2024 (10) TMI 1408 - AT - IBC

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

Sunil Kumar Agarwal & Anr. Versus Anand Sonbhadra Resolution Professional of Shubhkamna Buildtech Pvt. Ltd. & Ors.

Sunil Kumar Agarwal & Anr. Versus Anand Sonbhadra Resolution Professional of Shubhkamna Buildtech Pvt. Ltd. & Ors. - TMI 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.