2019 (11) TMI 844 - SUPREME COURT

Resolution plan against the owner of land namely SevenHills which was to be developed by the Municipal Corporation (MCGM) - MCGM filed an application claiming that it ought to be declared as a Financial Creditor and a Member of the Committee of Creditors. - Right to terminate the agreement - However, later during the proceedings, it opposed the resolution plan, arguing that being a public body as well as a planning authority, it had to comply with the provisions of the Mumbai Municipal Corporation Act, 1888 (“MMC Act”), which meant that all action and approval had to be taken by the Improvement Committee of the Corporation. - effect of section 92 of MMC Act - NCLT and NCLAT rejected the objection of MCGM

HELD THAT:- In the present case, Section 92 of the MMC Act has no bearing on the validity of the resolution plan, the approval order or the impugned order. Section 92 of the MMC Act mandates and prescribes the manner in which disposal of land belonging to the appellant would take place. However, the resolution plan does not contemplate any disposal of the said land or creation of any additional rights and obligations of MCGM or the Corporate Debtor in relation to the lands. It is merely the shareholding of the Corporate Debtor which undergoes a change pursuant to the resolution plan. MCGM cannot place any embargo on such shareholding changes by resorting to proceeding under the Code.

It was urged that SNMC does not acquire any interest in the said land and only acquires managerial control over the Corporate Debtor by way of holding equity shares in the Corporate Debtor. Therefore, there arises no question of Section 92 of the MMC Act being violated through the resolution plan.

Discussion regarding the insolvency process and relevant provisions of the MMC Act - HELD THAT:- In this case, it is not the provisions of the IBC which this court has to primarily deal with; it is rather whether the process and procedure adopted by the NCLT and later the NCLAT, in overruling MCGM’s concerns and objections with regard to the treatment of its property (i.e. the lands) is in accordance with law.

The show cause notice in this case preceded admission of the insolvency resolution process. In view of the clear conditions stipulated in the contract, MCGM reserved all its rights and its properties could not have therefore, in any manner, been affected by the resolution plan. Equally in the opinion of this Court, the adjudicating authority could not have approved the plan which implicates the assets of MCGM especially when SevenHills had not fulfilled its obligations under the contract.

It is evident from a plain reading of Section 92(c), that the Commissioner (of MCGM) is empowered to, with the sanction of the corporation, “lease, sell or otherwise convey any immovable property belonging to the corporation.” It is not in dispute that the original contract entered into on 20­12­2005 contemplated the fulfilment of some important conditions, including firstly, the completion of the hospital project within a time frame; and secondly, timely payment of annual lease rentals - MCGM was constrained to issue a show cause notice before the insolvency resolution process began, and before the moratorium was declared by NCLT on 13th March, 2018. According to MCGM, in terms of Clause 26 (of the contract), even the agreement stood terminated due to default by SevenHills. This court does not propose to comment on that issue, as that is contentious and no finding has been recorded by either the adjudicating authority or the NCLAT.

Section 238 cannot be read as overriding the MCGM’s right – indeed its public duty ­ to control and regulate how its properties are to be dealt with. That exists in Sections 92 and 92A of the MMC Act. This court is of opinion that Section 238 could be of importance when the properties and assets are of a debtor and not when a third party like the MCGM is involved. Therefore, in the absence of approval in terms of Section 92 and 92A of the MMC Act, the adjudicating authority could not have overridden MCGM’s objections and enabled the creation of a fresh interest in respect of its properties and lands - The resolution plan therefore, would be a serious impediment to MCGM’s independent plans to ensure that public health amenities are developed in the manner it chooses, and for which fresh approval under the MMC Act may be forthcoming for a separate scheme formulated by that corporation (MCGM).

The last contention of the respondents, that MCGM was bound by the statement made by its counsel, in the opinion of this court, cannot prevail - As held earlier, there is no approval for the plan, in accordance with law; in such circumstances, the written plea accepting the plan, by a counsel or other representative who is not demonstrated to possess the power to bind MCGM, is inconclusive.

This court holds that the impugned order and the order of the NCLT cannot stand; they are hereby set aside - Appeal allowed - decided in favor of appellant.