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TMI Blog2021 (4) TMI 1317X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.2015 till the completion of the corporate insolvency resolution process or to take any further step in this respect; c. To direct the Respondent to extend their co-operation in concluding the corporate insolvency resolution process in terms of the Insolvency and Bankruptcy Code, 2016; d. Till the disposal of this MA, to pass an order directing and injuncting the Respondent from taking possession of the said leasehold land till such time this MA is disposed of; e. For interim and ad interim orders in terms of prayers (1) to (3) above". 2. The Counsel for the Applicant submits that: a. Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor was initiated by order dated 11.03.2019 of this Tribunal on a petition filed by an Operational Creditor. The Applicant herein was confirmed as Resolution Professional (RP) by order dated 10.05.2019 of this Tribunal. b. The resolution process is under progress. A Resolution Plan approved by the Committee of Creditors (CoC) is pending for approval in MA No. 3960 of 2019 before this Bench. c. The Corporate Deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated and an officer of the R1 would come on 14.11.2019 to take possession of demised land. l. The Counsel for the Applicant submits that while the CIRP is going on, the moratorium provided under Section 14 would be effective. The R1 is prohibited under Section 14(1) of the Code from recovering or taking over possession of the property in occupation or possession of the Corporate Debtor. The notice dated 08.11.2019 is invalid and illegal. Thus, deserves to be set aside. m. On the strength of the non obstante clause provided in Section 238 of the Code, it is submitted that the Code has an overriding effect on any other law for the time being in force. The MIDC Act being inconsistent with the provisions of the Code would not have precedence. n. The value of leasehold land is substantial and thus huge value has been attributed to it by the Successful Resolution Applicant in the Resolution Plan, pending approval before this Bench. o. If R1 is permitted to terminate the lease agreement and take back the possession of the leasehold land, the entire resolution process will become unstable and chaotic thereby re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1975 which regulates the procedures for disposal of plots in the industrial areas and estates. c. Clause 2(d) of the Lease Deed dated 12.05.2015 provided that the Corporate Debtor had to complete construction of at least 8,224 sq. mtrs of building and other structures on or before 19.01.2017. d. Since the Corporate Debtor violated the clause 2(d) referred above, R1 issued show cause notice to the Corporate Debtor on 01.11.2018, calling upon as to why action of termination of lease deed and repossessing the subject plot should not be taken. On 29.01.2019, R1 issued notice to DHFCL and R2 on the same subject. e. R2 challenged the notice in the Writ Petition before the Bombay High Court and the Writ Petition was dismissed. f. Now the leasehold rights of the land are with R2 in view of the assignment by DHFCL in favour of R2. As the leasehold right of the subject plot was transferred to R2 on 20.01.2018, the question of moratorium being applied to the subject plot does not arise. This position was also fortified by the order of the Hon'ble Bombay High Court dated 04.11.2019 passed in the referred Writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd privileges granted to the Corporate Debtor by the Government of Karnataka under the mining lease, are delineated in Part IV of the mining lease. The mining lease was issued in accordance with the statutory Rules namely Mineral Concession Rules, 1960. Therefore the relationship between the Corporate Debtor and the Government of Karnataka under the mining lease is not just contractual but also statutorily governed. ... 28. Therefore as rightly contended by the learned Attorney General, the decision of the Government of Karnataka to refuse the benefit of deemed extension of lease, is in the public law domain and hence the correctness of the said decision can be called into question only in a superior court which is vested with the power of judicial review over administrative action. The NCLT, being a creature of a special statute to discharge certain specific functions, cannot be elevated to the status of a superior court having the power of judicial review over administrative action. ... 29. The NCLT is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er contractual arrangements, is specifically kept out of the definition of the term "assets" under the Explanation to Section 18. ... This shows that wherever the corporate debtor has to exercise rights in judicial, quasi-judicial proceedings, the resolution professional cannot short-circuit the same and bring a claim before NCLT taking advantage of Section 60(5). 41. Therefore in the light of the statutory scheme as culled out from various provisions of the IBC, 2016 it is clear that wherever the corporate debtor has to exercise a right that falls outside the purview of the IBC, 2016 especially in the realm of the public law, they cannot, through the resolution professional, take a bypass and go before NCLT for the enforcement of such a right." h. The correctness or otherwise of R1's action in terminating the lease agreement and/or repossessing Plot No. B-11 from R2 is not questionable. i. The Corporate Debtor have been granted license only to enter upon the plot for the purpose of building and executing wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f revenue of Rs. 314.3 Crores to the State Exchequer annually, which was the reason for the Central Government to terminate the 'Coal Mines Development and Production Agreement'. ... 