NCLAT rejects appeal to exclude lease land from corporate debtor's assets during resolution plan implementation

The NCLAT Principal Bench rejected an appeal seeking exclusion of lease land from corporate debtor's assets during resolution plan implementation. The landowner-appellant allegedly obstructed the resolution plan by preventing access to essential facilities. The tribunal held that since the resolution plan was upheld with granted liberty, both parties must act pursuant to that liberty. As the application remained pending before the adjudicating authority with only interim directions issued, no grounds existed to entertain the appeal. The authority was directed to consider the tribunal's judgment in Shristi Infrastructure Development Corporation Limited case while disposing of the application.

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ISSUES PRESENTED AND CONSIDERED

1. Whether the Adjudicating Authority erred in passing interim directions (dated 23.02.2024) to protect implementation of an approved resolution plan while related appeals against approval remained pending before the Appellate Tribunal.

2. Whether the Adjudicating Authority afforded adequate opportunity of hearing before passing interim measures alleged to affect third-party rights (specifically rights of a landowner and users of common/shared facilities) during implementation of the resolution plan.

3. Whether the approved resolution plan and the interim directions permit the Successful Resolution Applicant and the Corporate Debtor to have access to and use shared/common utilities and movable assets located outside leased land, notwithstanding competing proprietary or possessory claims of third parties, and the extent to which parties retain liberty to establish rights in a competent forum.

4. Whether the Appellate Tribunal's prior interim direction that "implementation of the resolution plan shall abide by the result of the Appeal" operates as a stay on implementation, or otherwise limits the Adjudicating Authority's or Successful Resolution Applicant's ability to take interim protective measures to keep the Corporate Debtor as a going concern.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Validity of interim directions to protect implementation of an approved resolution plan while appeals are pending

Legal framework: The Insolvency and Bankruptcy Code regime contemplates approval and implementation of a resolution plan by the Adjudicating Authority and provides for appeals against such approval to the Appellate Tribunal. The Adjudicating Authority retains jurisdiction to pass interim orders for preservation of assets and business continuity pending ancillary applications.

Precedent Treatment: The Appellate Tribunal considered its own prior order in the related appeal which had upheld the approval of the resolution plan; that appellate disposition is treated as authoritative for the purpose of this appeal. The Tribunal's earlier order had also granted liberty to parties to pursue rights concerning shared utilities in a competent court.

Interpretation and reasoning: The Court reasoned that where a resolution plan has been approved (and the appellate challenge has been considered and, in substance, upheld by the Appellate Tribunal), the Adjudicating Authority is entitled to grant interim directions to ensure the Corporate Debtor continues as a going concern and that implementation is not frustrated. The order of 23.02.2024 was characterised as an interim measure directed at maintaining operations pending disposal of the application, and therefore not susceptible to being quashed merely because appeals were pending. The Tribunal further noted its own disposition in the related appeal upholding the plan, thereby diminishing the force of the contention that implementation was wholly stayed.

Ratio vs. Obiter: Ratio - The Adjudicating Authority may pass interim directions to protect implementation of a resolution plan to preserve the Corporate Debtor as a going concern, even where ancillary challenges are pending, provided such measures are provisional and subject to further adjudication. Obiter - Observations about the precise scope of interim relief permissible in varied fact-situations beyond the present record.

Conclusion: The interim directions of the Adjudicating Authority were not interfered with; the Court found no reason to entertain the appeal against the interim order because the Adjudicating Authority's measures were within power to protect the implementation of an approved plan, particularly in light of the Appellate Tribunal's contemporaneous treatment of the principal appeal.

Issue 2 - Adequacy of opportunity to the landowner/third party before interim measures affecting possession and access

Legal framework: Principles of natural justice require reasonable opportunity to be heard before orders affecting rights of parties; interim measures, however, may be granted where exigency and preservation of assets/business continuity justify provisional relief, but such relief must ordinarily be tailored and made returnable for fuller hearing.

Precedent Treatment: The Tribunal relied on the fact that the Adjudicating Authority provided an opportunity to complete pleadings and that the order of 23.02.2024 was interim with the matter listed for further hearing, treating procedural fairness consistent with normal interim order practice.

Interpretation and reasoning: The Court observed that the Appellate Tribunal's prior order and the nature of the reliefs sought (to prevent obstruction to operation of the hotel) justified interim directions. The existence of further hearing dates and the interim character of the order indicated that the Adjudicating Authority had not foreclosed the third party's right to be heard; rather, it provided an interlocutory protection to ensure continuity of the going concern pending final adjudication of the application.

