2021 (4) TMI 17 - AT - Insolvency and Bankruptcy

Occupancy Rights: Clarification on Property Recovery During Insolvency Moratorium Period

Ms. Rajalakshmi Vardarajan Resolution Professional of Arudaavis Labs Pvt. Ltd. Versus Mr. G. Dhananjaya Naidu

The Appellate Tribunal clarified that under Section 14(1)(d) of the Insolvency and Bankruptcy Code, an Owner/Lessor cannot recover property occupied by ... Handover vacant possession of the leased out premises to the Respondent besides claiming lease rental - whether the Owner/ Lessor of land in actual physical possession of Corporate Debtor can recover the same while moratorium is in effect? - HELD THAT:- It is abundantly clear that the property occupied by the Corporate Debtor cannot be recovered by the Owner/ Lessor during the period of moratorium. What is material is that the property should be occupied by the Corporate Debtor which is interpreted as ‘actual physical occupation of the property’ and ‘not right or interest created in such property’. A bare reading of this provision reveals that the order of moratorium takes effect from the insolvency commencement date which, as defined under Section 5(12), means the date of admission of an application for initiating CIRP by the Adjudicating Authority under Section 7, 9 or 10 of the I&B Code. It lasts till completion of CIRP. Under Section 12 of I&B Code the time limit for completion of CIRP is provided as 180 days from the date of admission of application to initiate such process which can be extended for a further period not exceeding 90 days but has to be mandatorily completed within a period of 330 days from the insolvency commencement date including the period of judicial intervention - Adverting to the facts of instant case be it seen that 180 days from the date of commencement of CIRP expired on 26th January, 2020 and since the Resolution Professional did neither apply for extension for CIRP beyond the ordinary period of 180 days nor was a Resolution Plan approved or liquidation order passed by the Adjudicating Authority before the expiry of CIRP period viz. 26th January, 2020, moratorium ceased to operate beyond 26th January, 2020. It is not in controversy that the Corporate Debtor has subsequently been pushed into liquidation in terms of order dated 12th January, 2021 passed by the Adjudicating Authority. There are no force in the contention raised by the Appellant that the moratorium was in force on 4th November, 2020 when the impugned order came to be passed - appeal dismissed. Issues:1. Interpretation of Section 14(1)(d) of the Insolvency and Bankruptcy Code, 2016 regarding recovery of property by Owner/Lessor during moratorium period.2. Validity of the order directing Resolution Professional to vacate and handover leased premises.3. Applicability of moratorium period in the context of CIRP and liquidation process.Issue 1: Interpretation of Section 14(1)(d) of the Insolvency and Bankruptcy Code, 2016 regarding recovery of property by Owner/Lessor during moratorium period:The judgment revolves around the interpretation of Section 14(1)(d) of the Insolvency and Bankruptcy Code, 2016, which prohibits the recovery of any property by an Owner or Lessor where such property is occupied by or in possession of the Corporate Debtor. The Appellate Tribunal referred to previous cases to establish that the property occupied by the Corporate Debtor cannot be recovered by the Owner/Lessor during the moratorium period. The Tribunal clarified that 'actual physical occupation of the property' by the Corporate Debtor is the key factor, not just rights or interests created in the property.Issue 2: Validity of the order directing Resolution Professional to vacate and handover leased premises:The judgment analyzed an order directing the Resolution Professional to vacate and handover leased premises to the Respondent. The Respondent had filed an application seeking possession of the premises leased to the Corporate Debtor, citing financial losses due to lack of storage space. The Adjudicating Authority allowed the application based on the admission of the claim for rental arrears by the Resolution Professional. The Appellant challenged the order, arguing that it violated the moratorium provisions of the I&B Code. However, the Tribunal found that the moratorium had ceased to operate before the order was passed, as the CIRP period had expired, and the Corporate Debtor had been pushed into liquidation subsequently.Issue 3: Applicability of moratorium period in the context of CIRP and liquidation process:The Tribunal delved into the applicability of the moratorium period in the context of the Corporate Insolvency Resolution Process (CIRP) and the liquidation process. It noted that the moratorium under Section 14 of the I&B Code takes effect from the insolvency commencement date and lasts until the completion of CIRP. The judgment highlighted the time limits for completing CIRP and the circumstances under which the moratorium ceases to have effect, such as the approval of a Resolution Plan or passing of a liquidation order. In this case, the Tribunal determined that the moratorium had ceased to operate before the impugned order was passed, as the CIRP period had expired, and the Corporate Debtor had been liquidated subsequently.This detailed analysis of the judgment provides insights into the interpretation of legal provisions, the application of moratorium rules, and the resolution of disputes related to possession of leased premises during insolvency proceedings.