2021 (5) TMI 947 - Tri - Insolvency and Bankruptcy

Tribunal Invalidates Developer Termination Order, Emphasizes Insolvency Moratorium

The Tribunal declared the order dated 17.07.2019, terminating the Corporate Debtor's appointment as a developer, as invalid and inoperative under the law. ... Moratorium - relevance of section 14 of the Code - Whether appointment of the Corporate Debtor as the developer of the property could be terminated during the pendency of the CIRP? - HELD THAT:- A plain reading of the salutary provision of Section 14, would indicate that on the Insolvency Commencement Date (ICD/08.05.2019), the institution of the suits or continuation of pending suits or proceedings against the Corporate Debtor before any authority or any court of law shall be prohibited. In this case there is no dispute that the property in respect of which the development agreement was executed is not an asset of the Corporate Debtor. The Corporate Debtor only was permitted to develop it in terms of the development agreement. The fact that the Corporate Debtor was the developer in respect of the property and had undertaken certain constructions thereon in pursuance to the development agreement. This would unequivocally indicate that the property was under its occupation as on the ICD. For the purpose of this case, it would thus be sufficient to hold that on the date of Insolvency Commencement, the property was occupied by the Corporate Debtor and the Corporate Debtor was in possession thereof. The Hon'ble Supreme Court in RAJENDRA K. BHUTTA VERSUS MAHARASHTRA HOUSING AND AREA DEVELOPMENT AUTHORITY AND ANOTHER [2020 (3) TMI 34 - SUPREME COURT] have in clear terms delineated the extent of this Code and limits of the other Authorities in dealing with a Corporate Debtor under CIRP. The termination of the Corporate Debtor as the developer would essentially result in the property being taken out of its possession. Both of which are prohibited under Section 14(1) of the Code. Therefore, the order dated 17.07.2019 being violative of the mandatory provision cannot be held to be valid and operative in law. The issues are answered in the negative - application allowed. Issues Involved:1. Validity of the order dated 17.07.2019 issued during the Corporate Insolvency Resolution Process (CIRP).2. Whether the appointment of the Corporate Debtor as the developer of the property could be terminated during the pendency of the CIRP.Detailed Analysis:1. Validity of the order dated 17.07.2019 issued during the CIRP:The Resolution Professional of the Corporate Debtor sought prohibitory orders against the Respondent No. 1 concerning its order dated 17.07.2019, which terminated the Corporate Debtor's appointment as a developer. The Tribunal examined Section 14 of the Insolvency and Bankruptcy Code (the Code), which imposes a moratorium prohibiting actions such as the recovery of property occupied by the Corporate Debtor during the CIRP. The Tribunal noted that the Corporate Debtor was in possession of the property as a developer and had undertaken construction activities. Consequently, the property was under its occupation as of the Insolvency Commencement Date (ICD). The Tribunal emphasized that Section 14(1)(d) of the Code prohibits recovery of any property occupied by the Corporate Debtor during the moratorium period. The Tribunal cited the Supreme Court's judgments in Alchemist Asset Reconstruction Company Limited v. Hotel Gaudavan Private Limited and Rajendra K. Bhutta v. Maharashtra Housing and Area Development Authority, which reinforced the moratorium's applicability and the Code's precedence over other laws. Therefore, the Tribunal held that the order dated 17.07.2019 was violative of Section 14 and invalid under the law.2. Termination of the Corporate Debtor's appointment as developer during the CIRP:The Tribunal addressed whether the Corporate Debtor's appointment as a developer could be terminated during the CIRP. The Respondents argued that the Corporate Debtor defaulted in paying rent to the slum dwellers and delayed construction, justifying the termination under Section 13(2) of the Maharashtra Slum Areas (Improvement, Clearance and Redevelopment) Act, 1971 (MSA Act). However, the Tribunal noted that the Corporate Debtor was in financial difficulty and had entered CIRP on 08.05.2019, leading to the moratorium under Section 14 of the Code. The Tribunal reiterated that the Code's provisions, particularly Section 238, override other legislations, including the MSA Act. The Tribunal concluded that the termination of the Corporate Debtor's appointment during the CIRP would result in the recovery of the property, which is prohibited under Section 14(1)(d) of the Code. Thus, the termination order dated 17.07.2019 was held to be inoperative and invalid.Conclusion:The Tribunal allowed the application, declaring the order dated 17.07.2019 as inoperative and invalid under the law. It directed Respondent No. 1 and Respondent No. 3 not to take any action against the Corporate Debtor pursuant to the said order. The application was dismissed as not pressed against Respondent No. 2, and no costs were awarded.