Ratio vs. Obiter: Ratio - Interim orders that affect third-party access may be upheld where they are provisional, where opportunity for fuller hearing is preserved, and where they are necessary to prevent irreparable prejudice to the going concern. Obiter - Specific standards for when ex parte or hurried interim orders would be unlawful are not exhaustively delineated.

Conclusion: The Court concluded that the Adjudicating Authority did not err in passing interim directions without finally deciding contested third-party entitlement, given the interim nature of the order and the availability of subsequent hearing opportunities.

Issue 3 - Entitlement to use shared/common utilities and assets located outside leased land under an approved resolution plan and liberty to litigate rights

Legal framework: Approval of a resolution plan may include reliefs and concessions enabling the Corporate Debtor or Successful Resolution Applicant to utilize assets required for operation, but such approval does not ipso facto extinguish third-party proprietary or contractual rights; parties retain the right to seek determination of those rights in appropriate fora.

Precedent Treatment: The Appellate Tribunal expressly upheld approval of the resolution plan while simultaneously granting liberty to parties to enter into arrangements regarding shared utilities and to establish rights and obligations in competent courts. The Tribunal emphasised that the plan's approval does not fetter rights to seek judicial determination of disputes over assets located outside leasehold land.

Interpretation and reasoning: The Court interpreted the Tribunal's earlier decision as upholding the plan but preserving the third party's ability to litigate rights in relation to shared utilities. Consequently, interim reliefs to prevent obstruction of access could be justified to allow operation of the Corporate Debtor as a going concern, but such measures were to be implemented subject to the liberty preserved for adjudication of proprietary and contractual disputes.

Ratio vs. Obiter: Ratio - Approval of a resolution plan and accompanying reliefs do not deprive parties of the liberty to establish rights and obligations in competent courts concerning assets outside the Corporate Debtor's leasehold; interim implementation of the plan may proceed subject to that liberty. Obiter - The balance of interest between uninterrupted operation and protection of third-party proprietary rights will depend on fact-specific proportionality analysis.

Conclusion: The Court concluded that successful implementation of the resolution plan entitles access to shared services necessary for continuity, but such entitlement is subject to the preserved liberty of parties to assert and adjudicate their rights regarding assets outside the leasehold in appropriate fora.

Issue 4 - Effect of the Appellate Tribunal's interim direction that implementation shall "abide by the result of the Appeal"

Legal framework: An appellate direction may suspend or qualify implementation depending on its terms; where an appellate order expressly stays implementation, that would preclude step-down actions otherwise permitted. Conversely, a direction that implementation shall "abide by the result of the Appeal" may not amount to a freeze on interim measures unless so specified.

Precedent Treatment: The Court analysed its own prior order and concluded that the sole interim direction was that implementation shall abide by the outcome of the appeal, which did not amount to an absolute stay on implementation of the plan; accordingly, interim protective steps to ensure business continuity were not precluded.

Interpretation and reasoning: The Tribunal reasoned that its interim direction did not stop the Successful Resolution Applicant from taking steps consistent with implementation, subject to the eventual outcome, and that the Adjudicating Authority's interim measures to prevent obstruction were thus not in conflict with the appellate direction. The Tribunal observed that it had ultimately upheld the approval and granted liberty regarding shared utilities, further supporting the permissibility of interim implementation measures.

Ratio vs. Obiter: Ratio - An appellate direction that implementation shall "abide by the result of the Appeal" does not necessarily operate as an automatic stay on all implementation steps; the precise operative effect depends on the wording and context. Obiter - Specific guidance on circumstances in which such language will be treated as an effective stay is factual and not conclusively settled here.

Conclusion: The Court held that the appellate interim direction did not preclude the Adjudicating Authority from granting interim relief to protect implementation, and therefore the Adjudicating Authority's order of 23.02.2024 was sustainable on that basis.

Cross-references and Overall Disposition

The Court cross-referred to its contemporaneous disposal of the related appeal upholding the resolution plan and noted that paragraph 13 of that judgment - preserving liberty to litigate shared utilities issues while upholding plan approval - is to be taken into account by the Adjudicating Authority while disposing IA No.435 of 2024. Overall, the Appeal against the interim order was dismissed on the basis that the Adjudicating Authority acted within its interim powers and in conformity with the Appellate Tribunal's directions; the matter was remitted for further adjudication with the guidance articulated above.

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