2024 (10) TMI 1408 - AT - IBC

NCLAT sets aside order requiring lease rental payment during CIRP period under Section 14(1)(d)

NCLAT Principal Bench set aside tribunal order directing payment of outstanding lease rental and premium accrued during CIRP period from commencement ... Inclusion of outstanding lease rental and premium due from the date of CIRP commencement that is 26.11.2018 till the approval of the resolution plan i.e. 12.09.2022 in the CIRP costs - CIRP has been triggered and moratorium has been imposed - Section 5(13) of IBC - HELD THAT:- The Appellant has relied upon a decision of this Court in the case of Sunil Kumar Agrawal [2023 (1) TMI 552 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI] in which a similar controversy was involved. In the said case, the application was filed under Section 60(5)(c) of the Code by GNIDA for a direction to the resolution professional to make the payment of the amount due and payable towards the outstanding dues which became due during the CIRP. The same was allowed by the Tribunal. It was argued by the Appellant in that case that the Adjudicating Authority has erred in applying explanation of Section 14(1)(d) for allowing the application because the said explanation is not applicable and thus the question was framed by this Court as to whether the explanation under Section 14(1)(d) of the Code for the purpose of directing the Appellant to pay the lease premium amount and the lease rent to the Respondent is applicable?. This court in the decided case has held that explanation is not applicable because the premium amount or lease rent is not part of Section 14(1)(d) which cannot be read as similar grant or right which has to be in respect of the license, permit, registration, quota, concession, clearance etc. but not with premium amount or lease rent. The order passed in the case of Sunil Kumar Agarwal [2023 (1) TMI 552 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI] applies to this case also even though the said decision has been challenged by the Noida by way of Civil Appeal No. 901 of 2023 before the Hon’ble Supreme Court in which notice has been issued but stay has not been granted. It cannot but have to maintain the same order that has been passed in the case of Sunil Kumar Agrawal till a decision about its correctness is taken by the Hon’ble Supreme Court in Civil Appeal No. 901 of 2023. The impugned order is set aside - Appeal allowed. Issues Involved:1. Inclusion of lease rentals and lease premiums during the CIRP period as part of the CIRP costs.2. Authority of the Adjudicating Authority to alter or modify the resolution plan approved by the CoC.3. Applicability of Section 14(1)(d) and its explanation concerning lease rentals and premiums during the moratorium period.Issue-wise Detailed Analysis:1. Inclusion of Lease Rentals and Lease Premiums as CIRP Costs:The primary issue in this case revolves around whether the lease rentals and premiums accrued during the Corporate Insolvency Resolution Process (CIRP) period should be included as part of the CIRP costs. The Adjudicating Authority (AA) had directed that outstanding lease rentals and premiums from the commencement of the CIRP until the approval of the resolution plan be included in the CIRP costs. This decision was based on the interpretation of Section 5(13) of the Insolvency and Bankruptcy Code (IBC) and Regulation 31 of the CIRP Regulations, which define CIRP costs. The AA observed that the corporate debtor, having enjoyed the premises during the CIRP, is liable to pay for the use of such premises, and thus, these costs should be part of the CIRP costs. The Appellant, however, contended that such inclusion would disrupt the financial projections of the resolution plan, which was based on verified claims and would adversely affect its feasibility and viability.2. Authority of the Adjudicating Authority to Alter or Modify the Resolution Plan:The Appellant argued that the AA does not have the authority to alter or modify a resolution plan approved by the Committee of Creditors (CoC). They relied on the precedent set in Mathuraprasad C Pandey Vs. Partiv Parikh, which emphasized that the AA's role is to either approve or reject a resolution plan, not to modify it. The Appellant contended that the AA's decision to include additional costs as CIRP costs effectively altered the resolution plan's payment terms, which is beyond the AA's jurisdiction. The AA's decision was perceived as an overreach, as it imposed additional financial liabilities not accounted for in the original plan approved by the CoC.3. Applicability of Section 14(1)(d) and Its Explanation:Another significant legal question was whether the explanation under Section 14(1)(d) of the IBC, which prevents the suspension or termination of licenses, permits, etc., during the moratorium period, applies to lease rentals and premiums. The Respondents argued that their rights were prejudicially affected due to the moratorium, and thus, the lease rentals and premiums should be paid as CIRP costs. However, the Appellant, citing the decision in Sunil Kumar Agrawal Vs. New Okhla Industrial Development Authority, argued that the explanation under Section 14(1)(d) does not apply to lease rentals and premiums, as these are not akin to licenses or permits. The Tribunal in the present case agreed with this interpretation, stating that lease rentals and premiums do not fall under the explanation's purview, and thus, should not be considered part of the CIRP costs.Conclusion:The appeal was allowed, and the impugned order of the AA was set aside. The Tribunal concluded that the inclusion of lease rentals and premiums as CIRP costs was not justified under the current legal framework, particularly in light of the precedent set by the case of Sunil Kumar Agrawal. The Tribunal emphasized the need to maintain consistency with previous rulings until the Supreme Court decides on the matter. No costs were awarded.