NCLAT sets aside inspection order as leased property outside CIRP scope under Section 18 IBC

The NCLAT set aside the NCLT order allowing the Resolution Professional to inspect premises owned by the Appellant. The court found that the lease deed between the Appellant and FSWL expired on 14.11.2021 without proper extension documentation. The purported assignment of lease to the Corporate Debtor (FRL) was disputed, and no evidence established the Corporate Debtor's possession at CIRP commencement on 27.02.2022. Since the property was owned by a third party (Appellant) and not in Corporate Debtor's possession, it fell outside CIRP scope and moratorium protection under Section 18 explanation clause of IBC. Appeal allowed.

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Issues Involved:
1. Dispute over the assignment of the lease deed.
2. Expiry and extension of the lease deed.
3. Possession of the subject property at the time of commencement of CIRP.
4. Propriety of the RP's notice for inspection of the subject property.

Summary:

1. Dispute Over the Assignment of the Lease Deed:
The Appellant contended that the lease was never assigned to FRL and that any transfer or assignment could only be done by FWSL after providing prior written intimation to the Lessor, which was never done. The Respondent argued that the rights under the Lease Deed were validly assigned to the Corporate Debtor with the Appellant's NOC. The Tribunal observed that the Appellant had clearly disputed the assignment in their reply letter dated 09.05.2023, stating no such intimation was received, and the Adjudicating Authority erred in overlooking these observations.

2. Expiry and Extension of the Lease Deed:
The lease period commenced on 01.06.2018 for 3 years and 5 months, expiring on 14.11.2021. The Tribunal noted that there was no documentation available on record to establish the extension of the lease term beyond the original period. The RP failed to provide proof of rental payments or any documentation to substantiate that the lease continued to subsist after its expiry.

3. Possession of the Subject Property at the Time of Commencement of CIRP:
The Appellant claimed that the subject property was in their peaceful possession after FWSL vacated it. The Respondent argued that the property was in the possession of the Corporate Debtor, supported by the presence of employees mapped to the store. The Tribunal found that the legal notice for vacating the property was addressed to FWSL, not to the Corporate Debtor, indicating that the Appellant did not consider the Corporate Debtor to be in possession. The Tribunal concluded there was no substantive evidence to establish that the property was in the possession of the Corporate Debtor at the commencement of CIRP.

4. Propriety of the RP's Notice for Inspection of the Subject Property:
The Tribunal examined Sections 18 and 25 of the IBC, which mandate the RP to take control and custody of the Corporate Debtor's assets. However, the Tribunal noted that the RP could not justify that the subject property was in the possession of the Corporate Debtor, especially after the lease expired. The RP's notice for inspection was found to be without proper groundwork on the lease assignment and actual possession. The Tribunal held that the subject property, owned by a third party (the Appellant), fell outside the scope of CIRP and moratorium.

Conclusion:
The Tribunal allowed the appeal, set aside the impugned order dated 05.10.2023, and directed the RP to withdraw the notice dated 29.03.2023. The RP and his staff were restrained from dealing with the subject property in any manner. No order as to costs.

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