Housing Society Free To Appoint New Developer As Bombay HC Says IBC Moratorium Does Not Bar Developer’s Counterclaim

The parties entered into a development agreement in 2010 for redevelopment of the Society’s property.

After alleging persistent defaults, including lack of progress and non-payment of transit rent, the Society terminated the agreement in December 2017.

In 2018, the parties agreed to maintain status quo pending arbitration.

AA Estates entered a second CIRP in December 2022, and the Society filed a claim in that process.

In January 2024, the High Court extended the arbitral tribunal’s mandate on the basis that AA Estates’ counterclaim could proceed despite the moratorium.

The tribunal later allowed the Society’s application to vacate the status quo order and appoint a new developer.

AA Estates challenged that order under Section 37(2)(b) of the Arbitration and Conciliation Act, 1996, principally on jurisdictional grounds.

Section 14(1)(a) of the Insolvency and Bankruptcy Code, 2016 (IBC) bars the institution or continuation of proceedings against a corporate debtor during the moratorium; it does not, absent express language, bar proceedings initiated by the debtor, including a counterclaim.

Section 14(1)(d) bars an owner’s recovery of property occupied by or in the debtor’s possession.

Under P. Mohanraj v. Shah Brothers Ispat (P) Ltd., the moratorium protects the debtor’s estate from pecuniary attacks; New Delhi Municipal Council v. Minosha India Ltd. confirms that proceedings initiated by the corporate debtor are not barred by Section 14(1)(a).

Under A.A. Estates (P) Ltd. v. Kher Nagar Sukhsadan Co-operative Housing Society Ltd., a development agreement terminated before CIRP does not, merely by virtue of a challenge to termination, constitute an asset protected by Section 14; Section 14(1)(d) also requires possession by the corporate debtor.

Sections 60(5)(c) and 63 confer and exclude jurisdiction, respectively, only where the dispute falls within the NCLT’s insolvency-related jurisdiction.

Under Tata Consultancy Services Ltd. v. Vishal Ghisulal Jain, that jurisdiction is limited to disputes with the requisite insolvency nexus, including cases where termination is tied to insolvency and the contract is central to the CIRP.

The arbitration began before CIRP, and the unchallenged Section 29A order permitted continuation of AA Estates’ counterclaim—not the Society’s claim against AA Estates.

Because Section 14(1)(a) bars proceedings against, but not proceedings by, the corporate debtor, the counterclaim could proceed; the tribunal could therefore consider interim measures referable to it.

Although the tribunal incorrectly stated that the Section 29A order permitted both sides’ claims to proceed, that error did not deprive it of jurisdiction over the counterclaim or the related interim application.

The termination notice preceded the CIRP and arose from alleged contractual defaults, not insolvency.

Applying Kher Nagar, the Court held that the terminated agreement was not an asset protected by Section 14(1)(d); the agreement also contemplated transfer of possession only after specified approvals, which the record did not show had been obtained.

The dispute therefore did not fall within the NCLT’s limited jurisdiction under Section 60(5)(c), and the exclusion in Section 63 did not apply.

The Court did not reassess the merits of the tribunal’s interim measure.

It held that the Society’s interim application could be considered in aid of AA Estates’ counterclaim during the CIRP, that Sections 14(1)(d), 60(5)(c), and 63 did not bar the tribunal from doing so, and that the error concerning the scope of the Section 29A order was not fatal.

The petition was disposed of without interference, the stay of the arbitration was vacated, and the parties were directed to appear before the tribunal within two weeks.