Resolution applicant cannot claim leasehold rights without paying enhanced land costs demanded by public authority under Section 238

The NCLAT dismissed an appeal where a successful resolution applicant sought ownership of leasehold rights without paying enhanced land costs demanded by a public authority. The tribunal held that IBC provisions under Section 238 do not override rights of public sector land development authorities over their assets. Following SC precedent in MCGM v. Abhilash Lal, the court ruled that transfers to resolution applicants must comply with original lease terms and authority policies. Since the enhanced land cost demand preceded CIRP initiation and wasn't disclosed to the resolution professional or committee of creditors, the clean slate principle was inapplicable. The payment was required to clear title defects, not linked to CIRP proceedings.

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Issues Involved:
1. Condonation of Delay
2. Quashing of Demand Notice and Issuance of No Objection Certificate (NOC)
3. Applicability of the 'Clean Slate Principle'
4. Rights of Public Sector Undertakings in Insolvency Proceedings

Summary:

Condonation of Delay:
The appellant filed IA No.2447/2022 seeking condonation of a 7-day delay in filing the present appeal. The cause shown was deemed sufficient, and the delay was condoned. IA No.2447 of 2022 was disposed of accordingly.

Quashing of Demand Notice and Issuance of NOC:
The appellant sought to set aside the impugned order dated 03.06.2022, quash the demand notices dated 05.03.2022 and 27.06.2022, and direct the respondent to issue a 'No Objection Certificate' (NOC) for the subject plot. The appellant argued that the respondent, being an Operational Creditor u/s 5(20) of IBC, 2016, did not file any claim during the CIRP and hence cannot raise belated claims. The demand raised by the respondent does not form part of the approved resolution plan, and past dues stand extinguished as per Clause-6 of the approved resolution plan. The appellant relied on several judgments, including Ghanshyam Mishra and Sons Pvt. Ltd. v. Edelweiss Assets Reconstruction Company Limited and Committee of Creditors of Essar Steel India Limited Through Authorised Signatory vs. Satish Kumar Gupta & Ors.

Applicability of the 'Clean Slate Principle':
The appellant contended that the 'clean slate principle' enunciated in various judgments and encoded in Section 31(1) of IBC, 2016, should apply, meaning the new management cannot be saddled with unexpected claims. However, the tribunal noted that the subject asset was allotted on a leasehold basis for 99 years, with specific conditions regarding the enhancement of land cost. The respondent had raised demands for enhanced land cost much before the initiation of CIRP, and these demands were not disclosed to the IRP or CoC by the Corporate Debtor. The tribunal concluded that the 'clean slate principle' would not apply to this case, as public authorities cannot be asked to part with their assets without full payment of dues or compliance with the terms of the lease deed or transfer policy.

Rights of Public Sector Undertakings in Insolvency Proceedings:
The tribunal referred to several judgments, including Municipal Corporation of Greater Mumbai vs. Abhilash Lal and Ors. and Maharashtra Industrial Development Corporation Vs. Santanu T. Ray & Ors., to emphasize that the rights of public sector undertakings or state land development authorities on assets owned by them cannot be overridden by the provisions of IBC, 2016. Any transfer to the successful resolution applicant must be in accordance with the terms and conditions of the original allotment or lease deed or policy of the authority.

Conclusion:
The tribunal found no reason to interfere with the order of the Adjudicating Authority, which had rightly noted that the payment demanded by the respondent was to clear the defect in the title of the land and was not linked to the CIRP proceedings. The appeal was dismissed, and all pending IAs were closed. No orders as to costs were made.

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