2023 (3) TMI 699 - SC - Insolvency and Bankruptcy

Supreme Court affirms inclusion of development rights in insolvency proceedings, clarifies jurisdiction

The Supreme Court held that the development rights of the Corporate Debtor over the disputed property constitute 'property' and 'assets' under the ... Right of development as an intangible asset - inclusion of assets in the Information Memorandum - duties of Interim Resolution Professional under Section 18 - duties of Resolution Professional under Section 25 - Explanation under Section 18 and its limited application - distinction between possession and ownership - bundle of rights doctrine in development agreementsRight of development as an intangible asset - inclusion of assets in the Information Memorandum - bundle of rights doctrine in development agreements - Whether the Corporate Debtor's rights over the land constitute assets/property that the Resolution Professional must include in the Information Memorandum and may take custody and control of under Sections 18 and 25 of the IBC. - HELD THAT: - The Court examined the contractual chain - MoU (24.01.2008), Shareholders Agreement (24.01.2008), Sale Certificate (29.01.2008), Development Agreement (16.06.2008), Memoranda Recording Possession (02.03.2010 and 24.06.2010) and the Leave and License Agreement (19.08.2011) - and found that a bundle of rights and interests, including exclusive development rights and actual handing over of possession to the Corporate Debtor, were created for valuable consideration. Relying on the inclusive definition of 'property' in Section 3(27) of the IBC (which covers present, future, vested or contingent interests arising out of or incidental to property) and the settled principle that development rights can be incidents of ownership (as explained in Sushil Kumar Agarwal), the Court held that those development rights amount to 'property' and, in common parlance, constitute 'assets' within the scope of Sections 18(f) and 25(2)(a). Consequently, such rights are capable of being included in the Information Memorandum and are within the duties of the Resolution Professional to take custody and control of for the purposes of CIRP. [Paras 33, 34, 35, 36, 37]The development rights and the bundle of rights and interests of the Corporate Debtor over the land constitute 'property'/'assets' includible in the Information Memorandum and are subject to custody and control under Sections 18 and 25 of the IBC.Duties of Interim Resolution Professional under Section 18 - duties of Resolution Professional under Section 25 - Explanation under Section 18 and its limited application - distinction between possession and ownership - Whether NCLT and NCLAT exceeded their jurisdiction by issuing directions to protect or recover possession for the Corporate Debtor and by directing assistance under Regulation 30. - HELD THAT: - The Court observed that the Explanation to Section 18 (excluding third party owned assets in the possession of the corporate debtor for purposes of that section) is expressly confined to Section 18 and does not extend to Section 25. Given that the Corporate Debtor had been conferred development rights and exclusive possession by the sequence of agreements and memoranda, those rights were not excluded from the duties of the Resolution Professional. The Court also noted that Victory's pleadings and documentary record did not establish occupation beyond the 10,000 sq.ft. licensed area; Victory was a licensee (not a lessee) and a licence does not create proprietary rights in immovable property. Balancing these facts, NCLT and NCLAT confined protection to the licensed area while preserving the Corporate Debtor's development rights over the remaining land and directed appropriate disclosure in the Information Memorandum. The Court distinguished precedents relied upon by the appellants (Embassy, Gujarat Urja, Tata Consultancy) as inapposite to the factual matrix where development rights were created for consideration and, where applicable, held that Rajendra K. Bhutta supports treating such rights as assets. [Paras 46, 47, 48, 49, 50]NCLT and NCLAT did not exceed jurisdiction in protecting the Corporate Debtor's possession and directing assistance under Regulation 30; their orders balancing the licensee's limited rights and the Corporate Debtor's development rights were justified.Final Conclusion: Both appeals are dismissed and the impugned orders of NCLT and NCLAT are upheld; the Resolution Professional may include and protect the Corporate Debtor's development rights in the Information Memorandum while the licensee's rights under the Leave and License Agreement over the specified 10,000 sq.ft. remain protected. Issues Involved:1. Jurisdiction of NCLT and NCLAT in ordering possession and eviction under IBC.2. Nature of the rights or interests of the Corporate Debtor over the disputed property.Summary:Issue No. 1: Nature of Rights or Interests of the Corporate DebtorThe Supreme Court examined whether the development rights held by the Corporate Debtor over the land in question constitute 'property' under Section 3(27) of the Insolvency and Bankruptcy Code (IBC). The Court noted that a bundle of rights and interests were created in favor of the Corporate Debtor through various agreements, including a Memorandum of Understanding (MoU) dated 24.01.2008, a Shareholders Agreement, a Development Agreement dated 16.06.2008, and subsequent memorandums recording possession. These agreements provided the Corporate Debtor with exclusive development rights and physical possession of the property. The Court concluded that these rights constitute 'property' and 'assets' under Sections 18(f) and 25(2)(a) of IBC, which the Resolution Professional is duty-bound to include in the Information Memorandum.Issue No. 2: Jurisdiction of NCLT and NCLATThe appellants contended that NCLT and NCLAT lacked jurisdiction to order possession and eviction of a third-party licensee under the IBC. The Supreme Court clarified that the exclusion of third-party assets under the Explanation to Section 18 is limited to that section and does not extend to Section 25. The Court held that the bundle of rights and interests created in favor of the Corporate Debtor could even imply an agency under the Indian Contract Act, 1872, which is not terminable due to the consideration involved. The Court distinguished the present case from previous rulings like Embassy Property Developments and Gujarat Urja Vikas Nigam, noting that those cases did not involve similar rights and interests in immovable property.ConclusionThe Supreme Court upheld the decisions of NCLT and NCLAT, affirming that the development rights of the Corporate Debtor over the property should be included in the Information Memorandum. The Court dismissed the appeals, confirming that NCLT and NCLAT acted within their jurisdiction in protecting the possession and interests of the Corporate Debtor.