IBC Moratorium No Bar to Deemed Conveyance: Bombay High Court Rules Housing Societies Can Perfect Land Titles Even if Developers Face Bankruptcy and Insolvency Proceedings.

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Case: DARSHAN MANDIR CO OP HSG SOC LTD v. DISTRICT DEPUTY REGISTRAR CO OP SOC AND ORS
Court: Bombay High Court
Date: 22-06-2026
Law: Maharashtra Ownership Flats (Regulation of the promotion of Construction Sale Management and transfer) Act, Insolvency and Bankruptcy Code, Maharashtra Co-operative Societies Act, Constitution of India.

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For thousands of housing societies in India, the quest for a "Deemed Conveyance"—the legal transfer of land ownership from the developer to the society—is a marathon of bureaucracy. But what happens when the developer enters bankruptcy mid-race? For years, many believed that the "Moratorium" under the Insolvency and Bankruptcy Code (IBC) acted as an impenetrable shield, freezing all legal proceedings, including the society's right to its land. However, a recent landmark judgment by the Bombay High Court has turned this assumption on its head, offering a masterclass in balancing corporate insolvency with social welfare.

1. The Statutory Duty is Not a "Debt"

The most striking takeaway from the judgment is the court's distinction between a monetary claim and a statutory obligation. Usually, when a company enters the Corporate Insolvency Resolution Process (CIRP), Section 14 of the IBC halts all "suits or proceedings" to protect the company's assets. The court, however, clarified that an application for deemed conveyance under the Maharashtra Ownership Flats Act (MOFA) is not a recovery action. It is the enforcement of a statutory duty.

The court reasoned that the Competent Authority, when granting a conveyance, is simply stepping into the shoes of a defaulting promoter to perform an act that should have been completed years ago. Because the society is not seeking "money" from the bankrupt developer, the proceeding does not deplete the "insolvency estate" that creditors are fighting over.

2. The "Divesting of Title" Doctrine

In a fascinating deep dive into property jurisprudence, the court explored the concept of "divesting". Under MOFA, the moment a developer sells all flats in a building and the society is formed, the developer is "virtually divested" of the title to the land. The developer remains a mere trustee with a formal obligation to sign the papers.

"The moment all the flats in the building are sold, the developer is virtually divested of title in the land... It cannot be that the developer exploits development potential in the land, constructs flats and sells them to the purchasers, but still retains ownership in the land. This concept is unknown to law."

This is a powerful shield for flat purchasers. It suggests that the land on which a society stands is not truly an "asset" of the developer company in the real sense, and therefore, it cannot be used to satisfy the developer's lenders during bankruptcy.

3. Welfare Legislation vs. Fiscal Law

The judgment highlights a sophisticated conflict-of-laws analysis. The IBC is a fiscal and economic statute designed to maximize asset value for creditors. MOFA, on the other hand, is social welfare legislation designed to protect homeowners from exploitation. The court refused to let the "non-obstante" clause of the IBC (Section 238), which usually gives it overriding power, crush the rights of flat owners.

The court held that the two laws operate in different spheres. While the IBC manages the "financial" revival of a company, it does not grant the company "immunity" from its past legal defaults or its obligations to the public. A developer cannot use insolvency as a "get out of jail free" card to avoid transferring land to the rightful owners.

4. Preventing the "Milking" of Development Rights

The court took judicial notice of a common "ground reality" in cities like Mumbai and Pune: developers often deliberately delay conveyance to "milk" additional development rights (like FSI or TDR) that might arise in the future. By allowing deemed conveyance to proceed despite insolvency, the court has effectively shut down a loophole where errant developers (or their resolution professionals) might try to hold land hostage to extract more value during the insolvency process.

5. A Safety Valve for Occupants

Finally, the court addressed the human element. Many buildings in Mumbai are over 30 years old and in desperate need of redevelopment. Without a clear title (conveyance), a society cannot obtain the necessary permissions to rebuild. If the IBC were allowed to stall conveyance indefinitely, it would leave residents trapped in potentially dilapidated or dangerous structures.

The judgment concludes that the justice system must be "alive to the ground reality". By restoring the society's right to pursue its title, the court has ensured that the "lives of occupants" are not placed in jeopardy by the financial failures of a corporate entity.

This ruling is a significant victory for the "common man" in the complex world of real estate law. It reinforces the idea that while the IBC is a powerful tool for economic efficiency, it cannot be used to override the fundamental property rights and safety of homeowners. For housing societies currently stuck in legal limbo because their builder has gone bust, this judgment is nothing short of a lifeline.