Judicial Awareness in India - Battle between IBC and Slum Act

Judicial Awareness in India - Battle between IBC and Slum Act

In a significant ruling, the Bombay High Court has addressed the legal relationship between the Insolvency and Bankruptcy Code, 2016 (IBC) and the Slum Rehabilitation Act (SRA). The court clarified how these two laws interact, particularly whether the provisions of the IBC override or affect the rights and mechanisms under the Slum Rehabilitation Act.

The case in question, Anudan Properties Pvt. Ltd vs. MMR Slum Rehabilitation Authority and Ors., revolved around a company that was admitted into insolvency. The company was the LOI Holder of a slum rehabilitation scheme in Thane, and the slum society filed claims for approximately ₹6,95,14,150/-.

The company raised finance to the tune of ₹79,90,00,000/- for the completion of the slum scheme. However, the company defaulted in completing the project and failed to repay the creditors. KGK Realty (India) Limited submitted a resolution plan, which was accepted and approved by the Committee of Creditors and the National Company Law Tribunal (NCLT).

The primary issue in the case was whether the approval of a resolution plan under Section 31 of the IBC overrides or nullifies the corporate debtor's obligations and liabilities under the Slum Act and the Slum Rehabilitation Scheme.

The Bombay High Court ruled that the IBC, being a central legislation governing insolvency resolution, takes precedence over the Slum Rehabilitation Act when it comes to matters of insolvency and liquidation of entities undergoing the corporate insolvency resolution process. The court emphasized that while the SRA has its domain for rehabilitation projects, it cannot obstruct or override the insolvency proceedings under the IBC.

The court upheld the order of the SRA under Section 13(2) of the Slum Act, holding that merely because a developer has undergone Corporate Insolvency Resolution Process (CIRP) does not mean that it is exempt from the consequences under the Slum Act. The court further observed that a conflict between the two statutes would arise only if exercising powers under the Slum Act results in undoing or frustrating the resolution plan approved under the IBC.

The judgment reflects a growing judicial understanding that the IBC regime is paramount for insolvency resolution even in contexts involving other sector-specific statutes like the SRA. This decision thus clarifies conflicts between these laws by positioning IBC as the overriding framework when insolvency is concerned, ensuring smoother resolution processes for distressed entities.

It is important to note that the court held that the Section 14 moratorium under the Insolvency and Bankruptcy Code applies only to transactions and contractual enforcement, but statutory obligations such as payment of transit rent cannot be overridden by insolvency proceedings. This re-emphasizes that mere approval of a resolution plan by the NCLT does not absolve the developers from performing their statutory obligations under slum rehabilitation law.

The case also addressed the argument that the powers of an SRA under the Slum Act, 1971, cannot be curtailed by the NCLT and/or merely because of the approval of the resolution plan. However, the court observed that the IBC does not provide that once a resolution plan is approved, the corporate debtor becomes immune from all statutory or regulatory obligations.

In conclusion, the Bombay High Court's judgment provides much-needed clarity on the interaction between the IBC and the SRA, ensuring that the primacy of public interest over private resolution is maintained, and statutory protections or rights under the SRA do not impede the resolution process mandated by the IBC.

1. Given the significant ruling in the case Anudan Properties Pvt. Ltd vs. MMR Slum Rehabilitation Authority and Ors., it has been established that the Insolvency and Bankruptcy Code (IBC) takes precedence over the Slum Rehabilitation Act (SRA) in matters of insolvency and liquidation of entities undergoing the corporate insolvency resolution process.
2. The court clarified that while the Slum Rehabilitation Act (SRA) has its domain for rehabilitation projects, it cannot obstruct or override insolvency proceedings under the IBC.
3. The general news highlights that the judicial understanding is growing that the IBC regime is paramount for insolvency resolution, even in contexts involving other sector-specific statutes like the SRA.
4. The case emphasized that mere approval of a resolution plan by the National Company Law Tribunal (NCLT) does not absolve developers from performing their statutory obligations under slum rehabilitation law, including the payment of transit rent.

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