Undervalued lease and fraudulent transfer under insolvency law: tenancy avoided, possession restored, and occupation charges directed.

A lease created after a secured creditor's enforcement notice, at rent far below fair rent and in circumstances suggesting asset shielding, was treated as an undervalued and fraudulent transfer under the Insolvency and Bankruptcy Code. The challenged tenancy was therefore liable to be avoided and neutralised for the corporate debtor's estate. Consequential reliefs included restoration of control of the premises through vacant possession, directions for removal of the occupant's establishment after approval of the resolution plan, protection of the resolution applicant from third-party liabilities, occupation charges for continued use, and assistance from public authorities if required. A separate request for disclosure of resolution plans was rejected as infructuous.

---

---

Issues: (i) Whether the lease arrangement in favour of T-RMC was an undervalued and fraudulent transaction liable to be reversed under the Insolvency and Bankruptcy Code, 2016. (ii) Whether consequential directions for vacation of the premises, handover of vacant possession, payment of occupation charges and assistance from public authorities were warranted.

Issue (i): Whether the lease arrangement in favour of T-RMC was an undervalued and fraudulent transaction liable to be reversed under the Insolvency and Bankruptcy Code, 2016.

Analysis: The transaction was examined against the background of the secured creditor's enforcement steps, the timing of the tenancy agreements, the relationship between the parties, and the valuation material placed on record. The arrangement was found to have been created after the creditor's enforcement notice, at a rent far below the assessed fair rent, and in circumstances indicating an attempt to place a substantial asset beyond the reach of creditors. The transaction was therefore treated as one falling within the mischief of undervalued and fraudulent transfer provisions.

Conclusion: The challenge to the tenancy arrangement was accepted and the transaction was treated as liable to be avoided and neutralised in favour of the corporate debtor's estate.

Issue (ii): Whether consequential directions for vacation of the premises, handover of vacant possession, payment of occupation charges and assistance from public authorities were warranted.

Analysis: Once the transaction was found unsustainable, consequential relief was granted to restore control of the asset to the resolution process. The occupant was directed to remove its establishment and hand over peaceful vacant possession after approval of the resolution plan, while the resolution applicant was protected from any liability towards the occupant's personnel or vendors. Provision was also made for support from district, police and local authorities in the event of non-compliance, and a further monthly payment was directed for the period of continued occupation.

Conclusion: The consequential reliefs were granted and the premises were ordered to be handed over in accordance with the directions issued.

Final Conclusion: The applications seeking avoidance of the impugned tenancy and restoration of possession were allowed with consequential protective directions, while the separate request for disclosure of resolution plans was rejected as infructuous.

---