NCLT Excludes Worli Land Development Rights From HDIL's Assets, Cites 2013 Agreement Termination

Mumbai: The Mumbai bench of the National Company Law Tribunal (NCLT) has directed the resolution professional of Housing Development and Infrastructure Ltd (HDIL) to exclude development rights over a Worli-based property from the company’s pool of assets, holding that the underlying development agreement had been terminated before the commencement of insolvency proceedings.

In an order pronounced on October 15, the bench held that the development rights arising from an agreement executed in 2006 could not be treated as an asset of HDIL because the underlying development agreement had been terminated in August 2013, six years before the company was admitted to the corporate insolvency resolution process (CIRP).

“We have no hesitation to conclude that the development rights over the ‘said property’ (measuring approximately 1.5 acres) arising under the HDIL DA dated 21.08.2006 is not an ‘asset’ of the Corporate Debtor. The RP’s prayer to protect the development rights under Section 14 of the Code cannot be granted for the reason that the Sapphire DA dated 08.03.2004, on the basis of which the HDIL DA dated 21.08.2006 was executed, already stood terminated on 26.08.2013, i.e., six years prior to the commencement of CIRP, of which the Corporate Debtor had full knowledge and even issued the confirmation letter dated 02.09.2013. Accordingly, we direct the RP to exclude the development rights/land rights in the ‘said property’,” the order reads.

Recondo challenges inclusion of property rights

The tribunal was hearing an application filed by Recondo Ltd, a company operating in the road and bridge construction segment of the infrastructure and utilities sector for over 79 years. According to Recondo’s application, the company had been in possession of the larger property since 1946 under an arrangement with the Municipal Corporation of Greater Mumbai (MCGM).

In March 2004, Recondo entered into a development agreement with Sapphire Land Developments Pvt Ltd, granting it development rights over the property for a consideration of Rs 8 crore. Sapphire subsequently assigned the development rights to HDIL under another agreement executed in August 2006 for Rs 17 crore. HDIL was admitted to insolvency proceedings in August 2019, following which its resolution professional included the Worli land rights among the company’s assets.

Recondo challenged their inclusion, contending that Sapphire had failed to fulfil its contractual obligations, including payment of the entire consideration and taking the necessary steps to develop the property. Of the agreed Rs 8 crore, Sapphire had paid only Rs 5.28 crore, leaving Rs 2.72 crore outstanding.

Recondo disputes validity of development rights

“The development rights along with title and interest over the larger property were not transferred on the grounds of non-registration of the Sapphire DA and, therefore, any subsequent transfer of the development agreement in favour of the Corporate Debtor does not hold any legal validity. Therefore, the RP cannot force the Applicant to provide assistance with respect to registration of the HDIL DA, and no claim can be sought by the RP against the said HDIL DA. Treating the sub-development rights arising therefrom as an asset of the Corporate Debtor is dehors the law,” reads the rejoinder filed by Recondo before the tribunal.

In a letter dated August 26, 2013, Sapphire confirmed the termination of the development agreement, acknowledged its failure to pay the balance amount and stated that it had no objection to Recondo dealing with the property through third-party developers. HDIL’s then managing director, Sarang Rakeshkumar Wadhawan, also confirmed the termination through a letter dated September 2, 2013.

Resolution professional questions termination documents

The resolution professional had disputed the validity and genuineness of the termination documents, arguing that they were not available in HDIL’s records and that there were no supporting board resolutions. He also contended that the development agreement with HDIL was a standalone contract and that the company had acquired enforceable rights over the property after paying the agreed consideration to Sapphire.

Rejecting these objections, the tribunal observed that the termination letters bore the respective companies’ letterheads and stamps. It held that the resolution professional’s doubts about their authenticity were conjectural and unsupported by evidence.

The NCLT noted that Sapphire had acknowledged its inability to pay the balance consideration and its failure to take steps to develop the property. It also observed that possession had never been handed over to Sapphire by Recondo.

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Tribunal upholds termination of agreement

“It is clear that Sapphire has expressed its inability to pay the balance consideration and admitted its default in not taking any steps towards the development of the ‘said property’. Eventually, Sapphire itself decided to terminate the development agreement. It is pertinent to note that while the development agreements restrict the Applicant, who is the lessee of the ‘said property’, from terminating the development agreements, they are silent on the rights of the developers to terminate the agreements. The termination letter dated 26.08.2013 was issued by Sapphire (developer) to the Applicant. Thus, the contention of the RP that the Applicant could not have terminated the Sapphire DA is devoid of merits,” the order reads.

The tribunal further held that the moratorium under Section 14 of the Insolvency and Bankruptcy Code protects only existing, enforceable and subsisting rights and cannot revive rights that had already been extinguished before insolvency proceedings commenced.

The NCLT allowed Recondo’s application and directed the resolution professional to exclude the disputed development and land rights from HDIL’s pool of assets.

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