2021 (4) TMI 588 - Tri - Insolvency and Bankruptcy

Tribunal Halts Property Recovery During Insolvency Resolution

The Tribunal allowed the Application, quashing the notice dated 08.11.2019 issued by R1 and directing R1 not to take coercive steps until the Resolution ... CIRP process - possession of Land during the CIRP process - Restraint on Respondent from taking any steps in further of the notice - termination of lease agreement till the completion of the corporate insolvency resolution process - co-operation in concluding the corporate insolvency resolution process. HELD 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. The judgement of the Hon’ble Supreme Court in Rajendra Bhutta’s case [2020 (3) TMI 34 - SUPREME COURT] is the comprehensive answer to all the contentions raised by R1 where it was held that Section 14(1)(d) of the Insolvency & Bankruptcy Code, when it speaks about recovery of property “occupied”, does not refer to rights or interests created in property but only actual physical occupation of the property. The dismissal of the Writ Petition filed by R2 does not have any bearing on these proceedings - application allowed. Issues Involved:1. Validity of the notice dated 08.11.2019 issued by Respondent No. 1 (R1).2. Termination of the lease agreement dated 21.01.2015.3. Applicability of Section 14 (Moratorium) of the Insolvency and Bankruptcy Code, 2016 (the Code).4. Jurisdiction of the National Company Law Tribunal (NCLT) over administrative actions.5. Impact of the Corporate Insolvency Resolution Process (CIRP) on the leasehold property.6. Submissions and interests of the Successful Resolution Applicant (SRA).Detailed Analysis:1. Validity of the Notice Dated 08.11.2019:The Applicant sought to quash the notice dated 08.11.2019 issued by R1, which intended to terminate the lease agreement and take possession of the leased land. The Tribunal observed that the notice unequivocally showed that the Corporate Debtor/Applicant was in possession of the leased land. Thus, the contention of R1 that possession under the SARFAESI Act was taken by DHFCL and subsequently by R2 fell to the ground. The Tribunal held that the Applicant was in possession of the property, making the notice invalid under Section 14(1)(d) of the Code.2. Termination of the Lease Agreement:R1 argued that the lease agreement was terminated due to the Corporate Debtor's failure to construct the required building within the stipulated time. The Tribunal noted that the termination notice dated 08.11.2019 was issued during the CIRP period, which was hit by the moratorium under Section 14 of the Code. The Tribunal relied on the judgment in Rajendra K. Bhutta vs. Maharashtra Housing and Area Development Authority, which clarified that Section 14(1)(d) prohibits the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor during the moratorium period.3. Applicability of Section 14 (Moratorium):The Tribunal emphasized that Section 14(1)(d) of the Code was applicable, prohibiting R1 from taking possession of the leased land during the CIRP. The Tribunal cited the Supreme Court's judgment in Rajendra K. Bhutta, which held that the moratorium under Section 14 aims to alleviate corporate sickness by providing a statutory status quo, preventing any recovery of property occupied by the corporate debtor.4. Jurisdiction of NCLT Over Administrative Actions:R1 contended that the decision to terminate the lease and repossess the plot falls outside the purview of the Code and is in the public law domain, which can only be reviewed by a superior court. The Tribunal rejected this argument, stating that the moratorium under Section 14 of the Code applies, and the NCLT has jurisdiction to address issues arising out of or in relation to insolvency resolution.5. Impact of CIRP on the Leasehold Property:The Tribunal observed that the CIRP was initiated on 11.03.2019, and the impugned notice was issued on 08.11.2019, during the CIRP period. The Tribunal held that R1's action in seeking possession of the leased land during the CIRP was invalid under Section 14(1)(d) of the Code. The Tribunal noted that the Corporate Debtor's possession of the property was crucial for the successful resolution of the insolvency process.6. Submissions and Interests of the Successful Resolution Applicant (SRA):The SRA, C.M. Shah Consortium, argued that the termination/possession notice issued by R1 during the CIRP was hit by Section 14 of the Code. The SRA emphasized that the value maximization of the Corporate Debtor's assets and the time-bound revival of the Corporate Debtor are core objectives of the Code. The Tribunal allowed the SRA to make submissions, noting that the SRA's Resolution Plan was pending approval.Conclusion:The Tribunal allowed the Application, quashing the notice dated 08.11.2019 issued by R1. The Tribunal directed R1 not to take any coercive steps until the Application for approval of the Resolution Plan (MA No. 3960 of 2019) was heard. The Tribunal emphasized the applicability of Section 14(1)(d) of the Code, which prohibits the recovery of property occupied by the corporate debtor during the CIRP. The Tribunal relied on the Supreme Court's judgment in Rajendra K. Bhutta, which provided a comprehensive answer to the contentions raised by R1.