TMI Blog2022 (10) TMI 931X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Code, are only Assets of such kind, which had come to the Corporate Debtor for rendering some services. It is significant to mention that the Hon ble Supreme Court in a catena of Judgements has held that Lease Rentals arising out of the execution of such Lease Deeds, are not Financial Leases, but in fact, the amount claimed under such leases would construe Operational Debt and not Financial Debt - the Leasehold Rights is an Asset under Intangible Assets falling within the ambit of Section 18(f)(iv). It is the consistent stand of the Respondent that the said Plot is not owned by the Corporate Debtor, but it has only Leasehold Rights over it. The Leasehold Rights accrued to the Corporate Debtor vide the Lease Deed, is a right vested with the Corporate Debtor and is an Intangible Assets and the ownership is only to the extent of these Leasehold Rights based on which the Corporate Debtor can be continued as a Going Concern. It is also significant to mention that the Appellant has never initiated any proceedings or chosen to exercise their rights to invoke any of the Clauses of the Lease Deed for cancellation of the subject Deed - the Leasehold Right is an Intangible Asset o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o section 18 while deciding as to whether or not the Asset is to be removed from the pool of the Assets of the corporate debtor. What lies with the corporate debtor, what does not lie with the corporate debtor has to be decided in the light of the mandate given under section 14 of the Code and upon the title subsisting over a particular Asset. In this case, it is a leasehold right, as per Section 14 of the Code that right cannot be disturbed during CIRP period. 18. As to the definition of Asset given in the explanation to Section 18, it delineates the Assets owned by third party in possession of the corporate debtor held under Trust or Contractual Arrangements including bailment, these Assets are of such kind that have come to the Corporate Debtor for rendering some services, in case any such Asset is stuck with the Corporate Debtor, it shall not be treated as an Asset of the corporate debtor under this particular section. If any Asset with a definition analogous to the above explanation is in the possession of the corporate debtor, then it could be entailed by applying doctrine of ejusdem generis, not otherwise. 19. In the present case, it is a leasehold right covered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant. After the initiation of CIRP on 08.02.2019 the Resolution Professional ( RP ) took control and custody of the said premises and issued a request for Resolution Plan on 15.09.2019, inviting Resolution Plans from prospective Resolution Applicants. It is submitted that the RP has illegally taken custody and control of the said premises under Section 18(f) of the Code without taking into consideration that the Asset does not belong to the Corporate Debtor . Section 18(f) of the Code provides that an RP can only take control and custody of those Assets over which the Corporate Debtor has ownership rights. The explanation to Section 18(f) of the Code specifically excludes the Assets owned by third party in possession of the Corporate Debtor from being taken into custody by the RP. The statute has to be construed literally by allowing the general words to take their natural meaning as held by the Hon ble Apex Court in Tata Consultancy Services Vs. State of A.P. (2005) 1 SCC 308 . Ownership of an immovable property can only be transferred by a registered Conveyance Deed as contemplated under Sections 54 of the Transfer of Property Act, 1882. Admittedly i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor is a valuable Asset which requires protection during the Moratorium period. If the demised premises along with the development which has taken place thereon is taken out from the pool of Assets, it would not only amount to a violation of Section 14(1)d of the Code, but also leads to a situation whereby the sole Asset and business of the Corporate Debtor is dissipated. It is contended that the Application invoking Section 18(f) has been filed by the Appellant on the basis of an incorrect understanding of the provision. The Asset has been in possession and control of the Corporate Debtor right from the inception of the CIRP and Section 18 would be applicable only when an Asset is required to be taken into control by the RP. In the present case, when that stage is over, there is no relevance of Section 18 Application to decide whether or not the demised premises be removed from the pool of Assets of the Corporate Debtor . Leasehold Rights have already been created under the Lease Deed in favour of the Corporate Debtor , and the Appellant did not exercise their right of cancelling the Lease Deed for any reason whatsoever. It is submitted that Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The Hon ble Supreme Court in New Okhla Industrial Development Authority Vs. Anand Sonbhadra RP 2021 SCC OnLine NCLAT 353 , held that while such a lease passes over a risk of ownership to Lessee, the rewards are to be kept with the Lessor except, the liberty to sell units which would be constructed. The Appellant had earlier filed CA No.1101/PB/2019 for acceptance of his claim as a Financial Creditor of the Corporate Debtor . In those proceedings, the Appellant had taken a stand that all risks and rewards are incidental to ownership of the said land stood transferred to the Corporate Debtor under the Lease Deed. At this stage, the Appellant is taking a complete turnaround praying for completely opposite reliefs in I.A.792/2021 seeking a direction to remove the demised premises from the pool of Assets of the Corporate Debtor , on the ground, that no incidents of ownership were ever transferred to the Corporate Debtor . Assessment 4. It is not in dispute that a Lease Deed dated 29.06.2010 was executed by the Appellant in favour of the Corporate Debtor in respect of Plot No. C-001/A, Sector 16, B, Noida, Uttar Pradesh. It is also not in dispute that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken custody and control of by the RP and only those Assets over which the Corporate Debtor has Ownership Rights as recorded in the Balance Sheet or any information utility could have been taken custody and control of by the RP. It was argued that the term of the Lease Deed was for 90 years; that the Corporate Debtor was liable to pay the Annual Ground Rent under the Lease Deed; that the permission of the Appellant was mandatory prior to transferring the said Plot or building after payment of transfer charges; that any construction or development on the subject Plot was to be done in accordance with the terms and conditions of the Lease Deed; that prior permission of the Appellant was required for any mortgage to any Scheduled Bank, and that the Appellant had his charge over the demised premises, which all go to prove that the Appellant was the Rightful Owner of the subject Plot. It is also argued that ownership of an Immovable Property can only be transferred by a registered Conveyance Deed as contemplated under Section 54 of the Transfer of Property Act, 1882, which, in the instant case is absent as no such Conveyance Deed had ever been executed between the parties. The Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompendium of rights such as right of possession, the right of enjoying usufruct of the land and so on and so forth. The ownership, therefore, is a sum total of various subordinate rights. The right to transfer the subordinate right either under general law or statutory law does not make it transfer of ownership. Section 6 of the Transfer of Property Act, 1882 permits transfer of any property. It may be transfer of absolute or subordinate right 9. The Hon ble High Court of Delhi in Hotel Queen Road P. Ltd. Vs. Union of India Ors. 2015 SCC OnLine Del 9807 , has held that the right of ownership over a property in cases of lease is not determined on the basis of the duration of the lease and a lease, even if for 99 years, does not confer Ownership Rights on the Lessee. The relevant portion of the Judgement is reproduced as hereunder: 13. A lease in ordinary legal sense contemplates demise or a transfer of a right to enjoy land for a term or in perpetuity for a consideration of a price paid or promised or services or other things of value to be rendered periodically or on specified occasions to the transferor. There is a marked difference between lease and ownership. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess so that it can be kept running as a going concern during this time, thus maximising value for all shareholders. The idea is that it facilitates the continued operation of the business of the corporate debtor to allow it breathing space to organise its affairs so that a new management may ultimately take over and bring the corporate debtor out of financial sickness, thus benefitting all stakeholders, which would include workmen of the corporate debtor. 12. In the present case, Leasehold Rights have already been created under the Lease Deed in favour of the Corporate Debtor by the Appellant as per the mandate of Section 14 of the Code. The Learned Adjudicating Authority in the Impugned Order has observed that the Assets referred to in the explanation given to Section 18 of the Code, are only Assets of such kind, which had come to the Corporate Debtor for rendering some services. 