2024 (8) TMI 158 - HC - Insolvency and Bankruptcy

Seeking an order of this Court at the instance of this RP staying an acquisition process under the Slum Rehabilitation Act, 1995 - Preferential right to self-redevelop - . Can it ever be suggested that the provisions of the IBC and specifically the pendency of a CIRP meant to protect the assets of a potentially insolvent corporate debtor can ever prevail over the considerations of a welfare statute and the concerns of individual citizens for whom that welfare statute is intended, such as the Slum Act? - HELD THAT - If not in so many words, then by necessary implication, that until entire gamut of the CIRP process is completed, and whatever be the final outcome, the 4th Respondent s members must continue to suffer. They will not receive transit rent. They will not see any construction activity on site. The statutory promise of redeveloped premises will be denied to them and this will continue for an indefinite period of time. All this because the corporate debtor s asset must be preserved . At whose cost, we have to ask? And for what fault of the slum dwellers? The provisions of the IBC are not meant to defeat slum redevelopment and similar or allied statutes. To hold otherwise would simply be unthinkable. It would mean that a Writ Court would put a premium on corporate wrongdoing and that even a defaulting corporate debtor who had not complied with the terms of a LoI could now use the golden parachute of the IBC to secure through the RP a restraint against the welfare of slum dwellers. The fact cannot be lost sight that in the RP s anxiety to protect the asset of the corporate debtor not a thing is being said in this Petition about how that asset or its preservation can ever, let alone in the meantime pending a CIRP, be used for the benefit of those persons for whom the Slum Act is intended and for whose benefit essentially Truly Creative obtained an LoI in the first place. Preferential right to self-redevelop - HELD THAT - The last argument on behalf of the RP is that it ought to have been given a preferential right to self-redevelop. The argument is so unstatable that we can scarcely credit that it is being made. This is understandable where no LoI is issued at all or has been issued to somebody else to the exclusion of the owner. The argument overlooks that Truly Creative had in fact obtained an LoI. It obtained an LoI while it was an owner of the property - A preferential right to an owner is available only when someone other than the owner is being preferred and the owner has never before been given or availed of a right to develop. There are no hesitation in rejecting the Petition - petition dismissed.

Summary

Issues Involved:
1. Abuse of Court Process by the Petitioner.
2. Failure of the Developer to Implement Slum Rehabilitation Scheme.
3. Legality of Acquisition Proceedings under the Slum Rehabilitation Act.
4. Applicability of Insolvency and Bankruptcy Code (IBC) in Slum Rehabilitation Cases.
5. Preferential Right to Self-Redevelop.

Detailed Analysis:

1. Abuse of Court Process by the Petitioner:
The Court expressed "great displeasure" at the Petitioner's conduct, noting that the Petitioner, the Resolution Professional (RP) of a corporate developer, assumed the Court would not take up the matter due to amendments. The Court found it "utterly extraordinary" that the Petitioner demanded Respondents file Affidavits in Reply, a right typically reserved for Respondents seeking time to reply.

2. Failure of the Developer to Implement Slum Rehabilitation Scheme:
The developer, Truly Creative Developers Pvt Ltd ("Truly Creative"), failed to implement the slum redevelopment scheme despite having acquired the plot in 1997. Allegations of illegalities and failure to provide transit rent to slum dwellers were noted. The Slum Rehabilitation Authority (SRA) initiated proceedings under Section 13(2) of the Slum Act, which could result in the cancellation of the Letter of Intent (LoI). The Apex Grievance Redressal Committee (AGRC) terminated Truly Creative's appointment, allowing the society to appoint another developer.

3. Legality of Acquisition Proceedings under the Slum Rehabilitation Act:
The society applied to the SRA to declare the slum plot as a slum rehabilitation area under Section 3C of the Slum Act. The SRA issued a Notification declaring all slums existing before 1st January 2011 as "deemed slum rehabilitation areas." The RP filed the Petition based on the Section 14 moratorium declared by the NCLT, arguing that acquisition could not proceed. However, the Court found this argument unconvincing, emphasizing that the welfare of slum dwellers should not be compromised for corporate interests.

4. Applicability of Insolvency and Bankruptcy Code (IBC) in Slum Rehabilitation Cases:
The Court rejected the argument that the IBC provisions could override the welfare considerations of the Slum Act. It noted that the IBC is not meant to defeat slum redevelopment statutes. The Court referenced previous judgments, including Nagesh Madhava Suvarna and Tagore Nagar Shree Ganesh Krupa Co-operative Housing Society Ltd, to support its stance. The Court emphasized that corporate resuscitation should not come at the cost of slum dwellers' rights to redeveloped homes and transit rent.

5. Preferential Right to Self-Redevelop:
The RP argued for a preferential right to self-redevelop, claiming that Truly Creative was deprived of this right. The Court found this argument "unstatable," noting that Truly Creative had already obtained an LoI as the property owner, thus availing of the right to develop. The Court clarified that a preferential right is available only when someone other than the owner is preferred, and the owner has never before been given or availed of the right to develop.

Conclusion:
The Court found no merit in the Petition and rejected it, emphasizing that the Petition was an abuse of the Court process and failed to consider the welfare of the slum dwellers. The Court also commended Mr. Devansh Shah for his competent handling of the case.