TMI Blog2023 (3) TMI 699X X X X Extracts X X X X X X X X Extracts X X X X ..... ts was actually for a valid consideration. But for the payment of such consideration, Energy Properties would not even have become the owner of the property in dispute. Therefore, the development rights created in favour of the Corporate Debtor constitute property within the meaning of the expression under Section 3(27) of IBC. At the cost of repetition, it must be recapitulated that the definition of the expression property under Section 3(27) includes every description of interest, including present or future or vested or contingent interest arising out of or incidental to property . Since the expression asset in common parlance denotes property of any kind , the bundle of rights that the Corporate Debtor has over the property in question would constitute asset within the meaning of Section 18(f) and Section 25(2)(a) of IBC. In Sushil Kumar Agarwal [ 2018 (10) TMI 1822 - SUPREME COURT ], this Court brought out the distinction between different types of Development Agreements, with particular reference to Section 14(3)(c) of the Specific Relief Act, 1963. After summarizing the different types of Development Agreements, this Court held that An essential incident of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to treat the property as the asset of the corporate debtor. But this Court reversed the said decision, by holding that Section 14(1)(d) stood attracted in the facts and circumstances of the said case and that even a reference to Sections 18 and 25 may not be necessary. Though the said case arose out of a fact situation where the termination of the joint development agreement was hit by Section 14, the said decision clinches the issue on what constitute a property and the distinction between occupation and possession of a property. The fact that there were security guards posted in the property is borne out by records. This is why NCLT as well as NCLAT have done a delicate act of balancing, by protecting the interests of Victory to the extent of the land permitted to be occupied. In fact, Victory does not even have the status of a lessee, but is only a licensee. A license does not create any interest in the immovable property - NCLT as well as NCLAT were right in holding that the possession of the Corporate Debtor, of the property needs to be protected. This is why a direction under Regulation 30 had been issued to the local district administration. The impugned orders do no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve appeals 5. A financial creditor by name M/s Sesa International Limited filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 For short, IBC or the Code , as the case may be , against Avani Towers Private Limited which is the Corporate Debtor herein. The company petition was admitted by the Adjudicating Authority on 15.10.2019. 6. The first meeting of the Committee of Creditors was held on 14.11.2019. Thereafter, the suspended Board of Directors of the Corporate Debtor informed the Resolution Professional that Energy Properties were forcefully removing the security guards from the property. Therefore, the Resolution Professional filed an application in CA (IB) No.1807/KB/2019 (RP Application) before the Adjudicating Authority under Section 25 of IBC read with Regulation 30 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 For short, the Regulations , praying (i) for a direction to Energy Properties Others (including Victory) not to obstruct the sole and exclusive possession of the property; and (ii) also for the issuance of direction to the local district administration to give proper assistance to the Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was confirmed by NCLAT that the land of the extent of 10000 sq. ft. covered by the Leave and License Agreement dated 11.08.2021 shall continue to be enjoyed by Victory without any interference by the Resolution Professional. The Appellate Authority also directed the Resolution Professional to disclose in the Information Memorandum and also in the documents as required by the Regulations that what is held by the Corporate Debtor is only the development rights over the said property. It is against the said order of the NCLAT that both Victory and Energy Properties have come up with independent appeals. Dispute in a nutshell 11. The dispute in a nutshell, in this triangular fight, is between (i) the ostensible owner of the land, namely, Energy Properties, who purchased the property from the Authorized Officer of UCO Bank under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 For short, SARFAESI Act , under a Sale Certificate dated 29.01.2008, on the one hand; (ii) the Corporate Debtor represented by the Resolution Professional, who actually financed the purchase of the said property by Energy Properties, under a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of handing over of possession of the property in entirety to the Corporate Debtor was also confirmed in two subsequent MoUs dated 02.03.2010 and 24.06.2010, executed respectively by (a) the Shareholders of Energy Properties as well as by (b) Energy Properties themselves. (v) Thereafter, the Corporate Debtor executed a