Holding that a redevelopment agreement terminated before commencement of CIRP is not protected as a corporate debtor’s asset, the Bombay High Court has upheld the arbitral order permitting a housing society to proceed with redevelopment through a new developer. The Court reiterated that moratorium under Section 14(1)(a) of the IBC does not bar proceedings initiated by the corporate debtor, including prosecution of its counterclaim in arbitration.
The High Court clarified that once continuation of the corporate debtor’s counterclaim is permitted, the arbitral tribunal retains jurisdiction to pass interim and procedural orders connected with that surviving claim. The Court held that where a development agreement was terminated before commencement of insolvency proceedings, the moratorium cannot be invoked to revive contractual rights that had already been terminated.
The Court also said that NCLT does not have exclusive jurisdiction over every contractual dispute involving a corporate debtor. Essentially, disputes concerning the validity of a redevelopment agreement’s pre-insolvency termination continue to be governed by the chosen dispute-resolution mechanism and do not automatically fall within the exclusive jurisdiction of the NCLT.
Briefly, the dispute arose from a redevelopment project under a Development Agreement dated 16 April 2010 between A A Estates Pvt Ltd., the developer, and Govind Niwas Co-operative Housing Society Ltd. Under the agreement, the Society’s members vacated their flats, but despite obtaining possession-related rights, the developer allegedly carried out only excavation and piling work and failed to substantially progress the redevelopment project. Transit rent payments to members also stopped. Consequently, the Society resolved to terminate the Development Agreement and formally communicated the termination in December 2017. The parties thereafter entered arbitration, where both the Society and the developer asserted competing claims regarding the validity of the termination.
During the pendency of the arbitration, the developer underwent Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016. While the developer’s counterclaim challenging termination continued, the Society sought modification of an earlier status quo arrangement and permission to appoint a new developer. The arbitral tribunal granted that request. The developer challenged that order before the Bombay High Court under Section 37 of the Arbitration and Conciliation Act, primarily contending that the moratorium under Section 14 of the IBC completely barred the tribunal from entertaining the Society’s application.
Also read Supreme Court Pulls Up Rajasthan Govt. For Withholding Retirement Benefits Of AYUSH Doctor
A Single Judge Bench of Justice Somasekhar Sundaresan observed that Section 14(1)(a) of the IBC prohibits institution or continuation of proceedings against a corporate debtor during CIRP. However, the provision does not prohibit proceedings that are pursued by the corporate debtor. Therefore, a counterclaim filed by a corporate debtor stands on a different footing from proceedings initiated against it.
The Court noted that an earlier order passed under Section 29A of the Arbitration Act had already permitted continuation of the arbitral proceedings to the extent of the developer’s counterclaim. That order had attained finality and was never challenged. Hence, the arbitral tribunal retained jurisdiction to pass consequential interlocutory orders in relation to the counterclaim.
The Court further observed that the arbitral tribunal incorrectly recorded that both the Society’s claim and the developer’s counterclaim were permitted to continue. In reality, only the counterclaim had been permitted to proceed. However, this error was not sufficient to vitiate the impugned order because the Society’s application seeking modification of the status quo arrangement was intrinsically connected with preservation of the subject matter of the surviving counterclaim.
Relying upon the Supreme Court’s decision in A.A. Estates Pvt. Ltd. v. Kher Nagar Sukhsadan Co-operative Housing Society Ltd. [2025 SCC OnLine SC 2579], the Court held that a development agreement which had already been terminated prior to commencement of CIRP does not constitute an asset of the corporate debtor. The moratorium under Section 14 cannot revive rights that have already been extinguished through a valid pre-insolvency termination.
The Court also rejected the contention that only the NCLT could decide the controversy under Sections 60(5)(c) and 63 of the IBC. It observed that the NCLT’s jurisdiction is not unlimited and extends only to disputes which arise from or are directly connected with the insolvency process. Since the termination of the redevelopment agreement was based on alleged contractual defaults that occurred prior to insolvency, the dispute did not fall within the exclusive domain of the NCLT.
The Court emphasized that interim protective measures in arbitration are primarily within the arbitral tribunal’s domain. A court hearing an appeal under Section 37 should not interfere merely because another view may also be possible, especially where the tribunal’s view is reasonable.
