Featured image for Supreme Court Judgment dated 19-02-2020 in case of petitioner name Rajendra K. Bhutta vs Maharashtra Housing and Area D
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Supreme Court Clarifies Moratorium Scope in Insolvency Proceedings

The case of Rajendra K. Bhutta v. Maharashtra Housing and Area Development Authority & Another involves the interpretation of Section 14(1)(d) of the Insolvency and Bankruptcy Code, 2016 (IBC). The Supreme Court was called upon to determine whether a property under a Joint Development Agreement (JDA) falls under the moratorium imposed by the IBC during the insolvency resolution process. The case also addressed whether a statutory body like the Maharashtra Housing and Area Development Authority (MHADA) could take possession of the property during the moratorium.

Background of the Case

The dispute began with a tripartite Joint Development Agreement (JDA) executed in 2008 between Guru Ashish Construction Private Limited (the corporate debtor), MHADA, and Goregaon Siddharth Nagar Sahakar Griha Nirman Sanstha Limited. The agreement involved the redevelopment of land measuring approximately 47 acres in Goregaon, Mumbai, which included rehabilitating 672 tenements and constructing free-sale buildings to generate revenue.

Subsequently, the corporate debtor obtained a loan of Rs. 200 crores from Union Bank of India in 2011. Due to defaults in repayment, the financial creditor initiated insolvency proceedings under Section 7 of the IBC, and the National Company Law Tribunal (NCLT) admitted the application in July 2017. A moratorium under Section 14 of the IBC was imposed, preventing legal actions against the corporate debtor.

Despite the moratorium, MHADA issued a termination notice in January 2018, stating that the JDA would be canceled, and the corporate debtor had to return possession of the land. The Resolution Professional (RP) moved the NCLT, arguing that MHADA’s actions violated the moratorium under Section 14(1)(d), which prohibits the recovery of property from the corporate debtor during the resolution process.

Legal Issues Involved

  • Whether Section 14(1)(d) of the IBC applies to properties under a Joint Development Agreement.
  • Whether MHADA’s action of terminating the JDA and taking possession was legally valid.
  • Whether the property was an asset of the corporate debtor or merely a licensed property.
  • The extent of the moratorium’s protection under the IBC.

Petitioners’ Arguments

The appellant, Rajendra K. Bhutta, the Resolution Professional, argued:

  • The moratorium under Section 14(1)(d) prevents the recovery of any property occupied by the corporate debtor.
  • The JDA gave the corporate debtor possession and development rights, making the land an integral part of its assets.
  • By taking possession, MHADA disrupted the Corporate Insolvency Resolution Process (CIRP), violating the moratorium.
  • The interpretation of “occupied by” under Section 14(1)(d) should include projects under JDAs.

Respondents’ Arguments

MHADA and its counsel contended:

  • The land was never transferred to the corporate debtor but was only licensed for redevelopment.
  • The JDA did not create ownership rights, and the termination of the agreement was valid.
  • The moratorium under IBC does not override MHADA’s statutory rights under the Maharashtra Housing and Area Development Act, 1976.
  • The property was not an asset of the corporate debtor under the IBC framework.

Supreme Court’s Analysis

The Supreme Court analyzed the language of Section 14(1)(d), which states that during a moratorium, no owner or lessor can recover a property occupied by the corporate debtor. Key observations included:

  • The expression “occupied by” refers to physical possession and use, not ownership.
  • The corporate debtor was granted possession of the land under the JDA, allowing it to carry out redevelopment.
  • MHADA’s termination notice and attempt to take possession violated the IBC moratorium.
  • The NCLAT’s decision, which ruled in favor of MHADA, misinterpreted the moratorium’s scope.
  • Statutory bodies, including MHADA, must comply with the IBC framework when insolvency proceedings are initiated.

Final Judgment

The Supreme Court ruled:

  • MHADA’s attempt to take possession violated the moratorium under Section 14(1)(d).
  • The Resolution Professional’s plea was allowed, restraining MHADA from reclaiming the land until the insolvency process concluded.
  • The order of the NCLAT was set aside, and the matter was remanded to the NCLT for further proceedings.
  • Statutory bodies cannot unilaterally terminate agreements during the moratorium.

Impact of the Judgment

This ruling has significant implications for insolvency law and urban development:

  • Clarifies that the IBC moratorium applies to projects under JDAs.
  • Ensures that statutory bodies cannot disrupt the CIRP by reclaiming property.
  • Provides protection to developers and stakeholders engaged in large-scale redevelopment projects.
  • Reinforces the importance of the moratorium in maintaining stability during insolvency proceedings.

By affirming the moratorium’s applicability, the Supreme Court strengthened the IBC framework, ensuring the integrity of the insolvency resolution process.


Petitioner Name: Rajendra K. Bhutta.
Respondent Name: Maharashtra Housing and Area Development Authority & Another.
Judgment By: Justice R.F. Nariman, Justice S. Ravindra Bhat, Justice V. Ramasubramanian.
Place Of Incident: Mumbai, Maharashtra.
Judgment Date: 19-02-2020.

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