Leave and License Agreement on 19.08.2011, granting a license to Victory, for the permissive use of 10000 sq.ft. of land out of the total extent of 10.19 acres. Energy Properties joined this Leave and License Agreement as a confirming party. This agreement was to be for a period of 11 months commencing from August-2011. The license fee fixed under the said Agreement, was Rs.5,000/- per month. (vi) However, Victory (the licensee) now claims that they subsequently got permission to use the whole of the land, of the total extent of Rs.10.19 acres by paying an additional license fee of Rs.5,000/- per month. (vii) Once a CIRP was initiated against the Corporate Debtor at the instance of a third-party financial creditor, the Interim Resolution Professional started claiming that the development rights held by the Corporate Debtor formed part of the intangible asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of IBC; and (iv) that even as per the very complaint lodged by the Resolution Professional, Victory is in possession of the entire extent of land and that, therefore, in the light of the law laid down by this Court in Embassy Property Developments Private Limited vs. State of Karnataka and Others (2020) 13 SCC 308 ; Gujarat Urja Vikas Nigam Limited vs. Amit Gupta and Others (2021) 7 SCC 209 ; and Tata Consultancy Services Limited vs. SK Wheels Private Limited Resolution Professional, Vishal Ghisulal Jain (2022) 2 SCC 583 , the Adjudicating Authority did not have the jurisdiction to enter into this arena. 14. Energy Properties is also assailing the impugned orders on almost identical grounds. More particularly, it is contended on behalf of the Energy Properties, (i) that when the Corporate Debtor is not in possession of the property, he is not entitled to use the mechanism provided in IBC to recover possession; (ii) that though Section 18(f) of the Code enables Interim Resolution Professional to take control and custody of any asset over which the Corporate Debtor has ownership rights, the Explanation under Section 18 excludes the assets owned by a third party in the posse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gencies and Information Utilities and Part-V containing miscellaneous provisions. 18. Interestingly, the Code contains provisions for the definition of words, at three different places, namely Sections 3, 5 and 79. Section 3 which is in Part-I contains the definitions of words and phrases, and these definitions are applicable throughout the Code, unless the context otherwise requires. Section 5 contains definitions, applicable to words and phrases used in Part-II alone. Similarly, Section 79 contains definitions of words and phrases, appearing in Part-III. In other words, the definitions in Sections 5 and 79 have limited application to the respective Parts in which they appear, but the definitions in Section 3 apply to the Code in entirety. 19. Section 3(27) of the IBC defines the word property as follows: 3. Definitions. In this Code, unless the context otherwise requires, xxx xxx xxx (27) property includes money, goods, actionable claims, land and every description of property situated in India or outside India and every description of interest including present or future or vested or contingent interest arising out of, or incidental to, property. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which may be located in a foreign country; (ii) assets that may or may not be in possession of the corporate debtor; (iii) tangible assets, whether movable or immovable; (iv) intangible assets including intellectual property; (v) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies; Duties of interim resolution professional. (vi) assets subject to the determination of ownership by a court or authority; (g) to perform such other duties as may be specified by the Board. Explanation. For the purposes of this section, the term assets shall not include the following, namely: (a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment; (b) assets of any Indian or foreign subsidiary of the corporate debtor; and (c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator. Section 25 reads as follows: 25. Duties of resolution professional. (1) It shall be the duty of the resolution professional to preserve and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Recovery of Debts and Bankruptcy Act, 1993 does not define the word asset but defines the word property in Section 2(jb) as follows: 2. Definitions. In this Act, unless the context otherwise requires, xxx xxx xxx (jb) property means (a) immovable property; (b) movable property; (c) any debt or any right to receive payment of money, whether secured or unsecured; (d) receivables, whether existing or future; (e) intangible assets, being know-how, patent, copyright, trade mark, licence, franchise or any other business or commercial right of similar nature, as may be prescribed by the Central Government in consultation with Reserve Bank; 24. The Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992 and the Limited Liability Partnership Act, 2008 also do not define these two expressions. Even the Companies Act, 2013 does not define these two expressions. Therefore, for finding an answer to the meaning of the word asset used in Sections 18 and 25, one has to necessarily undertake a journey from the known to the unknown. 