HDIL's Development Rights Not An Asset After Underlying Agreement's Termination: NCLT Mumbai

The National Company Law Tribunal (NCLT), Mumbai has ruled that development rights claimed by Housing Development and Infrastructure Limited (HDIL) over a Worli property could not be treated as its assets because the underlying development agreement had been terminated six years before insolvency proceedings began.

The coram of Judicial Member Lakshmi Gurung and Technical Member Hariharan Neelakanta Iyer observed, "Considering the entire gamut of the case and guided by the judgment of Hon'ble Supreme Court in A A Estates (supra), we have no hesitation to conclude that the development rights over the 'said property' arising under the HDIL DA dated 21.08.2006 is not an 'asset' of the Corporate Debtor,” 

The bench was hearing a plea by Recondo Limited challenging the inclusion of the development rights in HDIL's information memorandum by its resolution professional, Abhay Narayan Manudhane.

Recondo had entered into a development agreement with Sapphire Land Developments Private Limited in 2004. Sapphire later assigned the development rights to HDIL under an agreement executed in 2006.

In August 2013, Sapphire informed Recondo that it would not proceed with the agreement and confirmed its termination. It also stated that Recondo could engage other developers for the property. HDIL's Managing Director, Sarang Rakeshkumar Wadhawan, confirmed Sapphire's letter in September 2013.

HDIL entered insolvency proceedings in August 2019. Its resolution professional subsequently listed the Worli property's development rights under “Other Assets” in the company's information memorandum.

The tribunal found no material to show that HDIL had taken possession of the property, paid property taxes or undertaken development work. It also noted that Sapphire's letter recorded that Recondo had never handed possession of the property over to it.

Relying on the Supreme Court's ruling in A A Estates Private Limited through its RP Harshad Shamkant Deshpande & Anr. v. Kher Nagar Sukhsadan Co-operative Housing Society Limited & Ors., the tribunal observed that the insolvency moratorium protects existing, enforceable rights but does not revive rights extinguished before insolvency proceedings began.

The tribunal held that the underlying Sapphire agreement had been terminated on August 26, 2013, and that HDIL knew of the termination, having confirmed Sapphire's letter on September 2, 2013.

It directed the resolution professional to exclude the development and land rights over the Worli property from HDIL's pool of assets.