8. The conditions for vesting has been shown in Clause 3 which is subject to compliance of all the eligibility conditions, payment of upfront amount in installments and furnishing of performance security etc. Completion of vesting condition and notice has been shown therein. ... 13. In the present case, as we find that the vesting of the Coal Mines is not complete in absence of any agreement with the State Government in respect to the mines in question, we hold that the 'Resolution Professional' on behalf of the 'Corporate Debtor' cannot claim that pursuant to lease the mines are under occupation or in possession of the 'Corporate Debtor'. 14. The Government of India by its letter dated 13th April, 2017 issued show cause notice to the 'Corporate Debto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rior permission of the corporation. It is a matter of record that in the present case, the resolution plan was never approved by the corporation and that it was put to vote. The contesting parties, including the RP and CoC were unable to point out to anything on the record to establish that a valid permission contemplated by Section 92 was ever obtained with regard to the proposal in the resolution plan. The proposal was approved by the NCLT and MCGM's appeal was rejected by NCLAT. The proposal could be approved only to the extent it did not result in encumbering the land belonging to MCGM. 36. ... Seven Hills did not complete construction of the 1600 bed hospital. Apparently, it did not even fulfill its commitment, or pay annual lease rentals. In these circumstances, 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 Seven Hills. This Court does not propose to comment on that issue, as that is contentious and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w.e.f. 20th January 2018. Since then the possession of Plot was with ARCIL and not with the Corporate Debtor. p. On 01/11/2018, Show Cause Notice was issued by R1 (MIDC) to the Corporate Debtor cancelling the allotment and seeking possession. q. The Hon'ble Bombay High Court by order dated 14/11/2019 in the Writ Petition filed by R2 held that: "Upon default by the Corporate Debtor in adhering to the terms of the lease/allotment, MIDC was entitled to revoke the lease/allotment". r. On 08/11/2019 when R1 informed about the physical possession to be taken, the Applicant by reply dated 11/11/2019 wrongly contended that the plot was in his possession. s. In fact, in the meetings of the CoC held on 17/06/2019 and 26/07/2019, the Applicant admitted that the custody of the leased premises had not been taken by him. t. The Applicant has not brought any material on record to show that the possession of the land was with the Corporate Debtor on the date of initiation of CIRP i.e., on 11/03/2019. u. Even as per Regulation 17 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for 60 months starting from the date excluding the monsoon period; (b) by Clauses 5 and 17, Seven Hills could mortgage the property for securing advances from financial institutions for the construction of the project and thereafter towards its working. Such mortgage/charge or interest was subject to approval by MCGM. In the event the contract was to be terminated, it was agreed that MCGM would not in any manner be liable towards the mortgaged amount and all its rights and ownership would continue to vest in it free from encumbrances (Clause 17). 33. 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 Seven Hills had not fulfilled its obligations under the contract. 18. The matter had come to this Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly with the construction of factory within the stipulated time (time being of essence). Since the Corporate Debtor has failed to comply with the same, protection under section 14(1)(d) of the Code is not available. Submissions of the Successful Resolution Applicant (SRA): 7. The SRA, namely C.M. Shah Consortium is not a party to the present Application. The Counsel for the SRA submitted that it is an interested party in view of the pendency of its Resolution Plan for approval which has already been approved by the CoC with 96.96% of voting. Thus, the SRA was permitted to make its submissions. Mr. Ashish Kamat Advocate, appeared for the SRA and submitted as follows: a. The SRA is engaged in the same line of production as the Corporate Debtor. The Corporate Debtor is having leasehold interest in the property and the possession sought for by R1 is during the CIRP period. b. Show Cause Notices dated 01.11.2018 and 29.01.2019 were issued during pre-CIRP period i.e. before 11.03.2019. The termination/possession notice dated 08.11.2019 was issued during CIRP and the same is hit by Section 14 of the Code. c. The Hon'ble Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of CIRP, R2 handed over the possession of the property to the Applicant. Even if the possession/symbolic possession is with the secured creditor under the SARFAESI Act, the Debtor is not barred from repaying the debt on any date thereafter and securing its interest in the mortgaged property and re-possessing the same. It is a matter of resolution and settlement between the creditor and the debtor, whether the creditor will accept the debtor's delayed repayment of the loan in discharge of its obligations. The Debtor always has the first right to discharge his debt and regain its security from the secured creditor. h. As per clause 6 of the Lease Agreement, R1 may issue a show cause notice to the Lessee of his intention to terminate and if the Lessee fails to show cause, then he may terminate the agreement or may fix any extended period for the completion of the factory building. i. Similarly, under Clause 4(a) of the Lease Agreement, except for nonpayment of rent, the power of re-entry by MIDC shall be exercised only after the Chief Executive Officer has given a notice in writing, to