Statutory Obligation To Pay Transit Rent To Displaced Slum Dwellers Even If Developer Undergoes Insolvency Proceedings: Bombay High Court

In a significant ruling, particularly for slum dwellers and also developers, the Bombay High Court recently held that it is the 'statutory obligation' of the developer to pay the transit rent to slum dwellers, who await rehabilitation of their homes.Single-judge Justice Amit Borkar upheld the termination of a developer, who was initially engaged for a rehabilitation scheme of a slum in Thane district, after noting that the developer - Anudan Properties Private Ltd. defaulted in paying transit rents to the slum dwellers, since 2019. The judge also noted that the proposed redevelopment of the slums were pending since 2009 and that the developer in all these years managed to only hand over one rehabilitation building. It noted that the developer was yet to complete the work of the second rehab building and had hardly commenced the work of the three 'free-sale' private buildings, as agreed in the contract. "This Court views such continued non-payment of transit rent with utmost seriousness. Under the SRA's own circulars and policy guidelines, consistent failure to pay transit rent is a well- recognised ground for removing a developer under Section 13(2) of the Slum Act. This is not a punitive measure but a corrective action to ensure that the project does not remain in limbo and that slum dwellers are not made to suffer unnecessarily. Transit rent is not a mere contractual commitment — it is an integral part of the developer's public duty under a welfare-driven statutory framework," Justice Borkar said in the order pronounced on March 25. When a developer enters into a slum rehabilitation scheme and takes over the responsibility of displacing and relocating vulnerable families, it also assumes a binding legal and moral duty to ensure that those families are adequately supported during the transition period, the court underscored. "This duty cannot be taken lightly or reduced to a question of administrative formality. In the present case, the petitioner's failure to fulfil this obligation, even after corporate revival, has undermined the confidence of the Slum Rehabilitation Authority (SRA) and the beneficiaries. The persistent default, coupled with an absence of credible corrective action, justifies the SRA's view that the petitioner cannot be relied upon to carry forward the scheme in a manner consistent with public interest," Justice Borkar said. In its 71-page ruling, the bench explained that the when a slum rehabilitation scheme is sanctioned under the Maharashtra Slum Areas (Improvement, Clearance and Redevelopment) Act, 1971(Slum Act), it is not merely a private arrangement between a developer and the slum dwellers but is rather a welfare scheme governed by the statutory provisions and guidelines of the SRA."A critical condition of such schemes is that the developer must provide either alternate transit accommodation or monthly transit rent to every eligible slum dweller from the date of vacating their hutments until permanent rehabilitation units are handed over. This is not an optional or negotiable term that can be bargained away. It is a mandatory requirement, forming part of the very structure of the slum redevelopment scheme, and is intended to ensure that slum dwellers are not left without shelter during the construction phase. Therefore, even if the actual payment mechanism flows from individual agreements, the source and nature of the obligation is statutory. It has the force of law because it is embedded in the sanctioned scheme and enforced by the SRA," the judge held.The bench refused to consider the argument that paying transit rent is not statutory but it stems from a 'contractual liability' and since the developer in the instant case underwent Insolvency proceedings, the same (transit rent) can be taken care of by the 'approved resolution plan' under the Insolvency and Bankruptcy Code (IBC)."The insolvency framework was not designed to handle such public welfare claims in this fragmented manner. More importantly, transit rent is not a one-time debt. It is a continuing performance obligation, which accrues monthly until the permanent housing is delivered. Even if unpaid transit rent for the pre-CIRP period is extinguished by the resolution plan, the developer's statutory obligation to continue paying rent post-CIRP remains intact. This is because resolution plans under the IBC only deal with liabilities that existed before the insolvency commencement date. They do not and cannot relieve the corporate debtor from ongoing duties imposed by other statutes," the judge opined. As far as the argument that transit rent is a contractual agreement or liability, the judge said that such contracts (between developer, SRA and slum dweller) merely formalise a statutory obligation. "In administrative law, it is well-recognised that some obligations, although implemented contractually, are statutory in origin. Transit rent is one such obligation. Even if a slum dweller were to sue the developer for breach...

Statutory Obligation To Pay Transit Rent To Displaced Slum Dwellers Even If Developer Undergoes Insolvency Proceedings: Bombay High Court

Narsi Benwal

Tags