bodies from granting approvals.

Impact of the Judgment

For Residents

  • A clear message that constitutional rights take precedence over commercial disputes.

  • Prevents developers from using insolvency strategically to delay projects.

For Developers

  • Reinforcement that bona fide performance is essential.

  • Failure to act can lead to termination, regardless of ongoing insolvency.

For Urban Redevelopment

  • A significant boost to slum rehabilitation and redevelopment projects.

  • Sets a precedent ensuring that unsafe structures are prioritised without legal obstruction.

Conclusion

The Supreme Court’s ruling firmly establishes that the Insolvency and Bankruptcy Code cannot be misused to stall projects that affect fundamental rights. Redevelopment of unsafe structures is a matter of human dignity, not just commercial negotiation. By rejecting the misuse of moratorium protections and upholding the residents’ rights, the judgment reinforces the constitutional commitment to safe and dignified housing.

This landmark decision realigns insolvency law with its intended purpose—revival of businesses, not protection of non-performing developers—and strengthens judicial oversight over rehabilitation and urban transformation.


Location: Pune, Maharashtra, India

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