NCLAT overturns order directing corporate debtor to vacate office spaces, citing Section 14(1)(d) absolute bar during moratorium

The NCLAT set aside an AA order directing a corporate debtor to vacate office spaces, finding the order unreasoned and non-speaking. The tribunal held that Section 14(1)(d) creates an absolute bar on property recovery by owners/lessors from corporate debtors during moratorium. The CoC had not taken a final decision regarding vacation through proper voting, and the RP's consent was his own decision without CoC confirmation. The AA failed to examine the maintainability of eviction applications under Section 14(1)(d) provisions before passing the order based merely on RP's consent. The case was remanded to AA for comprehensive examination of all issues within four weeks.

---

---

Issues Involved:
1. Maintainability of the appellant's application.
2. Authority of the Committee of Creditors (CoC) to decide on handing over property in possession of the Corporate Debtor (CD) to third parties under Section 14(1)(d) of the Insolvency and Bankruptcy Code (IBC), 2016, and the powers of the Adjudicating Authority (AA) to allow such decisions.

Issue-wise Detailed Analysis:

1. Maintainability of the Appellant's Application:

The appellant, a former promoter-director of the Corporate Debtor (CD), filed an appeal challenging the order of the National Company Law Tribunal (NCLT), asserting his locus standi based on his role as a creditor and an affected party in the insolvency proceedings. The appellant's claim was supported by the Supreme Court's decision in GLAS Trust Company LLC v. BY JU Raveendran & Ors., which established that insolvency proceedings become in-rem from the date of admission, thereby allowing claims from affected parties to be adjudicated by the AA. Consequently, the tribunal affirmed the appellant's standing, deeming his application maintainable.

2. Authority of CoC and Powers of AA under Section 14(1)(d) of IBC:

The appellant contested the NCLT's order directing the CD to vacate office spaces, arguing it violated Section 14(1)(d) of the IBC, which mandates a moratorium prohibiting the recovery of any property by an owner or lessor occupied by or in possession of the CD. The tribunal scrutinized the CoC's resolution to vacate the property, noting that the decision lacked formal voting and was not conclusively resolved in CoC meetings. The tribunal emphasized that the RP's statement to the AA regarding the property's non-requirement was not substantiated by a CoC resolution.

The tribunal highlighted the absolute nature of Section 14(1)(d), which restricts property recovery during the moratorium, and questioned the maintainability of applications filed by owners/lessors seeking recovery, as such actions contravene the statutory moratorium. The tribunal distinguished this case from the Sangita Fiscal Services Pvt. Ltd. v. Duncan Industries case, where property handover was justified due to non-utilization by the CD and lack of Section 14(1)(d) considerations.

The tribunal criticized the AA's order for lacking detailed reasoning and failing to address the implications of Section 14(1)(d) adequately. It noted that the AA's order was based on the RP's unsupported submission, without thorough examination of the CoC's decision or the statutory moratorium's binding nature on the AA.

Conclusion:

The tribunal allowed the appeal, remanding the case to the AA for a comprehensive examination of the issues, including the appellant's application in I.A. No. 1412 of 2023, within four weeks. The AA was instructed to decide in accordance with the law, uninfluenced by previous proceedings, with parties directed to appear before the tribunal on 26.11.2024.

---