25. Before we proceed further, we may have to take note of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was required to pay the amount of Rs.2.70 crores directly to UCO Bank and the Sale Certificate issued by the Bank along with the original title deeds (parent documents) held by the Bank were to be handed over by the Bank to a named solicitor and advocate; That a Definitive Agreement was to be entered into between Energy Properties and the Corporate Debtor, to enable the Corporate Debtor exclusively to undertake the development of the property; That if no Definitive Agreement was entered into, then the Corporate Debtor shall be entitled to create a charge over the said property, for securing the repayment of the accommodation amount; That the quid pro quo for the Corporate Debtor providing financial accommodation to Energy Properties, was twofold, namely, (i) that the shareholders of Energy Properties should transfer 40% of the total shareholding in Energy Properties to the Corporate Debtor and 20% shareholding to the named Solicitor and Advocate; and (ii) that the Corporate Debtor should be given the exclusive right to develop the property; That after the Corporate Debtor developed the property, 60% of the total constructed area with the proportionate undivided share o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two memorandums contained specific clauses to the effect that the Corporate Debtor shall be in exclusive possession of the property. 34. After more than a year of such handing over of possession, Energy Properties as well as the Corporate Debtor jointly executed a Leave and License Agreement on 19.08.2011 in favour of Victory. As a matter of fact, the Corporate Debtor was defined in the said Agreement as the Licensor and Energy Properties were described only as a confirming party. Admittedly, this Agreement was confined to land of the extent of 10000 sq. ft. out of the total extent of acres 10.19. The Agreement was to be for a period of 11 months and the license fee agreed therein was Rs.5,000/- per month. Clause 7 of the said Leave and License Agreement is important to be taken note of and hence it is reproduced as follows: 7. GENERAL This Agreement is personal to AVANI Nothing contained herein intended to be nor be construed nor VICTORY shall ever claim any right or exclusive possession or tenancy in respect to the licensed area. 35. From the sequence of events narrated above and the terms and conditions contained in the Agreements entered into by the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Corporate Debtor; and (vii) the Leave and License Agreement primarily executed by the Corporate Debtor in favour of Victory, which was merely confirmed by Energy Properties as a confirming party. Some of these bundle of rights and interests, partake the character and shade of ownership rights. Therefore, these rights and interests in the immovable property are definitely liable to be included by the Resolution Professional in the Information Memorandum and the Resolution Professional is duty bound under Section 25(2)(a) to take custody and control of the same. Issue No. 2 38. The main ground of attack of the appellants to the impugned orders of the NCLT and NCLAT is that by virtue of the Explanation under Section 18 of the Code and also by virtue of the judicial pronouncements, the disputes between the Corporate Debtor and the third-party lessee/licensee are not amenable to the jurisdiction of the authorities under the Code. 39. But as rightly pointed out by the learned counsel for the Resolution Professional, the Explanation under Section 18 begins with a caveat namely for the purposes of this Section . Therefore, the exclusion of assets owned by a third-party, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a case of this nature where Energy Properties became the owner only on account of the money paid by the Corporate Debtor and a bundle of very valuable rights and interests in immovable property was created thereafter in favour of the Corporate Debtor. 43. The decision of this Court in Gujarat Urja Vikas Nigam Limited (supra) may not also go to the rescue of the appellants, since the same arose out of a termination of Power Purchase Agreement For short, PPA . In fact, this Court made a distinction in the said case, between (i) a dispute that arose out of the termination of PPA solely on account of insolvency on the one hand; and (ii) the other disputes relating to the PPA on the other hand. 44. The decision in Tata Consultancy, rather than helping the appellants, actually supports the case of the Corporate Debtor. In fact, the decision in Gujarat Urja Vikas Nigam Limited was distinguished in Tata Consultancy (by the very same author), on the ground that if the termination was on an ipso facto clause i.e., the fact of insolvency itself, then NCLT will have jurisdiction, but that there was no residuary jurisdiction for NCLT, if the termination of a contract is based on groun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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