Bombay High Court Rejects Developer Insolvency Claim

The Bombay High Court has ruled that developers cannot exploit insolvency laws to evade their obligations under the Slum Rehabilitation Act (SRA). The court’s decision underscores the authority of the Slum Rehabilitation Authority to terminate a developer’s appointment even if the developer is under insolvency proceedings, provided the action does not pertain to the recovery of prior debts.

The case, which revolved around the prolonged failure of a developer to execute a slum rehabilitation project in Thane, raised critical questions about the interplay between the Insolvency and Bankruptcy Code (IBC) and the statutory obligations towards slum dwellers. The court ruled that the approval of a resolution plan under the IBC does not shield a developer from actions under the Slum Act, especially when such actions are aimed at safeguarding the welfare of slum residents. The judgment stems from a dispute involving a developer’s failure to pay transit rent arrears and delays in completing a rehabilitation project. The developer argued that the approval of a resolution plan by the National Company Law Tribunal (NCLT) had extinguished all past dues, including the claimed arrears of transit rent. However, the court held that such a resolution does not absolve the developer of statutory responsibilities under the Slum Act.
Legal experts highlighted that the case hinged on whether insolvency proceedings could override statutory duties designed to protect vulnerable populations. The court firmly ruled that the statutory framework of the Slum Act holds primacy in matters related to the welfare of slum dwellers, reinforcing the idea that insolvency resolutions cannot be used as a shield against regulatory compliance.
The court acknowledged that while claims for arrears of transit rent prior to the insolvency resolution could be considered extinguished, the Slum Rehabilitation Authority could still use such arrears as evidence of non-performance to justify the termination of the developer’s appointment. This provision aims to ensure that developers remain accountable for their commitments, even in the face of financial restructuring.

In its verdict, the court provided partial relief to the developer, granting a final opportunity to present a time-bound plan for completing the project and settling transit rent arrears. This move allows the developer to demonstrate its commitment to the project while enabling the SRA to assess whether the appointment of a new developer is necessary. If a new developer is appointed, the SRA has been directed to require a significant deposit to cover past transit rent obligations. The ruling has significant implications for Mumbai’s slum rehabilitation projects, which have often been plagued by delays and legal disputes. It reinforces the need for developers to maintain financial discipline and adhere to their commitments, regardless of insolvency proceedings. Moreover, it strengthens the SRA’s position as a regulatory authority with the power to protect the interests of slum dwellers, ensuring that projects are completed efficiently and responsibly.

Legal experts believe this judgment sets a precedent that could influence future cases involving the intersection of insolvency law and urban development regulations. By reaffirming the primacy of statutory obligations over insolvency resolutions, the court has fortified the legal safeguards designed to protect slum residents from potential exploitation by financially distressed developers. As Mumbai continues to grapple with the challenges of urbanisation and slum redevelopment, this ruling serves as a critical reminder of the importance of regulatory oversight and the need to prioritise the welfare of vulnerable communities in all urban development initiatives.

Bombay High Court Rejects Developer Insolvency Claim