13. It is significant to mention that the Hon ble Supreme Court in a catena of Judgements has held that Lease Rentals arising out of the execution of such Lease Deeds, are not Financial Leases, but in fact, the amount claimed under such leases would construe Operational Debt and not Financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 98. Fourthly, the right is one associated with the indeterminate duration of the right. It is here that we find the following discussion in this regard:- Fourthly, ownership has the characteristic of being indeterminate in duration. The position of an owner differs from that of a non-owner in possession in that the latter's interest is subject to be determined at some future set point, whereas the interest of the owner can endure theoretically for ever. The interest of a bailee or lessee comes to an end when the period of hire or of the lease determines; the owner's interest is perpetual, being determined neither by any set point nor by the owner's death, because the property owned can descend to the owner's heir or next-of-kin, and if he had sold the property prior to his death, then the new owner's interest would continue unaffected by the previous owner's death. 99. Fifthly, there is a residual nature, in regard to the concept of ownership, and it is described as follows:- If, for example, a landowner gives a lease of his property to A, an easement to B and some other right such as a profit to C, his ownership now consists of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease cannot be construed as a Financial Lease and noted as under: 152. We may notice that what Section 5(8)(d) of the IBC provides for is, any liability in respect of any lease, inter alia, which is, however, confined to a finance or capital lease. We are not ruling out the possibility that, in a lease, not a finance or a capital lease, falling under Section 5(8)(d), if it otherwise fulfils the requirements of Section 5(8)(f), it would not fall under the definition of the word financial debt . In other words, Section 5(8)(d) includes only a finance or a capital lease, which is deemed, as such, under the Indian Accounting Standards. Section 5(8)(f) is a residuary and catch all provision. A lease, which is not a finance or a capital lease under Section 5(8)(d), may create a financial debt within the meaning of Section 5(8)(f), if, on its terms, the Court concludes that it is a transaction, under which, any amount is raised, having the commercial effect of the borrowing. All that we are finding, in the facts of this case, is that the lease in question does not fall within the ambit of Section 5(8)(f). This is for the reason that the lessee has not raised any amount from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes. 6.2 An asset is a resource: (a) controlled by an enterprise as a result of past events; and (b) from which future economic benefits are expected to flow to the enterprise. 6.3 Monetary assets are money held and assets to be received in fixed or determinable amounts of money. 6.4 Non-monetary assets are assets other than monetary assets (Emphasis Supplied) 18. Explaining the same, the Indian Accounting Standard noted as hereunder: 7. Enterprises frequently expend resources, or incur liabilities, on the acquisition, development, maintenance or enhancement of intangible resources such as scientific or technical knowledge, design and implementation of new processes or systems, licences, intellectual property, market knowledge and trademarks (including brand names and publishing titles). Common examples of items encompassed by these broad headings are computer software, patents, copyrights, motion picture films, customer lists, mortgage servicing rights, fishing licences, import quotas, franchises, customer or supplier relationships, customer loyalty, market share and marketing rights. Goodwill is another example of an item of intangib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and trademarks, Royalty Streams, Software, Licenses, Franchise Arrangements, Goodwill and Leaseholds. A Leasehold is an Intangible Asset to a Lessee that gives the him or her certain rights to use leased property . A Leasehold appears on Corporate Balance Sheets as long-term assets, with the initial value reflecting the Leasehold s Original Cost. As Intangible Assets, Companies amortize Leaseholds instead of depreciating them. As with other long-term Assets, the Leasehold s book value will reflect the reduction in value from its accumulated amortization. 20. We are of the view that the Leasehold Rights is an Asset under Intangible Assets falling within the ambit of Section 18(f)(iv). It is the consistent stand of the Respondent that the said Plot is not owned by the Corporate Debtor , but it has only Leasehold Rights over it . We are of the considered view that the Leasehold Rights accrued to the Corporate Debtor vide the Lease Deed, is a right vested with the Corporate Debtor and is an Intangible Assets and the ownership is only to the extent of these Leasehold Rights based on which the Corporate Debtor can be continued as a Going Concern . It is also signi ..... 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