2018 (5) TMI 369 - Tri - Insolvency and Bankruptcy

Tribunal rules against Corporate Debtor in MHADA land dispute, clarifies IBC application

Mr. Rajendra K. Bhutia Versus Maharashtra Housing And Area Development Authority

The Tribunal dismissed the RP's application, ruling that the Corporate Debtor lacked lawful possession of the MHADA land and upheld MHADA's termination of ... Application filed by the Resolution Professional through Corporate Debtor - entitled to the exclusive possession of the property despite no right has been accrued to this Corporate Debtor - sought the reliefs as to direct this respondent to refrain from taking over the possession of the said land till the completion of corporate insolvency resolution process subject to the proviso u/s 14(1)(d) of the Code - Held that:- Since NCLT has been dealing with IB Code over an year, we hardly come across any case wherein corporate debtor denying the claims filed by a Financial Creditor, likewise in the case u/s 9 as well whenever Operational Creditor makes a claim, for the legislature is conscious of the fact that there could be a possibility of dispute in respect to the items mentioned in the definition of dispute, an additional caveat has been introduced in the cases of Operational Debts stating that wherever a dispute as stated in the definition is in existence before receipt of section 8 notice, such claims shall not be entertained by this Adjudicating Authority. The impediment that comes to this Bench for deciding such claim is, some other creditor may say that it has filed case before some other court, another creditor may say it has filed case before DRT under SARFAESI, which normally causes delay either for resolution or for liquidation of the corporate debtor, to avoid such kind of defences and to bring all creditors under one umbrella, an overriding provision has been set out u/s 238 of the Code which can never be construed that it is a provision come into existence to bulldoze the rights of the parties. It is understandable those creditors who are prevented to go before various forums are entitled to come before this Bench. Their right of remedy will not get extinguished by the overriding effect given under section 238, but what will happen to other persons having some other rights against this company because they may not fall under the category of creditors so by showing 238 if their rights are denied it will become nothing but extinguishment of rights of the parties, which is not permissible under any law. Whether this Bench can ignore such situation saying that since it is Section 7 or 9 petition, it will pass an admission order thereafter to proceed with CIRP ignoring the fraud manipulated by the company through its management. There can be myriad situations such as above causing uncertainty to the rights of the parties, if section 238 is applied without taking the context involved in the case into consideration. In view of the reasons above mentioned, this Bench has not found any merit in the application moved by the Resolution Professional/Petitioner is hereby dismissed Issues Involved:1. Possession of MHADA Land by the Corporate Debtor.2. Termination of Joint Development Agreement (JDA) by MHADA.3. Application of Section 14 and Section 238 of the Insolvency and Bankruptcy Code (IBC).Issue-Wise Detailed Analysis:1. Possession of MHADA Land by the Corporate Debtor:The core issue was whether the Corporate Debtor had lawful possession of the MHADA land, which falls under clause 'd' of section 14(1) of the IBC. The Resolution Professional (RP) argued that the Corporate Debtor was in possession of the land due to the Joint Development Agreement (JDA) and subsequent agreements. However, MHADA contended that the Corporate Debtor only had a license to develop the land, which does not equate to possession or interest in the property. The Tribunal concluded that the right of license does not confer possessory rights and that the Corporate Debtor's claim to possession is not recognized under law. The Tribunal emphasized that the Corporate Debtor's possession, if any, was not lawful and could be considered trespassing.2. Termination of Joint Development Agreement (JDA) by MHADA:MHADA terminated the JDA due to the Corporate Debtor's failure to adhere to the terms, including not providing housing to tenants and not paying rent. The RP argued that the termination was unlawful and sought to continue the JDA during the Corporate Insolvency Resolution Process (CIRP). MHADA justified the termination, citing non-compliance and fraudulent activities by the Corporate Debtor. The Tribunal upheld MHADA's termination, stating that the Corporate Debtor's rights under the JDA were limited to development and did not include possessory rights over the land. The Tribunal also noted that the continuation of the JDA was not feasible due to the Corporate Debtor's non-performance and financial mismanagement.3. Application of Section 14 and Section 238 of the Insolvency and Bankruptcy Code (IBC):The RP invoked Section 14, which imposes a moratorium on recovery of property by an owner or lessor where such property is occupied by the Corporate Debtor. The Tribunal clarified that Section 14 applies to lawful possession and does not protect wrongful possession or trespassing. The RP also relied on Section 238, which gives the IBC an overriding effect over other laws. The Tribunal explained that Section 238 is intended to expedite resolution or liquidation processes and not to extinguish the vested rights of parties. The Tribunal emphasized that the overriding effect of Section 238 should be applied judiciously and not to deny legitimate rights of non-creditor parties.Conclusion:The Tribunal dismissed the application filed by the RP, holding that the Corporate Debtor did not have lawful possession of the MHADA land and that the termination of the JDA by MHADA was valid. The Tribunal also clarified the limited scope of Sections 14 and 238 of the IBC, emphasizing that these provisions should not be misapplied to infringe on the rights of other parties.