the Lessee, stating his intention to reenter the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty should rightfully form a part of the pool of assets available to the Resolution Applicant for successful resolution of the Corporate Debtor. Analysis 8. Ongoing through the pleadings and on hearing the Counsel for the Applicant, Respondents and the SRA the followings are the observations of this Bench: a. The CIRP was initiated on 11.03.2019 and the impugned notice is dated 08.11.2019. The CIRP on the extension being granted came to an end on 06.12.2019. The R1's Show Cause Notice terminating the lease agreement dated 22.01.2015 was issued on 08.11.2019 and the same was signed by Regional Officer, MIDC, Nashik. Para 6 and 7 of the said notice is extracted below: "6. Pursuant to the provisions of the Lease Agreement, the MIDC Corporation has every right to forfeit the Premium without disturbing the right and authority of the Corporation. The License Holder hereby further intimate that if the License Holder hand over physical possession of the said plot along with Possession Receipt and Original Agreement dated 20.01.2015 on the given date and time, the Corporation shall refund back the balance premium amount af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... torium period Under Section 14 of the Code - MHADA issued a termination notice to the Corporate Debtor stating that upon expiry of 30 days from the date of receipt of the notice, the Joint Development Agreement as modified would stand terminated. It was further stated that the Corporate Debtor would have to hand over possession to MHADA, which would then enter upon the plot and take possession of the land including all structures thereon. viii. One hundred and eighty days from the start of the Corporate Insolvency Resolution Process (hereinafter referred to as "the CIRP") expired on 19.01.2018. The NCLT, by order dated 24.01.2018, extended the CIRP period by ninety days, as is permissible under the Code. ix. On 01.02.2018, the Appellant filed M.A. No. 96 of 2018, seeking a direction from the NCLT to restrain MHADA from taking over possession of the land till completion of the CIRP, contending that such a recovery of possession was in derogation of the moratorium imposed Under Section 14 of the Code. The NCLT, by order dated 02.04.2018, dismissed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not deal with any of the assets or legal right or beneficial interest in such assets of the corporate debtor. For this reason, any reference to Sections 18 and 36, as was made by the NCLT, becomes wholly unnecessary in deciding the scope of Section 14(1)(d), which stands on a separate footing. Under Section 14(1)(d) what is referred to is the "recovery of any property". The 'property' in this case consists of land, ad-measuring 47 acres, together with structures thereon that had to be demolished. 'Recovery' would necessarily go with what was parted by the corporate debtor, and for this one has to go to the next expression contained in the said Sub-section." "11. Regard being had to the aforesaid authorities, it is clear that when recovery of property is to be made by an owner Under Section 14(1)(d), such recovery would be of property that is "occupied by" a corporate debtor." "15. The conspectus of the aforesaid judgments would show that the expression "occupied by" would mean or be synonymous with being in actual physical possession of or being actually used by, in contradistin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e date that the Adjudicating Authority either allows are solution plan to come into effect or states that the corporate debtor must go into the liquidation. For this temporary period, at least, all the things referred to Under Section 14 must be strictly observed so that the corporate debtor may finally be put back on its feet albeit with a new management." "17. My learned brother S. Ravindra Bhat, J.'s judgment in Municipal Corporation of Greater Mumbai (supra), which has been strongly relied upon by Mr. Dave and Mr. Patil, dealt with an entirely different fact situation, as is clear from paragraphs 32 and 33 of the said judgment, which are set out herein below: 32. A cumulative reading of the stipulations reveals that the contract/agreement contemplates that the lease deed was to be executed after the completion of the project. The contract reveals that (a) the project period was for 60 months starting from the date excluding the monsoon period; (b) by Clauses 5 and 17, Seven Hills could mortgage the property for securing advances from financial institutions for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hysical occupation of the property. For this reason also, this judgment is wholly distinguishable." "20. Regard being had to the above, we allow the appeal and set aside the impugned order of the NCLAT. Considering that this matter has been pending for some time, we direct the NCLT to dispose of the resolution professional's application (I.A. No. 21433/2018) within a period of six weeks from today." 9. From the above, it is clear that R1's action in seeking possession of the leased land, during the currency of CIRP, is hit by Section 14(1)(d) of the Code. 10. R1's reliance on the judgment of the Hon'ble Supreme Court in the case of Municipal Corporation of Greater Mumbai v. Abhilash Lal & Ors., (supra) at this stage, may not be helpful. Further, the reliance on the judgments in Embassy Property Developments Pvt. Ltd. (supra) and Monnet Ispat & Energy Ltd. (supra), at this stage is misplaced. 11. The judgment of the Hon'ble Supreme Court in Rajendra Bhutta's case (supra) is the comprehensive answer to all the contentions raised by R1. 12. The dismissal of the Writ Petition filed by R2 on the file of the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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